Chapter 6: British Exports and the Trading With the Enemy Legislation

International law and commerce between belligerents. – British law and commerce with an enemy. – The conflict of opinion between the Admiralty and the Board of Trade when economic warfare was considered. – A compromise between the Admiralty and the Board of Trade. – The committee's deliberations upon finance and the insurance of enemy property in war. – Continental law and legal opinion abroad. – Character and purposes of the legislation finally approved. – Trading with the enemy legislation. – Legislation in France, Russia, Japan and Germany. – A comparison between the restraints imposed upon British exports and neutral commerce. – The recommendations of the restrictions of enemy supplies committee. – Increasing restrictions upon exports. – British export trade with neutrals bordering on Germany. – The war trade department instituted.

It is not to be expected that a press with strong partisan attachments should be either just or impartial in moments of national danger; but it may be doubted whether public criticism of any operation of war has ever been so ill conceived or so misdirected as the criticism of the economic campaign. Measures for controlling sea-borne commerce, which had been elaborated with the greatest difficulty, and which, in their operation, stopped an enormous volume of enemy supplies, were described in the patriot press as instruments for providing the enemy with all they wanted; the managers and organisers of the uproar did not scruple to incite one branch of the administration against the other, and later raised a furious clamour, that the navy should supersede the Foreign Office, and should be made solely responsible for the conduct of economic war. And yet, while their denunciations were most unrestrained, the press hardly mentioned that a large volume of supplies, produced in the British empire, and entirely under British control, was flowing, unchecked, into the enemy's territory. When, occasionally, attention was drawn to the extraordinary rise in certain exports and re-exports, the editors and their faithful leader writers generally invited their readers to believe, that the traffic was being conducted by German merchants, who were still resident in England; and that when more Germans had been imprisoned, and more spies executed, the commerce would cease. As these explanations were generally considered satisfactory, it is no extravagant assumption to suppose, that the British nation's recollection of the greatest operation of the war is distorted and feeble.

The nonsense uttered on the subject can, therefore, be set aside contemptuously, but even when this is done, it is no easier to explain fairly and judicially, why British supplies should have been allowed to pass to the enemy, when the Foreign Office were endeavouring to raise obstructions across every commercial avenue into Germany. Such a conflict of aims and purposes would seem to be explainable only by incompetence or corruption, or both; but the actual truth is that British supplies were allowed to pass into Germany by officials who were as devoted to the public service, and as single minded in the performance of their duties, as the officials who were engaged in an opposite endeavour. This contradiction can only be properly explained, by making rather a lengthy retrospective survey of the origins of those laws and decrees that regulated trade between Great Britain and the enemy; for if those origins are examined, it will be found that our legislation was not devised for the single purpose of making all commercial intercourse with the enemy impossible; and that those who drafted it were compelled, by the nature of their task, to strike a mean between conflicting opinions, and to adapt their legislation to customs and traditions that have influenced British law and policy for several centuries.

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i) International law and commerce between belligerents

Notwithstanding that trading with an enemy is, by its nature, an operation that falls to be regulated by municipal enactments, the body of the law relating to it has been elaborated by international jurists. Since a comparatively early date, civilians have agreed, that inasmuch as war severs all regular intercourse between powers at war, so, it interrupts all correspondence between their subjects. International lawyers claim that this is a universal rule, which can only be disregarded by persons who have been given special licences to trade with an enemy.

The British prize courts have applied this rule very consistently; for decisions spread over half a century, fourteen in all, are recited in the judgement that is most often quoted in illustration. Here is the most relevant passage:¹

      If there is a rule of law on the subject, binding on the court, I must follow where the rule leads me...... In my opinion, there exists such a rule in the maritime jurisprudence of this country by which all trading with the enemy, unless with the permission of the sovereign, is interdicted. It is not a principle peculiar to the maritime law of this country; it is laid down by Bynkershoek as a universal principle of law: ex natura belli, commercia inter hostes cessore non est dubitandum. Quamvis nulla specialis sit commerciorum prohibitio, ipso tamen jure belli commercia esse vetita, ipsae indictiones bellonrum satis declarant.

British prize courts have certainly allowed a few equitable mitigations of the law; it has nevertheless been applied as a rule to which no important exceptions can be allowed. Allied ships which have been seized whilst trading with the enemy have been condemned, and, in answer to the objection that a British prize court had no jurisdiction over them, Sir William Scott replied:

      I am of the opinion that the case of the Eenigheid has effectually disposed of that question. On the part of Mr. A., a Dutch merchant...... it was in that case contended that we had no right to inflict forfeiture on a subject of Holland. But it was replied that it was no particular law of this country that inflicted such a penalty but that it was a universal principle of the law of nations......

British civilians never swerved from this doctrine, and, shortly before the dissolution of doctor's commons, the queen's advocate reaffirmed it as unequivocally as ever:

      No principle of international law is more clear than that war renders all trade with the enemy, and all commercial intercourse with the enemy's dominions, on the part of merchants settled in a belligerent country, illegal, and subjects the property engaged therein to condemnation, in whatever ships, and under whatever circumstances it may be carried on......

The British prize courts have supplemented this general rule by definitions or tests of enemy trade. In the first place, they have laid down, that municipal laws about citizenship and nationality do not, in themselves, decide whether a person is engaged in enemy trade or not. The decisive test is, whether a particular transaction is an incident in the general movement of an enemy's commercial traffic, and whether, when it was being executed, it was, as it were, a component part of the general mass of an enemy's trade:

      There is a traffic which stamps the national character upon the individual, independent of the character which mere personal residence may give him.²

No one test can, therefore, be decisive as to the character of a particular transaction; the residence of the trader who originated it, the nature of his business, how long he has been engaged upon it, must all be taken into consideration. Residence is, however, the most important of these tests:

      No position is more established than this that if a person goes into another country, and engages in trade, and resides there, he is by the law of nations, to be considered a merchant of that country ......³

And, just as municipal laws about citizenship do not decide whether a merchant is, or is not, an enemy trader, so, sovereign rights have not, in themselves, been considered sufficient, in every case, to give trade that starts from a particular territory a [163] national character. Traffic from or to European trading stations in the east is to be tested by the national character of the trading station itself, which is not altered by what Lord Stowell called: The empyrean sovereignty of an oriental potentate in whose territory the station is situated; more than this, persons carrying on trade in these settlements are to be judged British traders if the settlement is British; Dutch if it is Dutch; French if it is French, and so on.

An important limiting or circumscribing rule has been added to these tests: commodities cannot be classed as goods in the enemy's trade, merely because their original point of departure, or their final destination, is in enemy territory. If a neutral has acted as a mere forwarding agent, then the goods are enemy goods; but not if they have gone into his possession by a genuine sale.

      We are of the opinion, wrote the law officers of the crown in 1854, that though a British subject cannot trade with an enemy through a neutral, or make a neutral his agent for the purpose of such trade, it will be lawful for an English merchant to purchase Russian produce from a neutral subject resident, or trading in, a neutral state, and that the goods so purchased would be safe in their transit from such neutral state to this country, provided the goods were bona fide the property of the neutral at the time of purchase.

