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ECONOMIC ORDER AND
INTERNATIONAL LAW
WILHELM ROPKE
Telle est la condition humaine que souhaiter la grandeur de son pays,
c'est souhaiter mal ses voisins. Il est clair qu' un pays ne peut gagner sans
qu' un autre perde .
V OLTAIRE, Dictionnaire philosophique, article Patrie.
"In opposition to this narrow and malignant opinion, I will venture to
assert, that the increase of riches and commerce in any one nation, instead
of hurting, commonly promotes the riches and commerce of all its neigh-
bours; and that a state can scarcely carry its trade and industry very far,
where all the surrounding states are buried in ignorance, sloth, and bar-
barism.
Were our narrow and malignant politics to meet with success, we should
reduce all our neighbouring nations to the same state of sloth and ignorance
that prevails in Morocco and the Coast of Barbary. But what would be
the consequence? They could send us no commodities. They could take
none from us: Our domestic commerce itself would languish for want of
emulation, example, and instruction! And we ourselves should soon fall
into the same abject condition to which we had reduced them. I shall
therefore venture to acknowledge, that, not only as a man, but as a British
subject, I pray for the flourishing commerce of Germany, Spain, Italy,
and even France itself. I am at least certain that Great Britain, and all
those nations, would flourish more, did their sovereigns and ministers adopt
such enlarged and benevolent sentiments towards each other".
DAV ID HUME, Of the Jealousy of Trade.
BIOGRAPHY
WILHELM R PK E, Dr. rer. pol., Dr. honoris causa in litt, human.
(Columbia University), Professor of Economics at the Graduate Institute
of International Studies Geneva, born October 10th, 1899, at Schwarm-
stedt (Germany), formerly professor at the universities of Jena, Graz,
Marburg and Istanbul, 192627 V isiting Professor of the Rockefeller
Foundation in the United States, 1933, expelled by Hitler because of
his liberal views, invited by K emal Pasha to take part in the reform of
the Istanbul University, 1950 and 1953 Economic Adviser of the Ade-
nauer Government.
PRINCIPAL PUBLICATIONS
1. Crises and Cycles, London, 1936.
2. Die Lehre von der Wirtschaft, Vienna, 1937.
3. Explication conomique du monde moderne, Paris, 1940.
4. German Commercial Policy, London, 1936.
5. International Economie Disintegration, London, 1942.
6. Die Gesellschaftskrisis der Gegenwart, Erlenbach-Zrich, 1942 (Eng-
lish, French, Italian and Spanish translations).
7. Civitas humana, ibidem, 1943 (English, French and Italian translations).
8. Internationale Ordnung, ibidem, 1945 (French and Italian translations).
9. Die Deutsche Frage, ibidem, 1945 (English, French and Italian trans-
lations) .
10. Mass und Mitte, ibidem, 1950.
11. Ist die deutsche Wirtschaftspolitik richtig?, Stuttgart, 1950.
12. Internationale Ordnung-heute, ibidem, 1954.
ECONOMIC ORDER AND INTERNA-
TIONAL LAW
I. INTRODUCTION
1. TH E GENERAL PROBLEM OF THE ECONOMIC ASPECT OF INTER-
NATIONAL LAW.
I
T is a general and praiseworthy custom of the Academy of
International Law to insert in its programme of lectures one
special course, given by an economist, on a subject of his own
field. So, at least implicitly, it is recognized that there exists
an intimate connection between International Law and the
facts and problems of international economic relations as the
economist sees them.
This connection is so obvious that it seems hardly necessary
to dwell upon it. Nevertheless, it would seem appropriate to
venture some remark which goes beyond what is trivial. It is
trivial, of course, that the subject-matter of International Law
and Economics, as far as they deal with international trade, are
very largely the same. Both deal with a tissue of relations which,
somehow or other, involve economic values and which touch
upon facts relevant to international economic life. Only, the
student of International Law and that of International Econo-
mics looks upon the subject-matter, as far as it is the same,
with different eyes and from another angle. To define this
difference would mean to go into the philosophy and methodo-
logy of both sciences more deeply than it is possible here if I
shall ever hope to get beyond this introduction.
As a first approximation it seems sufficient to state t hat the
student of International Law is interested in the claims the
rights and obligations which derive from international
economic relations for governments or subjects of those govern-
208 W. RPKE ECONOMIC ORDER AND INTERN. LA W (6)
mente, and it is obvious how important it is, for weighing such
claims, to take into consideration those economic facts and
relations which are the economist's concern. To take an example:
the most-favoured-nation clause is primarily a juridical question,
but whenever the lawyer is asked to settle a dispute deriving
from this clause he has, of course, to consult the books on inter-
national trade and commercial policy where the economists
explain the meaning, function and problems of most-favoured-
nation treatment.
I said that the subject-matter is "very largely" the same. That
is to say that it is not entirely identical. Here arises, at once, a
most interesting and difficult problem on whose solution it
depends how far International Law and Economics ultimately
cover the same ground. The most important field of Interna-
tional Law is presented by the questions of peace and war and
international frictions generally. These, of course, have economic
causes and consequences in which the economist is interested.
But how far can these problems be said to be ultimately economic
ones? How far have wars causes which we may call "economic"?
I may refer to the well known theory which is principally of
Marxian origin and indeed only a special application of the
materialistic conception of history, according to which law,
like religion or art, is only the "spiritual superstructure on the
material conditions of production" (Marx) : the theory of Econo-
mic Imperialism. This theory insists upon the economic origin of
international conflicts and wars and, in its strictly Marxian
version, sees in them the even inevitable outcome of economic
tensions brought about by the capitalist economic system (Rosa
Luxemburg, Bucharin, Lenin). Even if this rigid economic
determinism with its political thema probandum is not accepted,
there is the widespread feeling in our time that the economic
origin and motivation of international conflicts are of prime
importance. I may only point to the stubborn and popular
idea that one of the main causes of World War I may have
been the so-called trade rivalry between Germany and Great
Britain, an idea on which already David Hume, two centuries
(7)
INTRODUCTION 209
ago, has said the most important thing in the passage I quoted
at the head of this study.
It is hardly necessary to point out the relevance of these
theories for our problem of the connection between Interna-
tional Law and Economics. If they are true, then, indeed, the
international lawyer is dealing all the time with problems whose
mainspring is economic even when this connection is not obvious.
It is clearly impossible for me to go into this enormous question
on this occasion. For those who want to study it more
seriously I refer to the book by Professor Lionel Robbins "The
Economic Causes of War", and I may mention also that I
have dealt with the problem myself on various occasions.
x
All I want to say now is this : Exactly because I am an economist,
i.e. because I have made this problem one of the main subjects
of my studies, I feel bound to warn emphatically against the
tendency to lay too much stress on the economic interpretation
of life, national or international. There is, after all, unfathomable
wisdom in the biblical saying that man does not live on bread
alone. He lives, most of all, on other things: on conscience and
passions (unfortunately, more on the latter than on the former),
on self-esteem, on feeling for national honour, on a sense of
justice, however rudimentary, on things which give meaning to
his life, on truth and beauty, on love and hatred, on the lust
of power, on the conditions of a full and decent life, on beliefs
(religious or, unfortunately, pseudo-religious), on a sense of
tradition and continuity or, at times, on an urge for reform and
revolutionand not on vitamine tablets, milk, refrigerators,
or television. There is every reason to oppose the modern mate-
rialistic-utilitarian concepts of life, the "standard-of-life-ism"
in all its aspects (of which one is the current assumption that
the main weapon of the West against the Communist East is
higher productivity and a higher "standard of life").
In fact, the belief that the main feature of international
conflicts may be economic is a theory of a narrowness which
I. Particularly in my book "Internationale Ordnung-heute", Second
Edition, Erlenbach-Zrich, 1954, Second Part. Of the first edition of this
book there exists a French translation (La communaut internationale,
Geneva, 1947).
sounds almost unbelieveable to-day. We must beware of all
exaggerated views and brutal simplifications. The lawyer has
to be on his guard against such a simplification which we may
call "Juridicism" and which means the mental habit of thinking
primarily in legal terms and of laying all the stress on the legal
framework of society without consulting the complex reality
of which the economic and social facts are an extremely impor-
t ant part . But just as there is, on the part of the lawyer, the
pitfall of "Juridicism", there is a corresponding one for the
economist which we call "Economism" and which narrows our
outlook just as much and just as dangerously.
I just spoke of the "legal framework" in contrast particularly
to the economic facts of international life. This may sound
somewhat condescending on the part of the economist, as if it
were something secondary and ornamental like the frame in
relation to the picture. Indeed, there was a time when some
impression like this was actually intended. This corresponded
to the erroneous belief in the autonomy of the economic sphere
as dominated by economic laws independent of institutions,
legal forms, or social habits. This belief was triumphant in the
period of the historical liberalism of the Nineteenth Century
whose representatives came dangerously near to the idea t hat
the competitive economic order might be a completely nat ural
order able to stand on its own feet or be even the prime mover
of what happened in other fields. But this, of course, is only
another example of Economism which had to be superceded
to make room for a new and comprehensive concept : t hat of
society as a whole and in all its aspects, as an always coherent
structure with mutually interdependent parts, with more or
less determinate correlations between these parts and without the
possibility of saying which part is determining and which is
determined, except the fact that the force which gives meaning
and direction to all parts is the dominant spirit of the time itself,
i.e., something moral or spiritual, and ultimately religious.
That is the concept of society which should guide us also when
we study the relation between international law and inter-
national economic life in its most general aspects. That , at least, is
(9) INTRODUCTION 211
the spirit in which I am going to deliver this series of lectures
and which I would like my audience to keep in mind quite
firmly.
2. TH E SPECIAL PROBLEM TO BE DEALT WITH IN THIS LECTURE.
The general connection between international law and inter-
national economics is, as I said, implicitly assumed by all
economists who preceded me in the programme of lectures
of the Academy of International Law during former years.
What I want to do, however, is to make this connection explicit
and the real subject of my lecture. In order to make this clear
I refer to my previous statement that the belief in the autonomy
of the economic sphere has been disastrously erroneous while
the truth is that economic life is dependent on and conditioned
by a set of circumstances which we may call meta-economie, a
framework which is moral, political, social and legal. Without
these framework conditions economic life is condemned to
suffocation. The degree in which these basic conditions are
fulfilled determines the degree of the intensity of economic life
oras we would say to-dayof economic integration. Economic
integration, therefore, presupposes a corresponding extra-
economic integration (socialpoliticalmoralinstitutional
legal integration).
We see, then, that the last secret of the ups and downs of
economic integration throughout historyin other words, the
rise and decay of prosperity with the widening or the shortening
of the range of division of labouris to be found in the ups
and downs of general or "social" integration. That seems to
be the ultimate law of economic history. It means that under
no economic system can economic integration go further t han
social-political-moral-legal integration which is based on
psychological forces, on laws, and on institutions. An intensive
and extensive economic exchange cannot exist or last very
long without a minimum of mutual trust, confidence in the
stability and reliability of the legal-institutional framework
(including money), contractual loyalty, honesty, fair play,
professional honour and that pride which makes us consider
212 W.RPKE ECONOMIC ORDER AND INTERN. LAW (10)
it unworthy of us to cheat, to bribe or to misuse the authority
of the State for egoistic purposes. All that is to be based on a
"creed" in the most general sense of the belief in ultimate values
and norms, of acknowledging some final sanctity and, last but
not least, on some understanding of the meaning and working
of the economic process itself. The rise and fall of Empires
or State systems happens not because of the rise or fall of economy,
but the rise and fall of economy happens because of the rise and
fall of Empires and State systems.
To apply this doctrine to international relations is the purpose
of this lecture. We shall see that, for international economy to
develop and to maintain itself, a problem of a most general
character has to be solved at all times : the problem of interna-
tional order. We shall have to examine in detail what this problem
is, how it can be and how it has been solved at different times
and what this means for international law. If I were asked to
indicate in the briefest possible terms the result of my reflections,
I would say: whereas the text-books on international trade
show t hat international trade rests on the law of comparative
costs, its foundation is, in the last resort, die categorical imper-
ative "pact a sunt servanda."
3. TH E CONVERGING INTEREST OF THE SCIENCE OF INTERNATIONAL
LAW AND OF ECONOMICS IN THE CONNECTION BETWEEN ECONOMIC
ORDER AND INTERNATIONAL LAW.
Such a trend of thought, as being the basis of this lecture,
corresponds to certain promising and interesting developments
both in scientific approach and in contemporary political dis-
cussions. Inspired by the idea that what we need to-day in the
social sciences (including law) is above all synthesis, co-opera-
tion and the sense of interdependence, economists and lawyers
realise more and more the importance of studying those problems
which lie at the borderland of both sciences. Juridical positivism
and conceptualism give way to a functionalist approach which
tries to interpret law in its functions for social and economic
life. In this way the lawyer meets the economist who finally
begins to understand the importance of law and jurisdiction for
the functioning of the economic process and for the right or
wrong turning of economic and social life. An outstanding exam-
ple of this convergent interest is the present discussion about
the possibilities and pre-requisites of an economic order which
is principally based on free markets, free competition and a
freely working price mechanism
1
. Law and jurisdiction lose
their main orientation if the law-maker and the judge do not
take into account that kind of economic order to which law
and jurisdiction must be related if they are not to be mere
gropings in the dark. But that presupposes that those who make,
apply and interpret laws have a more precise idea of the general
problem of economic order and its elements than could be
assumed until quite recently.
It is most gratifying that this idea finds more and more accep-
tance to-day. Those who have followed some recent scientific
discussions in this field will be familiar with names like Franz
Bhm in Germany, Georges Ripert in France, Watkins in the
United States or Cooke in Great Britain. While these students
of law have turned to economics for a better interpretation of
the functions of law, there are more and more economists who
take an increasing interest in the problem of law for a better
understanding of the conditions of economic life. Men like Walter
Eucken and his school in Germany or F. A. Hayek in Chicago are
most representative of this development in economics, and I
may add in all modesty that I have tried to do my bit also.
