I Clarence K. Streit and the Federal Union of Democracies

Clarence K. Streit and the Federal Union oj Democracies The Author. In 1938, one year before the outbreak of World War II, the American writer, Clarence K. Streit, summoned the free democracies of the world to unite against the rising threat of the totalitarian states in Europe and Asia. His book, Union Now,1 gave life to a Federal Union movement, which today has thousands of followers in all states of the United States and in many parts of the world. The success and popularity of the "Freedom and Union Movement," as it was named by its founder, can be recognized by the fact that his book was translated into several foreign languages and sold more than 300,000 copies as of 1949. The movement works through the association "Federal Union, Inc." in Washington, D.C., with local branches all over the United States; its president is Clarence K. Streit. Its monthly magazine, Freedom and Union, promotes the stated objective of the association: "the education in the basic principles of federal union as exemplified in the Constitution of the United States, with a view to attaining world order by a Federal Union of Democratic Peoples."

The Objectives of Federal Union. The supreme objective of Streit's Union proposal is "individual freedom," and the individual's protection from "the dangers with which depression, dictatorship, false recovery and war are hemming us in." 2 "To provide effective common government in our democratic world in those fields where 1 The following quotes are taken from the last edition of Union Now, A Proposal for an Atlantic Federal Union of the Free, Harper & Brothers, New York, 1949. See also his Union Now with Great Britain, Harper & Brothers, New York, 1941, which was written in accordance with the special wartime conditions and does not differ essentially from Union Now. 2 Ibid., p. 3. 35 36 DOCTRINES AND PLANS OF UNIFICATION such government will clearly serve man's freedom better than separate government/* a Union of the free democracies of the world should be formed. Independent national governments are to be maintained 'In all other fields where such government will serve man's freedom." Finally, the Union is so designed as "to create by its constitution a nucleus world government capable of growing into universal world government peacefully and as rapidly as such growth will best serve man's freedom." 8 An effective common government is to be provided in five different fields in which the states' functions are to be transferred to the Union. The five functions of the government of the Union are: a. Citizenship, the granting of which should be the exclusive right of the Union.

b. A Union defense force, having the right to declare war and make peace, and to employ force or to conclude treaties. c. Regulation of foreign trade and interstate commerce in a customsfree economy of the Union. d. Control of the value of money, which is to be uniform throughout the territory of the Union. e. Control of the Union postal and communication system. The Union government would guarantee "against all enemies, foreign and domestic, not only those rights of man that are common to all democracies, but every existing national or local right that is not clearly incompatible with effective Union government in the five named fields. The Union would guarantee the right of each democracy in it to govern independently all home affairs and practice democracy at home in its own tongue, according to its own customs and in its own way, whether by republic or kingdom, presidential, cabinet or other form of government, capitalist, socialist or other economic system. The Union, furthermore, shall be so constituted by "founder democracies" as to "encourage the nations outside it and the colonies inside it to seek to unite with it instead of against it.

Admission to the Union and to all its tremendous advantages for the individual man and woman would from the outset be open equally to every democracy, now or to come, that guarantees its citizens the Union's Bill of Rights." 4 Federal Union and Liberty Are Identical. The liberty of the individual and the Union of individuals are inseparable concepts. "We cannot be for liberty and against Union," says Streit. "We cannot a Ibid., p. 3. 4 Ibid., pp. 4, 5.

THE FEDERAL UNION OF DEMOCRACIES 37 be both for and against liberty and Union now. We must choose." 5 By transferring the states' rights in the aforementioned fields of government to the Union, state interference with the freedom of the individual is reduced, and the rights of the individual are extended over the narrow boundaries of the national state to the vast territory of the Union. Streit contrasts a Union, which is a Union of men, free and equal, with unification of states in leagues or alliances, in which the states are the equal units. The Fifteen Founder Nations. The world-wide Union of democratic peoples, as envisaged by Streit, should be founded by the fifteen oldest democracies, the people of which have proven their ability to selfgovernment under all conceivable conditions. Their people are most advanced and experienced politically. They belong to the same civilization, enjoy close economic relations, and were not at war with each other for over 120 years. The common concept of state, government, and freedom unites them ideologically as their geographic location around the oceans of the world unites them in matters of communication. Streit names the U.S.A., United Kingdom, Canada, Australia, New Zealand, Union of South Africa, Ireland, France, Belgium, the Netherlands, the Swiss Confederation, Denmark, Norway, Sweden, and Finland. In these countries five languages are spoken by more than 300 million people, of which about half are living in Europe. The countries combined occupy more than half the earth's surface, produce half the world's output of raw materials, and even more of the world's total production.

Their large capital accumulation, together with the aforementioned factors, lend the fifteen democracies overwhelming economic as well as political and military strength and power. The Advantages of Federal Union. Such a Union of democracies would by far outbalance any eventual single aggressor or alliances of nondemocratic aggressors, says Streit. The defense of the democracies and their way of life would be secured permanently by the superior strength of the Union, which, without fear of aggression, could even afford to disarm. The saving of huge armament expenditures would immediately reduce the burden of taxation and thus raise the standard of living of the Union citizens. The common money of the Union would "solve most of today's insoluble monetary problems" and would bring about a monetary stability based on "a single responsible government overwhelmingly powerful in the economic world, a single budget, and a single gold reserve." 6 No other 5 Ibid., p. 7.

6 Ibid., p. 122.

38 DOCTRINES AND PLANS OF UNIFICATION combination, according to Streit, is strong enough to achieve such monetary stabilization. The common money in a customsfree economy of the Union would induce interstate trade to increase considerably and thus improve living conditions. Control of the Union over the system of communications would bring about a unification and standardization of all means of transit and communication, the regulations of which could be simplified. A saving of costs would lower prices and raise income correspondingly. A uniform government, furthermore, would eliminate excessive government and needless bureaucracy. It would abolish passports, visas, quotas, permits, etc.; it would end duplication and dangerous wasteful competition among various government departments and agencies, and thus would allow reduction of taxation and governmental debt.7 A Union government, finally, "overwhelmingly powerful in the economic world," could meet the threat of depression and fight unemployment by opening "vast new enterprises" and by many other available means.8 Member States Are Free to Experiment Politically, Economically, and Socially. The Union would not only mean freedom and prosperity to the individual, but would also guarantee existence of many national autonomies in the Union in which the states would be free "to experiment politically, economically, and socially." 9 The member states would be free to choose their own system of social organization, capitalistic or socialistic. "It is a profound mistake," says Streit, "to identify democracy necessarily or entirely with either capitalist or socialist society, with either the method of individual or of collective enterprise. There is room for both methods in democracy." 10 Democracy, and logically the Union of democratic peoples, may even include "Marxist governments, parties and press as well as laissez faire governments, parties, and press."11 Nazi political theory, however, "is incompatible with democracy." Yet, "basic Marxist political theory may easily be compatible with democracy however much it ... may be made to serve the ends of absolutism."12 Inclusion of member states organized according to the capitalist system of society, which often is accused of constituting the major cause of war, is defended by Streit with the following argument: "Whether or not the capitalist system is one of the causes 7 Ibid., pp. 14, 125.