In another paper to the foreign secretary, the law officers repeated this in more abstract and general terms: The material question, in such cases, when brought before the prize courts, relate to the bona fide property or interest in the goods, and the course of trade in which they were actually engaged when captured, and not the place of their original production or manufacture.

ii) British law and commerce with an enemy

It is obvious that these rules of universal jurisprudence are of limited application; for it is open to every state to regulate trading with an enemy by special enactments, and to enforce them in the courts of common law. British common lawyers have accepted the general rule that trading with an enemy is illegal; but, for several centuries, British courts could not apply the rule as consistently, and as logically, as the civilian lawyers. Allowance had to be made: for the long established customs of a trading community; for the peculiar customs of privateers, engaged in attacking an enemy's commerce; and for statute law, which has been extremely variable.

It must be remembered, in the first place, that national wealth has not always been assessed by the modern method. Nowadays, a nation's wealth, as distinct from its immediate revenues, is considered to be proportionate to its total volume of business: the revenues of the banks, and of the insurance companies, the proceeds of shipping, and the returns on capital invested abroad, are all included. This, however, is a comparatively new method of computation. Until the beginning of the nineteenth century, exports were regarded as revenue, and imports as a sheer loss, or a sort of overhead charge, which had to be deducted from export revenues, before profits could be estimated. This is now known as the mercantilist theory. Bookkeepers in the city were, presumably, its most authoritative exponents, but at least this ledger doctrine has been more than a bare theory: in the eighteenth century, most of our colonial legislation, and as much of our Irish legislation as was not the product of religious antagonism, were practical applications of the doctrine. As this general proposition, that exports were pure profit and imports pure loss, was universally accepted, it is hardly surprising, that some kinds of enemy trade have been sanctioned by custom, and occasionally protected by legislation.

Derogations from the general prohibition were generally made in favour of British exports to an enemy; but as the century advanced, and as international commerce increased in volume, even imports from an enemy were occasionally allowed. There was, moreover, one branch of the national revenues, which was considered a sort of tribute from an enemy's coffers. Ships of all nations were insured in London, [164] and as a community engaged in making money will never lack arguments to prove that their profits are a great national concern, so, the Lloyds brokers seem, for a long time, to have had public opinion behind them, when they claimed that insuring an enemy's property in war was a patriotic venture. Mr. John Weskett wrote at the end of the century, and was a little sceptical, but he thought the matter so doubtful, and the case of those who insured enemy profits so good, that it deserved a lengthy explanation. Indeed, he was probably setting out arguments that had been current in the city for more than a generation when he wrote:

      Those who maintain the affirmative say that it is idle to make laws to prevent a transaction which may be carried on by means of private correspondence, and that even if such prohibitions could put a stop to the practice, it would be highly impolitic to lay a restraint on the commerce of insurance which produces a certain profit; that we ought to be cautious, when any new regulation is proposed, in respect to trade, especially a regulation which may perhaps strip us of the only branch of trade we enjoy almost unrivalled, and may, very probably, transfer it to our enemies.

As these opinions were so widely held, and in such influential quarters, it was natural that British legislators should have hesitated to forbid the insurance of enemy property, and that the common lawyers should have shared their hesitations. Lord Hardwicke and Lord Mansfield looked on the practice as a customary derogation to the general rule; and it was not definitely pronounced illegal until the end of the eighteenth century, when the struggle against Jacobin France and the Napoleonic empire was exciting fierce racial hatreds, and corresponding severities in the law.

Again, it was not strictly correct to maintain, as the civilians generally did maintain, that enemies had no right of enforcing contracts; for by virtue of a very ancient custom, captains of ships engaged in operations against commerce did make contracts with their enemies, and these contracts were enforceable in the courts of the great maritime powers. Instead of taking a captured vessel into harbour for condemnation, it was open to the captor to release her, after her captain had signed an agreement to pay a stipulated sum, as a ransom for his vessel. As a precaution, a hostage was taken from the captured ship, and held until the ransom had been paid. These contracts were known as ransom bills, and were probably a survival of the mediaeval law of arms. The custom was so generally recognised, that the British, Dutch and French authorities prepared ransom bills, in identic language, for the use of their privateers. At the close of the century, ransom bills were forbidden by law, but the practice was very general until privateering was forbidden, and its long recognition must be counted among the influences that have tempered the strict and logical rule of law enunciated by the civilians.⁴

British statesmen have, therefore, been compelled to adjust their legislation to these practices and commercial interests; also special allowance had generally to be made for the commercial policy of our maritime allies; and the Dutch, with whom we were so often in alliance, were even more inclined to permit trade with an enemy than we were ourselves. In consequence of all this, British legislation has alternated between very great severity, and considerable licence. It would be tedious and pedantic to review the numerous statutes that have regulated commercial dealings with an enemy, but it is important to recognise, that national sentiment has always exercised a very strong influence upon our legislation. Whenever the British nation have conceived themselves to be at war totis viribus, in support of some great principle, or in defence of its national freedom, legislation has been severe; whenever we have been engaged as an auxiliary in a continental struggle, legislation has been comparatively easy. The following facts will illustrate this sentimental tendency.

[165] Although the war of the league of Augsburg is now remembered only by learned persons, a mere glance at the pamphlet literature of the times shows, that sentiment amongst the allies was then very strong. Upon opening a term catalogue of those days, almost at random, I find a title that is expressive of the same sentiments as those current through the nation in 1914: King William or King Lewis, wherein is set forth the inevitable necessity these nations lye under of submitting wholly to one or the other of these Kings, and that the matter in controversie is not now between King William and King James, but between King William and King Lewis for the government of these nations. The more famous publicists were as emphatic as the lesser; and there seems no reason to doubt that these writings were in harmony with the national temper.⁵ The British people were content that armies of unprecedented strength should be despatched to Europe, and the spirit of the Hollanders was, at first, equally unyielding. Legislation was correspondingly severe, and was only relaxed during the last part of the struggle, when it became evident, that the allies were either unwilling, or unable, to stop commercial dealings with the enemy.⁶ Considerable licence was allowed during succeeding wars; but as soon as the old sentiment of a great national peril was again excited, the severities of King William's legislation were repeated. The military struggle against Jacobin France was supplemented by strict prohibitions, winch were only eased when Napoleon's measures of economic coercion compelled the British government to force British exports into the continental markets. During the Crimean war, considerable liberty was allowed, and, when attacked, the government of the day justified themselves with arguments that were substantially those of the eighteenth century business man: that we sold more to the Russians than we bought from them; and that it would serve no useful purpose to starve our textile industries, in order to inflict injury upon the Russian flax growers. There is, however, one important exception to this rule, that sentimental influences are decisive. Nobody conceived the Boer war to be anything but a great colonial expedition, yet, during the south African campaign, legislation was as severe, and as stiffly enforced, as the statutes against trading with Jacobin France. At the beginning of the twentieth century, therefore, a precise doctrine, in harmony with the mechanic tendencies of the age, was beginning to supersede the old politic calculations of loss and gain.

iii) The conflict of opinion between the Admiralty and the Board of Trade when economic warfare was considered

In 1911, the prime minister appointed a sub-committee for enquiring into past, and for recommending future, policy. The committee's legal experts proved, that the old exceptions to the general rule about trading with the enemy had been removed from the body of British common law, which had at last become consistent. The experts reported, moreover, that any kind of commercial transaction with an enemy was a misdemeanour, unless specially licensed; and that all contracts with an enemy were held, in law, to be either suspended until peace was declared, or cancelled altogether. The experts showed, however, that the process of eliminating the old exceptions from the body of the British law had been slow and unmethodical; and after its first deliberations, the committee were sharply reminded, that the influences that had made British policy so fluctuating and uncertain in the past, were again asserting themselves; for the Board of Trade's experts, the magnates of insurance and finance, and the professional lawyers, each, in turn, reminded the committee of facts and circumstances that provoked the old, traditional hesitations.