We find this convergent interest of lawyers and economists
also in the field of international relations although here the
work is certainly not yet so advanced as in the special field of
competition and monopoly to which I referred. The student
of international law takes a growing interest in the economic
aspects of the problems confronting him in order to escape the
barren ground of rigid positivism and to avoid the danger of
juridicism. In the special field of questions relating to commercial
policy, international payments or international economic
1. For fuller discussion of the subject of economic order I refer to my
booklet "The Problem of Economic Order", National Bank o Egypt Fif-
tieth Anniversary Commemoration Lectures, Cairo, 1951.
214 W. RPKE ECONOMIC ORDER AND INTERN. LAW (12)
organisationsa field which has assumed such tremendous
importance to-day this need is so obvious that it would be
trivial to dwell upon it. A look at any of the leading scientific
journals of international law is sufficient to give an idea of how
far the student of law has to trespass upon the traditional ground
of economics and how much law and economics have merged
in this case.
But where is the interest of the economist? There the main
answer has already been given: It is the extra-economic frame-
work of international trade which attracts more and more the
attention of the economist who wants fully to understand what
has been happening in this field in our generation : the disintegra-
tion of international trade which has gone on ever since the
First World War and the conditions of a reintegration in
our time. Besides this general aspect, there is a special problem
which has come more and more under discussion in our time:
it is the impact of the choice of different economic systemsbroadly
speaking, between the free market economy and collectivism
on international relations. This has given rise to a discussion which
has hardly begun but which promises to become of decisive
importance for the ultimate j udgment on collectivism (socialism).
This discussion is so important and interesting that, even at
the risk of anticipating some later chapters of my lecture, I
should give some idea of what is happening here. It is nothing
else but a new and most promising phase in the old discussion
about socialism and economic order generally.
Let mc begin by reminding you that one of the most essential
elements in the socialist movement of the last hundred years,
particularly of the Marxist brand, has been the idea of the
international mission of socialism. If we look back to-day upon
this century of socialism, we are struck by the force and confidence
with which the idea of internationalism has been made one of
the main tenets of this ideology. It was the inflamed appeal to
the "proletarians of all countries to uni t e" with which the Com-
munist Manifesto ended, and it is of course, of profound signifi-
cance that the battle song of radical socialism was called the
"Int ernat i onal e".
Franz Borkenau, a former Marxist himself, has reminded
us in his forceful book "SocialismNational or International"
(London 1942) that the internationalism of the early socialists
(Marx, Engels, Proudhon, Bakunin and the Chartists) developed
during a period when radical Liberalism had already largely
succeeded in reducing the economic importance of the national
government. Modern socialism, in other words, has taken on
its international face precisely at a Liberal epoch when the aim
of superseding national sovereignty did not seem to be in hopeless
contradiction to reality and when the liberal bourgeoisie was
paying homage in its own way to the same ideal. The battle
cries of the two greatest agitators of that time, Cobden's "Free
Trade, goodwill, and peace among nations!" and Marx's
"Proletarians of all nations, unite!", are products of the same
political and intellectual climate, considerable as the differences
may appear at first sight. If, more than a century ago, the socia-
list appeal to internationalism did not appear to be altogether
Utopian and at variance with the scientifically demonstrable
"evolution", that was so because the liberal reality of that time
corresponded already so largely to this ideal. International
community, however, became Utopian exactly in the degree
in which later the socialist realitywhich had been claimed
particularly in the name of internationalismwas instrumental
in destroying that degree of international community which
had already been attained in the age of Liberalism. The full
meaning of this challenging statement will become clear to
us in the next chapter of the present essay.
Now it is, of course, true that the internationalism of Marx
and EngelsProudhon at any rate would require a separate
investigation
1
is by no means identical with the cosmopolitism
of Cobden, especially because in the case of Marx and Engels
the appeal to internationalism is confined to the class of proleta-
rians and directed against the other classes which are supposed
to "exploit" them and against the national state as the political
instrument of the "exploiters". International brotherhood
1. Cf. particularly Proudhon's "La guerre et la paix" (Paris, 1861) a
book which can still be read with great profit to-day.
is here restricted to one class, and the vertical separation between
nations is replaced by the horizontal separation between classes.
If we ask, however, how the international order after the destruc-
tion of the national class state should be visualized, what would
be then the place and function of the individual state and how
international socialism taking over the rule of the world would
be organized (whether as a contractual co-operation of socialist
national governments or as a socialist Civitas Maxima) we never
get a clear answer.
What socialism would mean as an international order and
how the internationalism of socialist theory should be turned
into practice has never been explained in a clear and compre-
hensible fashion, and that has remained the rule up to the
present day. But whenever an attempt was madeas by the
German philosopher Fichte in his book "Der geschlossene Han-
delsstaat" (1800)to present a socialist system in concrete
practical terms, the regular and perhaps inevitable result was
the blue-print of a planned economy whose geographical frame-
work is the nation and whose political and administrative center
is the national government. Even K arl Marx and Friedrich
Engels, when, at the end of their Communist Manifesto, they
could hardly avoid suggesting some programme of socialist
action, were compelled to make proposals which necessarily
involve the "nationalisation of man"
1
while, a few lines further
on, we hear fortissimo the final air of the appeal to the interna-
tional brotherhood of proletarians.
Indeed, if we compare with the grim reality the role played
by internationalism in the socialist ideology and if we realize
the relentless logic behind that reality, we are bound to agree
with Franz Borkenau who, in his book already referred to,
emphasizes that in the whole socialist credo there is hardly
one element where ideal and reality are further apart than
1. Cf., on this point, my own book "Mass und Mitte", Erlenbach-Zrich
1950, pp. 241-258. It is most disquieting that the programme of action of
the Communist Manifesto anticipated many features of the later national-
socialist policy in Germany after 1933.
here
1
. The problem involved was practically overlooked,
so blindly and so stubbornly that it is difficult to find convincing
reasons for this. But the remarkable thing is that even the
adversaries of socialism discovered the real nature of the pro-
blem of the international implications of socialism only at a
very late date and even then very gradually, in spite of the
fact that here one of the most serious paradoxes of socialism
where it appears most vulnerable was awaiting discovery.
In fact, it is no overstatement to say that, on this point, the
discussion in scientific terms has hardly begun.
1. Franz Borkenau, op. cit., p. 8. The reason he gives for this antinomy
of socialist thought is, however, not quite satisfactory as we shall see later
on. Let me add that the standard work, which marxist socialism has
produced on this point, Otto Bauer's Die Nationalittenfrage und die
Sozialdemokratie" (Vienna, 1907), hardly touches upon the fundamental
economic problems involved (with the exception of some remarks on
p. 519 f.).
II. PRECISE EXPLANATION OF THE PROBLEM.
1. INTERNATIONAL ORDER AS SEEN BY THE ECONOMIST.
W
HAT do we mean when we speak of "international
order"? In order to get a clear view of this and to state
adequately the problem of international order as it
has to be solved by the socialist economic system as well as by
any other, we must begin with some fundamental ideas
1
.
The most fundamental of these is this : An intensive economic
exchange which implies a wide range of the division of labour
and thereby a high degree of mutual dependence of individuals
is impossible unless an essential condition is fulfilled. We cannot
accept this dependence unless we feel that we can rely upon a
moral, legal and institutional framework which, formally and
materially, protects exchange relations and the claims deriving
from it. Otherwise, we can hardly be expected to bear the
enormous risks involved.
There are particulary two pre-requisites which are essential.
First, a generally accepted, free and stable currency must
provide a general medium of exchange which gives material
guarantee to the claims deriving from economic intercourse.
Secondly, an unimpeachable legal order and, beyond this, an
unwritten but generally recognized code of norms, principles,
rules of behaviour and value ideas must see to it t hat all members
of the community know now to be sheltered by a minimum
of reciprocal confidence and by an atmosphere of security and
cont i nui t y.
1. The ideas of this chapter have been presented for the first time in my
paper "Weltwirtschaft und internationales Rechtssystem", Friedenswarte,
1936, No. 3/4, and I remember gratefully the encouraging reaction of this
paper within the group of students of international law for which it was
written. I developed my theory later on more fully in my book International
Economic Disintegration" (London, 1942) while the most recent statement
is to be found in my book "Internationale Ordnung-heute" (Erlenbach-
Ziich, 1954).
(17) PRECISE EXPLANATION OF THE PROBLEM 219
Although international trade, as the economist knows, is
in its very essence not different from intranational trade, it
now becomes clear where the main difficulty lies which hampers
its growth. We realize that the problem of international trade
is to find for it a legal-institutional framework which is at
least approximate to that which intranational trade can take
for granted within the national borders. The national state
has, in the international field, no counterpart in an international
state. There is no world government, and therefore world
economy lacks a genuine world legal order which imposes
identical norms and which enforces them by immediately
effective sanctions. And for the same reason, world economy
necessarily lacks a genuine world money system in the sense in
which there is a national money system, i.e. an international
monetary order behind which there is a government giving
legal status to a world money and guaranteeing the free use
and stability of every unit of money. Here again there is no
international counterpart to what exists on the national level.
In other words : international "social" (extra-economic)
integration is the indispensable framework condition of interna-
tional economic integration, but, compared with intranational
"social" integration, it must always be something very fragile
and imperfect. But how has it been possible then that, during the
last two centuries and particularly during the 19th and early
20th century, world economy not only in mere volume but also
in its structure has developed in such a fashion t hat between
national and international economic integration there was only
a difference in degree but not in kind? And that even this diffe-
rence had become less and less significant? Evidently, the problem
of international order in the sense in which I have explained
it as the pre-requisite of international economic integration had
to be solved. But how has this been done in spite of the fact
t hat there never was a world state? That is the capital question
which we must answer.
2. T H E SOLUTION OF TH E PROBLEM OF I NTERNATI ONAL ORDER I N
TH E LI BERAL AGE .
The solution which the Liberal Age had found for the problem
of international order was of a peculiar and complex kind,
and we may characterize its main features if we call it the uni-
versalist-liberal solution. I explain, as follows, the meaning of
this term:
First point: The functions of the non-existent but seemingly
indispensable world state have been replaced by something else
for which we may find the only parallel in the Res Publica
Christiana of the Middle Ages
1
, notwithstanding the restric-
ted area to which it was confined. Borrowing a famous term
coined by Henri Bergson
a
, we may call this substitute of the
world state the international "open society" of the Liberal Age.
It was a sort of ordre public international which we may regard as
a Res Publica Christiana which had been secularized and thus
made global. It is impossible on this occasion, of course, to try
to explain the intricate structure of this international "open
society" of the 19th century and its working in the various
fields, or to lay bare the moral, philosophical, sociological and
ultimately religious forces of this order which are embedded in
the deepest layers of contemporary thought
3
.
1. On the Res Publica Christiana see, besides the well known works of
Otto v. Gierke: R. F. Wright, Medieval Internationalism: the Contribution
of the Medieval Church to International Law and Peace,. 1930; R. Wallach,
Das abendlndische Gemeinschaftsbewusstsein im Mittelalter, 1930; J.
Hashagen, Internationalismus und Nationalismus im Mittelalter, Friedens-
warte, 1938, No. 1; R. 0'Sullivan, Internationalism, European Civilization,
its Origin and Development, Vol. V , New York, 1937, p. 1261 ff.; Henri
Pirenne, Histoire Economique de l'Occident Mdival, Bruges, 1951. How
this international "social" integration of the later Middle Ages has made
possible a corresponding international economic integrationthe "world
economy of the Middle Ages"has been shown particularly by F. Rbrig,
Mittelalterliche Weltwirtschaft, Blte und Verfall einer Weltwirtschafts-
periode, Jena 1933. To the Res Publica Christiana corresponded, indeed,
what a Florentine merchant at Bruges had called, in a letter written in
1457 to the Hansa, a "communis omnium nationum mercancia" (F. Rrig
op. cit.). When, in 1531, the Antwerp exchange got the inscription "In usum
negotiatorum cujusque nationis ac linguae" the end of this "world economy
of the Middle Ages" was already near.
2) Henri Bergson, Les deux sources de la morale et de la religion, Paris,
1932, p. 27 ff.
3. I have been more explicit on this point in my book "The Social Crisis
of Our Time" (Chicago, 1950), p. 238 ff.
If we venture to call the international order of the Liberal
Age a secularized Res Publica Christiana, we may also say that
it is nothing other than the old "communitas seu respublica
hominum sub Deo" of St. Thomas of Aquino with its double
root of universalism requiring the brotherly community of
men and of personalism making the individual intangible, but
now it is transplanted from the spiritual soil of Christian theism
into the lighter ground prepared by the renaissance, humanism,
enlightenment and liberalism, so that the words "sub Deo"
became less and less audible until they were forgotten altogether.
Here also we should reflect upon the development of the humane
international law of modern age with its great names and ponde-
rous works. We ought to remember, with respect and admiration,
the courageous pioneering work of the Spanish Jesuits and
Dominicans who, because they were true followers of St. Thomas
of Aquino, are comprised under the name of the Late Scholastic
School (Franciscus Suarez, Francisco de Vitoria, Ludovicus
Molina, and others )and who laid the real foundation of modern
international law on which, later on, men like Hugo Grotius
and Burlamaqui built their imposing structure. It is most
significant that Suarez (Tractatus de Legibus et Legislatore
Deo, II, cap. 19, n. 19) says, when explaining the foundation of
Jus Gentium : "... quia humanum genus quantumvis in varios
populos et regna divisum semper habeat aliquam unitatem, ...
quam indicai naturale praeceptum mutui amoris et miseri-
cordiae, quod ad omnes extenditur, etiam extreos et cujus-
cunque nationis".