8 Ibid., p. 124. »Ibid., p. 16. 10 Ibid., p. 81. 11 Ibid., p. 81. ^TT'J p. 81.

THE FEDERAL UNION OF DEMOCRACIES 39 of war, it is true that the problem of organizing peaceful relations among the nations was not solved when all the world was capitalistic. It may possibly be that if all the world were communistic the problem would be solved. No one can say."13 The Union Constitution. To bring such a Union of democracies to life only a constitution is needed, which would include the Union Bill of Rights and set up and organize the governmental machinery, its legislative, executive and judicial departments and, finally, the mechanism for amending the constitution. Streit suggests a Bill of Rights which, in its essence, is identical with that of the American Constitution. But "I would favor adding to this bill," says Streit in a note on page 215 of Union Now with Great Britain, "the following sweeping 'economic rights': Freedom from both overwork and unemployment as defined by law." 14 Regarding the organization of government, Streit suggests a two-house Union legislature. Every half or one million citizens should be represented by one deputy in the House, while two senators should be elected by the people of each state. A slight modification of this principle of equal representation of the population of each state in the Senate is favored by Streit inasmuch as states having over 25 million inhabitants should have the right to be represented by two additional senators. The United States of America, with a population of almost 50 per cent of the Union, should be allowed to delegate eight senators. The executive authority of the Union should be vested in a Board of iive persons. Each year there should be an election for only one member of the Executive Board, which thus would enjoy permanency and consistency.

No Period of Transition. Having agreed on the constitution of the Union, the founders of the Union need not bother about additional agreements on the problem of transition to the Union. When the United States of America was created, says Streit, its founders, in 1787, "abolished each State's rights to levy tariffs, issue money, make treaties, and keep an army, and they gave these rights to the Union without waiting for a plan to meet the difficulties of changing from protection to free trade, etc. They did not even bother trying to work out plans to meet all these difficulties of transition." 15 Leagues and Alliances Are Rejected. Streit then proceeds to compare his scheme of unification of democratic unions with other alternatives of unification. He unhesitatingly rejects leagues and 13 Ibid., p. 41. 14 Published by Harper & Brothers, New York, 1941. is Ibid., p. 28.

40 DOCTRINES AND PLANS OF UNIFICATION alliances because they are mere associations of states and governments. Leagues of nations, according to Streit, "never worked, are undemocratic, untrustworthy, unsound, and unable either to make or enforce its law in time." Alliances are "primitive forms of leagues" and usually lack the machinery for reaching and executing international agreements in the economic, financial and monetary fields.16 Even worse than these forms of unification is the policy of pure nationalism and isolationism which rejects every type of interstate organization and which is the opposite of world government, law, and order. American isolationism, Streit complains, refuses to judge even in the most flagrant cases of international aggression. A Union of democracies, however, would remedy our evils and ills. A Union can act swiftly; it can enforce law and prosecute law breakers without assistance of the states' apparatus or without causing major interstate incidents. A Union would protect its citizens from invasion by foreign aggressors and would bring about military as well as "economic disarmament." It can act swiftly on a mere majority vote, whereas leagues and alliances need unanimous decisions in order to be able to act. The Union would be the initial step towards universality of mankind.

Streit denonunces the former "League of Nations" and the present "United Nations" organizations as suffering from the shortcomings inherent in all leagues of government and states. As loose associations of sovereign states they could not and cannot overcome the existing anarchy which arises just "from the refusal of the democracies to renounce enough of their national sovereignty to let effective world law and order be set up."17 However, Streit deems it advisable for the Union of democratic peoples to join the United Nations as a member state. European Unification Rejected. Finally, Clarence K. Streit opposes the existing plans for European unification. Such a union, according to Streit, is a halfway measure which leaves the democracies divided. Because it would not outbalance in military and economic strength any combination of eventual aggressors, it could not prevent wars but would lead instead to isolationism and chaos.

Once the European nations embark upon a unification of their own, other nations would follow their example and form similar unions in all parts of the world. Their equality of military and economic strength, says Streit, would invite aggressor states to attack. Each union of states would lack the vast superiority in military and eco16 ibid., p. 26. " Ibid., p. 11.

THE FEDERAL UNION OF DEMOCRACIES 41 nomic strength which a union of all democracies would enjoy. Only superiority in strength avoids war and not a balance of power! The limited economic strength of a European union furthermore would not be sufficient to prevent depressions. Only a union of all democracies with its vast resources and reserves could achieve such an objective. Unification Is Our Immense Opportunity and Obligation. In the last ten years, according to Streit, considerable progress has been made towards union.18 The prerequisites for a unification of democracies were never as favorable as they are now. The threat of Soviet Russian aggression gives the unification problem urgency and utmost importance; it makes it a question of survival. The mounting economic pressure, caused by the necessity of reconstruction and rearmament and an increasing burden of national debts, also directs the democratic nations towards unification. The Marshall Plan and the Atlantic Pact are intermediary steps of mutual assistance among the free nations of the world on the way to Union now.

CRITIQUE Things Are Not What They Seem. The scheme of unification, as designed by Clarence K. Streit, at first glance, gives the reader a pleasant picture of unification which seems to rest on the solid foundation of individual freedom and points to the creation of the United States of America as the ideal example. The freedom which the United States has given and continues to give to its citizens, the security stemming from its economic and military strength, and the prosperity of its individuals of all walks of life are the points of departure from which Streit endeavors to proceed to a Union of all democracies. He projects the gratifying picture of American history to a modern unification towards which—as he believes—the democracies are now moving. On second glance, however, the unification, as designed by Streit, unfortunately reveals certain errors and fallacies in his fundamental conception and logical reasoning that render his scheme of Union unrealizable and which would bring about effects contrary to his own intention. We maintain—and will endeavor to prove our conviction in the following—that certain features of Streit's plan of unification do not permit its realization under presentday ideological conditions. Other fundamental shortcomings of his plan for Union render its realization unfeasible under any conditions conceivable.

is ibid., p. 256.

42 DOCTRINES AND PLANS OF UNIFICATION And, finally, certain characteristics of Streit's projected Union would adversely affect the very objective of his planning for Union—man's liberty. An Inquiry into Free Migration. One of the features of unification that makes Streit's plans unworkable, under presentday ideological conditions, is the function of the Union to grant common citizenship. The Union citizenship, according to Streit, would open up "the Union's tremendous advantages for the individual man and woman/' The individual would gain in his liberty by belonging to a vast Union of democracies which would abolish passports, visas, quotas, permits, etc. The individual would be free to migrate from one part of the Union to another without having to encounter the numerous difficulties and discriminations that face him today. The barriers of migration would be abolished immediately and the individual would be free to seek home and employment wherever the conditions of life and employment would suit him best. Indeed, Streit draws a picture of a wonderful world!

