Economic aspects of the war : neutral rights, belligerent claims and American commerce in the years 1914-1915

Preface

This story of international lawlessness in the first year of the Great War is the outgrowth of a public lecture given at New York University in March, 1915.

The book was written because it seemed to me that we Americans were paying too much attention to the affairs of belligerents and too little to our own.

After all, we are by no means untouched by the war. It imperils not only our present material interests but also neutral rights upon which the material interests of all peaceful nations in the future depend.

The neutral world is watching for us to realize and assert it's rights and ours. Hence this statement of what those rights are and this record of what seems to have occurred to threaten them.

Edwin J. Clapp.

University Heights, New York, August, 1915.

Chap. I. Rights of Neutrals under International Law

Elements of the present situation. Nature of international law Its sanctions

The necessity for a compulsion War and neutrals. Meaning of "

Contents of international law

Declaration of London Violations of international law.

Mine laying

"Modifications" of Declaration of Orders in Council Changes in contraband list Blockade Need of return to legal limits now

1-18

'economic war"

• f London .

Chap. II. The August Order in Council and its Effect on the Export of Foodstuffs Our right to ship food to Germany

Especially as denned in Declaration of London Britain's abolition of that right.

The August 20 modification of the Declaration of London ....

Effect on direct trade with Germany Effect on indirect trade with Germany Other measures.

Pressure on steamship lines Re-export embargoes of neutrals Netherlands Oversea Trust Movement of foodstuffs markets.

Flour

Our loss not of money but of principle .

19-36

19 21

27 28 29

32 34 36

Vlll

Chap. III. Foodstuffs under International Law The October Order in Council

Our proclamation of our rights, August 15 Precedents in international practice, especially Eng

The October Order in Council ....

Retention of harsh features of August Order

Forbidding shipments "to order" .

Effect on strictly neutral trade Operation of October Order.

Case of the four meat steamers .

Compelling neutrals to place re-export embargoe;

Trade discouragement through detention policy Our protest December 26 . •

British answer January 7 .

Intimation of complete ban on our exports .

Chap. IV. The "Wilhelmina. A Test Case . Origin and method of the shipment

Reception by British public British measures to stop the cargo. The excuse.

German confiscation of grain and flour . The action.

Grain and flour declared contraband Wilhelmina seized .....

Disposal of Wilhelmina case.

Our note of February 15 and its answer Prize court proceedings ....

New Order in Council ....

Our objection to the handsome settlement .

Chap. V. The Blockade

Its alleged cause: the German War Zone Decree That Decree ......

Our protest and Germany's answer

Our attempt to reconcile England and Germany Answers of the belligerents ....

IX

The Blockade.

Its announcement .

Our protest of March 5 Britain's answer of March 15 Our protest of March 30 British answer of July 23 .

83 84

85 87 89

Chap. VI

Some Effects and Aspects of the Block ade .....

Effect of the March 23 Order in Council . The meat seizures .....

April 13 prize court proceeding .

May 21 statement of Foreign Office Statement of packers

Negotiations between packers and British

"Caveat" note of July 15

British answer .....

British control over provisions for neutrals The solution.

Blockade the key to our difficulties

The dangerous precedent created .

The question of our neutrality .

Declared stand of two members of British Cabinet

Chap. VII. Starting the Cotton Movement . Introductory

Importance of cotton exports for the South . Situation in fall of 1914 The movement to England.

Delay in ships and financing Light movement in early months .

The movement to Germany.

Preponderance of indirect shipments .

The drop in cotton prices, because of slack German

movement ....

Difficulties of exporting.

To Germany direct.

Vessels of other neutrals

93-111

103 105

107 108

112-139

112 113

115 116

Existing American vessels

Insurance.

Acquired American vessels .

Dacia .....

Ship purchase bill To Germany indirect.

Export embargoes of adjacent neutrals Contraband rumors Solution of the difficulty in German exports False measures ....

The measure that worked

British non-contraband declaration Taking the credit ....

124 125

131 132

136 136 137 138

Chap. VIII. Stopping the Cotton Movement . . 140-168

Remaining hindrances, even after British declaration.

More export embargoes

X-raying cotton bales ....