[166] In the first place, the experts of two departments of state were at issue. The Admiralty considered, that Great Britain's finance, industries and shipping might be made a single instrument of economic coercion. Three years before the subcommittee assembled, the Admiralty had prepared a paper upon the economic consequences of a war with Germany. In this paper, the Admiralty experts admitted that indirect trade between Great Britain and Germany would never be entirely stopped in war; they believed, however, that appreciable damage could be done to Germany, by driving the German merchant fleet into harbour; and by preparing special regulations for diverting British shipping from the indirect trade.

This statement at once raised the large issue: Whether it would be possible to supplement this blockade by regulating British imports and exports. This was a matter upon which the Board of Trade was the competent authority; and their experts reported upon it in four state papers. In the first of these memorials, the experts of the department examined the entire complex of commercial traffic between Great Britain and Germany, to determine whether they could discover in it the element of an economic war plan; in the subsequent papers, they reported upon the wool, sugar and jute traffic between the two countries.

The first of these documents represented the Board of Trade's considered opinion upon the bare advisability of commercial warfare. It was an exhaustive survey, illustrated by imposing columns of statistics; and one general assumption served as an introduction or starting point: the Board of Trade did not share the Admiralty's belief that indirect trade between Great Britain and Germany could be reduced in war. To them it was axiomatic that it would continue to flow freely; if British shipping were refused the right to engage in it, then neutrals would usurp their place and their profits. The points that the departmental experts desired to ascertain were, therefore, what would be the total volume of this indirect trade; of what commodities would it consist; and how far British interests would be advanced or injured by special prohibitions. The Board of Trade were too scientific to be positive on points of detail, but they had no doubts or hesitations about the major issues: if the direct trade between Germany and Great Britain were diverted without diminution to Holland and Belgium, then, it was almost certain, that the Dutch and Belgian ports would be unable to carry it. Assuming, however, that British coal were no longer sent to Germany, either directly or indirectly; that some of the diverted trade went to the Baltic; and that the trade of Germany and of all belligerent countries declined after war began, then, it seemed probable, that a very large proportion of the normal commerce would pass through the new channels. Was there some section, or branch, of this commerce which should be stopped at all costs? The Board of Trade were sceptical:

      There are undoubtedly cases in which, were we at war with a country of minor importance, we could do serious damage to that country by refusing to take imports, for which we are at present a principal market. Such cases are easy to cite. We could damage Greece by refusing to take her currants, Portugal by refusing to take her wine, Spain by refusing to take her oranges and onions, Denmark by refusing to take her butter and bacon. In each of these cases, it would be difficult if not impossible for the countries cited to obtain markets elsewhere anything like the equivalent to ours for the produce in question. In the case of Germany there is only one article of importance of which the exports to the United Kingdom constitute an overwhelming proportion of the total exports, viz., sugar, and in this case it is unfortunate to find that Germany is our principal source of this important article of food. A deliberate policy of excluding German sugar would probably do as much damage to ourselves as to Germany if it really resulted in the sugar not leaving Germany at all......

The Board of Trade experts did not disguise, that we might replace German supplies by unrefined cane sugar from Cuba and Java, and admitted, that the project seemed attractive. German sugar was ready for consumption when it reached this country; the Cuban and Javanese produce still had to be prepared: if, therefore, they were [167] substituted for the German variety, the British sugar refineries would get more work to do. Nevertheless, the experts considered, that the experiment would be unwise; for, if we deflected Cuban and Javanese sugar from its ordinary, natural market, America, we should merely give the German producers an opportunity of increasing their sales in America, at the expense of the Cuban and Javanese planters. At the outset, the Germans might find it difficult to transport their produce to America and the east, where Cuban and Javanese sugar was ordinarily sold, but so long as neutral ports were open, and neutral shipping was obtainable, they would overcome the difficulty. The final consequence would be that the British consumer would pay more for his sugar, and that the German producer would increase his profits. In their review of British export trade to Germany, the Board of Trade experts admitted, that some sections of the traffic were of great importance to Germany. Great Britain was Germany's principal source of supply: for herrings; for certain varieties of wool; for cotton yarns and cotton tissues; and it was improbable that German industries would supply themselves from elsewhere, if these commodities were made unobtainable. Great Britain also had this advantage, that imports for which Germany was the principal source were mainly half manufactured articles; and that these commodities could probably be supplied by home industries, and alternative markets. On a first inspection, therefore, it seemed as though a reciprocal stoppage of exports would injure Germany more than Great Britain, and that it might be sound policy to attempt it.

The project seemed the more feasible, in that German exports to the British empire as a whole were insignificant in comparison to the imports from it. The dominions and protectorates bought from Germany goods that could, for the most part, be produced in England; in return for these miscellaneous articles, they supplied Germany with foodstuffs and raw materials, which were probably irreplaceable. From India and Ceylon, West Africa and the Straits Settlements, Germany received large supplies of cotton, jute, rice, rapeseed, rubber, copra and cocoanut oil; from Australia and New Zealand, the Germans bought wheat, wool, lead and zinc; and each of these commodities was of great importance. Indian cotton was nearly essential to those German industries upon which the poor people depended for their clothing and household textiles. Jute was particularly important, in that it was both an ingredient of cheap textiles and a packing material; for all those loose commodities that have to be bound before shipment are collected into jute packing bags and sacks; the material is, in consequence, a staple of commercial transport. As for the oil bearing nuts exported from the British empire, German chemists had devised a process for making rapeseed oil palatable, and it was very much used as a substitute for salad oil in the cheaper eating houses of Germany. Copra was used in the margarine industries, which had been increasing their production as the industrial towns grew in size, and as the supply of country produce moved towards the visiting centres, and the residential quarters of the great cities. The demand for copra was indeed heavy; for the Germans were buying a rising proportion of the west African and Ceylon crops. The Germans therefore bought from the British empire a large quantity of goods that are consumed by sections of the people who cannot easily change their diet, and who become restless and turbulent, when their habits are disturbed.