However, can we expect and hope for the realization of such a world under presentday ideological conditions? Is the majority of people ready and willing to bear the essential effects of free migration within the Union? Do the notions and ideas prevailing in man's mind warrant the hope for an early realization of the Union? All three questions must be answered in the negative. In order to come to a conclusion on this problem, we must draw inferences from the point of departure—the freedom of migration within the Union—to the effects which such freedom must bring about for all or part of its citizens. Then, having gained knowledge of the effects, we may easily conclude whether or not people will approve the effects as well as the point of departure. It is an undeniable fact that standards of living in the founder democracies comprising the Union-to-be vary essentially. The population of the United States enjoys by far the highest standard of living. The average income of the United States citizen amounts to at least triple the income of the citizens of the other democracies, Canada excluded. Compared with the poorest parts of the Union, the American income per head of population is more than fivefold.

The people of the United States and Canada produce and consume much more than the citizens of the remaining thirteen democracies combined. American production, due to larger accumulation of capital per head of population, is superior to that in other parts of the Union. It is the unfailing effect of such conditions of production that millions of American workers enjoy an income and living conTHE FEDERAL UNION OF DEMOCRACIES 43 ditions that are the envy of millions of foreign workers who even work longer and harder and under inferior working conditions. While the American worker is assisted by thousands of horse power of machinery of production and transportation, the non-American worker often toils by hand or with the assistance of machinery which his American colleague would reject as outmoded, inefficient, and "unfair to labor." Free Migration Means Mass Migration to the United States. It is a fundamental law of human action that man seeks to remove the burden of labor. If man can improve his living conditions, he will attempt to do so. If the European, African, or Australian citizen of the Union is free to double or triple his real income and improve his living conditions by mere migration to another state, he will not hesitate to do so. A stream of migrants would flow from places where productivity and wages are low to places with higher productivity and better wages. And the larger the difference, the stronger would be the stream towards more favorable production places. We may therefore assume, without exaggeration, that millions from all parts of the Union would emigrate to America and endeavor to raise their standards of living just by offering their services on the American labor market.19 The mass migration to America necessarily would continue until the individual could no longer reap an advantage by migrating.

That is to say, as soon as the living and working conditions throughout the Union were equal, the migration movement would cease. The fact that a large part of the population naturally does not take part in the migration movement, because of age, sickness, wealth, position in life, and other factors, would retard the movement but 19 This assertion presumes freedom of migration which logically means the freedom to enter a country and choose an occupation of one's liking and for which one is trained. The mere freedom to enter a country, while being excluded from taking part in its economic life because of closed professional organizations and closed shop agreements protected by the state, is not the freedom of migration which either Streit or this discussion implies. A judge from Sweden, England, Germany, or France will scarcely consider it freedom of migration if, upon entering the United States, he is barred from working in his profession. A judge who finally may earn his livelihood as a window cleaner at the courthouse and a medical doctor who is hired as a hospital worker, provided both are accepted by the respective labor unions, very rarely have the incentive to immigrate. The obstacles of "legal requirements"

(as, for example, citizenship which can be obtained by staying and waiting for five years in the country, repetition of long and costly studies, passing of state examinations, obtaining of numerous licenses, memberships of professional organizations which also have their "minimum requirements," etc.) are too great and the time needed for their acquiring too long. It is even conceivable that there is freedom to enter a country, but that immigrants, because of professional organizations and controls, must live on welfare and charity. It is obvious that this is not freedom of migration.

44 DOCTRINES AND PLANS OF UNIFICATION would not affect the outcome. If everyone were motivated by the advantages which migration would give him, the migration movement would proceed in one vast trek and be completed within a few weeks after the removal of migration barriers. Migration Equalizes Income. Richer Nations Reject Free Migration. The essential economic effect of the vast migration movement would be an equalization of the rates of income in all parts of the Union. American living conditions would be lowered essentially, while non-American conditions would tend to improve. Lowering of American rates of income would be brought about by the smaller amount of capital invested per head of the increased population. Although the population would increase considerably, the amount of capital goods employed in the process of production would remain constant.20 That means the amount of capital goods with which each worker can be provided decreases with every increase in the number of workers. Thus the undeniable effect of a Union as ardently advocated by Streit with its influx of millions of immigrants would be a considerable reduction in American wage rates. For the American citizen the problem of a Union of democratic peoples thus is synonymous with the problem of voluntary reduction in his standard of living. The crucial question now arising is: "Will American and Canadian citizens acquiesce in a Union which brings about these effects?" Emphatically, no! "Will American and Canadian citizens vote in favor of a realization of a Union that brings about these conditions?" Certainly not!

Streit's scheme of Union falls by the first problem which we put to a test. And, yet, our assumptions were moderate. Only the effects of a migration within a Union of a few homogeneous democracies were tested. Streit goes much further. In the event other countries would accept the "Union Bill of Rights," they, too, would qualify for admittance to the Union. If China and India and other underdeveloped countries, for example, were admitted to the Union, the extent of the migration movement would be scarcely imaginable. The income per head of population in the underdeveloped countries, in which more than half of the world's population lives in extreme poverty and hardship, amounts to $25 to $50 per year. A unification according to the plans of Streit would bring about a migration such 20 The assumption that the capital invested per head of population in the United States would continue to increase, no matter how many millions of foreigners would immigrate, is an assumption as fallacious and superficial as the belief that the people of the United States can feed the population of the world, no matter how fast their number increases.

THE FEDERAL UNION OF DEMOCRACIES 45 as the world has never seen.21 The American average income of over $1500 per head of population would simply collapse and sink to a level of an underdeveloped country. Whether the American citizen would vote in favor of a Union having these effects, we neither need nor dare to ask. Free Migration Permits Invasion of Undemocratic Ideologies. But the picture of a realization of Streit's Union is even darker than we have indicated. Immigrants like natives embrace certain political and economic ideas and religious principles which find expression in their way of life—in their notions regarding state and government, society and individual, religion and faith, etc. Since it is man's mind, his values, ideas, and notions that govern his daily actions, man creates his surroundings and way of life in accordance therewith. The political, economic, and religious ideas prevailing in those countries from which the millions of American immigrants would come have created ways of life and standards of living which we may easily evaluate. While the citizens of the thirteen other "founder democracies" enjoy relatively fair living conditions, most of the world's population, which would eventually qualify for admittance to Streit's Union, lives in extreme poverty. Their political and economic ideologies and religious principles, which are the sole factors bringing about their living conditions, are, for most of the world's population, ideas that lead to poverty, starvation, war, chaos, etc. There is no other logical explanation conceivable for poverty and chaos, but that man's ideas governing his actions have brought them about. Indeed, if we look at countries with the poorest living conditions, we will perceive that their ideologies and principles of life are most hostile to individual freedom and to capital accumulation and production. They may be ideas of collectivism with regard to state and government, society and man, ideas of nationalism and socialism or communism, racism and class struggle, or a combination of these. The religious principles may prohibit the equality or collaboration of women in economic life or even command the worship 21 The fact that two or three European countries have national quotas of immigration to the United States which, in some years, are not even filled does not refute the contention. The institutional barriers erected by labor unions, professional organizations, and professional codes and requirements by the states are as efficient checks on immigration for skilled and professional persons as are restrictive immigration laws.

Around 1890, Mark Twain in The American Claimant brilliantly described the life of a young immigrant from England who came to the United States "to try equality and work for a living." He could not get work because he did not belong to a union and could not gain admission to one. If these barriers existed already at the time when Mark Twain wrote his stories, they are many times greater today after more than twenty years of government favors to labor unions and professional organizations.