It is Vitoria (ca. 1483-1546) who, as a moral theologian,
derives from this nature of the international "open society"
the principle of free trade as a postulate of natural law ("... quia
etiam hoc videtur jus gentium, ut sine detrimento civium pere-
grini commercia exerceant", quoted after R. O'Sullivan, op. cit.
p. 1275), an ideal which, later on, David Hume translates,
in the passage quoted in the motto of the present study,' from
the language of natural law and moral theology into the profane
language of economic utility calculation. To these great stages
in the history o thought which lead to the international "open
society", must, on the other hand, be opposed the other and
fatal series which begins with Machiavelli and Bodin, the real
inventor of the modern concept of sovereignty, and which,
armed with the idea of the essential evilness of human nature,
so forcefully and effectively expounded and spread by Lut her,
continues from Francis Bacon and Hobbes to Hegel and
Treitschke until it undermines gradually, in the course of the
19th century, the humane and universalist doctrine of inter-
national relations. The practical fruits of this fatal development
of the doctrine of international law will then be reaped by
the 20th century
1
.
What must strike us most to-day when looking at this inter-
national order is perhaps the fact that it was respected by all
civilised countries as something surrounded by an air of sanctity,
and this respect was emphasised by the further fact that whenever
it was violateda thing which happened of courseit was
done so with a bad conscience and with apologies and not,
as it happens so often to-day, with grinning cynicism. This gave
validity to international law as a genuine law having equal
rank with national law if not being superior to i t
2
. In this
way the world was united by a network of long-term treaties
1. We should observe here the working of that law which I proposed
to call the "law of historical interference" (in my book "The Social Crisis
of Our Time", pp. 9 and 54). While the humane and universalist doctrine
of international relations, in the course of the 19th century, encounters
more and more resistance in the realm of ideas, it is only now that the
practice of international law reaps its full fruits. As an illustration may
serve the following statistics which show the increasing importance of inter-
national arbitration during the 19th century (after R. O'Sullivan, op. cit.
p. 1288): During the period 1789-1840 there took place on an average one
international arbitration in every two years; during the period 1841-60
the recourse to arbitration in international affairs showed an average of
one arbitration in each year; during the period 1861-80 there were on an
average two arbitrations per annum; during the period 1881-1900 the
average had been raised to almost five per year.
2. On the eve of the first World War the German philosopher of law,
Professor G. Radbruch (in his "Einfhrung in die Rechtswissenschaft",
2nd ed., Leipzig, 1913, p. 128) was able to assert that the international law
is "trotz der anarchischen Organisationslosigkeit der Staatengemeinschaft
wahres Recht" and, if measured by the actual respect paid to it, even
superior to national law, particularly because of the pressure of public:
opinion (which is also emphasized by R. M. Maclver, The Modern State,.
London, 1926, p. 284).
stabilising international relations, particularly in their economic
aspect. At the same time there was, owing to the system of
international law and also to the pohcy of the "balance of
power" which is wrongly suspected to-day as an unmitigated
evil, a continuous balance between the great and the small
countries which were thus able to develop their prosperity
unhampered by their size. There was furthermore a high degree
of uniformity in the concepts of law and in the national norms
of law. But we must never forget that this international order
was surrounded and supported by the moral-political atmos-
phere of the "open society", that is by the secularized Res Publica
Christiana to which was added a considerable and not altogether
unwholesome measure of Pax Britannica.
, The last point must remind us that the international order
of the past was not altogether something lofty and moral only.
If we want to be realistic we must recognise that every workable
international order seems to require the guiding and controlling
hand of a dominant power which, by its political force, economic
weight, diplomatic experience and firmness of principles, is
able to set the tone, to give the example and to assume respon-
sibilities of the first order. We must never forget that, throughout
the period under consideration, this dominant power was Great
Britain and that, without London as the commercial, monetary
land financial centre of the world, the world economy of t hat
time was hardly conceivable. It is the momentous question
of to-day whether, after Great Britain lost this position after
two world wars, the United States, which willy-nilly have to
step into her place, will be able and willing to fulfil the role of
the dominant political and economic power of the West in
the same way as formerly Great Britain
1
.
Second point: We found that the international "open society"
of the ninee tenth century may be regarded, in a very large sense
2
1. The question of the dominant world power has been discussed in my
books "International Economic Disintegration", p. 16 and passim, "The
Social Crisis of Our Time", p. 242, and "Civitas Humana" (London, 1948),
pp. 228-235. On the same subject: F. Perroux, Entwurf einer Theorie der
dominierenden Wirtschaft, Zeitschrift fr Nationalkonomie, 1950, No. 1.
2. For this, I refer to my book "Mass und Mitte" (Erlenbach-Zrich,
1950, p. 9 ff.).
as a creation of the "liberal" spirit. But it is also "liberal" in
a more narrow and customary sense, not in that of Cicero, St.
Thomas of Aquino, Suarez, Vitoria, Erasmus or Grotius, but in
the other of David Hume and Adam Smith. We come here to
a point of extraordinary importance without which we cannot
understand fully the mystery of the international order of the
recent past. What we mean is the genuinely liberal principle
of the widest possible separation of the two spheres of government and
economy, of sovereignty and economic exploitation, of Imperium and
Dominium, or of "political power" and "economic power" (Maclver).
This means the largest possible "dpolitisation" of the economic
sphere with everything that goes with it.
By aid of this principle of separation, it was possible to reduce
to a minimum the economic significance of the coexistence of
sovereign states with their different legal orders, their frontiers,
their systems of administration and separate citizenships. In
this way the economic process was transferred from the sphere
of administration, public law, penal courts, in short, of the
"State", to the sphere of the market, of private law, of property,
in short, of the "society". The result was that now it was possible
to remove the greatest part of the economic issues of conflict
and problems to which the coexistence of sovereign States is
liable to give rise.
It was on the basis of this principle of separation that a
special problem of international integration of the utmost
importance had been solved, a problem which, as we have
seen, is of equal rank with the problem of the international
legal order generally. What we mean is the problem of the
international monetary system.
We remember that the universalist-liberal "open society"
of nations amounted to an As-if-World State which was a
working substitute for the non-existent world government.
In other words, there was a genuine community of nations under
the rule of law. Now, by applying the principle of separation
between Imperium and Dominium to the institution of money,
it was possible to give to the As-If-World State also an As-If-
World money and thus to create a genuine international mone-
tary order. The result was the well known gold standard. There
could not exist a genuine de jure world money system guaran-
teeing the freedom of payments at stable exchange rates. But now
the gold standard which was finally accepted by all important
countries and whose rules were meticulously observed made it
possible to attain the same result in a way which made the
whole globe a payments community and which gave to inter-
national payments practically the same uniformity, stability and
convertibility which characterize the national system of payments.
The gold standard, therefore, meant, if not a de jure, then at least
a defacto world monetary system. It resulted in the free and all
round convertibility of money at fixed rates and thus in the
multilateralism of world trade which, as we know to-day, is the
indispensable pre-requisite of a genuine world economy. It was
only by these results of the gold standardconvertibility and
stability of currencies and multilateralism of tradethat inter-
national economic integration was made possible in the same
precise sense in which we speak of economic integration within
a single national economy
1
.
There is no point where we can see as clearly as in this case
of money what the liberal world order means as an order which
was based on the principle of the "dpolitisation" of the economic
sphere. There was neither an international monetary authority
nor a world monetary union nor any international monetary
treaty taxing the loyalty of governments and making the intricate
questions of money and credit issues of diplomatic conflicts.
Nothing of this sort was the basis of the international monetary
order of that time. Instead, the gold standard was entirely a
matter of national law, and the only important thing was that
the national currencies were linked to the same precious metal
and that the national governments or central banks were forced
by this linkage with gold to behave with regard to money and
credit in such a way that the free convertibility of currencies at
stable exchange rates became a matter of course. Let me add
that a further result was that the malady of the "passive balance
1. For fuller explanation I refer the reader to my book "Internationale
Ordnung-heute", pp. 148 ff. and 308 ff.
of payments" and the "shortage" of hard currenciesa malady
which has become so common in our timewas unknown under
the gold standard.
While the governments, under the rule of the gold standard,
stuck to their national currency laws and defended, by the
instruments of money and credit policies, the free convertibility
of their currencies and their stable exchange rates, there ensued,
as a by-product which was not aimed at in the first instance,
a genuine international monetary orderthe only one which
our age has known and which, so far, it has been impossible,
in spite of all efforts, to replace by another one. But the real
point which interests us here is that it was a monetary order
which, by linking money to gold and not to arbitrary decisions
of governments, was a perfect example of the principle of
"dpolitisation" of the economic sphere. It was an "economic"
but not a "political" currency system.
But at the same time we must not forget that it was not a mere
technical arrangement. Its final basis was moral, because
it presupposed the constant loyalty of governments in sticking
to the rules of the game, a loyalty which was part of that
unwritten code of international good behaviour which we know
to be the essence of the liberal ordre public international of that
time. The gold standard was bound to break down when one
country after another, for whatever reasons, began to disregard
the "rules of the game". That meant that the gold standard
was no longer understood and that the international order which
had sustained it was going to pieces. At the same time the
gold standard lost its real footing when the predominantly
liberal economic system of nations was gradually replaced by
an interventionist-collectivist system. The increasing "politisa-
tion" of economic life was bound to destroy that monetary
order which was based on the principle of "dpolitisation".
Third point: If we want to summarize what we have said in
order to give an idea of the liberal solution which was found
for the problem of international order, we may express ourselves
in the following way. On the one hand, it was the "liberal"
idea (in the largest sense) which had made possible an ordre
public international which had a legal and moral basis and which
was embodied in international institutions and contracts. The
meaning of this order was that it equipped international eco-
nomic relations with the indispensable framework of an As-If-
World Government. On the other hand, it was the separation
of the political and economic spheresthe liberal principle
in the narrower sensewhich reduced the dependence of inter-
national trade on that framework to such an extent that the
substitute world government was sufficient, in spite of its obvious
shortcomings compared with a national government or a
genuine de jure world government. What we had, in other
words, was the combination of a practically feasible maximum
of international order with the minimum of strain put upon
this order. The same historical forces have brought about an
international order, without the Utopian abolition of national
sovereignty, and combined it with an economic order which
we call "liberal" and which, in contrast to a collectivist order,
presupposes only a minimum of such an order as the framework
of international trade.
That is surely an enormous achievement which calls for our
respect to-day, the more so as we now find ourselves vis--vis
its ruins. It is perhaps only now after this system of international
order has been destroyed that we can fully appreciate what it
has meant. Vice versa, now that the liberal idea of order has
been replaced by the collectivist one, we realise in a painful
way the meaning of the one and of the other principle of order.
Most of all, we understand that an international collectivist order,
being an order which amounts to a thorough "politisation"
of economic life, requires a degree of international government
which would largely exceed that which the liberal age could
achieve. And the paradoxical thing is that it is the same collec-
tivist principle which is one of the main reasons why not even
this minimum of international order, which we owe to the liberal
principle, is possible any longer. That is the supreme paradox
of collectivism which we shall have occasion, later on, to explain
more fully.
3. CONCLUSIONS FOR INTERNATIONAL LAW.
After this attempt to give a fairly balanced view of the nature
of the problem of international order and of its solution during
the liberal age, it is easy to see what it means for the place and
significance of international law during the nineteenth and
early twentieth centuries. The traditional system of international
law may then be interpreted as the legal aspect of the liberal
solution of the problem of international order necessitated by
the tremendous development of the economic forces of the world.
That implies, on the other hand, that this same system of inter-
national law has entered the phase of disintegration pari passu
with the waning force of the liberal idea of order. It would
be necessary to illustrate this by some concrete examples The
most impressive of these is the treatment of private property by
international law, an institution whose utmost significance for
international trade is obvious.
As a logical consequence of the principle of the separation
between Imperi um and Dominium which, as we have seen, was
one of the main pillars of the liberal world order, the institution
of private property was practically made independent of the
question of what State had sovereignty over the territory where
the privately owned property was, and also independent of
the question of the nationality of the owner. It was, therefore,
practically kept out of political conflicts arising from that sove-
reignty or nationality. Private property was one thing and
sovereignty was quite another though, of course, the separation
could never be quite complete. The natural resources of the
world were owned and exploited by private persons, or corpora-
tions in which anybody, whatever his nationality, could buy
shares on the world' s stock exchanges. The question of what
state was wielding sovereign power over the territory where
those resources were located was never absolutely immaterial,
but its significance was reduced to such a degree as to realize,
quite naturally, the ideal of "free access to raw materials" and
to enable any country to rival all others in well-being and pros-
perity without politically "owni ng" those territories. If colonial
imperialism stubbornly stuck to the idea that, to "secure markets"
and gain "free access to raw materials", and to assure its citizens
a fair share in the exploitation of the world's resources, the
government had to obtain sovereignty over the territory in
question, it still accepted an idea which might have been true
in the feudal age but which now had become simply anachro-
nistic. It overlooked the fact that, in the mean time, the principle
of the liberal world order with its separation of the two spheres
of Imperium and Dominium had been realized. Now it had
become true that "political power has determinate frontiers,
economic power has the freedom of the world" (Maclver).
In order to illustrate this state of things I would like to recall
just one single fact which I take from the book by Leonard
Woolf "Economic Imperialism" (Chapter 2). In the year 1913
all British Colonies in Africa sent less than one per cent of all
British imports to the Motherland whereas they received only
one per cent of all British exports. The economic significance
was about equal to that of Chile. As a market for British products
Argentina was about three times and as a buyer about six times
as important as all African Colonies, without costing the British
taxpayer a single penny.