The normal commerce between the British empire and Germany was, therefore, unequal; but the Board of Trade experts doubted whether any advantage could be taken of this inequality in the economic battle ground; for to them it seemed certain that there would always be a gap in any economic barrier that we could raise against Germany; and that goods would flow through it. Whether they examined particular trades or commerce as a whole, the Board of Trade always returned to their original position: It was so certain that British and German [168] goods would pass through Belgium and Holland, that prohibitions of import and export would prove, in the end, to be costly deflections of trade, advantageous to shippers, railway shareholders and middlemen, but burdensome to British consumers. Their general conclusion, therefore, was that as trading with the enemy could not be stopped, it had better be left unregulated. As it would be easy to misrepresent a state paper so elaborately illustrated by statistics, the conclusions should be quoted verbatim:

      As regards our export trade to Germany, then, it would appear: (i) that if prevented from reaching German ports, it would, to a large extent find its way to Germany by neutral ports, should they remain open; (ii) that Germany might herself put obstacles in the way of its being carried on through such ports, but in view of the indispensable character of so large a proportion of the imports it is not likely to do so; (iii) that if it ceases to be carried on, or in so far as it ceases, it will affect interests in England very unequally and that the worsted and cognate interests of Yorkshire and the comparatively smaller herring curing trade of Scotland and East Anglia would be those chiefly affected.

On the stopping of German imports into England the Board of Trade reported:

      That unless we choose to prohibit imports from Germany, German goods will continue to reach us through neutral ports so long as they remain open.
      That a deliberate policy of refusing to import German goods would affect mainly the interest of the private consumer rather than the manufacturing interests as such, though the manufacturers who use coal tar dyes would suffer, and some of the industries, especially the tin plate and ship building trades which now secure cheap steel from Germany, might find their expenses of production increased.
      That sugar is the only important foodstuff we derive in large quantities from Germany, and that the question whether or not we should get adequate supplies of sugar would depend largely on the ability of Germany to send her sugar, if not direct to us, then to some market outside Europe.

On the general trade between the empire and Germany, the Board of Trade concluded:

      As steps taken in the colonies to prevent colonial goods reaching Germany would probably be even more fruitless than similar steps in the United Kingdom, it may be assumed that (neutral ports remaining open) the greater part of the colonial goods demanded by Germany would ultimately reach her, in other words that any reduction in their importation, would be mainly due to the reduction in German demand that might result from a state of war.

iv) A compromise between the Admiralty and the Board of Trade

The sub-committee were somewhat divided upon this able, but unpalatable, state paper. In the first place, the customs officials did not agree, that indirect trade between Great Britain and Germany would be as uncontrollable as the Board of Trade imagined; for they pointed out, that a proportion at least could be stopped by demanding declarations of ultimate origin and destination from shippers and receivers who could, in addition, be obliged to give bonds and sureties. The naval members of the committee were anxious that their projected blockade of the German coasts should be supplemented by other measures, and urged that the economic coercion of Germany should not be pronounced impracticable without further study. They added, that the blockade of Germany would be enforced by operations that would, in all probability, deter shipping from entering the southern part of the North sea. Further, they objected, that the Board of Trade's experts had assumed that Great Britain and Germany would be engaged without allies, and that the other states of Europe would be neutral: it was far more probable that Great Britain, France and Russia would be in alliance against a large coalition, and that Belgium would be invaded and occupied. In this contingency, which the naval and military members both thought likely, the Belgian ports would probably be blockaded, together with the German; and the indirect trade would be very much restricted in consequence.

[169] The Board of Trade therefore re-examined those sections of Anglo-German trade that seemed to offer an economic weapon. In their additional reports upon these matters, the experts admitted that a fair amount of damage could be done to Germany by stopping all her supplies of British wool; but, on the question of sugar imports, they adhered to their first opinion:

      If all the sugar could be effectively bottled up in Germany we should harm both Germany and ourselves more, but we should touch less than a third of her output, in a trade which occupies, at best, a very minor place amongst German industries.

After further consideration of the whole matter, the Board of Trade authorities modified their first conclusions slightly, and agreed, that as the Admiralty were determined to wage economic warfare against Germany, it might be politic to prohibit the export of a few staple articles, very carefully selected and specified; but in the paper that recorded the considered opinion of the Board, Sir Hubert Llewellyn Smith again warned the sub-committee against hasty experiments with the economic weapon.

      It is obviously out of the question to attempt to subject the whole of our carrying trade between neutrals to the rigorous conditions which alone could make prohibition effective, without intolerable interference not only with our own carrying trade, but also with neutral commerce. The result of any such attempt would undoubtedly be to supplant British shipping by neutral shipping in large sections of the carrying trade of the world, while provoking strong protests from neutral countries, who would regard our action as a monstrous attempt to stop them altogether from trading with the enemy...... Moreover the practical difficulty of enforcing a general prohibition of British indirect trade with the enemy through neutral channels would be such that I strongly recommend that the attempt be confined to the same list of articles as is scheduled for the purpose. There will certainly be great cause for discontent if (e.g.) Australian wool be stopped from going to Antwerp, en route for Germany, while, nevertheless, British shipping is allowed to carry Argentine wool to the same destination to take its place. This would be a policy involving a maximum injury to our own producers and a minimum of injury to our enemies......

This view was incorporated into the digest of agreed opinions, which the chairman circulated to the committee before its last meeting, and the resolution finally taken was that: The list of articles, other than warlike stores, in regard to which trade with the enemy should be prohibited, should be a very small one......

v) The committee's deliberations upon finance and the insurance of enemy property in war

This resolution determined the regulations that were to be issued about the direct exchange of goods, and the movements of shipping, between the two countries. The committee had still, however, to devise regulations for controlling financial transactions and marine insurance. With regard to these, the law was consistent and clearly established; but the committee were not free to recommend that it be declared by statute and enforced; for they discovered, after a brief investigation, that the underwriters at Lloyds, and the great insurance companies had circulated a declaration of policy all over Germany, and that it would be impossible to ignore it. In this declaration, the underwriters re-stated the policy that their predecessors had followed two hundred years before: the policy of insuring ships and cargoes of every nation against every kind of risk, and of avoiding courts of law by making prompt payments in all doubtful cases.

This declaration which so much influenced the committee's deliberations, was the outcome of commercial jealousy. On 6th August, 1905, a newspaper in Hamburg published an article of which the most important passages ran thus:

      In Germany there is no law that limits the liability of an underwriter in the event of war...... On the other hand, the English law, which is not codified, and decides according to acts of parliament and precedents...... expressly forbids any guarantee to be observed towards the king's enemy...... even when, for example, an underwriter is bound thereto by the terms of [170] his contract. Thus, any insurance effected in England, on German property, would be invalid or suspended in effect, from the moment of Germany entering upon war with England, because no Englishman would pay on German property insured, whether it were lost by measures of the British government or its fleet, or by circumstances entirely unconnected with the war...... In no circumstances whatever, would an English underwriter, while the war continued pay for damages sustained, not even ex gratia, for he would then expose himself to the risk of proceedings for high treason, on the ground that he had abetted a King's enemy......