46 DOCTRINES AND PLANS OF UNIFICATION of fires and cows. In their effects all these ideas are identical. They bring about, sooner or later, the loss of individual freedom and the deterioration of living conditions. The common explanation that natural resources, climate, or other factors of man's surroundings determine man's standard of living is as superficial as it is fallacious. The governments of the underdeveloped countries often boast about their "vast supplies of national resources," about "the favorable conditions of production," etc. And, yet, what they need and plead for are only capital and machinery from the United States. If it were true that natural conditions determine man's living conditions, then the American Indians, who occupied the North American continent, should have had a high, or even the highest, standard of living of their time. Having elucidated the common principle that man's ideas govern his actions, which in turn determine his social and political organization, his relation between individual and society, and his state and government, we may infer that the millions of emigrants from all parts of Streit's Union would enter the United States with ideas that are not only alien to American ideas, but that are ideas conducive to poverty, starvation, chaos, and war. The millions of new citizens, to whom Streit's Union would give equal rights of Union citizenship, would begin to influence American policies and determine the future course of America. And darkness would overcome mankind!

An Inquiry into Free Migration of Capital. We think it worthy of pausing to inquire whether this migration problem cannot be solved through other means of unification. We inquire into this question which Streit does not think worthy of mention, in order to conclude whether Streit's scheme of unification can be spared our unconditional rejection. We are raising the question: Can a common Union citizenship and the freedom of the Union citizen to migrate be attained in ways other than advocated by Streit? The only conceivable substitution for actual mass migration is the freedom of migration of capital within the Union. Under the condition of equal security for capital in the Union, capital will migrate to those parts where the natural conditions for production are most favorable. It will continue to migrate until no further advantage can be obtained by moving to other places. Since wages are the main cost factor for many industries, many enterprises would find it advantageous to migrate to countries with lower labor costs. The effect of migration of capital from one country to another would be a reduction of the amount of capital invested per head of population THE FEDERAL UNION OF DEMOCRACIES 47 in the country from which capital emigrates, and an increase of capital investments in the country of its new location. Wage rates in the former country necessarily would decrease, while the rates in the latter would increase. Thus a tendency towards equalization of wage rates throughout the Union would result. After a few decades of such an equalization process through freedom of migration of capital, which necessarily lowers the migration pressure of individuals, common citizenship and freedom of migration probably could be granted by the Union without causing a hurricane of migration of individuals.

Capital Is Consumed by Governments. But these deliberations on migration of capital within the Union are purely theoretical and academic, for the foregoing assumption of "equal security for capital in the Union" is neither fulfilled under presentday economic conditions, nor would it be fulfilled in Streit's Union. Capital invested in land, factories, machinery, and other fixed assets obviously cannot be transferred from one part of the Union to another. Transfer of certain forms of liquid capital to other states where conditions are more favorable to capital is identical with a liquidation of the enterprise at home. But a businessman who does not want to or cannot emigrate to follow his liquid capital abroad will scarcely want to liquidate his own enterprise which is his very existence. Today, throughout the world, the capital of individuals is decimated by nationalization, outright confiscation, confiscatory taxation, controls and limitations, devaluation and inflation, sequestration, etc. Even in the country that is relatively safest for capital—the United States—income taxes, government controls and licenses, devaluations, and even government seizures of whole industries have been and, in some instances, still are in effect. To invest capital outside the United States and Canada without a special permit and guarantee by foreign parliaments, and for more than a few surveyable weeks, usually results in a total or partial loss of the capital, not to mention its interest. In Streit's Union, where capitalist, socialist, and Marxian communist countries are to exist side by side, capital would be subject to a multiplicity of government means of expropriation.22 We may thus draw our final conclusion: neither under presentday economic conditions nor under the conditions as given in Streit's Union can capital migrate and bring about the equalizing effect which would reduce the pressure of migration of 22 For a detailed analysis of the world's conditions regarding the safety of capital investments, see Franz Pick, Black Market Year Book, New York, 1951, 1953.

48 DOCTRINES AND PLANS OF UNIFICATION the individual. Even this roundabout way towards Union citizenship is impossible. Migration of Capital Hindered by Governments and Labor Unions. Even if we assume equal security conditions for capital throughout the Union and agree with Streit on excellent Union conditions, we arrive at the same result because the nations from which liquid capital would emigrate are neither willing nor prepared to submit to a concomitant reduction in wage rates. They would rather vote against any scheme of unification having these effects. We can presently observe this very problem of migration of capital from less favorable to more favorable production places in the United States of America. In recent years, numerous businesses in the Northern sections, and especially in the New England states, migrated to Southern states where production conditions are more favorable. Wages and taxes are lower; strikes and other union troubles are less frequent. The inevitable affect of this migration is some unemployment and lowering of wage rates in the North, while wage rates in the South tend to rise. Furthermore, the whole territory of the South is rapidly developed. The New England states and their local unions, having brought about this migration of business either through heavy taxation on the part of the former or forced increases in wage costs on the part of the latter, then vigorously protest against emigration of business. They attempt everything in their power (i.e., through inquiries, controls, new taxation, slow-downs, strikes, etc.) to keep business in the state. Naturally, they do not consider reducing business costs, taxes, and wages.

That their own countrymen in the South gain by this migration does not soften the anger and indignation of the population in the North. In Streit's Union of democratic peoples migration of liquid capital would occur on a much greater scale since the differences of production conditions are more distinct. The wage rates in countries from which capital would emigrate would drop considerably. Having arrived at this conclusion, we must raise again the crucial question: "Will people whose wage rates are lowered by an emigration of capital acquiesce in and vote in favor of a Union bringing about these results?" Definitely not! "Will people who even object against a migration that is harmful to them though it benefits their own countrymen acquiesce in a migration that hurts them considerably, though it benefits 'foreigners' at the other end of the world?" There cannot be any doubt that they would neither consent to the migration nor assent to the Union. From whatever aspect we may analyze Streit's contention that his Union would guarantee common citizenTHE FEDERAL UNION OF DEMOCRACIES 49 ship and freedom of migration of the individual, we arrive at conclusions that are contrary to his contention and that deny the realizability of his Union.

An Inquiry into a CustomsFree Economy. The next problem we would like to analyze is the feasibility of a "customsfree economy of the Union/' It is one of the important functions of Streit's Union to create a large free-trade area without barriers of national tariffs. However, it is maintained here that the hope for a realization of a "customsfree economy" is unrealistic, under presentday ideological conditions, and that a Union that attempts to bring it about would unhesitatingly be rejected by our contemporaries. The proof of this contention shall be presented in the following.23 The main function of modern government is to guarantee to its citizens economic and social security and protection. Under the pressure of public opinion, governments are firmly committed to a policy of interventionism and, especially, protectionism with regard to competition by foreigners. National tariffs, import and export restrictions, licenses and foreign exchange controls are the modern tools with which the policies of protection from foreign competition are executed. They are the tools by which the blessings of modern government are "fairly" administered and apportioned to the constituents. "Fair prices" are guaranteed and "fair wages" and incomes are decreed. If and when, for some reason or another, prices sink below the government parity plan, production is restricted by government order or goods in vast quantities are bought up by agencies and dumped or burned or shipped out of the country. If wage rates do not move as labor unions and government would like them to move, pressure is exerted to raise wage rates to a "fairer level."