It is astonishing to remember that it took a very long time
for public opinion before the first World War to realize this
consequence of the liberal principle of world order. When, in
1910, a man like Norman Angell in his book "The Great Illusion"
brought home the lesson in a very persuasive manner he only
stated a matter of common sense but his book made a very great
sensation at that time. Ironically enough, public opinion began
to see the light precisely at a time when the period of the liberal
world order was already nearing its end.
The separation of sovereignty and property which was such
an essential part of the international "open society" had of
course to stand its supreme test in the case of war. In this con-
nexion it is useful to recall the change in the general character
of war which has occurred during the last two and a half cen-
turies. It is, as particularly Guglielmo Ferrer has pointed out
in his masterly essay. "Forms of War and International
Anarchy"
1
, the change from the limited war, with limited aims
and restricted means, to the modern total war with unlimited aims
and unrestricted means. As the former type of war which had
been the rule until 1914 meant that war was something which
did not necessarily involve the rights and liberties of the non-
combatant citizen of the enemy country
2
, it also left the enemy
property practically outside war actions. To respect the private
property of private citizens of the enemy country was under-
stood to be the evident consequence of the liberal order of
international relations which even war could not break up.
This state of affaire came to an end with the first World War
during which it became the rule among the belligerents to
disregard the rights of private property of the enemy country.
This new principle, appertaining to the now fashionable type
of total war, was carried to the point of unmitigated cynicism
when, after the Second World War, the victors even put
pressure on neutral countries to seize the private property of
individuals who were unfortunate enough to have the passport
of the conquered nation. This was an extreme which showed
1. The World Crisis, ed. by the Graduate Institute of International
Studies, London, 1938, pp. 85-97.
2. To illustrate this, I refer to the stories I told in my book "International
Economic Disintegration", p. 74, No. 3. Article 10 of the famous Jay Treaty
of 1794 between England and the United States may also be quoted here
"because it clearly shows the legal view of that time as it asserted itself
more and more strongly and more and more undisputed up to the present"
(F. X. Peter, Shall Switzerland Surrender its German-Owned Property?,
printed manuscript, 1946):
"Neither the debts due from individuals of one nation to individuals of
the other, nor shares, nor monies, which they may have in the public funds,
or in the public or private banks, shall ever in any event of war or national
differences be sequestered or confiscated, it being unjust and impolitic
that debts and engagements contracted and made by individuals, having
confidence in each other and in their respective Governments, should ever
be destroyed or impaired by national authority on account of national
differences and discontents". In the wars of the 19th century the belligerent
states went so far that even payments due to enemy creditors were continued
(e.g., in the Crimean War of 1854 at the proposal of the British Parliament).
Herold, Das Schicksal des deutschen Privateigentums im Auslande, Berlin,
1926, p. 9. Every student of international law, finally, is well acquainted
with the Hague Conventions on Land War which unequivocally protect
private property in case of war.
to what extent the old world order with its separation of spheres
had gone to pieces
1
.
It is quite rare to meet such reflections on the relation between
economic order and international law in the current literature
on international law. There is all the more reason to draw atten-
tion to a book which Carl Schmitt, the German lawyer, whose
regrettable role during the Nationalsocialist regime will scarcely
be forgotten, has recently written on our subject
2
. He realises
quite clearly that the legal order of world economy presupposes
that there exists in every individual State a "Minimum von
konstitutioneller Ordnung" which consists in the "Trennung
einer staatlich-ffentlichen Sphre von dem Bereiche des Privaten,
vor allem in der Nicht-Staatlichkeit von Eigentum, Handel und
1. A special case which shows very clearly both the importance of the
principle of separation for the traditional system of international law and
the unsolved difficulties arising from abandoning that principle is that of
shipping. In the past, the principle of the immunity of foreign state ships
was generally accepted because it could be presumed that commercial
shipping was exclusively a matter of private activity, while state ships
performed exclusively functions of governmental sovereignty. Commercial
shipping, therefore, clearly belonged to the sphere of Dominium and state
shipping to that of Imperium. Now, however, the increased governmental
activity in commercial shipping, which means that the line between the
two spheres of Dominium and Imperium is more and more blurred until,
in socialist states, it disappears altogether, makes it ever more difficult to
apply the old principle of immunity of state ships. See S. Maiwald, Die
Entwicklung zur staatlichen Handelsschiffahrt im Spiegel des internationalen
Rechts Die Staatsfreiheit des Handels als K ardinalprinzip des See-
vlkerrechts, Stuttgart, 1946.
Recent literature on the question of private property according to inter-
national law: I. Seidl-Hohenveldern, Internationales Konfiskations- und
Enteignungsrecht, Berlin, 1952; Martin Domke, The Control of Alien
Property, New York 1947; F. X. Peter, Auslieferung deutschen Privat-
eigentums?, with a preface by Professor E. Borchard, Zurich, 1946; Wash-
ington, Das Schicksal der deutschen Vermgenswerte in der Schweiz,
Schriftenreihe der Vereinigung fr Wirtschaftsgesetzgebung, No. 1, Bern,
1948; Werner Niederer, Der vlkerrechtliche Schutz des Privateigentums,
Festschrift for Hans Lewald, Basle, 1954. It is of ominous significance,
reflecting the increased influence of socialism and its disregard of private
property, that, on the 11th December 1952, the United Nations, accepted,
by a majority of more or less collectivist countries, a resolution which gives
every member State the right of expropriating natural resources without
compensation. This resolution gives an idea of the legal circumstances
under which, in contrast to the Liberal Age, the development of "under-
developed countries" has to go on to-day.
2. Carl Schmitt, Der Nomos der Erde im V lkerrecht des Jus Publicum
Europaeum, Cologne, 1950.
Wirtschaft" (p. 208). Arguing against Maclver on this point,
he makes the mistake of judging the liberal principle of separa-
tion as a mere matter of ideology where we can take one side
or the other, and he emphatically takes the side of an anti-
liberal ideology, as we would expect him to do. He does not
realise, however, the capital and irreplaceable function of
that principle of separation for international order. He does
not stop to ask himself what consequences his "monistic" princi-
plethat is, the politisation of the economic sphere after the
principle Cuius regio eius oeconomiawould entail for a world
which, on the one hand, does not enjoy a global legal order
whereas, on the other hand, a high degree of world-wide econo-
mic integration is of the most vital importance for the enormously
increased world population with its immense requirements
and the enormous difference in natural wealth and dimensions
of the different nations. The rewelding of Imperium and Domi-
nium would clearly mean, therefore, making imperialism and
war really a natural law of nations, unless Carl Schmitt were
able to tell us how to bring about a well organized world State
and to make it acceptable. In other words we are not faced with
a decision which leaves us complete liberty of choice according
to our ideological predilections but one which must be reached
with full realisation of the economic realities of the day. It is
therefore Maclver who is right against Carl Schmitt when he
says: "There are some thinkers who envisage a re-unification
of the economic with the political focus. This is the attitude
of the state socialist... Our whole argument makes for the
contrary conclusion, endeavouring to show that the demarcation
of economic and political powers is part of the general process
of social evolution"
1
.
1. Maclver, op. cit. p. 314.
UI. INTERNATIONAL ORDER IN AN AGE OF GRADUAL
COLLECTIVISM.
1. TH E IMPACT OF PRE-COLLEGTIV IST DEV ELOPMENTS (INTERV EN-
TIONISM, WELFARE STATE, FISCALISM.)
I
T is not altogether easy to seize the real nature of the
liberal world order of the past. But we found it helpful
to compare it with the opposite of the collectivist order
which is essentially characterized by the abolition of the principle
of separation, by the politisation of the economic sphere and by
the rewelding of Imperi um and Dominium. It is now our task
to investigate more precisely and in detail the significance of the
collectivist economic order for international community.
To begin with, we have to realise that it is already the pre-
collectivist stage of the modern interventionist and Welfare State which
works for a gradual dissolution of the liberal principle of separa-
tion. In doing so, it increases national integration at the cost
of international integration. This tendency is furthered by certain
policies of trade unions which, in spite of internationalist lip-
service, tend to promote the national isolation of labour and
commodity markets. It is already at this pre-collectivist stage
t hat we observe what we might call the gradual "nationalisation
of man". It becomes obvious if we remember that, wherever
an intervention is called "social", it would be more exact to
replace this fashionable adjective by the word "nat i onal ".
"Social justice", for instance, is an ideal which, if looked at
properly, means the nation and not Persians, Bulgarians, or
Indians; "Social insurance" is, in fact, "national insurance"
which makes the passport something like an insurance policy;
the "social product " is in truth the "national product", and
"socialisation" reveals itself invariably as "nationalisation".
Nor must we forget that exchange control, which sooner or later
will be adopted by the interventionist Welfare State, amounts
to "nationalisation of insolvency" because it prevents the indivi-
dual debtor from fulfilling his obligations vis--vis the foreign
creditor. Finally, we must recognise that the enormously increased
quota of national income which is claimed by taxation and
spent by the State is a very important factor of national integra-
tion and of international disintegration because it involves
a comprehensive nationalisation of the use of income ("fiscal
socialism").
The united action of all these forces on the dissolution of
international order become particularly obvious in the case of
money where we observe the disintegration of the international
monetary system as it has been described on a former occasion.
This example is of supreme importance for two reasons. First,
it illustrates the process of a dissolution of international order at
a most neuralgic point since the destruction of the international
monetary system, which vouchsafes free convertibility and
stability of exchange rates, strikes international economic
integration to its very heart. Secondly, the failure of all attempts
to find a satisfactory substitute for the old international monetary
system has a profound and depressing meaning, as it illustrates
the obvious impossibility of replacing the liberal solution of
the problem of international order by another one and as it
proves, in a quite convincing and concrete manner, the intimate
correlation between the national and the international type of
order.
This process of the increasing dependence of economic life
on the intervention of the national government has one conse-
quence which deserves special emphasis. It means that the
national frontiers become more and more lines which separate
territories where certain conditions of supply and demand are
uniform for all residents but quite different from those prevail-
ing in other territories. Moreover, these national and collective
conditions, because they are subject to governmental policies,
which are always changeable at short notice, can neither be
foreseen nor influenced by the individual. In this way, inter-
national trade has to cope with an increasing amount of political
arbitrariness and instability which, in the end, is incompatible
(33) INTERN. ORDER OF GRADUAL COLLECTIVISM 235
with a genuine international order. It makes the individual
national economy coagulate into solid bodies while it renders
the world economy all the more liquid and a field of what
is accidental, floating, arbitrary and unforeseeable.
That is particularly true for the international conditions of com-
petition. Whereas, inside the national economy, everyone still
has to compete by striving to be individually superior to his
rival, now in international trade it is more and more the eco-
nomic and fiscal policy of governments which adds to this
individual factor of competition a very strong collective one.
What, in the case of the old-style "dumping", appears to-day
almost as a timid beginning, becomes now an elaborate system,
and the policy of differentiation of markets is almost the rule.
Thus th e national frontiers demarcate different territories where,
collectively and above individual conditions, firms of different
territories compete with each other under conditions which are
entirely different from those of firms competing inside those
territories. Now we can apply to international trade the famous
statement of Pascal: "Vrit au de des Pyrnes, erreur au
del". But the worst of it is that nobody knows any longer what
the governments may do to-morrow. Thus arbitrariness is added
to national collectivity.
We must realize what it means that the real contents of
thousands of contracts may be vitally changed overnight by
the devaluation or appreciation of a currency. Furthermore,
we have reached the point where countries which have to
import raw materials like coal or steel must pay almost double
the prices of the producing country. Export subsidies of every
description and import regulations of every variety have become
a matter of course. The whole system finally culminates in
exchange control which makes the vital act of payment
dependent upon the decision of an office. The disintegration
and the arbitrariness deriving from all that are the utter contrast
of order, right, community and economic reason. On every
geographical scale, they are equivalent to the dissolution of
society itself.
2. T H E IMPACT OF COLLECTIVISM.
The logical end of this development is collectivism as a
system which involves the complete politisation of the economy.
We must expect therefore that the consequences of the inter-
ventionist Welfare State will now be correspondingly magnified.
In fact, it is only now that the process of the "nationalisation
of man" is brought to its ineluctable end. What so far was a
mere tendency which, within limits, could be avoided, now
becomes a necessity imposed by logic.
The salient point which must be grasped very firmly is this,
t hat now the whole economic processand not, as in the case
of the interventionist Welfare State, only its conditions, its
result and the distribution of this resultis being made one
of the principal agenda of government, so that it is no longer
the price mechanism but the authority which decides what
use is to be made of the productive forces of the nation. The
economic life becomes now as completely a matter of govern-
ment and administration as the army or the law courts.
I n order to understand better what is happening now we
may have recourse to the useful comparison with the relation-
ship between the government and the church. Whereas the
market economy (the liberal economic order) corresponds to
the principle of the separation between government and church,
the collectivist economy reminds us of the system under which
religion and worldly government are united under one single
despot, i.e. that system which we call Caesaro-Papism. It would
not seem, therefore, too far-fetched nor unhelpful to call the
collectivist economy "Caesaro-Oeconomism". Cuius regio, eius
oeconomiaif we may venture to take up again this variation
of the principle of the Augsburg Religious Peace of 1555.
If, however, the economic process depends on the sovereign
political instance which "pl ans" it and which enforces its
"pl anni ng" by governmental force, it should be obvious t hat
the merging of economy and government is bound to put a
barrier, both economic and political, between this sphere of
planned economy and the rest of the world. The economic
(35) INTERN ORDER OF GRADUAL COLLECTIVISM 237
process can be "planned" and "controlled" only over that
territory which is politically ruled by the authority which
"politizes" the economic process and enforces its plan by
political force. All the deeper, however, must be the gulf which
separates this sovereign political unit from the others. Inside
this unit, there must be an extreme concentration of power
since now the governmental economic plan requires priority
over all other matters, public or private, and since there can,
for the whole nation, be only one single plan and not a rivalry
of regional plans. But this concentration on the national level
must be bought at the price of international disintegration.