North Sea declared a war zone (mined) British purchases at low prices Good effect of German takings on market Preparation by England to stop the movement to Germany.

Contraband talk

German War Zone declaration

British retaliation planned .

The blockade

Its March modification

Effect of Order on neutral trade Effect of blockade on cotton prices Inefficacy of blockade measures, regarding Ger many.

Effect on ammunition makers

Effect on industries .....

Ill effects of blockade on the South.

Past

The solution ........

140 141 141 144 147

161 163

165 165 166

Introduction

Importance of the export field for our copper . 169

Reduction in output at outbreak of war . . 170

Large takings of England ..... 172

Difficulties of shipping to Germany.

Copper under the Declaration of London . . 172 Necessity of shipping via neutrals.

Nothing in August ...... 173

Via Holland in September .... 173

Seizures by England ..... 174

Copper made conditional contraband . . 175 Violations of law by those seizures.

Declaration of London .... 175

"Continuous voyage" cases . . . 176

August 20 Order in Council .... 180

Via Italy and Scandinavia in October and

Seizing the copper ..... 182

Copper made absolute contraband . . . 182 The propriety of ranking copper as contraband.

Its immunity under Declaration of London . . 183

Great Britain's previous position .... 183

Effect on copper industry ..... 186

Chap. X. Copper as Contraband of War . . 188-208 Long delays of detained neutral cargoes . . . 189

Sir William Scott thereon 190

The November British proposal to direct the copper

trade 192

Gardner's visit and its failure .... 193

Confining neutrals to their average annual quotas . 194

Italy's need for more copper than usual . . 194

England's own example ..... 195

Forbidding neutral shipments "to order" . . 197

Our December note of protest ..... 200

Answer from England, on January 7 and February

10 201

Final surrender of copper trade to Admiralty . 202

Italy's copper famine ...... 203

Xll

Advantage enjoyed by British dealers . American producers sign the Agreement Efficacy of the "economic pressure" as regards copper Effect on Germany Effect on United States

Chap. XI. The Export Situation . Growing balance of trade

Its direction ....

Items of large growth in exports .

The Seven Groups

Decrease in other exports "Spotty" export situation

Chap. XII. The Import Situation . England's use of her economic power The commodities affected

Rubber .....

Wool . .

Tin

Chap. XIII. The Import Situation (Continued) Potash

Use. Present status .

Dyestuffs ....

Our dependence on Germany Other imports Prospective loss of Federal revenue

204 205 206 206 208

209-220 210

210 212 217 217

221-238

221 224 225 234 238

239-253

239 244

245 252 261

Chap. XIV. The Practicability of Starving Germany ...... Foodstuffs

The fallacy

Why it arises .......

Germany's former measures to remain self-supporting.

Tariff protection ......

Intensive agriculture .....

Resulting independent food supply .

264-290 265

265 267

271 272 xm

Germany's present measures .

Confiscation of grain and flour .

Bread tickets

Treatment of live stock and fodder

The new harvest The smuggling trade ...

Fertilizer .....

Oil

Possibility of permanent substitution

products England's trust in the "attrition policy" Our need to resume trade with Germany problems for our

287 290 290

Chap. XV. War Orders and the Power They Place in Our Hand Importance of artillery in this war

Large orders placed in America

Official approval of State Department

German complaints of these exports Bernstorff on aeroplanes German note of February 16 Bernstorff's ammunition memorandum

Our right to ship arms .

Germany's policy in the past Our obligations under neutrality laws The argument on humane grounds Our material advantage from the orders

Our right to cease these arms exports. Hague Convention supporting it .

The use of such action: To compel return to the limits of law

291-309

Appendix

President Wilson's Neutrality Appeal British Orders in Council.

Order of August 20

Order of October 29

Order of March 11 .

Order of March 23 .