Unemployment inevitably results. If and when, for some reason or other, the price of a commodity that is partially supplied by foreign producers falls below the government parity price, steps are immediately taken by domestic producers and their representatives in Congress to limit the supply on the market by restricting foreign imports and competition. No consideration is given to the fact that millions of consumers are hurt by the resulting rise in prices and that the producers' gain is only temporary. Furthermore, there is no regard for the fact that the whole market structure is disarranged 23 The problem of abolishing national trade barriers and realizing a customsfree economy of the Union is dealt with in detail in the chapter on "CoudenhoveKalergi," p. 69 et seq. To avoid repitition we will confine ourselves to a short theoretical exposition of the problem and some elucidations mainly in the light of contemporary American ideologies and policies.

50 DOCTRINES AND PLANS OF UNIFICATION because of the establishment of trade and production obstacles. The fact that foreign producers and a host of foreign workers will be hurt by necessary curtailments of their production finds only deaf ears among adherents of government protection. That the domestic export industries, too, will be curtailed accordingly, because the foreigners no longer earn the means with which to purchase their imports, is beyond the recognition of protectionists. Public Opinion Favors Protective Trade Barriers. If we now assume with Streit that national trade barriers will be abolished in the Union, we must be willing and prepared to bear the effects brought about by such an abolition. If we remove government protection from industries, they will temporarily be hurt by an increased supply of goods, increased competition, and lower prices. This will be true no matter how beneficial the abolition may be for the whole economy. Streit assumes that the democratic nations of the world are prepared to bear the effects of an abolition of protective trade barriers for the sake of his Union, but such preparedness is to be doubted. To illustrate our contention we may refer to a country in which the policy of government protection and intervention is least pronounced as compared with the other "founder democracies," and in which the prerequisites for a Union are most favorable. We are referring to the presentday United States. The final question on which we are willing to build the whole defense of our skepticism is: "Are the people of the United States prepared to bear the economic effects of an abolition of protection for certain groups of producers?" If even the people of the United States should be found unprepared, we need not bother raising the same question regarding the other peoples of the Union since their ideas on protectionism and interventionism are more radical and of longer standing.

Agricultural Policies Versus Union. One of the most striking examples of American protectionist policies is the attitude of public opinion and of Congress towards the protection of the American farmer. The agricultural protection program of the Federal Government has reached a place in the minds of the public and of Congress where it is almost as secure and self-evident as social security. It is a foregone conclusion, indeed, that the agricultural market is a supported market and that farm income is protected by government intervention. A permanent farm program is enacted to prevent any considerable shrinkage of net income through governmental price supports, income supplements, cultivation quotas, credit policies, import restrictions, etc. A whole series of governmental agenTHE FEDERAL UNION OF DEMOCRACIES 51 cies and bureaus is set up to carry out a policy of "maintaining farm purchasing power" which is to "affect the distribution of the national income in a direction favorable to the maintenance of high consumption." This is the accepted ideology in presentday America—in Congress and the Administration, in the Democratic as well as the Republican party. Since we do not have to enter into a discussion of who put the government into the wheat and potato business or what the ultimate effects of this governmental policy necessarily will be, we may confine ourselves to a discussion of the effects of similar farm policies on the prospect of Streit's Union.

Governmental efforts to uphold farm prices at a fixed "parity level" are made only if and when the free market prices sink below the parity level. The free market price is the world market price as determined by demand and supply on the international market. It is a matter of evident fact that a Federal support policy that would endeavor to uphold free market prices would have to support and uphold world market prices. As such an undertaking is scarcely within the intention or the strength of the Federal government, the national market for farm products must be protected from adverse price fluctuations on the world market. This protection is achieved by high tariffs, import restrictions, and so forth. Only when the American farm market is protected and excluded from the international market can Federal agricultural policies of protection and parity be conducted. Indeed, if we look at contemporary Federal agricultural policies, we find that government price support is inevitably connected with import restrictions. When the government embarked upon the support of butter prices, for example, it prohibited foreign butter imports immediately. American borders were closed to butter imports in spite of numerous angry diplomatic protests and economic retaliations from injured butter-exporting countries like Denmark, Holland, and others. The same holds true of Federal import restrictions on other supported farm products like cheese, eggs, potatoes, grain, cattle, meat, and sugar. The Federal policy of farm protection in recent years was conducted in disregard of the damage done to foreign producers who used to supply the American market. Even the neighbors of the United States, Canada and the Central American countries, were given numerous reasons to complain about American farm policies. Wherever the Federal government was confronted with the alternative between agricultural protection and friendly relations with neighboring countries, it preferred farm protection. This preference for protection over an international ex52 DOCTRINES AND PLANS OF UNIFICATION change of goods was, and still is, made not only in the case of basic food commodities like potatoes and grain, which are produced by millions of American farmers, but also of products grown by only a few thousand American farmers. Cuba, Puerto Rico, Jamaica, and other Central American territories, for example, grow sugar cane and largely depend on the export of sugar and related products for their livelihood. In the United States only a few thousand farmers in a few states produce cane and beet; and yet, their clamor, led by a few large concerns, is sufficient to induce the Administration and Congress to grant tariff and quota protection. Central Americans suffer from U. S. import restrictions. We rather see them ship their sugar to Soviet Russia than to allow the American price of sugar to sink a few pennies below the parity level. The same holds true in our relations with Canada, South America, and other parts of the world.

Americans Choose Farm Protection, Not Union. According to Clarence Streit, a Union of the democratic peoples of the world would do away with all interstate trade barriers. Goods could be freely imported and exported without any national obstacles against trade. This means that butter, cheese, eggs, potatoes, grain, cattle, meat, sugar, and so on, could be freely imported to the United States. And immediately the domestic market prices of these supported commodities would sink below the parity level. The whole farm program of protection would have to be abandoned instantly or it would collapse. The crucial questions regarding the possibility of a realization of Streit's Union must here be raised again. Are the people of the United States prepared to abandon agricultural protection for the sake of Union? Are the American farmers, who constitute a large part of the American constituency, prepared to vote in favor of a Union that wrecks their protection? Does the farmer vote for a Union that "floods" his market? Undoubtedly notl Industrial Protection Versus Union. We reach the same conclusion if we analyze the prevailing policies of protection for industrial commodities. A small American industry producing goods that are partially supplied by foreign producers may find its foreign competitors quite bothersome. And immediately we may hear demands by Senators and Congressmen for prompt action and protection; 24 24 Of course, nobody lays blame on Senators and Congressmen for conducting those policies of trade restrictions since they merely execute the ideologies prevailing in public opinion. Personal moral guilt only sets in where the legislator acts in bad faith, i.e., where he is fully aware of the effects of his policies, but finds it convenient THE FEDERAL UNION OF DEMOCRACIES 53 or we may observe probes and hearings before Tariff Committees and Commissions. Does Streit really assume that the American legislators who just may have voted for protection of some watch producers will, perhaps minutes later, rise in favor of a Union which would "flood" the market with watches and put American producers out of the watch business? To assume that legislators would not realize the alternative is thoughtless and superficial.