Whereas, formerly, the "sovereign" of the economy was the
market it is now, under collectivism, the State. But while the
sovereign called the "market", since it belongs to the unpolitical
sphere of private actions, has no political boundaries, the new
sovereign, the State, is identical with the power of the national
government itself.
We may express this in a somewhat different way. Collecti-
vism amounts to 100 per cent Statism and, since it is the national
government which is normally acting as the planning and
controlling authority, to the 100 per cent Statism of the national
State. Since this means that the sphere of action of the govern-
ment is widened enormously the inevitable result is that the
national sovereignty is increased at the n-th power.
A grim irony on the internationalist ideology, which, as we
have seen, has been so important in the history of the collec-
tivist movement, is the fact that the practical policy of a collec-
tivist government is, by an iron necessity, compelled to protect
the national system of planning against all external disturbances
which escape the control of the planner. Without such insula-
tion, the national collectivist system would lose its rigid cha-
racter and dangerously be exposed to the uncontrollable shocks
coming from outside. Collectivist planning on the national
scale must find its counterpart in national autarky. That is
why, among others, the collectivist government cannot dispense
with exchange control which is one of the main and most efficient
instruments of national autarky but of which Marx and Engels
had not said a single word.
This latter institution is bound to become the keystone of
the whole system of a collectivist economy, so much so that
it seems possible to define it by exchange control being a neces-
sary (though not sufficient) feature of such a system, just as,
vice versa, exchange control, whatever its origin, tends to
engulf the whole national economy gradually in a system of
collectivist planning. It is to be emphasised that there is hardly
one other single measure of economic policy which, short of
complete State monopoly of foreign trade as in Soviet Russia,
isolates the different countries so radically from each other as
does exchange control. There is none which so relentlessly
subjects the foreign trade of a country to the policy of the
national government as does exchange control, none which
realizes the destructive ideal of national autarky so completely
as this, none which dissolves the community of nations, the
economic as well as the political and intellectual, more tho-
roughly than this institution. It is the box of Pandora from
which flow out, by necessity, bilateralism, disturbances in inter-
national payments, restrictions of trade, deficits of balance of
payments and "dollar shortages". If, as we have seen, a free
and well functioning world economy presupposes multilatera-
lism of trade and this in turn the free convertibility of currencies,
it should be obvious that exchange control, which is the opposite
of this free convertibility, must be the greatest obstacle in the
way of restoration of a genuine world economy. But it is collec-
tivism which makes exchange control inevitable
1
.
Consequently, there is no escaping the disquieting conclusion,
that the collectivist order works for nationalism. But it would
be entirely unfair to assume that it must be necessarily an
aggressive kind of nationalism. In no case, indeed, where after
the second World War Western countries, like Labour Great.
1. For the subject of exchange control and convertibility I refer to my
paper "Les voies de la convertibilit", Bulletin d'Information et de Docu-
mentation de la Banque Nationale de Belgique, April 1954, and "Wege:
zur K onvertibilitt", Die K onvertibilitt der Europischen Whrungen,
Erlenbach-Zurich, 1954, pp. 67-122.
(37) INTERS. ORDER OF GRADUAL COLLECTIVISM 239
Britain or Norway, have followed the path of collectivism,
can it by said that the nationaHst trend of their pohcies, which
is undeniable, has been anything but restrictive and defensive,
without visible traces of aggressiveness. To become a source of
really aggressive nationalism economic collectivism evidently
must be combined with a strongly missionary and pseudo-
religious ideology as in the case of the former German National-
socialism and the present Communism. In the long run, how-
ever, the momentous question remains as to whether the reweld-
ing of Imperium and Dominium, which is the main feature
of any collectivist system, does not make the size of the politi-
cally controlled territory of vital interest to the nation in question.
If that is trueand we fear that it isthe collectivist principle
of order is bound to give rise to issues of international conflict
which even an inherently peaceful collectivist country cannot
ignore indefinitely.
IV . THE PROBLEM OF INTERNATIONAL PLANNING
AND INTERNATIONAL LEGAL-POLITICAL ORDER.
1. TH E IMPASSE OF NATIONAL COLLECTIVISM.
L
ET me summarize the result of the foregoing reflections. The
collectivist economy, which is characterized by planned
control of the economic process (central administration of
the national economy), by exchange control and "repressed
inflation"
1
necessarily entails the consequence that it is incom-
patible with a genuine world economy in. the sense of a free
coordination and real integration of international trade whose
main pre-requisites are multilateralism and free convertibility
of currencies. It is bound to destroy the essential conditions
under which, in the Liberal Age, the problem of an international
order had been solved. There is no doubt either that it is here
that we must look for the ultimate cause of the international
economic disintegration of our time and for the highly dis-
appointing results of a large part of the endeavours to restore
a real world economy after the second World War.
The collectivist-inflationary course which so many govern-
ments of the West have followed since the second World War
has clearly led to an impasse, not only inside the national
economies but also, and particularly, in international trade.
The drive for international economic "integration" is the
natural response. That this should be the consequence of
national collectivism appears as a real paradox if we remember
the original claims of collectivists. We may call it the paradox
of national collectivism. Fortunately, leading sociaUsts of our
time are honest and intelligent enough to recognize this quite
clearly and to look for the proper way out.
1. Cf. my paper "Repressed Inflation", Kyklos, 1947, No. 3.
(39) THE PROBLEM OF INTERN. PLANNING 241
2. T H E MEANING OF INTERNATIONAL COLLECTIVISM AND ITS
CONSEQUENCES FOR THE INTERNATIONAL LEGAL-POLITICAL ORDER.
The socialists who clearly acknowledge the impasse caused
by national collectivism have the natural tendency to over-
come it by replacing the national collectivist system by an
international one. That is for them quite a natural line of
retreat. The very serious question is, however, whether this
is a real solution of the problem.
In order to overcome the present international economic dis-
integration, is it really feasible to turn the national system of
collectivism, which has shown itself to be the villain in the
piece, into an international one and to carry economic planning
from the national to the higher international level? The answer
is to be found in the nature of the collectivist economic order
which replaces the market and the price mechanism by the
plan and the orders of the authority, and thus amounts to a
thorough "politisation" of the economic process.
From this nature of collectivism there follows, first, that any
attempt to solve the problem of international order in this
way, even if it were feasible, would offer a highly unsatis-
factory solution. For since a planned economy, as a system of
thorough "politisation" of economic life, presupposes a State
which acts as the very centre of planning and orders, it must
be confined to that area where this State wields sovereign
power. International planning consequently is possible only
as far as the organisation of a genuine international govern-
ment is not altogether Utopian. Since a world State is clearly
out of the question, a world-wide system of planning is to
be ruled out as a practical possibility. The utmost which even
the most optimistic can hope for would be a European govern-
ment and therefore an international system of planning restricted
to the European Continent.
That means that, by international planning, the utmost
which could be expected under the most favourable circum-
stances would be a solution of the problem of European inte-
gration instead of world-wide integration as achieved by the
old world economy. We must realise, however, that the very
high price to be paid for this solution would be an economic
isolation of Europe vis--vis the rest of the world. If we make
Europe an enlarged Socialist Norway, we must expect that
the economic relations between the Continent and the rest of
the world would be similar to those which we find to-day
between Norway and the other national economies. The prin-
ciple of economic autarky, which is the inevitable counterpart
of planning, would be transplanted from the national to the
continental level, and the result would be a sort of European
economic bloc, a Continental "Grssraum" of sinister memory.
The European economic integration, which might possibly be
achieved in this way, would be a "closed" and not an "open"
integration as had existed in the pre-collectivist time. A plus of
economic integration in Europe would be bought by a minus
of economic integration with the other Continents.
International planning, therefore, would hardly be a com-
mendable way out. What is more, however, is that it is not
a feasible way out, and there we come to the heart of the matter.
In order to see this we recall that any collectivist economic
order is absolutely dependent upon a corresponding State. A
European collectivist order, therefore, presupposes a European
super-State which subjects to its will all the individuals of
the Continent in the same fashion as does to-day the national
collectivist State within its borders. This European State, how-
ever, has the fault that it does not exist and is not likely to
come into existence very soon. Moreover, the very fact t hat
it would have to be equipped with the concentrated power of
a collectivist State makes it something which practical com-
monsense is compelled to call Utopian, at least as long as we
surmise that it should be brought about by the free consent
of nations and not by the iron hand of a Dictator.
The salient point is, after all, this that the international
State which international planning must presuppose is to be
a very special State, i.e., a collectivist State which like a collec-
tivist national State is characterized by an extreme concen-
tration of administration and power. Is it conceivable t hat
the European nations might be prepared to grant to such a
super-State prerogatives which some, if not all, of them are
very reluctant to allow even to their own national govern-
ments? Would they be ready to let themselves be pushed
around by a distant European Government, deprived of the
roots of national tradition, as the Norwegians and formerly
the British by their own National Government? Can we expect
Europe to accommodate itself to a regime making the Con-
tinent an enlarged Norway?
Even a convinced socialist might hesitate to give an affirm-
ative answer to such questions. This is a safe assumption since
it would be difficult to find a Socialist in Europe to-day who
does not admit that, if ever a European State could be brought
about, there is only one single form of government which
would make it possible. That is the loose form of government
which we call a Federation and which gives the largest possible
scope to the national way of life.
In this connexion the example of Switzerland is often evoked.
This country clearly proves that it is only the Federal form of
government that makes it possible to combine, in liberty,
different nationalities with their various traditions, languages
and cultures, in one single State. What is true for Switzerland
with her centuries of a common national tradition and history
applies surely to Europe in an even higher degree. Switzerland,
however, teaches still another lesson which is less obvious but
equally important. For reasons which now should be plain to
the reader, Switzerland could not maintain her Federal structure
if she were to adopt collectivism as her normal type of economic
order. This would require such a degree of concentration of
power in the hands of the Federal Government that nothing
would be left of the autonomy of cantons and municipalities
except, perhaps, a sort of folkloristic autonomy. It is true that
Switzerland can only exist as a Federal State, but the Federal
State is impossible if the normal type of economic order is
collectivism and not the market economy. That also applies
to Europe even more emphatically.
It is therefore difficult to see how we can escape the follow-
ing conclusion: If a European system of planning is to work
it presupposes a European State of a kind which would be
incompatible with that form of government which, as all agree,
offers the sole possibility of uniting Europe under a common and
free government. European planning requires a highly centralized
European State while precluding a European Federation.
Whereas, as we have seen, it is the paradox of national collec-
tivism that it is bound, in practical policy, to deny the very
principle of internationalism which had been one of its main
ideological driving forces, we now encounter the paradox of
international collectivism. It consists in the fact that, on the one
hand, it makes an international State an absolute necessity
while, on the other hand, it makes its attainment, which is
most difficult at any time, impossible for the very reason that
the international government which international collectivism
calls for is to be a collectivist one which, as such, must be
highly centralized, riding roughshod over the national suscept-
ibilities and ways of life. When we would need an international
State most, it would be farthest from our reach, and this for
the very reason for which we needed it so desperately. In
making this statement, we are supposing that the international
State is to be based on the free will of nations and not to be
imposed on them by force.
This conclusion is confirmed by all practical experiences
made so far. It is in the light of our reflections, that the inter-
minable difficulties of the economic union between Holland
BelgiumLuxemburg ("Benelux"), which had been projected
during the last war and which, for many years, has caused a
long series of disappointments, ought to be interpreted as well
as the conspicuous failure of the Marshall Plan administration
to set up a real European plan of investments, which is more
than a mere addition of national investment plans. "The value
of the O.E.E.C. in intra-European cooperation has been as
a discussion house where delegates 'have a chance to talk', not
plan"
1
, and that was so because, in spite of all the diplomatic
1. A. S. Hoffman, The European Recovery Program in France, Geneva,
1951, p. 76.
pressure exerted by the Marshall Plan administration, it could
never attain the status and authority of a genuine European
State which the ambitious project of continental planning of
investments required. So we are not surprised to read, for
example, in a special report of the O.E.E.C. on oil refineries,
the resigned statement: "Each country must be regarded as
the best judge of what is most likely to be of assistance in
recovery within the general programmes approved by the
Oil Committee"
1
. A particularly instructive further illustration
is offered by the case of the European Community of Coal and
Steel (Schuman Plan) which we shall study in detail later on.
Let me finish this chapter by three remarks. First, we must
recognize that there is, of course, an important difference
between a single act of international planning and a compre-
hensive system of international planning. What I have said so
far refers to the latter, and it is difficult to see how my theory of
its impossibility could be disproved. That is not to say, however,
that a single act of planning, which is the exception rather
than the rule like the Schuman Plan, might not be workable,
within limits and on the assumption that the higher political
significance of such action is so convincing and overwhelming
that governments and nations are willing to pay the price.
It would be doctrinaire to deny that a limine, but it cannot
invalidate our general case against international planning.
Our second final remark refers to the various attempts to
dodge the problem of international planning by a spurious
solution. The latter results if we understand by "international
planning" something which is quite different from what we
call planning within a national economy and which, indeed,
alone deserves this name. Then we arrive not at an inter-
national system of central economic administration, which
controls, on an international scale, the economic process on
the basis of a single plan like a national system of economic
1. Hoffman, op. cit., p. 78. The general problem of international planning
of investments has been the subject of a penetrating study of Walter Eucken,
which, unfortunately, has been the swan song of this great German eco-
nomist ("Investitionssteuerung durch echte Wechselkurse", Zeitschrift fr
das gesamte K reditwesen, February 15th, 1950).
administration, but merely at a simple addition of national
systems of planning and at that sort of international trade
which ensues from the international intercourse of such systems
1
.