American note presented jointly to the belligerents in February, suggesting modifications of the severity of war at sea ...... 316

Letter of Jefferson to Pinckney in 1793 . . . .318

Minority Report of the Committee on Merchant Marine

of the United States Chamber of Commerce . 321

Declaration which American Associate Members of Liverpool Cotton Exchange were asked to sign . . 322

British detentions of American Copper exports to

neutrals, autumn, 1915 ..... 323

Copper agreement of United States producers with

British Admiralty 324

Statement issued by British Embassy in Washington in

May, telling American exporters how to operate 325

Circular letter from United States Trade Advisers sent

to American importers 327

CHAPTER I Rights op Neutrals under International Law

Before this war had been long in progress most of us learned for the first time the real nature of international law. The word "law" had tricked us into thinking of something clearly defined and accepted by those to whom it applied, and something backed by force to compel obedience.

Now we learn that what we considered international law consists mainly of a great body of precedents of different nations, some of them conflicting. These precedents represent certain immunities granted by belligerents to the commerce of neutrals in time of war. To be sure, the immunities are an advance over the days when a belligerent proceeded like a pirate against lives and property on ships trading with the enemy. But the advance, when we consider it closely, is seen in no way to have kept pace with the growth of the vast interests it was designed to protect. International law at the best is an inadequate recognition of the rights of those who keep the peace at the hands of those who break it.

Yet even such law as there was has been disregarded. Blinded by self-interest, the belligerents have inaugurated a return to the practices of piracy from which this law has been designed to save us. When we turn to a power sufficient to compel obedience to the law, we find that behind it there is nothing but international morality, the public opinion of the world.

Especially in the last fifteen years this public opinion has been enlightened as to the great interests dependent upon an uninterrupted flow of peaceful commerce in war times. True, in the process of public enlightenment there has been more emphasis upon the horrors of war in general. The strongest of the forces forming public opinion on international matters has been the peace movement. Today we can say that more good might have been accomplished if the greater emphasis had been not upon preventing all war but upon confining its damage to those who fight. But a valuable by-product of the peace movement has been the spread of information on the rights of peaceful nations compared with belligerents and the need to extend those rights, not restrict them.

It was hoped that in time of war this international public opinion as to the rights of neutrals would exercise a strong moral force upon the belligerents to stay within the limits of law. That is, it was expected that the conscience of belligerents, fearing the disapproval of neutrals, would compel respect for the established order of things.

We were doomed to disappointment. The disapproval of neutrals has not been lacking, expressed most clearly in the protests of their governments directed to both belligerents. But a belligerent conscience, that is, fear of this disapproval or even any large respect for it, is lacking in the parties to the war.

Perhaps it was too much to expect that international morality alone would suffice to give sanction to international law. Within national boundaries we do not trust to morality alone. The prime interests of life and property are safeguarded by definite, clearly understood laws, accepted by all, and backed by force. Morality supplements force and does not supplant it. Withdraw the force of the law in any nation and its observance would disappear. Could we expect international morality alone to be any more able to supplant force in compelling observance of international law?

Whatever our expectations were, regarding the binding force of morality upon warring nations, we can have them no more. It is necessary to find some form of peaceable compulsion that will bring the belligerents back to the limits of law. Everyone recognizes the necessity of doing this at the end of the war. As a sequel to the peace, men are planning a new sort of international law with sharp power to enforce it. But the return to legal limits must be now, in the midst of the war. For neutrals to forfeit their rights will be a victory for the forces of international immorality and disorder. Respect for international law will be permanently weakened.

Moreover, no one can with certainty say that the end of the war will see established the formal system of international law of which we dream. It may be that this law will still be largely a matter of precedents, enforced by nothing stronger than the morality of nations. What security will there be in our relations if those precedents, hard won in the past, are now effaced and if that international morality notoriously proves unequal to its task?

Apart from this matter of principle, the great interests of trading nations, injured by the actions of belligerents, and the constant peril to innocent ^"ves upon the high seas, both call for a return to freedom of neutral trade and travel now, before the end of the war, whose end we cannot foresee. Now is the time to put an end to the sacrifices of life and property demanded of those who choose to remain aloof from the conflict.

From the very beginning this war went beyond the limit of military and naval actions. It became an "economic war"; namely, a process of interrupting the flow of commerce between neutrals and belligerents and even between neutrals themselves. The purpose was to deprive the interrupted belligerent of necessities of military, industrial and civil life and so bring upon the enemy nation "pressure" sufficient to end the war.