Regulation of Foreign Trade or Union: An Alternative. Another function of Streit's Union renders its realization impossible. This is the regulation of foreign trade by the government of the Union. The problem of agreeing on foreign trade protection and on a common tariff would raise insoluble problems. Where the tariff is used to assist and protect a particular industry, it subsidizes certain producers and imposes sacrifices on all other producers and consumers. While it is relatively easy in a national state to persuade the countrymen to pay higher prices for the product of a particular group which they favor for some "national" or "social" reason, it would be extremely difficult to persuade the population of the Union to endure sacrifices for some small group of producers in another part of the world. English and French consumers, for example, would scarcely be ready to pay more for their tuna fish to assist 500 tuna fishers in California. On the other hand, would Americans be ready to pay more for their cup of coffee to help some French plantings in Central Africa, or the Dutch to pay more for their beef to benefit cattle growers in Texas? Definitely not! Protection by tariff becomes clearly impossible in a Union where a national group of producers lacks the legislative majority to impose sacrifices on others. There cannot be government regulation of foreign trade, where there is a Union; and a Union cannot exist where there is government regulation of foreign trade.25 FUNDAMENTAL FALLACIES Another serious objection against Streit's scheme of Union is that certain shortcomings of his plan render its realization unfeasible under any conceivable conditions. Fallacious conceptions and grave errors in his reasoning have led Streit to statements on essence and features of his Union that are contradictory and incompatible with each other.

not to resign and continues to conduct restrictive policies. This case, however, is undoubtedly an exception. The vast majority of legislators are exculpated because they fully concur with the prevailing public opinion. 25 For a detailed analysis of problems connected with a Union tariff, see the chapter on "CoudenhoveKalergi, p. 69 et seq.

54 DOCTRINES AND PLANS OF UNIFICATION The Scope of State Governments Severely Limited. Streit assures us that the Union could and would allow its states the freedom to experiment politically, economically, and socially, and that the member states would be free to choose their own system of social organization, whether capitalist or socialist.26 But what economic liberty does the member state enjoy in a customsfree economy of a Union in which goods, men, and capital can move freely from state to state? In order to assist a particular industry, contemporary government usually influences prices. By way of compulsory organization, government control, quotas, and other restrictions, the supply of goods is limited and thus prices are raised. But the success of such policies depends on and presumes exclusion of foreign competition. In a Union a member state would be incapable of raising prices materially because it cannot exclude the competition of businessmen from other member states. Any burden placed on a particular industry would be a boon for the neighboring industry, which would undersell the former and cause it to suffer from unemployment.27 With respect to financial policies the member states would be equally severely limited in their operation. Any discriminatory taxation would drive liquid capital and labor elsewhere. Even indirect taxation could not be freely employed by the member states since many commodities could easily be imported from neighboring states.

A severe check on the member states of the Union, finally, would be the check on national borrowing as the national central banks would no longer be free to lend limitlessly by resorting to the printing press. The freedom to indulge in social experiments by the state would be equally limited in a Union. Although Streit fails to elucidate what he means by "social experiment," we may assume from other remarks of his works that he means "pro-labor policies." Such policies consist in government-decreed and -enforced increases in production costs in favor of the workers. They include social security, limitation of working time and business hours, holiday pay, vacations, pensions, sanitary statutes, minimum wage laws, and so on. But all these national policies would be severely limited in a Union, for they raise production costs and place the domestic industry at a serious disadvantage as to other industries in the Union. National, p. 16.

27 F. A. Hayek, "The Economic Conditions of Interstate Federalism," in New Commonwealth Quarterly Vol. V, No. 2, (September 1939), pp. 131-149, reprinted in Individualism and Economic Order, London, 1948.

THE FEDERAL UNION OF DEMOCRACIES 55 ization of industries, which Streit may also have in mind, would be rendered more difficult if they have to compete with foreign industries in the Union. Under such conditions nationalized industries could scarcely constitute basic tools for social and economic planning by the national state. A Socialist Society Cannot Be Part of a Union. Streit's contention that the member states are free to choose a system of social organization of their liking is the most fallacious statement in his book. The assertion that not only capitalist but socialist and even Marxian communist nations can be members of the Union is a profound mistake revealing erroneous conceptions and faulty reasoning as well as lack of economic and political insight. It is contended here, and it is almost too apparent and evident to require a detailed analysis, that a socialist society cannot be part of a Union.

In a socialist system private enterprise and private ownership of the means of production are abolished. Government ownership or control is substituted for the market economy. The individual is no longer free to determine by his buying and abstention from buying what is to be produced and in what quantity and quality. A government plan by economic commissioners and stabilizers alone settles all these matters. Imports from and exports to other countries are governed by the general plan. "Unplanned" and "selfish" individual actions, imports and exports on the individual's initiative, are prohibited insofar as they run counter to the master plan. All these features of a socialist economy can be derived by way of simple reasoning from the basic conception of government ownership in or control over the means of production.28 We may illustrate the necessity of strict export and import controls in a socialist economy by using a brief example. Let us assume that the central planner, Mr. Stabilizer, has decreed, for certain national economic reasons, that the price of a motor car is 1000 thalers, and that the price of a similar car produced by a neighboring industry amounts to only 900. Now, if the socialist economy is part of a customsfree economy of a Union, the citizens of the socialist country will not hesitate to import the equally good but cheaper car from the neighboring country. The plan of Mr. Stabilizer thus could not be executed because his cars would be left unsold, and his nationalized industry would soon be idle and unemployed. To execute his purpose, which, in the belief of Mr.

28 For an excellent study on socialism, see L. v. Mises, Socialism, Yale University Press, 1951.

56 DOCTRINES AND PLANS OF UNIFICATION Stabilizer, can be attained only at a price of 1000 thalers, imports would have to be prohibited. The same necessity for restrictions exists with respect to all other goods. It is obvious that import controls and restrictions by member states are incompatible with the nature of a Union. Capitalism or Socialism: There Is No Other Alternative. A socialist economy deviates in price and wage structure from the market economy. To differ materially from the market economy is not only its purpose and objective, but such is the inevitable outcome of the substitution of one "national economic planner" for millions of individuals who used to do the economic planning by buying or refraining from buying. Differences in the structure of prices and wages, however, are equalized in a market economy in which individuals and groups of individuals compete and seek to profit from differences. The Union economy without national trade barriers would constitute a market economy with the tendency towards general price equalization. Only slight differences would continue to exist because of different costs of transportation for different places in the Union. The price and wage structure of a socialist member economy, which extends over only a part of the Union, would be quickly equalized to the structure of the Union economy at the time of its exposure to the market economy and its market prices.