It should be obvious, however, that this cannot result in
a real international order. On the international scale, it can
be as little expected as, for instance, in Germany after 1945
the traffic between the regional planning systems, clumsily
connected by inter-regional barter treaties and by black markets,
could lead to a satisfactory economic order on the national
scale. It is precisely this coexistence of national systems of
planning which, by bilateralism, autarky, payment difficulties,
import restrictions and general instability of economic relations,
has been responsible for the anarchy of international economics
which even more and more socialists admit to be untenable.
Thirdly, let us summarize very briefly the most general con-
clusion of this chapter. The idea of overcoming the impasse
due to national collectivism by international collectivism (plan-
ning) has been shown up as an illusion. Consequently, the
nation must be regarded as the highest political and geograp-
hical level at which a collectivist economic order is feasible.
Since, on the other hand however, national collectivism is a
formidable agent of international disintegration, it follows that
collectivism is invariably inimical to international order. That
is, I repeat, the international paradox of collectivism
2
.
3. TH E PROBLEM OF NATIONAL SOV EREIGNTY AS SEEN BY THE
ECONOMIST.
Unfortunately, a great deal of confusion is caused to-day by
a reasoning which is as popular as it is misleading. As it makes
1. That seems to be the idea of authors like G. D. H. Cole, The Planning
of International Trade, in "Studies in World Economics", London, 1934,
and Clark Foreman, The New Internationalism, New York, 1934. Such
organisations of international pseudo-planning like the International Cotton
Advisory Committee, whose members practically are only bound to send
statistics and to pay their membership fees, must be entirely left out of
account here. But a considerable part of what is proudly called to-day
"International Planning" is of this sort.
2. Cf. F. Borkenau, op. cit., F. A. Hayek, The Road to Serfdom, London,
1944, eh. XV .
use of a concept which is one of the most important ones in
international law, an attempt on the part of the economist
to deal with this reasoning here from his own angle is partic-
ularly justified. The concept in question is that of national
sovereignty
1
, and the reasoning based on it runs somewhat
like this:
There is general agreement to-day that it is in the supreme
interest of peace and international co-operation that the sover-
eignty of national governments should be severely restricted
and subordinated to international organisations which try to
establish a higher type of international law. To make war on
its neighbour or, generally, to take, in international conflicts,
the law into its own hands is no longer considered the sovereign
right of a national government, and in the case of Europe it
is the generally accepted aim of "European Integration" to
extend this restriction of sovereignty even much further. Now
it seems only one logical step further to say that, if international
planning encounters difficulties, they could and should be
overcome by the national governments making just that sacrifice
in national sovereignty which is required anyway to-day in
the interest of peace and progress. If they stubbornly refuse
to make this sacrifice they do not live up to what the present
age demands, and actions like the Schuman Plan seem to
be progressive for the sole reason that they ask for such a sacri-
fice of national sovereignty. What could more clearly be a
step on the way to peace and progress? Finally, the impression
emerges that a government reluctant to submit its national
industry to the controlling power of an international planning
authority may be no better than a government which refuses
to make the necessary sacrifice in its sovereignty for the supreme
cause, of peace and international co-operation.
It should be obvious, however, that there is a serious flaw
in this reasoning. The confusion consists in not making the
1. There exists a book written by an eminent economist on the subject
of sovereignty: R. G. Hawtrey, Economic Aspects of Sovereignty, 2nd.
edition, London, 1952. Although I do not agree with it in some important
aspects (see my "Internationale Ordningheute", op. cit., p. 135), I presume
that the student of international law will read it with particular interest.
right distinction between such sovereign rights as correspond
to the genuine sphere of government and others which do not.
If governments are asked to give up some part of their sover-
eignty in order to make international planning possible they
are expected to transfer to an international authority a sover-
eign right which by no means belongs to the natural attributes
of government.
Order and justice must be provided by government, and if
a national government gives up its sovereign right to provide
them, it must transfer it to another government, national or
international, otherwise there would be anarchy. Centuries of
a free market economy, however, and the most elementary
teaching of economics prove that it is by no means necessary
that the government takes the responsibility for economic order
by collectivist planning. Throughout modern history, govern-
ments thought it not only unnecessary but even highly unwise
to assume such a sovereign right, and, even in the present
age of socialism, not a few stick to this conviction while others,
which had espoused the idea of planning, increasingly return
to the old conviction.
There should be no disagreement between socialists and non-
socialists on the fact that, in the economic sphere, the alter-
native to order provided by the government (planning) is
certainly not anarchy but another kind of order, provided by
the market, and the only point of issue between socialists and
non-socialists is whether one kind of order is preferable to the
other. The economic process, therefore, may be subject to
two kinds of "sovereignty", the political and genuine one of
the government (collectivism) or the economic one of the
market (market economy). Those governments which, being
non-socialist, prefer to leave economic Ufe to the "sovereignty"
of the market, reveal thereby their conviction that to assume
political sovereignty over the economic process would mean to
overstrain this principle.
If such governments are now asked to sacrifice their sover-
eignty in order to make possible international planning, they
are expected to transfer to an international authority a sovereign
right which, so far, they have wisely refrained from assuming
vis--vis their own nationals, i.e., the right to give orders to
individuals in a sphere which they prefer to leave to the "sover-
eignty" of the market. They are invited, therefore, to sacrifice
a "sovereignty" which they do not possess at all since it corres-
ponds to their ordre public to leave it to the market, i.e., to the
sphere of Dominium and not to that of Imperium. But what
about the opposite case of a socialist government like the
former Labour Government in Great Britain? Such a govern-
ment certainly uses the special sovereignty in question, but it
can hardly sacrifice it and hand it over to an international
authority because that would be tantamount to delivering up
to an international super-State an essential part of its whole
system of national planning.
At this point, we do well to bear in mind the two meanings
of the term "sovereignty". On the one hand, it means the inde-
pendence and freedom of one State from all others, that is, a
relationship as it exists between States. On the other hand, it
denotes the supreme and absolute power of the State within
its borders and vis--vis other possible centres of power. It is
particularly in the latter sense that it has been wittily said
that the modern State is an inverted pyramid, its apex resting
upon the 1651 folio edition of Hobbe's Leviathan \ But it is
well known how much the two notions of sovereignty are inter-
related and that modern nationalism, as the expression of
excessive sovereignty in the first sense, developed pari passu with
the Leviathan, i.e., with excessive sovereignty in the second
sense
2
.
Now we clearly recognize that the real problem is the com-
bination of excessive sovereignty in the first sense with equally
excessive sovereignty in the second. In other words, what is
1. Robert A. Nisbet, The Quest for Community, New York, 1953, p. 129.
2. It would be quite wrong to suppose, by the way, that this development
external and internal sovereignty with increased absoluteness of national
sovereigntyis preponderantly the result of "conservative" forces. On the
contrary, it is mainly the product of "progressive" ideas (Rousseau, French
Revolution, unitary democracy, Bentham, liberal cult of national unity
and centralisation as, for instance, in Germany).
250 W.RPKE ECONOMIC ORDER AND INTERN. LAW (48 J
really the trouble is not the sovereignty of States as such but
the excessive use which they make of it in this age of national
collectivism. The proper issue, therefore, is the extent and the
use made of sovereignty. There is no denying the necessity of
dismantling this sovereignty. But there would be little advantage
in taking away from national Governments the sovereign right
of collectivist economic control for the sole purpose of trans-
ferring it to an international authority. A European govern-
ment exercising the sovereign right of planning, exchange
control, nationalisation of industries and economic isolation
from the outside world is no better in some respects even
worse than a national Government doing the same within
its borders.
To diminish national sovereignty is most emphatically one
of the urgent needs of our time. But the excess of sovereignty
should be abolished instead of being transferred to a higher
political and geographical unit. Not to grasp this truth is one
of the main fallacies behind a great deal of the current discus-
sion on the economic integration of Europe. In order to correct
it let us stress again t hat "sovereignty" means not only unim-
peachable rights of one government vis--vis others but also
vis--vis its own nationals. In the first case, it is a question of
the seat of power and, in the second case, one of the measure
of power. It is in the second sense that it has become the great
problem of our time. A mere shift in the seat of sovereignty
not only leaves the problem of its over-dose unsolved, but it
even makes it worse.
V . SOME PRACTICAL APPLICATIONS.
1. TH E CASE OF EUROPEAN ECONOMIC INTEGRATION.
W
E can hardly better conclude this whole study on
economic order and international law t han by illustrat-
ing the main points with some practical examples
which involve fundamental questions of international order. We
begin with the problem of European economic integration to
which we had already occasion to refer and which is still one
of the great issues of our time.
If the history of the struggle for European economic inte-
gration since the second World War has been largely a series
of painful disappointments and frustrations, it is particularly
the lack of understanding of the real nature of the problem
which is to be blamed. We recall what can reasonably be
meant by European economic integration. It is the establish-
ment of a condition which makes possible the free and reciprocal
flow of trade between the various national economies in Western
Europe, t hat is, a state of affairs in which all major prices
and costs are in communication with each other and where
anybody can buy freely at all times on the cheapest market,
wherever it may be, and sell just as freely at all times to the
highest bidder, wherever he may be. In other words, we can
speak of a true integration of national economies only if this
integration differs in degree and not in kind from the inte-
gration we accept as natural within the frame of a national
economy.
We know already the two main conditions of integration
within a national economy. National economic relations will
be necessarily multilateral, and to this end people must be
permitted to spend or receive money without restrictions between
the different regions of the national economy. Switzerland or
France would cease to be economically integrated the moment
there would be set up regional systems of exchange control.
An international economy, if it wants to realize the ideal of
integration, requires the same conditions, i.e., the multilaterality
of international trade and a free convertibility of money that
corresponds, on an international scale, to the freedom and
uniformity of the national exchange of money. Free convertibility
of currencies makes multilaterality possible which, in turn, is
the essential pre-requisite of an integrated international economy.
For only under those conditions can a given economic area
become a true unit. And only then can the economic potential
of each country be employed in its most advantageous lines of
production so as to realize to the full the advantages of an
international division of labour.
We must bear in mind that this desirable condition, far
from being a noble aim to be attained only in the future has
already existed in the past. Indeed only twenty years have
passed since it was destroyed. It existed to a degree we hardly
dare hope for to-day, that is, at a time when Europe was not
yet cut to pieces by currency restrictions and other measures
of a collectivist policy which, as we know, makes any genuine
multilateralism impossible. It was an international integration
without international plans, international authorities, inter-
national conferences and an international State.
To be sure, protective tariffs played on annoying rle during
that time. But they did not interfere with the essential condition
of multilateralism, namely, the free convertibility of currencies
at stable exchange rates which knitted Europe, nay, the whole
world, together into an international economic system with its
community of prices, payments and markets. In this essential
aspect, there was no difference between Europe and the national
economy of the United States. Although the tariffs were a
serious impediment to European trade it is doubtful whether
this was much greater than the obstacle caused by the enormous
distances in the United States, which brought transportation
costs to a point where they were, in effect, comparable to
inland tariffs. Finally, we repeat that this European integration,
<51) SOME PRACTICAL APPLICATIONS 253
which was a reality when nobody even mentioned the word,
had the enormous advantage of being an "open" and world-
wide integration, not a "closed" one. It was an integral part
of a world-wide international order the "liberal" world
order with which we are now familar but not a regional
bloc, and for that reason it was at the same time a free and
natural sort of international economic integration which needed
no artificial props.
We conclude, then, that the general practice of impeding
intra-European trade by protective tariffs did not prevent a
European economic integration which was genuine and on
which we may look back to-day with a good deal of nostalgia.
Economic nationalism by protective tariffs, if they were not
of a prohibitive height, proved to be compatible with the old
international order as we have described it. That was so because
this sort of international economic policy does not destroy
convertibility and multilateralism as the new collectivist mea-
sures, culminating in exchange control, undoubtedly do; it
diminishes international economic integration though not
no more than the Alps diminish the national economic integra-
tion of Switzerland, but it does not pull down the very structure
of this intergration by ripping the multilateral network of
international trade into bilateral shreds.
Of course this argument must not be overworked and be
misunderstood as an apology for protectionism. It only means
that we would have every reason to be happy if the only flaw
in European economic integration to-day were that moderate
protectionism in which the European countries had been
indulging until the Great Depression. What matters is the fact
that, up to 1914 and then, later on, in the twenties, the free
convertibility of currencies at stable exchange rates worked as
if the whole Continent had one single currency system like the
United States. As long as import duties are not excessive or
prohibitive their effect is, as I said, not essentially different
from that of the Alps within the Swiss or of the great distances
within the American national economy; they are, as Bastiat
said one century ago, "negative railways". They widen the
254 W.RPKE ECONOMIC ORDER AND INTERN. LA W (52)
cost margin between separate places without interfering with
the market mechanism itself. Since, on the other hand, the
geographical configuration of Europe is such that transportation
costs offer less resistance to the economic integration of all
part s of the Continent than they do in North America, Europe
does not compare so unfavourably with the "large free t rade
ar ea" of the United States, as is commonly supposed.
This European economic integration, which was part of and
conditioned by the old "Li beral " international order and which
illustrates so well its principle, was destroyed by the "new
economic policy" which began twenty years ago during t he
Great Depression and which then developed into a gigantic,
tremendously complicated and generally accepted system.
Whereas the traditional policy of protectionism by i mport
duties was not incompatible with the market economy and the
international order, of which this was an integral part, the new
policy after 1931 consisting of exchange control, import quotas,
and State monopoly of trade replaced the free working of the
market by the collectivist principle of planning. The former
was a policy of merely qualitative controls of trade which,
subjected it to certain conditions without interfering with its
essential liberty; the latter is a policy of quantitative controls
which abolishes that liberty. That , however, has completely
changed the structure of international order and, by abolishing
free convertibility of currencies and multilateralism of t rade,
destroyed the very basis for international economic integration
in general and for European economic integration in particular.
What actually happened was t hat now on the old protective
duties, which were not more than a relative, though very
annoying, obstacle to trade, there was laid an upper crust of
collectivist measures which were an absolute obstacle to trade.