But an economic war of this sort is also an economic war against neutrals, for the same pressure is brought to bear upon them as upon the belligerent attacked, perhaps even greater pressure. It may be that the belligerent can find or develop a substitute for the neutral's product more easily than the neutral can find a substitute for the belligerent's market.

There are two parties to all trade. It is impossible to interrupt the trade without striking them both.

The economic war began in August, 1914. Soon after the outbreak of the military war England's sea power drove German naval vessels from the ocean. Since then, Germany's navy upon the high seas has been unable to do more than carry on a sort of guerrilla warfare beneath the waves. England, after driving German cruisers from the Atlantic, proceeded to inaugurate measures designed to withhold from Germany the importation of most commodities th come to her by sea. Germany retaliated by a submarine campaign that endangered not only neutral property but also neutral lives on vessels sailing to or from England.

Through this policy of action, retaliation and counter-retaliation the seas have become a battlefield where the commerce and citizens of neutral countries venture at peril of capture or sudden destruction.

This book, dealing with the effect of belligerent violations of neutral trade rights upon the agriculture, industries and commerce of the United States, could be written about any nation now at peace. Our wrongs and losses are merely types of what has been forced on other neutrals as well. The sum of these wrongs and losses is an argument demanding that nations which plan to work and trade be led to dismiss now, and for all time, the aggressions of those that plan to devastate and slay.

It happens that the United States is the only great power remaining neutral, the only force today that is able to assert the rights of the world of peace. If we fail in the objects we seek, in the negotiations we carry on with both belligerents, the hope of all neutral nations is gone.

It is worth while briefly to review that body of neutral rights which we called international law and the successive measures by which those rights were abolished.

By common consent the seas are the public highways of nations ; outside a zone three miles from shore they are not the domain of any one nation. They belong to peaceful commerce, not to belligerents who roam their surface seeking to destroy each other. As a remnant of marine barbarism, a belligerent has the right, if it has the power, to capture or drive from the ocean the merchant vessels of its foe. To the extent of its command over the sea, a belligerent may prevent contraband of war from reaching an enemy in any vessels ; and, if capable of blockading the enemy's seacoast, may put a stop to all ocean commerce of the blockaded country. Under international law, these were the limits and conditions of interfering with commerce between neutrals and a country at war.

Only within much narrower limits, according to modern conceptions of international law, can a belligerent interfere with commerce between neutrals themselves. This commerce may be interrupted only when it consists of contraband of war — the actual tools of fighting — demonstrably in transit to enemy territory.

These are the rights of commerce on the seas. The rights of travel are as well understood. Though a belligerent may capture and in certain cases destroy a merchant vessel of the enemy, this may not be done without providing for the safety of crew and passengers. All passengers on neutral vessels, wherever bound, are immune from interference, excepting members of the armed forces of the enemy traveling home.

The laying of mines at sea is not permitted except for defensive purposes and then only in the territorial waters of the warring power that lays them.

With these main exceptions, which are burdensome enough, the sea must be free for the uses of commerce.

While this is international law as generally understood, it has not been in form to give nations a sense of security. The law is mainly in the form of precedents, such as proclamations of belligerents in previous wars, decisions of the prize courts of captors, and treaties between individual nations. Some of the precedents of different countries are conflicting. Therefore civilized powers have made several attempts to reduce the law of the sea to a form acceptable to all and accepted by all.

One such attempt resulted in the brief Declaration of Paris, adopted as a sequel to the peace negotiations following the Crimean War. More recently in the Hague Conferences efforts were made' to form treaties which all nations were to sign. Most important for our present purposes is the Declaration of London. The British Government in 1909 called the London Conference to codify the law of the sea. All the leading nations took part. The result was the Declaration of London, signed by all national representatives who attended the Conference.

It is true that not all the Hague Conference agreements, called Conventions, were accepted by all civilized nations. It is true that for reasons partly selfish and partly technical the Declaration of London was not ratified by many home governments and so did not become officially binding upon them. But it was signed by the representatives of all great powers. The Preliminary Provision reads :

"The Signatory Powers are agreed that the rules contained in the following Chapters correspond in substance with the generally recognized principles of international law."