The writer of this article did not state the law very accurately: a British subject may be indicted for high treason, if he supplies arms and munitions to the king's enemies, but not merely for engaging in commerce with them; for this is only punishable, if a statute prohibits it and prescribes the punishment. Those who employed the writer may possibly have instructed him to make the mis-statement deliberately, in terrorem. If so they succeeded; for the article was read by men with great experience in the manoeuvres that damage a rival's reputation and divert his custom; and a few weeks later, Lloyds and the great insurance companies issued a joint declaration by way of a counterblast. In it, they stated that they would fulfil their liabilities in war as in peace, and that there was no law in England that prevented them.

This declaration was within the bare letter of the English law; for our courts had decided only, that contracts for insuring enemy's property at sea, and claims arising out of the contracts were not enforceable. There was no corresponding criminal law on the subject, so that, if Lloyds chose to insure enemy property, and to pay all claims, it was doubtful whether they could be prevented. This, at all events was the opinion of Lloyds' legal advisers who reported:

      It is certainly not the case that an English underwriter, who accepts liability to a foreign assured, during a state of war between England and the assured's country, would be guilty of high treason, or of any other punishable offence, or would render himself liable to any penalty.

But though accurate as a bare statement of the law, the declaration was openly defiant of its spirit and principles, as Lord Alvanley had defined them:

      It is not competent to any subject to do anything which may be detrimental to the interests of his country, and such a contract is as much prohibited as if it had been expressly forbidden by act of parliament......

When questioned, the insurance magnates stated, that they had issued the declaration to defend their honour and good name; but Lord Esher forced them to admit that they had feared loss of commercial profits at least as much as damage to their reputations; and it is, on the whole, surprising, that the committee should have been so patient of a declaration that was in the last degree contemptuous of the public interest. They were, however, compelled by common prudence to treat Lloyds' commercial policy respectfully, for the insurance magnates, whom they summoned before them, assured the committee: That a considerable proportion of the German merchant fleet was insured at Lloyds; that a great number of the policies covered war risks; and that the underwriters were determined to pay all claims by enemy subjects regardless of the public interest. It was patent, therefore, that if the navy captured a large number of German vessels during the first months of the war, which the Admiralty thought probable, then, Lloyds would compensate the owners without waiting for the end of hostilities. As these operations could only have been rendered impossible by drastic elaborations of the criminal law, which the committee had no power to recommend, they were compelled to recognise what was inevitable, and yet to devise measures that would debar the underwriters from pouring British treasure into the enemy's coffers during the whole course of a war.

The bankers and financiers who appeared before the committee further emphasised what the departmental experts and the insurance magnates had already proved, that the strict rules of British law could not be incorporated into policy without [171] mitigation. Indeed, the committee had hitherto been examining a general assumption that the British government might open an economic offensive against the enemy, whereas the bankers now warned them of weaknesses that could only be covered by a carefully planned defence. They stated, in the first place, that the accepting houses of London paid £1,000,000 a day upon German bills of exchange. A hasty or ill-devised prohibition of all financial correspondence with Germany would, therefore, deprive the London bankers of the immense sums recoverable from these transactions. In the second place, the bankers feared that the German authorities would proclaim a moratorium for the Reichsbank, and for all banks that had settlements to make in London, and, by this means, start a general attack upon British credit. Some of the bankers believed that the Germans would prepare this financial assault by steadily withdrawing credits and investments from London, during the preliminary period of diplomatic strain. Other bankers were sceptical; for they thought it improbable that the Germans could withdraw their funds, without provoking a ruinous fall in prices. The committee were not empowered to consider all the defensive measures that the financiers recommended, and only endorsed the general proposal, upon which the financiers were agreed, that British bankers should be granted considerable freedom of financial manoeuvre at the beginning of a war. The committee therefore recommended, that there should be no embargo on the export of gold, when war was declared; that all transactions undertaken before war began should be completed; and that a general warning should be issued against subscribing to the loans of an enemy government, which is high treason in law.

vi) Continental law and legal opinion abroad

In conclusion, the committee were confronted with a difficulty that had repeatedly influenced British policy. What would be the policy of our allies; would they, as allies had so often done in the past, endeavour to substitute their own goods for ours in enemy markets, if our prohibitions of trade were comprehensive? This question could not be examined in collaboration with responsible experts, but the committee were naturally impressed by a report on continental law prepared by their legal adviser, Dr. Oppenheim. The report showed, that continental law was far more doubtful than ours, in that, whereas trading with the enemy was at least illegal in England, there was no corresponding rule abroad. The French, Italian, and Netherlands experts whom Dr. Oppenheim consulted each replied, that their governments might decree that enemy trade was illegal, but that it was certainly not so in a general way. The committee were further compelled to recognise, that if legal opinion on the continent proved powerful enough to influence legislation and policy, it would probably insist that laws and decrees should be easy, rather than severe. Recent international conventions presupposed a certain amount of communication and trade between belligerent countries,⁷ and the Italian government had not prohibited trade with Turkey during the recent campaign.

vii) Character and purposes of the legislation, finally approved

These were the conflicting opinions and interests that the committee had to amalgamate into a common policy; they decided, that tradition was the best guiding rule, and that public sentiment, which had so often determined the character of our legislation in the past, should determine it again. Foreseeing that the struggle during which their legislation would be operative would be a struggle of unprecedented compass, and that it would excite the most violent racial passions, the committee decided, that public opinion would demand a general prohibition. They therefore [172] recommended, that all trade with the enemy should be pronounced illegal, as soon as war was declared, and that a few derogations of the rule should be allowed in favour of Lloyds and the bankers. In addition, and as a concession to the Admiralty, they recommended that measures should be taken for stopping all exports of raw cotton and wool, of rubber, coal, palm nuts, copra, jute, rapeseed and linseed. But while recommending this, the committee reminded the government that this legislation might easily prove too severe. In conclusion they repeated the substance of the Board of Trade's warning about indirect trade, and added, that its regulation and control - if either were possible - were closely related to high policy.

This report was considered by the Committee of Imperial Defence at their 120th Meeting.⁸ The measures recommended were approved, and discussion was focused upon the indirect trade, which had occupied so much of the committee's time. When confronted with the problem, the ministers of state displayed strong feeling. Mr. Lloyd George said, that if neutrals adjacent to Germany were granted the full rights of neutrals, it would prove impossible to exert any economic pressure upon Germany at all, and that we ought, in consequence, to prevent them from importing anything more than they would require for their own use. Mr. Churchill added, that the neutrality of the low countries was out of the question, and that they must be treated as friends or enemies. Notwithstanding that the prime minister warned the meeting, that it would be a serious thing to treat neutrals as though they were belligerents, the final decision ran:

      In order to bring the greatest possible economic pressure upon Germany, it is essential that the Netherlands and Belgium should be either entirely friendly to this country, in which case we should limit their overseas trade, or that they should be definitely hostile, in which case we should extend the blockade to their ports.