Europe' s economic integration has been destroyed by an
economic foreign policy which must be understood as the
external counterpart of the development of a new type of
general economic, monetary and fiscal policy
1
. It had its root
1. See my paper "Alte und neue Oekonomie", Wirtschaft ohne Wunder,,
Erlenbach-Zurich, 1953, pp. 66-96.
(53) SOME PRACTICAL APPLICATIONS 255
and its parallel in the more or less collectivist-inflationary
policy of national government that sailed under the flag of
"planned economy", "full employment", "cheap money", "Wel -
fare St at e" and "deficit spending". This new type of economic
policy spread while the old international order was crumbling,
and it has been one of the most powerful forces of its destruction.
We have seen, however, that there is no chance of over-
coming the international disintegration, which has ensued, by
a coUectivist international order, since international planning
on any large scale must be ruled out as a practical possibility.
The economic re-integration of Europelike international re-
integration generallycan therefore be accomplished only by
removing the upper layer of coUectivist measures which has
accumulated in twenty years over the lower layer of traditional
protective tariff policy. But since these measures are conditioned
by the entire course of national economic policies, the re-
integration of international trade and the restoration of inter-
national order presuppose a fundamental change within each
single nation, which means the dismantling of planned-infla-
tionary policies and the return to a non-inflationary market
economy.
Just as international disintegration began at home, so must
international re-integration. It will not be without interest
to the student of international law to observe how national
and international order appear as intimately connected with
each other if we look upon them with the eyes of the economist.
To ignore this correlation is the origin of t hat abortive policy
which tries to find the solution of our present international
problems in international measures and institutions alone, a very
current and serious mistake which we may call "false inter-
nationalism" or "making roofs without houses". If we want
tiie restoration of international order, economic as well as
political, we have to make up our mind whether we can go on
with certain national economic policies which, however popul ar
and tempting, are shown to be incompatible with that order.
The real test of such a thorough revision of present-day
economic policies will be the return to free convertibility which
presupposes the abolition of exchange control. For whereas
exchange control is the main obstacle to international re-
integration it is, on the other hand, the inevitable consequence
of the internal course of economic policy, so that the abolition
of exchange control requires the simultaneous revision of the
latter.
This elementary examination shows us the real nature of
the whole problem of European integration. It provides us
with the norm we must apply to any project recommended to
us as a means of reaching this goal. It should guide us also
when we examine a particular idea, which has become rather
popular as an approach which, at first sight, seems to be a
promising solution of the problem of European economic
integration. It is the idea of an international Customs Union
which should do for Europe what the Benelux has been expected
to do for Belgium, Luxemburg and the Netherlands. The exami-
nation of this idea offers another welcome occasion to discuss
a problem which lies on the border-line of economics and
international law.
He who believes a European Customs Union to be a road to
European economic integration must answer three main
questions
1
.
The first question arises from the fact that any Customs
Unionlike the German Zollvereininvolves a high degree of
coordination of the participating governments, which comes
quite near to real political union, and this, in turn, presupposes
that the sentiment of the nations in question favours such a
coordination, as it certainly does in the case of the Benelux,
whereas we cannot be equally sure of it in the case of Europe
as a whole. That is what distinguishes such a regionally restricted
form of trade liberation from a universal one which a country
may carry through autonomously or by international treaties,
1. On this point, the reader should particularly consult the monograph
by Jacob Viner, The Customs Union Issue, New York, 1950, and the paper
by J. E. Meade, The Removal of Trade Barriers: The Regional versus
the Universal Approach, Economica, May 1951. The experiences of the
Benelux have been discussed by M. Weisglas, Benelux, Amsterdam, 1949,
and J. van der Meusbrugghe, Les unions conomiques, Brussels, 1950.
at any rate without any infringement of its sovereignty and
without the complications brought about by a common Customs
administration, a pooling of Customs Revenues, a common
commercial policy vis--vis third countries and the other neces-
sary consequences of a Customs Union.
The trade liberalisation brought about by a Customs Union
for a single region takes place within a frame-work of inter-
national law which is obviously very different from that which
we have in mind when we expect to arrive at the economic
re-integration of Europe by the afore-mentioned revision of
national economic policy in favour of a non-inflationary market
economy. In the case of a Customs Union, trade liberalisation
becomes a matter of a common international policy and adminis-
tration, which is just one step short of a real international
government. Its realisation, therefore, depends upon the
prospects of such an international quasi-government. These
prospects cannot be judged very optimistically anyway for
Europe as a whole, but we know that the case is hopeless if we
have to do with countries whose national economic systems
contain a strong dose of collectivism.
The second main problem of a Customs Union concerns more
the economist than the student of international law, so that we
should not do more than just mention it. The question I refer
to is whether and under what conditions a Customs Union
really leads to freer trade instead of bringing about new
restrictions
1
.
The third problem of a European Customs Union leads us
back to our main field of interest. Even if it were possible could
it really solve the problem of European economic integration?
Obviously not. For we know already that the real difficulty
does not lie in protective Customs duties but in the upper
layer of the collectivist policy of economic insulation which
culminates in exchange control. Either we succeed in removing
1. I discussed this intricate question in greater detail in my paper "La
communaut conomique europenne", Bulletin d'Information et de Docu-
mentation de la Banque Nationale de Belgique, November 1952, and in
my book "Internationale. Ordnung-heute", p. 312.
this upper layer, in which case we do not need a cumbersome
Customs Union with its almost insoluble administrative and
political problems, or we do not succeed, in which case the
Customs Union is no solution at all but merely one of those
optical illusions and "roofs without houses" which are the
fashion to-day. To suggest a European Customs Union as a
solution of the problem of European economic integration
means that, on the one hand, we ask too much and, on the
other, too little: too much because such a union is always an
extremely difficult undertaking and to-day, for Europe as a
whole, hardly attainable at all, and too little because, even if
it were attainable, it could not solve the real problem which is
the dismantling of the absolute obstacles to trade consisting in
the well known collectivist policies.
That is the logic of European economic integration, and the
student of international law will have noted the points which
are of particular interest to him. To this logic corresponds the
fact that, if real progress has been made during recent years in
the economic integration of Europe, it is due to the successful
efforts of an increasing number of countries to do exactly what
was needed, i.e., to return to a non-inflationary market economy
and thus restore equilibrium and order to their national eco-
nomies.
It is likewise in the light of this logic that we should examine
the two great international actions which have been undertaken
in recent years to further Europe's economic integration,
namely, the European Payments Union and the European
Community of Coal and Steel (Schuman Plan).
2. THE EUROPEAN PAYMENTS UNION AND THE PROBLEM OF
INTERNATIONAL ORDER.
In order to understand the fundamental significance of the
European Payments Union we recall what has been said at
an earlier stage of our analysis on the connexion between inter-
national order generally and international monetary order in
particular. We have seen that the international monetary order,
(57)
SOME PRACTICAL APPLICATIONS 259
which corresponded to the old-time international order of the
Liberal Age, was the gold standard which, as we found,
was only a special application of the principle of the separation
of spheres, since it made the international monetary order
dependent upon objective economic conditions and mecha-
nisms rather than upon the political action of governments,
nationally or internationally. It was neither based on inter-
national treaties nor embodied in international institutions, so
that, curiously enough, it hardly ever became a subject of inter-
national law. It was the result of the natural coordination of
the monetary policies of national Governments and central
banks. But it was most emphatically part of and conditioned
by the whole international order of that time without which
it could not work and whose dissolution involved the downfall
of this international monetary order, which is and has remained
so far the only one that has been realized.
The gold standard meantthis was and always is the prime
pre-requisite of international monetary order with free converti-
bility of currencies and stable exchange ratesthat the govern-
ments and central banks, in their money and credit policies,
were subjected to a severe common discipline which prevented
anyone from stepping out of line and upsetting international
economic equilibrium. But this discipline was economic rather
than political. Gold and the mechanism of the gold standard
played the role of the disciplinarian, not an international autho-
rity nor the binding power of international treaties. Any dis-
obedience to this taskmaster was promptly punished by conse-
quences which every government found it to its own interest
to avoid. By obeying their own national currency laws, while
united by the common will to respect the rules of the gold
standard and to make the general international order a living
entity, national governments were continuously compelled to
coordinate their money, credit and fiscal policies in such . a
way that the resulting monetary unity of the world was virtually
not very different from a genuine de jure international currency
system. That was the real reason why, at that time, there were
no balance of payments difficulties, such as have become almost
the rule to-day, since t hat close coordination of money and
credit policies no longer exists
1
.
To this description of the old international monetary order,
as it existed under the gold standard and which was an essential
part of the international order of the "open society" generally,
one might raise the objection that, already at that time, several
experiments had been made with monetary unions which
resulted from treaties between the respective countries. The
best known of these has been the Union Montaire Latine between
France, Italy, Belgium and Switzerland (later on, also Greece)
which lasted from 1865 to 1925. It must be recognized, however,
t hat such unions, far from replacing the gold standard, were
only supplementary agreements dealing with the circulation of
silver coins and grafted on the gold standard as the basis of
international monetary order. Moreover, it is to be noted that,
even in this restricted field, they were far from being a success,
since they had continuously to cope with the difficulty t hat
its functioning presupposed a conscious co-ordination of credit
policies which were a constant strain on the international-
mindedness of the contracting countries
2
. If those international
money unions, therefore, prove anything, it is t hat any approach
to the "political" type of international monetary order, making
the necessary co-ordination of money and credit policies the
subject of international treaties and of the will of the govern-
ments to live up to them, has to cope with special difficulties
as compared with the "economic" type like the gold standard.
It is most interesting to study, in this light, developments
since the definite breakdown of the gold standard (in its emas-
culated form of the gold exchange standard which became the
rule after the first World War) until the present day. It may
said, on the one hand, t hat these developments are characterized
by the conspicuous tendency to set up, in one form or another,
a new type of international monetary order which replaces the
1. See Lionel Robbins, The Balance of Payments, London, 1951, and
my own book "Internationale Ordnung-heute", pp. 267-302.
2. Werner Stark, Whrungsvertrge, Festschrift for Oskar Englnder,
Brunn, pp. 263-289.
gold standard, with its "economic" discipline", by the binding
power of international treaties and the acknowledged authority
of international institutions. On the other hand, however,
there is no gainsaying the fact t hat all these experiments have
been more or less disappointing until, in our day, the conviction
is gaining ground that the possibilities of restoring the essential
features of the gold standard, working with "economic" rather
t han "political" discipline, ought to be explored very seriously.
This new trend may be said to have begun (besides the various
attempts at the socalled "co-operation" of Central Banks)
with the Tripartite Agreement (the "Three-Power Currency
Declaration") reached, in September 1936, between the French,
British and United States Governments, joined, later on, by
Switzerland and other countries. This international monetary
agreement may be regarded as the first effort to arrive at some
new, though highly provisional and insecure, basis of inter-
national monetary order after the chaos brought about by the
breakdown of the gold standard and the crisis of international
liquidity of the early Thirties
1
. While assuring to gold a leading
position, it was frankly endeavoring to render international
monetary order, with its main pre-requisites of free conver-
tibility and stability of exchange rates, predominantly the subject
of international legal obligations and constant consultation
between the contracting Governments. As such it deserves close
scrutiny by the student of international law who is interested
in the impact of international law on international economic
problems.
From the efforts, undertaken during the second World war,
to prepare a new and more solid international monetary order
there emerged the International Monetary Fund as one of the two
institutions which have been created by the Bretton Woods
Conference of 1944, the other being the International Bank
for Reconstruction and Development. In contrast to more
ambitions plans, of which the so-called K eynes Plan is the
best-known and the most interesting one, the International
1. World Economic Survey, League of Nations, 1936/37.
Monetary Fund is frankly a compromise. Its Charter imposes
on the member countries certain obligations, and it acts as an
international monetary authority upholding certain rules and
principles, while, on the other hand, it refrains from enforcing
t hat degree of discipline and co-ordination of national money
and credit policies without which a real international monetary
order, with both free convertibility and stability of exchange
rates, cannot be realized.
The Charter of the International Monetary Fund makes no
attempt to restore the gold standard, and, in spirit, it is even
inimical to it. But, while realizing a good deal of that direct
monetary "internationalism" which makes international mone-
tary order the subject of international treaties and institutions,
it refrains from replacing the "economic" discipline of the gold
standard by a "political" one, i.e., by another sort of discipline
enforced by international treaties, international institutions and
other instruments of international law. I t pays homage to the
two main postulates of any international monetary order, t hat
is, exchange stability and free convertibility (thought this not
without serious reserves), but it does not set up any machinery,
economic or political, to ensure the close co-ordination of
national money and credit policies without which these postu-
lates cannot be realized. It resembles, as someone has wittily
said, those wrist watches of very young children which have
hands and a winder but no mechanism inside *. It would be
a serious mistake, therefore, to believe t hat the International
Monetary Fund provides an international monetary system and
thus fills the gap left by the gold standard. But it would be
also an injustice to deny that the Fund, once there existed such
an international monetary order, could be of inestimable
service, especially after some changes have been made in its
Charter
2
.
The last stage, so far, in this series of efforts, undertaken after
1. J. Rueff, L'tat actuel du systme des paiements internationaux,
Revue d'Economie Politique, 1949, No. 2, p. 000.
2. Cf. F. A. Lutz, International Monetary Mechanisms, Princeton,
1943; R. F. Mikesell, The International Monetary Fund 1944-1949, Inter-
national Conciliation (Carnegie Endowment), November 1949.
the breakdown of the gold standard to solve the problem of
international monetary order by genuine international action,
bas been, the European Payments Union (E.P.U.), which was set
up, in 1950, by a treaty between the members of the O.E.E.C.
for the whole area of this latter organisation, i.e. for Western
Europe and a large part of non-European countries affiliated
with her
1
. To regard the E.P.U. as such a stage in a more
general development is perhaps not the least fruitful way to
understand its fundamental meaning.