Hence it is that neutrals felt that the Declaration of London was morally binding. Hence it is that nations at peace looked forward to seeing the judgment of civilized nations as to the rights of neutrals upon the sea, expressed particularly in the Declaration of London, proclaimed as sea law by all belligerents at the outbreak of the war. We were disappointed.

The disregarding of legal limits was first in evidence when either Germany or England began laying floating mines upon the high seas, forbidden in a Hague Convention. Each took the alleged action of the other as the excuse for retaliation. Because of these floating mines in the North Sea, literally scores of vessels were lost, mostly belonging to the Scandinavian countries or Holland. Three American vessels were included, the Greenbriar, Carib and Evelyn. Because of the danger of mines, ocean freights and war risk insurance rates became a heavy burden on shippers and buyers and, in the case of some commodities, became prohibitive of commerce. A pall of uncertainty and fear was thrown over the commercial world.

Unfortunately, as it would seem in the light of later events, America refused to join the North Sea neutral countries in a protest against the mining of the North Sea. Such action might have made more effective the protest of all neutrals against the later German War Zone about the British Isles.

Yet the effect of mines upon the high seas was small compared with the paralysis of trade effected by a practical abolition of the rights of neutrals to trade with Germany and a severe restriction of their right to trade with each other. England brought this about by certain amendments to international law through its Orders in Council. Germany, with her retaliatory submarine warfare, designed the same paralysis of English trade. That the object was not attained is due solely to the fact that German submarines are less omnipresent and less able to intercept all trade than British cruisers are.

The exact process of this abolition of the freedom of commerce is easy to follow.

At the very opening of the war the American Secretary of State, with a view to protecting neutral rights while allowing the belligerents all lawful freedom of action, suggested to them that they adopt during this conflict the unratified Declaration of London as their code of action towards neutrals. Germany and Austria agreed. Russia and France delayed their answer until they could hear from , Great Britain, and then joined that country in its ; policy announced by the Order in Council of August 20, 1914, accepting the Declaration of London with modifications.

The modifications were subversive of the principles of the Declaration to which they were attached. J These modifications, supplemented by an unexampled / extension of the British contraband list, and finally by what our government calls an illegal blockade, have been England's method of exercising economic pressure upon Germany and, necessarily, upon all neutral nations that trade with her.

In the Declaration of London the articles classed as absolute contraband of war — that is, articles which Great Britain might properly shut out of Germany , altogether — were restricted to the actual tools and equipment of fighting nations. Conditional contraband was a more comprehensive list, including such merchandise as food, clothing, coal, harness and saddlery, horseshoes and barbed wire. These articles, capable of direct use by the armed forces of the enemy, might be stopped only if the interfering belligerent could prove that they were destined for those forces. Finally, the Declaration specified a list of free goods, articles which might not be molested because only distantly related to warfare, necessary to the civilian population, and contributing a very important portion of the commerce of peaceful neutrals. Such articles were cotton, wool, hides and skins, and rubber.

This was law as codified in the Declaration of London. The British Order in Council of August 20 had the effect of adding the conditional contraband list (food, clothing, etc.) to the absolute list, by decreeing that conditional contraband would be presumed to be moving to the German military, and hence subject to capture, if the goods were "consigned to or for an agent of the enemy state or to or for a merchant or other person under control of the authorities of the enemy state." That is, goods could be consigned to no one in Germany ; they could not be shipped to Germany at all. It is obvious that after this action any addition to the British conditional contraband list was as complete a ban on commerce as an addition to the absolute contraband list. The two henceforth were identical.

This action stopped our direct trade with Germany. It might appear that goods on the free list could still move. Some of them did move, from free to contraband. People feared to ship the others lest they should be so listed while ships were on the ocean, and the goods made subject to seizure. Practically nothing has been shipped to Germany from this country but cotton, and it was not shipped until December. In belated response to the insistence of southern senators and of American business interests which had found themselves gravely embarrassed by the cessation of cotton shipments, Great Britain finally made a clear statement that this particular commodity would not be considered contraband.