That is to say, the socialist organization would collapse. In any organization of human society, in any federation of states or Union of democratic peoples, there is room for only one system of social organization. Either the system is socialist, and then it must be consistently so throughout the Union, or the system is capitalist. There is no other alternative. That reality concurs with our theoretical contention may easily be illustrated by the existence of a small free trade area surrounded by a socialist economy. We are referring to Free West Berlin in the Russian occupation zone in Germany, some 120 miles behind the Iron Curtain. West Berlin is part of the Western German market economy. Although tens of thousands of Russian soldiers and Peoples' policemen are guarding the borders of West Berlin, and although trade between East and West Berlin is conducted with great risk of life, not to mention property, an exchange of goods continuously takes place, causing daily embarrassment to the socialist planners. If the borders of West Berlin were open to free exchange—and such an assumption concurs with Streit's contention on his Union—socialist planning in Eastern Germany not only would experience difficulties, but would clearly become impossible because THE FEDERAL UNION OF DEMOCRACIES 57 of "unplanned" movements of goods. Even Soviet Russia, in the long run, would not be able, in our belief, to resist the radiation of the capitalist economy via the small island of West Berlin. For the socialist planners in Russia there is only one alternative: Either they guard their borders against market economies with hundreds of thousands of soldiers, tanks, guns, and ammunition—or they abandon socialism.

Streit's Union Makes Inroads on Mans Liberty. The final point and reason for our rejection of Streit's projected Union is the fact that it would affect adversely man's liberty which is the very central point and objective of Streit's Union. The following features of Streit's scheme of Union make inroads on man's liberty: 1. Controls and regulations by the Union government over the foreign trade relations of Union citizens. 2. Controls and regulations by the Union government over the value of money and media of foreign exchange. 3. Legislation and enforcement of "sweeping economic rights" by the government of the Union. Controls and regulations by the Union government over the foreign trade relations of Union citizens necessarily infringe upon the rights of the individual by giving authority over man's actions to government officials and civil servants. Where the state controls foreign trade, the individual is no longer free to make his own decisions. He has to plead for licenses and permissions, inquire where he may buy, what he can buy, from whom he may buy; what, where, and to whom he can sell; at what price he may buy or sell, etc. That is what is meant by foreign trade control and state supervision. The individual may entreat, but only the government plans and decides.

Control and regulation by the Union government over the value of money and media of foreign exchange mean that the individual must settle debts and payments with a media of exchange the value of which is determined by government law. The individual is deprived of his freedom since he is forced to settle interpersonal debts and payments not under the terms of mutual choice and agreement, but under terms fixed by law. Such an infringement upon the liberty of man, to which most contemporaries are fully accustomed, is connected with immoral imputation and severe injustice if the value of money has been decreased by government credit expansion, outright inflation, or devaluation. An individual may have loaned a sum of $10,000 to another individual at a time when it was worth a certain amount of other goods—let us say, two houses. When the 58 DOCTRINES AND PLANS OF UNIFICATION loan is due for repayment he expects to be paid an equal amount of money that will buy the same quantity of goods. But then government interferes and depreciates the value of money and says: "In repayment for your loan of $10,000 originally worth two houses you must accept these $10,000 of my latest issue that are only worth one house. If you do not abide by my order, I will take appropriate measures of coercion that will induce you to accept." No matter how immoral such a demand may be, this government, under presentday world conditions, is still considered to be fair in that the money lender receives a "fair deal" by losing only half of his loan.

In all these interpersonal transactions the individual is defenseless against the authority of the state. Where, in all fairness, is his liberty to manage his own affairs? Finally, Streit's "sweeping economic rights" curtail the liberty of the individual to use and employ his own labor. "Freedom from both overwork and unemployment as defined by law," which Streit favors adding to the Union Bill of Rights, can only mean, according to all rules of understanding, government legislation and enforcement of laws regarding "overwork and unemployment." The underlying notion of Streit's demand is based on the thought that the individual would overwork himself or be unemployed without government intervention. According to this notion, the individual endures both evils because of his own ignorance of what is good for him, or because some fellowman may impose overwork or unemployment upon him. In the first case, government intervention is clearly an infringement upon the individual's rights over himself, no matter how "foolish" his actions may be in the eyes of the legislator. In the second case, "protection from overwork or unemployment by fault of a second party" is apparently based on the Marxian doctrine that the worker in the capitalist economy can be exploited or left unemployed in the process of production. Such a thought is as superficial as it is fallacious. How can a worker, who is free to offer his services to a vast number of competing employers, and who may offer them to an employer of his own choice and liking, be compelled to overwork or to be unemployed? Unemployment does not lie in the nature of a market economy. Unemployment is a phenomenon brought into existence by governments impeding the mobility of capital and labor, and labor unions eager to raise wage rates above the height determined by the market. Only when wage costs are higher than the market rate can unemployment arise. But this unemployment is government-or union-created, and as such is a grave infringement upon the freedom of the individual and his opTHE FEDERAL UNION OF DEMOCRACIES 59 portunity for employment. However, could Streit have meant the protection of the individual from both evils in a socialist economy?

Where the individual is confronted by one huge employer who determines where he shall work and under what conditions, and where the individual is no longer free to sever his work relation because of grievances, there he may be exploited and may suffer from overwork. But, as we can infer from other places in his writing, this is not the protection that Streit is suggesting for inclusion in the Union Bill of Rights. The Socialization of the Communication System. A few other minor fallacies of Streit's proposed Union cause us also to reject it. According to Streit, one of the five basic functions of the government of the Union is to control a postal and communication system. Streit neither explains explicitly the reasons for his demand nor does he say exactly what he means by "communication system." We may assume that he probably includes all means of communication like interstate telephone, telegraph, and radio. Mr. Streit feels there is need for unification and standardization of all means of communication. He assumes that this can best be accomplished under Union government control. Thus costs could be saved and taxes reduced.

Why does Streit advocate Union controls over the communication system and the postal service, but not over other even more important services of human economy? We expect Streit to answer this question. What distinguishes human communication from other features of human action that justifies its government control? What distinguishes the individual's postal service from other services in his daily life? It cannot be the importance of postal service to the individual that induces Streit to ask for government control. For, other services are many times more important to the individual, such as the baking of his daily bread or the churning of his butter. Both services are rendered to him by fellow individuals in voluntary distribution of labor. Why should the interstate telephone and telegraph industry be controlled by the government of the Union? Private industries in the United States of America work very well and stand any comparison with the U. S. postal service. The unification and standardization of American private communication industries, which are constantly improving and expanding their services, are by far superior to the unification and standardization of the U. S.

postal system, which is progressively cutting its service. The former are profitable and growing industries and are paying large sums into national and local treasuries; the U. S. postal system is an annual 60 DOCTRINES AND PLANS OF UNIFICATION burden on the Federal budget. Many billions in taxes have been spent to subsidize the governmental postal system. If Streit's Union of democracies would assume control over the communication system and postal service, it would acquire an annual deficit that would surpass the civil budget of the United States. In all fourteen democracies, the postal service as well as other communication services are presently controlled or owned by the state. All these government systems have annual deficits that often constitute the total deficit of the national budgets. If the Union would assume these obligations and, in addition, new deficit obligations from extended Union ownership and controls, the total Union deficit would probably amount to more than the total present deficits of all member states. A Union that would be burdened with such a load right from its beginning could scarcely fare well on its road towards prosperity.