In contrast to the International Monetary Fund, the E.P.U.
is more than a mere international authority defending certain
rules and principles and more than an international short-term
credit institution. Since it was realized that this was no longer
sufficient and that a substitute for the gold standard had to
be found, at least provisionally and for a restricted area, the
E.P.U. has been organized as a real mechanism of international
payments making the currencies of the contracting countries
interchangeable and thus allowing multilateral trade between
the member States. The judicious machinery of the E.P.U.,
which cannot here be described in detail, has the threefold aim,
(1) to bring about continuous compensation of all bilateral
deficits or surpluses within the Union, (2) to put pressure on
the member countries to correct national policies liable to
produce external economic disequilibrium, and (3) to force
the surplus countries to help the deficit countries by short-
term credits.
What interests us most, in this connection, is the fact that
the E.P.U., by functions (2) and (3), amounts to a machinery
which tries to replace the gold standard.
It was obvious, from the beginning, that there is no magic
in this international mechanism of the E.P.U., which would
dispense national governments from avoiding monetary and
1. The interesting and complex case of the Sterling Area must be left
out of account on this occasion, as it is also impossible here to do justice
to other regional monetary blocs which have emerged from the dbris
of the gold standard. But it should be easy now to apply the general pattern
of our analysis to all these other cases of monetary blocs and to see the
problems of international order which are involved.
fiscal policies incompatible with external equilibrium. There
never was any sense in making the Paris Union a sort of gigantic
dish-cover over disorderly national balances of payments and
the responsible national policies. The Union is able to function
only under conditions of equilibrating national policies, which
amount to the same sort of international co-ordination of money
and credit policies as has always been the first pre-requisite
of the gold standard. To this end, the mechanism of the E. P. U.
has been calculated so as to bring increasing pressure to bear
on members to behave correctly and to remove internal causes
of disequilibrium. At the same time, as I said, this mechanism
provides credit facilities to help member States in case of tran-
sitional exchange difficulties. In both senses, the Payments
Union would be a working substitute for the old gold standard
which operated so t hat the international money market was
always ready to serve as a buffer in case of a transitional dis-
equilibrium, while governments or Central banks were compelled
by the mechanism of the gold standard to observe the necessary
discipline in monetary policy. To this must be added the fact
t hat the central management of the E. P. U. is operating, at
the same time, as an international monetary authority, capable
of reinforcing the quasi-automatic pressure of the mechanism
by direct diplomatic pressure, by remonstrances or by milder
methods of persuasion
1
.
The point on which we would, however, insist over and over
again is that all this is not more t han a mere substitute for
the gold standard. It is a quite special method of replacing
the co-ordination and discipline, which the gold st andard
provided, by another sort of discipline and co-ordination.
Whereas, formerly, it was the co-ordination and discipline
enforced by the economic laws of national currencies linked
to gold it is now the binding power of international treaties
and the acknowledged authority of an international institution:
in other words, an international machinery appertaining to
the sphere of international law and embodied in an inter-
1. Unfortunately, there is only one major case where this rle of the
E.P.U. has been of real importance, i.e. vis--vis Germany in 1950-1951.
national administration, which the various governments are
supposed to obey. Again, we encounter a. case where non-
political action, by which governments permitted their sover-
eignty to be restricted, has been superseded by a genuine inter-
national authority which assumes a sort of political super-
sovereignty over the sovereignty of national States. Gold as an
anonymous disciplinariangenerally acknowledged as long as
the national and international virtues of the gold standard were
not disputedhas been replaced, in the case of the E.P.U.,
by an international administration which is far from being
anonymous and whose composition and policy become part
of the international diplomatic game and clash of jealousies.
The experiences made with the E.P.U.this has become
increasingly clearprove that this substitution has very serious
disadvantages. To begin with, the mechanism of the E.P.U.,
which should bring about discipline, co-ordination and equi-
librium, has conspicuously failed to reach its aim, and the
hope that it might do so in the future must now be definitely
abandoned. Some countrieslike Belgium, Germany, Switzer-
land, the Netherlands and Austriahave adopted a policy of
monetary and fiscal discipline, while others have not. The
first have becomemore or less permanently and with steadily
rising surpluses vis--vis the E.P.U.the creditor countries
while the latter are the debtors of the E.P.U. who employ its
mechanism to compel the former to finance their lack of
monetary and fiscal discipline.
Moreover, the debtor countries, not content with continuously
ransacking the creditor countries (which, on the whole, are far
from being at the same time the richest countries of Europe),
have been allowed to defend their external equilibrium, instead
of reassuming the wholesome method of monetary discipline, by
reintroducing, vis--vis the creditor countries those very restric-
tions of trade whose dismantling had been one of the principal
aims of the E.P.U.
Under these conditions, the history of the E.P.U. has become
a series of crises which can be surmounted only under increasing
difficulties and with a good deal of blackmailing on the part
of the debtor countries. Finally, it must not be forgotten that
the whole machinery of the E.P.U. would long since have
come to a standstill without the American subsidies to the
debtor countries, which, without these additional dollars, would
have been unable to repay that increasing part of their debt
-which, according to the payments scheme of the E.P.U., has
to be settled in gold.
By some stretch of the imagination, it might be possible to
assume that, with a tighter mechanism of payments and a
better discipline on the part of the debtor countries, the problem
of equilibrium between the E.P.U. countries might have been
solved. But even under this most charitable assumption, another
major problem of the E.P.U. would still be unsolved. Whereas
the first problem is not absolutely incurable, there is no remedy
for the latter. It arises from the fact that the E.P.U. is only a
regional monetary arrangement, a single currency block based
on the exchange control of the European countries and dis-
criminating against the rest of the world, particularly the dollar
area. Since, however, the balance of payments of the different
member States is intertwined with the rest of the world either
by a deficit (as, for instance, in the case of Germany) or by
a surplus (as, for instance, in the case of Norway and Italy)
and since normally this deficit or surplus is settled by a surplus
or deficit in the trade with the European countries, the E.P.U.
is bound to produce continuously unsettled balances vis--
vis the rest of the! world. That is also the reason why a creditor
country of the .P.U., like Belgium or Germany, cannot be
expected to restore the equilibrium of its payments with the
debtor country by an internal policy of monetary expansion
which would upset its equilibrium with the dollar area.
If we say that there is no remedy for this second problem
of the E.P.U. since it is merely a regional monetary bloc we
cannot exclude, of course, the theoretical possibility of curing
i t by extending the payments union to the entire globe. But
there is hardly any one to-day who would not agree that this
idea is altogether Utopian. If, indeed, it has been proved impos-
sible so far to impose, within the restricted area of the E.P.U.,
<65)
SOME PRACTICAL APPLICATIONS
267
upon its members the monetary discipline necessary for the
smooth functioning of such a payments union, how utterly
hopeless would be the task for the world as a whole !
The lesson to be drawn from all this is twofold, and it reminds
us curiously of what we discovered in the case of international
planning. First, we see that this new "political" approach to
the problem of international monetary order, in contrast to
the "economic" approach by the gold standard, is at best
possible only within a definite region of world economy and,
even then, not likely to succeed. Secondly, even this highly
imperfect regional arrangement would compel us to buy its
highly precarious internal results at the price of serious insulation
and discrimination vis--vis the rest of the world. It is this
double lesson which explains why the E.P.U. is now being
recognized more and more to be a mere makeshift device which,
at best, can be useful only for a short while. There is no longer
any serious disagreement as to the absolute necessity of restoring
the free convertibility of currencies, and perhaps the majority
of those who share this conviction will add that such a free
convertibility ought to be coupled with the stability of exchange
rates. But what is this claim for free convertibility but the urge
to abandon the "political" approach to the problem of inter-
national monetary order and to return to the well tested "eco-
nomic" approach, which is based both on sound national
economic and monetary policies and on the spirit of inter-
national community which guides and inspires them? That is
not to say, however, that the new international monetary order
which would then emerge would not be much improved by
deliberate international action, like that of the International
Monetary Fund, which assists those national policies while at
the same time embodying the spirit of international community
which they presuppose for their guidance.
3. THE CASE OF THE SCHUMAN PLAN
The last concrete example, which it would be useful for us
to analyse, is that of the European Community of Coal and
Steel (Schuman Plan). We can be very brief on this point
since we are only interested in those of its aspects which throw
light on the subject of the present study. We therefore, leave
out of account not only its political significance, which is of
supreme importance, but also those economic aspects of this
European institution which do not concern our main purpose
1
.
The aspect of the Schuman Plan which is of principal interest
to us refers to the possibilities of the European Community of
Coal and Steel (C.E.C.A.) becoming an instrument of inter-
national planning in its special field. The legal basis of this
would be Article 54 of the Treat y
2
.
While passing over everything else which might be said on
the subject of planning generally and on the planning of invest-
ments particularly, we refer once more to its international
implications. We recall that any genuine planning involves the
"politisation" of economic order, and we also know why this
causes particular difficulties on the international level. It is the
peculiarity of international planning that there is no genuine
international Government. In the case of the C.E.C.A., the
most we can say is t hat such an international government is
only in its embryonic stage and restricted to one group of
industries. Then there are only two alternatives. Either the
attempt to control these industries by the High Authority at
Luxemburg amounts to t hat mere addition of national plans
as characterized by the Marshall Plan administration, or the
High Authority must aim at becoming a real European Govern-
ment giving definite orders and enforcing them. Such orders
would imply more investments of a certain kind in country
A and fewer investments of the same kind in country B.
The High Authority would then be a government not resem-
bling any other national government but a government claiming
that degree of super-sovereignty which we only find in collec-
1. For a general appraisal of the Schuman Plan I refer the reader to
my paper "La communaut conomique europenne", Bulletin d'Infor-
mation et de Documentation de la Banque Nationale de Belgique, Novem-
ber, 1952, and to my book "Internationale Ordnung-heute".
2. I made this problem the subject of a monograph which will be
published in the forthcoming volume V II of the Year Book "Or do" (Ds-
seldorf, 1955).
tivist countries. In other words, we would make the first experi-
ment with a European Government in its most ambitious form
which, already on the national level, would presuppose a
maximum of centralization, authority, efficiency of administra-
tion and discipline on the part of its subjects. The High Autho-
rity would have to be certain that these conditions could be
fulfilled on the European level, and that precisely at the moment
when the first European Government is still in its infancy.
We have to realize what that means. If single firms within
a national country are unable to carry through certain invest-
ments because the market conditions do not permit them, if,
in other words, investments are being controlled by the price
mechanism favouring now this and now that country, every-
one knows that the Government cannot be blamed for that.
If, however, such decisions are reached by an international
authority subject to all sorts of political influences and senti-
ments, the case is entirely different. What we get then is the
politisation of investments on an international level. It is now
the High Authority which will be courted and which, in case
it does not respond, will be blamed for partiality. At the same
time, the Government and the leading groups of the country
which has been favoured by the High Authority will be
suspected of .dark plottings.
Any realistic observer of international affairs will find this
unavoidable. A country like France might be expected to uphold
with the utmost energy the advance her iron and steel industry
has attained by Marshall Aid and the Plan Monnet. Western
Germany, on the other hand, will show the equally natural
tendency to make good, as quickly as possible, the losses
incurred in the Ruhr District by war destructions and post-war
dismantlings. The tensions between France and Germany which
have developed already on other lines might grow most danger-
ously and in a way running counter to the political aims of the
Schuman Plan.
However the High Authority may decide, it can hardly avoid
inflicting deep political wounds and arousing political resent-
ments since its decisions must always include a strong element
of arbitrariness. That is also what every national Government
embarking on such a course will experience, but it can at least
count upon the strong forces of national community feeling.
However, Europe as a super-State and a super-Nation is, at
best, only in the first stages of development. To charge the High
Authority with the task of controlling and planning the invest-
ments in Europe's heavy industries would be the surest means,
of destroying those beginnings.
But let us make the charitable assumption that it would be
possible to realize this kind of international planning without
the serious consequences we expect. We know already what
would be likely to happen then. The irresistible tendency would
be to supplement the planning of investments in Europe's
heavy industries by increasing restrictions of imports from third
countries. The High Authority might be expected to make
full use of the possibilities which the Articles 72 to 74 of the
Treaty offer. Then once more our thesis of the close correlation
between collectivism and autarky, national or international,
would be proved.
BIBLIOGRAPHY
W. R PK E, Internationale Ordnung-heute, Erlenbach-Zrich 1954.
(A French translation of the first edition exists under the title a La
communaut internationale, Geneva 1947).
W. R PK E, International Economic Disintegration, London 1942.
R. M. MACIV ER, The Modern State, New York 1926.
L. ROBBINS, Economic Planning and International Order, London 1937.
R. G HAWTREY, Economic Aspects of Sovereignty, 2nd ed.. London 1937.
TABLE OF CONTENTS
I. Introduction 225-235
1. The general problem of the economic aspect of inter-
national law
2. The special problem to be dealt with in this lecture
3. The converging interest of the science of international
law and of economics in the connection between economic
order and international law
/ / . Precise explanation of the problem 236-250
1. International order as seen by the economist
2. The solution of the problem of international order in
the Liberal Age
3. Conclusions for international law
/ / / . International order in an age of gradual collectivism 251-257
1. The impact of pre-collectivist developments (interven-
tionism, Welfare State, fiscalisai)
2. The impact of collectivism
IV. The problem of international planning and interna-
tional legal-political order 258-268
1. The impasse of national collectivism
2. The meaning of international collectivism and its con-
sequences for the international legal-political order
3. The problem of national sovereignty as seen by the
economist
V. Some practical applications 269-288
1. The case of European economic integration
2. The European Payments Union and the problem of inter-
national order
3. The case of the Schuman Plan

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