So much for direct trade with Germany. There was still a method by which we should have been able to export our goods and discharge our neutral obligations to trade with Germany as with England. We might have carried on this trade via neutral ports like Rotterdam or Copenhagen, from which the goods might have been shipped to Germany. The Declaration of London allows a belligerent to interfere with a shipment between two neutral ports only when it consists of absolute contraband for enemy territory. Conditional contraband so moving may not even be suspected. The Order in Council changed this. It extended the new intention of capturing conditional contraband to goods moving to Germany even through a neutral port. And, as explained, conditional contraband was seizable if destined to anyone in Germany; it was not conditional but absolute.

The British action, besides stopping our trade with Germany, barring only a certain amount of indirect trade carried on with much difficulty and danger, subjected to grave peril our commerce with other neutrals. The British contraband lists were extended so rapidly that soon almost no important article of commerce with neutrals was free from seizure by England, who suspected everything on these lists as being of possible German destination. The shipper to a neutral country then had the prospect of a British prize court passing judgment as to whether shipments were destined for Germany and, in the case of an affirmative judgment, whether any compensation should be paid the shipper, or his cargo simply confiscated. The uncertainty was a risk against which no one could insure.

As for the British contraband lists, a few instances will illustrate how they grew. On September 21, copper, lead, rubber, hides and skins were added ; on October 29, motor vehicles, motor tires, mineral oil and leather. On December 23, naval stores and cottonseed oil went on the list. On March 11, raw wool was banned. The Germans have retaliated and published a contraband list containing articles that have nothing to do with war, like lumber and flax.

Our protests against the British August 20 Order in Council resulted in the substitution of an Order dated October 29. But when we came to observe the operation of the October 29 Order, we found that it did not lift the ban on our trade with Germany either direct or via neutrals, and that it added to the existing difficulties of our trade with neutrals a prohibition of shipments "to order." This prohibition dislocated the ordinary methods of foreign trade. Our protest to England of December 26 against interference with our trade with Europe failed to secure any modification of that interference.

At last a real test was made of the possibility of provisioning Germany. In January a St. Louis firm tried to get a cargo of foodstuffs to Germany on the American steamer Wilhelmina. The provisions were consigned to no one in Germany but to a member of the American firm who went to Hamburg to receive the cargo and distribute it to the civilian population. The British stopped the vessel. Unable to find any law for continuing the detention, they made law ./ through a new Order in Council, enabling England to requisition, without trial, the cargo of any neutral ship brought into port. The Wilhelmina's cargo was so requisitioned.

On February 4 Germany, claiming that its act was a reprisal against an unlawful British attempt to starve a civilian population, declared the waters around the British Isles a War Zone where British merchant ships would be destroyed by German submarines — if necessary, without search — and where the submarines might endanger neutral vessels by mistake. Neutrals were warned to keep away. It was stated that it might be impossible to provide for the safety of passengers or crews of the British steamers destroyed.

When the War Zone was announced, our government recognized the danger, and addressed a sharp note to Germany, warning that country to be careful not to strike at American vessels or American lives. At the same time, we seemed to recognize in a degree the German point of view; so we sent a joint note to Britain and Germany suggesting that Britain give up its policy of stopping foodstuffs for German civilians, that Germany abandon its submarine warfare, and that both belligerents desist from mining the high seas.

With certain reservations Germany accepted the proposal. Great Britain rejected it and, indeed, instead of accepting, proceeded to more radical measures than before. On March 1, stating its action to be a retaliation against the submarine war and other alleged breaches of international law by the Germans, England instituted a "blockade" of Germany. The authorities at London announced that all vessels carrying cargoes to or from Germany, whether direct or via neutral ports, would be subject to seizure. This was the culmination of the British lawlessness. The culmination of the German lawlessness was the Lusitania horror.

The British "blockade" terminated our cotton trade with Germany, virtually the only trade that had moved. Whatever even of cotton thereafter found its way to Germany was involved in a smuggling operation. The third largest buyer from America became as distant from us as another world, barring some dangerous, indirect trade. Moreover, all our shipments to European neutrals adjacent to Germany now became tainted with suspicion and detention. Scores of cotton cargoes bound for neutrals have been held up in British ports.