This resolution was a declaration of policy, and even as a declaration, it was ambiguous. The Committee of Imperial Defence decided it was essential that the low countries should be friends or enemies, and did not consider what was to be done if this essential condition were unfulfilled, and if those countries obstinately maintained a strict neutrality. Moreover, the resolution was only applicable if the naval forces blockaded the German harbours of the North sea; if the navy failed to enforce this blockade, the resolution was of no effect. The draft legislation submitted to the Committee of Imperial Defence was, therefore, not influenced by this resolution, and was incorporated into the war book without alteration. Before reviewing this legislation, its immediate consequences, and the circumstances that subsequently caused it to be so much elaborated, it will be expedient to repeat, by way of conclusion to this long preamble: (i) that our original laws and decrees were a compromise between a demand for extraordinary severity, and a warning from experts that severity would damage ourselves more than our enemies, (ii) that the compromise was substantially an adherence to a tradition that national sentiment should determine whether our laws were to be stiff or easy, and (iii) that the legislation incorporated into the war book, and promulgated when war began, was drafted on the assumption, that a considerable volume of indirect trade would continue between the two countries.

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viii) Trading with the enemy legislation

The draft proclamations that the sub-committee had prepared were issued during the first two days of the war, in the following order:

1. A proclamation forbidding the exportation of certain warlike stores, or their carriage coastwise (3rd August).
   
2. A proclamation forbidding the exportation of naval and military stores, to all European countries, and all countries in the Mediterranean and the Black Sea, except France and Russia (5th August).
   
3. A proclamation relating to trading with the enemy (5th August).
   
4. A proclamation notifying the commercial and financial operations that were equivalent to adhering to the King's enemies, and therefore high treason (5th August).

Of these proclamations the third was the most important for it contained that geographical test of enemy trade which had for centuries been adhered to by our prize courts and courts of common law. The proclamation thus upheld the principle that experts had maintained so firmly during the preliminary deliberations: That commercial domicile was to be the test whether traders were enemies or friends. This rule was embodied without modification into the decree; the commerce forbidden was commerce between persons carrying on business in Great Britain and the British dominions, and persons carrying on business in the German empire.

      Now therefore ran the proclamation, we have thought fit by and with the advice of our privy council, to issue this our royal proclamation, and we do warn all persons resident, or carrying on business, or being in our dominions: Not to supply or obtain from the said empire, any goods, wares, or merchandise, or to obtain the same from any person resident or carrying on business or being therein......

Under this proclamation, therefore, persons of every nationality were still free to occupy their offices in Great Britain, and to pursue their business. The restrictions were imposed equally upon British and German citizens: provided that they were living within the boundaries of the British empire, there was no differentiation between them.

British lawyers had also maintained, that enemy trade did not divest itself of its character, if commodities were passed through neutral countries by forwarding agents; and this rule was embodied in the clause which forbad persons: To supply, or to obtain, from any person, any goods, wares or merchandise for, or by way of transmission to, or from, the said empire...... This, however, was circumscribed by the final clause, which stated that the expression person was to include:

      Any body of persons, corporate or unincorporate, and that, where any person has, or has an interest in, houses or branches of business in some other country, as well as in our dominions or in the said empire (as the case may be) this proclamation shall not apply to the trading or commercial intercourse carried on by such person solely from or by such houses, or branches or business in such other country.

These two clauses were, therefore, a definition of what would constitute a genuine, and what a transmissory, sale to neutrals, and it has to be admitted that the definition of a genuine sale was liberal in the extreme. The meaning of the clause was that if the firm of A, resident in Hamburg, had established a branch business, called B. & Company, at Copenhagen, then, commercial houses in Great Britain could carry on business with B but not with A. Even if it be admitted that the deliberations of the committee had proved, that adherence to tradition would be the wisest policy, it may still be doubted whether such a close adherence was necessary on this [174] particular matter; for the committee had themselves drawn attention to the extraordinary development of transmissory commerce during the nineteenth century, in an impressive paragraph of their report:

      At the time when the rules which are embodied in British prize decisions were established, the commercial operations of individuals were, speaking broadly, carried on at the places where they themselves resided. If a trader in London bought or sold goods from or to a trader in Hamburg those goods would almost invariably have been shipped from Hamburg to London or vice versa. Consequently it made no difference in actual practice whether the rule was regarded as prohibiting trade between London and Hamburg, or prohibiting commercial operations between a trader in London and a trader in Hamburg. To stop the one was to stop the other. A similar rule holds good no longer. Mails and telegraphs, and the complications of modern commercial relations, render it just as likely that, if goods are shipped from New York to Rotterdam, it will be the result of an agreement between a man in London and another man in Hamburg as of one between a merchant in New York and another in Rotterdam.

This was an admission that the old rule about transmissory sales needed revising. The committee had added, however, that they did not suggest a revision, because they believed that it would be useless, and that if the law were made more severe, commercial men would evade it. For this reason, the proclamation repeated the old rule without modification. The committee had not understood that the telegraph and telephone are as much at the service of those who enforce the law, as of those who break it, and that, if they assist a dishonest trader, they also assist those who attempt to penetrate his subterfuges.

These were the most important articles in the proclamation. It also contained a clause, which forbad persons resident in Great Britain to make new contracts of insurance with enemies, or to make payments on insurance contracts that protected German ships and goods against capture by British men of war. In conclusion, the proclamation stated, that commercial operations with the enemy were allowed, provided that they were neither treasonable, nor expressly forbidden. The proclamations for controlling exports were complementary to this general prohibition. No British statute empowered the crown to control exports, but two acts for regulating traffic in arms and munitions were sufficiently embracing to be used for the purpose; for they authorised the crown to stop the export of arms and warlike stores, and of any materials that might assist an enemy to make them. These two instruments were the starting point of all our regulations for controlling the industrial produce and raw materials of the British empire.⁹ The powers given to the [175] crown under each statute were virtually identical, but it was nevertheless decided that the proclamations under each act should be for different purposes. The customs act, which was slightly the more explicit, was used for prohibiting absolutely the exportation of all goods that might be required for home consumption: proclamations issued under the exportation of arms act contained lists of goods that could only be exported to allied countries, or to countries outside Europe. The first lists were issued on 3rd and 5th August. They had been prepared by joint committees of Admiralty and Foreign Office experts, and contained a large number of articles of general commerce, such as cotton, fuel and certain common metals. They were additional to lists of contraband; for the regulations forbidding the export of war-like stores were applied against articles on the contraband declarations. The two together thus made up a long catalogue of restricted exports. It must be remembered, however, that the experts had prepared the lists solely for the purpose described in the preamble: to impede the enemy from providing himself with materials for munitions. These first declarations did not, therefore, prohibit the export of those raw materials that had been admitted to be of particular importance to Germany.

Simultaneously, a special committee for administering these proclamations assembled at the privy council's offices, under the presidency of Sir John Simon, the attorney-general. Its instructions were: To consider, with a view to the co-ordination of departmental action, questions arising out of applications and enquiries from the public, as regards trade with an enemy. The committee's principal duty was to interpret and operate the proclamations; and they did, from time to time, issue interpretative statements. In practice, however, they became a committee for granting licences to export goods that were on the prohibited lists, and were, in fact, generally known as the licensing committee. When these proclamations had been issued, and the committee for operating them had been appointed, such measures of economic restraint upon the enemy as had been planned and projected beforehand were complete. All subsequent enlargements were ordered as a general orders tactical and strategical movements in the field: to meet special emergencies, to ward off special dangers, or to inflict special injury upon the economic structure of the central empires. It will possibly be as well to survey the compass of these first restrictions, before continuing this narrative.