Contracyclical Policies Perpetuate Depression. The last objection which we raise against Streit's scheme of Union is the contracyclical economic function of the Union government which, according to Streit, must be "overwhelmingly powerful in the economic world/' Only the combined strength of all democratic peoples of the world is sufficient to achieve monetary stabilization and meet periods of depression and unemployment.29 No other governmental combination, not even a United States of Europe, could achieve stability. We find one correct line of thought in Streit's contentions. This is the relationship that exists between the "power of government in the economic world" and the occurrence of periods of depression and unemployment. But although Streit asserts that "overwhelming economic strength" can avoid a depression, we are convinced that only under complete absence of government intervention in the economic world can a depression be avoided. Our explanation of cause and effect of economic cycles is diametrically opposed to that of Mr.

Streit. If his assertion were correct, history and reality would have to show that world-wide depressions are least severe where the economic power of state is greatest. Reality would have to show that depressions are slightest where and when governments employ their vast economic power. The depression of the 1930's, for example, had to be least severe in the United States where the economic power of the President was almost complete—with the exception of a few Constitutional checks by the Supreme Court. And the year 1937 had to be a year of prosperity, since the administration was at 29 ibid., p. 124.

THE FEDERAL UNION OF DEMOCRACIES 61 the height of its economic power. The government enforced its numerous economic reconstruction acts, especially the Wagner Act, and even tried to subdue the Supreme Court. But reality reveals that the depression of the 1930's was most severe and extended in the United States, and that the year 1937 experienced the most violent economic decline in American history. Other "powerful" European states saw a similar depression. But it is a matter of fact that weaker nations, whose governments lacked that economic power, suffered least from depression and unemployment. But history is a complex phenomenon. Therefore, we shall analyze Streit's contentions and reveal his fallacies by way of reasoning. Monetary inflation and expansionist credit policies of the government bring about a boom in which everybody is buying as much as he can buy because a continuous rise in price is anticipated.

There is full employment and governments demand credit for periods of prosperity during the time of their administration. Rising prices induce the businessman in his economic calculations to anticipate future rises in prices. He combines the factors of production—land, labor, and capital—and employs them toward future production goals as long as the production process appears profitable. And, indeed, it appears profitable under the assumption of further rises in prices. While the boom is in progress, he embarks upon production processes that will yield their final products in the remote future. And the more remote in the future the product will be completed, the greater appears its profitability. The demand for factors of production increases sharply as numerous production processes are begun. This additional demand inevitably causes the prices of factors of production, i.e., business costs, to rise. The boom thus continues until business, in spite of the rise in prices, is no longer profitable because of the soaring costs. At this moment the decline begins. Costs, i.e., the price of land, labor, and capital, must come down before business becomes profitable again.

If the government of Streit's Union of democratic peoples would embark upon large expenditures for public works and public enterprise and would open up "vast new enterprises," as Mr. Streit advocates, the necessary adjustment would only be delayed and the stagnation prolonged. The demand for the factors of production by the Union government, which naturally would be financed by inflation, would only tend to keep their prices high and business unprofitable. If, in addition, the government would decree raises in wage costs or give labor unions a hand in forcing such raises, like the Roosevelt Administration did in 1936, business activity would come 62 DOCTRINES AND PLANS OF UNIFICATION to a halt. If the government of Streit's Union would conduct such policies and make use of its "overwhelming strength in the economic world," Streit's Union would be a Union of lasting depression which it would be a grave risk to join.

Streifs Critique of Capitalism Unfounded. Streit's critique of capitalism for not having solved "the problem of organizing peaceful relation among the nations" at the time "when all the world was capitalistic," 30 is the customary critique of the advocates of interventionism or socialism. Capitalism is the system of social organization in which the means of production are owned by the individual who is free to employ them for his own purpose. Capitalism excludes government intervention. Where there is capitalism, there cannot be socialism or interventionism; and where there is state intervention or central control, there cannot be capitalism. If we agree on this conception of capitalism—and scarcely anybody will disagree—we must conclude that never in human history has capitalism been fully realized. Even during the "capitalist" nineteenth century, government interventions in the form of national tariffs, credit expansion, and government suspension of the gold standard and many other forms were commonplace.

But even if we assume that capitalism in the nineteenth century was paramount, it cannot be blamed for having failed to organize peaceful relations among the nations. It is an undeniable fact of history that the "capitalist" nineteenth century was the most peaceful period in human history. The few wars that were fought during this period were fought by non-capitalist nations. Scarcely anybody will maintain that the three wars fought between 1864 and 1871 by Prussia were those of a "capitalist" state or that the wars of Russia and Japan were wars of capitalist nations. But the nineteenth century was not only the most peaceful century in human history, it also allowed mankind to multiply to an unprecedented rate and improve its standard of living enormously. It proved to be a social system unrivaled in its beneficial effects. The standard of living of the American nation, the last nation to abandon the road of capitalism, speaks for itself.

The reason for continuous poverty, chaos, and starvation in many parts of the world lies in the fact that the people in those parts never have understood or embraced the doctrines of capitalism. Never in their history has the individual been free to save and to produce or to accumulate productive capital. The nations of the poverty-stricken Orient have always despised Western capitalism so ibid., p. 41.

THE FEDERAL UNION OF DEMOCRACIES 63 and are still sneering at it. It is inevitable that they must pay the price in the form of chaos, poverty, and starvation. Although the Western nations have reaped the ample reward and blessing of capitalism during the nineteenth century and the first decade of the twentieth, they have now abandoned the capitalist system and have chosen the road of interventionism and socialism. For each new step on this road a toll must be paid. Summary. Clarence K. Streit's design of a Union unfortunately reveals certain basic errors and fallacies in conception and reasoning that make its realization impractical. His contention that free market economies as well as planned economies can live side by side in a Union is a fundamental shortcoming that obscures his eyes to the real difficulties and problems of unification. Numerous other assertions disclose a lack of sense of reality.

Streit's comparison with the history of the United States is illfounded since the Americans who created this great nation were liberals, in the classical sense of the word. They abandoned restrictions, controls, protection, tariffs, and inflation with a stroke of a pen. They were disciples of the great English and French philosophers and economists who believed that the freedom of the individual shall be paramount. But their teachings are dead in the minds of our contemporaries. The significance of the difference between today and the past can clearly be recognized by the fact that the great opposition in the parliaments of the democratic nations today are constituted by parties that advocate expropriation or government seizure of private property, more and stricter controls, higher taxation and protection. The American opposition in Congress is comprised of Fair-Dealers and liberals in the modern sense of the word. How can these men be for unification and national economic protection at the same time? A divided world is further away from unification than ever; and alienation is still growing.

As it is the task of a critic of the plans of unification to reveal and refute the errors and fallacies of a proposal, it unfortunately does not lie within the scope of his task to elaborate the numerous points of mutual concurrence and agreement. Streit's basic approach to the problem of unification is sound and admirable. It is the individual who is the point of departure of Streit's planning for Union. His supreme objectives are individual freedom and prosperity and the individual's protection from dictatorship and war. These, indeed, are laudable objectives.