Steam coal was by far the most important of the exports that were prohibited or restricted by these proclamations. In the year before the war, 73 million tons of British coal were exported, and of this total, some 45 millions were sold to countries that were now forbidden to receive it. To enforce this sweeping prohibition to the letter was obviously neither possible nor desired, and if the proclamation had specified no other commodity or raw material but this, the committee for operating it would have been charged with an arduous administrative duty. The proclamation also forbad the sale of steam ships, a great national industry; but from the first days of the war, the output of our shipyards declined, and for over three years, such building as was done was entirely on British account. This part of the prohibition, therefore, needed no administering; it operated automatically. Some important metals and raw textiles were also on the list; but, as British exports of copper, tin, waste cotton and silk, during a whole year, were only valued at eight millions of pounds, their restriction was not felt by the mass of population. Great Britain was a re-exporter of the oils and lubricants on the list, but their total value was small. The forage and provisions exported from this country were mainly re-exports of surplus colonial produce; and although the Netherlands bought a certain quantity, the sales were no important part of our revenues. These first proclamations, therefore, only restricted one important British export, coal. The metal and textile industries were still virtually free [176] to place their goods where they could sell them; and only a small proportion of our £525 million of domestic, and £109 million of colonial and foreign, exports were affected for the time being.

It rested with no one body or department to enlarge or reduce these prohibitions and restrictions. First, the cabinet themselves could, and did, order additions to the lists and set up several committees, whose records have been lost, to recommend other additions. Secondly, the service departments were responsible for recommending prohibitions of such substances as are required for the armament factories; but as the country was not then short of raw materials, the recommendations of the naval and military experts were mainly in respect of chemical substances that could be withheld, or released, without affecting general commerce. Thirdly, the Board of Trade were responsible for watching national consumption and supply, and for enlarging the prohibitions of export, if it seemed advisable to secure any stocks of essential goods that might be in the country. Finally, the restriction of enemy supplies committee, who were authorised to recommend any measure that would damage German trade, were responsible for suggesting any restriction of British export that might injure the enemy. In addition, the committee for restricting enemy supplies soon became the body to which special questions were referred for an opinion. The licensing committee administered the proclamations, for it was within their power to make the prohibitions absolute by refusing all applications for licences; or to relax them by granting licences freely. Notwithstanding the eminence of its chairman, and the high attainments of its members, the licensing committee was ill-qualified to administer restrictions upon commerce, which were not imposed for one single purpose, but for many. The committee was not a permanent body; it only met on certain days in the week, and each one of its members was a government official with responsible duties to perform in his own office. No permanent secretariat was provided, nor was the committee supplied with the daily and weekly statistics of imports and exports, which are kept at the customs. Lacking these figures, it was impossible for the committee to know whether they were supporting or obstructing the purposes for which the restrictions had been imposed.

ix) Legislation in France, Russia, Japan and Germany

It has been explained that when the sub-committee prepared the report, which was the base or starting point of our legislation, they had been much embarrassed by being unable to ascertain the policy of our allies, but that they had anticipated, in a general way, that the laws of continental powers would incline to leniency. They had also expected, that the government of Germany would endeavour to damage British credit, when war began; but their forecasts were wrong. As the legal expert to the committee had advised, the French codes did not forbid trading with an enemy: the seventy-seventh article of the penal code came nearest to it, but this related only to treacherous correspondence with an enemy. After some consideration, the French government issued an interpretative statement of this article, admitting that it was insufficient, and supplementing it by a decree against trading with the enemy. The governing clauses ran thus:

      A raison de l'état de guerre, et dans l'interêt de la defense nationale tout commerce avec les sujets des empires d'Allemagne et de l'Autriche-Hongrie ou des personnes y résident se trouve et demeure interdit. De même, il est défendu aux sujets des dits empires de se livrer directement, ou par personne interposée a tout commerce sur le territoire français ou de protectorat français.

The decree was made retroactive: every transaction with a German or Austrian subject subsequent to the declaration of war was declared nul et non avenu; no payment was to be made in performance of contracts entered into before the outbreak [177] of war; contracts to which French and enemy subjects had engaged themselves, before the declaration of war, by instruments signed in France or in French possessions, were to be annulled by a civil court on the petition of any French, allied, or neutral, citizen who might be party to the contract.

The French law was therefore far severer and more embracing than ours. The British prohibition was strictly geographical, and it gave no consideration to race, political allegiance, or even to business affinities; for branch houses of enemy firms were treated as British or neutral firms, provided that their offices were outside enemy territory. In order that there should be no doubt about this, the Treasury issued an interpretative statement on 22nd August:

      For the purpose of deciding what transactions with foreign traders are permitted, the important thing is to consider where the foreign trader resides and carries on his business...... Consequently, there is, as a rule, no objection to British firms trading with German or Austrian firms established in neutral or British territory. What is prohibited is trade with any firms established in hostile territory. If a firm with headquarters in hostile territory has a branch in neutral or British territory, trade with the branch is (apart from prohibitions in special cases) permissible, so long as trade is bona fide with the branch and no transaction with the head office is involved.

Russian legislation was on the French model, though not quite so sweeping. The ukase of 28th July withdrew all privileges and rights enjoyed by enemy subjects in the Russian empire, and so, presumably, deprived them of the right to sue in the Russian courts. This was followed by an ukase forbidding all direct and indirect payments to subjects of the enemy empires. An exception was, however, made in favour of enemy subjects who owned commercial and industrial undertakings, and other immovable property, within the Russian empire. The ministers of finance and commerce were, empowered to administer the decrees, and to allow exceptions to the rules. The ukase appears to have been complementary to a rigid prohibition of domestic exports; for the restriction of enemy supplies committee reported, at their second meeting, that the Russian government had forbidden the exportation of all staple articles of Russian produce; and that even exports to allied countries could only be authorised by the minister of finance.

The other great allied country, Japan, was reluctant to pass similar legislation. It has been explained, that before the war, continental lawyers were inclined to consider that the strict rule of war, predicating a rupture of all intercourse between all subjects of belligerent states, needed revision. Japanese lawyers endorsed this view strongly, knowing well that eastern customs are in conflict with these scientific conceptions of belligerency. Japanese traditions impose an exceedingly stern code of military honour, but eastern peoples, when uninfluenced by western theories, do [178] not consider, that the subjects of princes who are at war are under any obligation to break off intercourse with one another. Sentiment is the original source of all laws that enforce the duties of citizenship, and eastern sentiment is different to ours. In democratic practice, the citizens of a state are persons who have united together in a loose partnership for administering the national concerns, and for dividing the profits between themselves. The motive force of Japanese sentiment is entirely different, and the contrast at once becomes apparent if the language is consulted.¹⁰ It may seem strange that the Japanese, who have always shown such readiness to give their lives in defence of their flag, should yet have no word for patriotism in their ancient language. This, however, is actually the case; the word used for the purpose is entirely imported, and scholars estimate its age at about fifty years. The word that expressed patriotism and good citizenship in the old language was a word meaning obedience and unshakable fidelity to all superiors in the patriarchal and imperial hierarchy. The word indicated a characteristic purely personal, and contained no suggestion whatever of common interest in a common concern; still less did it suggest rivalry or jealousy. Again, the Japanese law of arms, and Japanese rules of war, are more the product of civil, than of international conflicts, and a Japanese declaration of war, on the old model, was little but an order that the armed forces of one party should overthrow the armed forces of another. These old-fashioned declarations always contained a clause exempting farmers, peasants and traders from the effects of warlike operations. Those subjects of the belligerent authority who did not receive the order were, therefore, as free to pursue their occupations as though it had never been given; their friendships and business connections were unaffected. The doctrine that war automatically severs intercourse between the subjects of belligerent powers is a doctrine of European composition, and nothing that resembles it is to be found in any eastern classic upon strategy, politics or morals. The opposite is, however, strongly maintained in the Chinese classic upon the conduct of war which is studied in the Japanese staff colleges. The author, Sung Tzu, maintained that it was futile to coerce an enemy by economic pressure. If this pressure were exerted by devastating an enemy's country, it generally turned to the disadvantage of the devastator; if it were attempted by other means, the whole machinery of pressure could be upset by an enemy victory in the field.¹¹ General Tsao Tsao, another eastern Clausewitz, was equally opposed to the whole conception.

The Japanese government had always been influenced by these humane, but warlike, traditions. They did not prohibit commerce with China during the war of 1894, or with Russia, ten years later. In 1914, direct commerce between Japan and Germany ceased automatically, but no prohibitions were imposed, no regulations were issued, and no restraints were placed upon enemy subjects living in Japan. Indeed the Japanese people were very compassionate to the Germans and Austrians who were so suddenly deprived of their occupations, and whenever possible, employment was found for them in the great business houses. It was not until much later in the war, and under pressure from the western allies, that the Japanese government issued an ordinance prohibiting trade with the enemy.

The German government adopted a policy very different from what had been anticipated. Realising that their country's supplies would be much restricted, they restrained the free circulation of commodities as little as possible; and never issued a decree or law prohibiting trade with the enemy. Their first decree was issued on 30th September; it forbad money payments to persons resident in [179] Great Britain and the British Dominions, but stated that rights to payment were only suspended until further orders; this decree appears, indeed, to have been a mild reprisal against enlargements of our first proclamations.¹²

x) A comparison between the restraints imposed upon British exports and neutral commerce

It will be evident, from the preceding descriptions, that our domestic legislation and our first order in council did not place equal restraints upon sea-borne commerce; and that the distinction was entirely in favour of our domestic exports. In the order in council of 20th August, the British government announced, that certain kinds of indirect trade between neutrals and the enemy would be stopped, whenever the authorities had collected sufficient evidence; in their first trading with the enemy proclamation, and in their interpretative statement, the authorities announced, that British exports could be sold to branches of enemy firms established on neutral territory, provided that the goods were transferred to them by a sale made in good faith, and that there was no transaction with the head office. It will be convenient to illustrate the difference between these two rules by a hypothetical case. Supposing, therefore, that the customs authorities in the Downs reported that the neutral ship A contained grains and provisions consigned to the neutral firm of B, established at Copenhagen, and that the contraband committee's records showed, that the firm of B was a branch office to the firm of C, in Hamburg. The cargo would then have been unloaded and placed in the prize court; for the committee's records show, that they felt themselves bound in duty to stop cargoes consigned to firms that had such close affinities with the enemy. If, however, the cargo had been a British export on the list of prohibited or restricted exports, and the shippers had desired to obtain a licence to export it, the restrictions would have been much lighter. The shippers would then have been called upon to prove only, that their transaction was with the buyer B, and that he had undertaken to pay for the cargo outright; to receive it from them; and to reduce it into possession.

It does not appear that the difference between these two rules was examined by any joint committee of Foreign Office and Board of Trade experts. The difference was, however, so glaring, that steps were taken to reduce it; and during September, the government issued a supplementary proclamation, and placed two new acts upon the statute book: the customs exportations act (28th August); the second trading with the enemy proclamation (9th September); and the trading with the enemy act.

The first of these instruments merely enlarged the powers of the crown in respect to domestic exports. The two empowering acts referred only to arms, warlike stores, and all materials necessary for making them. This had been sufficient for the [180] first proclamations, but it became evident, a few days after war had been declared, that all commercial exchanges might have to be controlled, if the nation's wants were to be supplied. The new act therefore empowered the crown to prohibit or restrain every kind of export.

The second trading with the enemy proclamation superseded the original. Notwithstanding that the first proclamation, and the interpretative statement to it had been very carefully drafted, and had explained what commerce was prohibited, and what allowed, British traders had not understood it. An immense number of enquiries were addressed to the licensing committee during the first weeks of the war, and when the question was discussed in parliament, members were as much engaged is asking for explanations, and authoritive statements, as in criticising the legislation itself.¹³ The new proclamation specified with great particularity what payments and transactions were henceforward prohibited. These prohibitions, though more explicit than those in the previous proclamation, were, nevertheless, in harmony with the recommendations of the sub-committee, and were not an enlargement of existing policy. The provisions with regard to indirect trade were more embracing; for the seventh sub-section of the fifth article was a severer prohibition than any contained in the original instrument. It ran thus:

      Not directly, or indirectly, to supply to, or for the use or benefit of, or obtain from, an enemy country or an enemy, any goods, wares or merchandise, nor directly, or indirectly to supply to or for the use or benefit of, or obtain from any person any goods, wares or merchandise for or by way of transmission to or from an enemy country or an enemy, nor directly or indirectly to trade in or carry any goods, wares or merchandise destined for or coming from an enemy country or an enemy.

The next article rescinded the previous permission to deal with branch houses of enemy firms; for it allowed transactions with them only if they were outside Europe. The geographical definition of an enemy trader was repeated with a slight alteration. In the old proclamation, an enemy was defined as any person: Resident or carrying on business or being, in the enemy's country; in the new, the definition was: Resident or carrying on business. Common lawyers attached some importance to the difference.¹⁴

Experience was to show that, if commerce with an enemy is to be stopped, the most embracing definitions must be given to enemy trade; and that those charged with the duty must be free to treat any transaction that directly or indirectly benefits an enemy subject as part of an enemy's commerce; for modern commerce resembles a fluid of enormous percolating power, which flows or trickles past political boundaries, tariff walls and natural obstructions. Any geographical definition of enemy trade is, in consequence, an impediment to those who are directed to stop it. Yet, notwithstanding this defect, the new proclamation gave the administration more power over British exports than the Foreign Office and the contraband committee could exercise against indirect commerce between neutrals and the enemy; for those operating the proclamation were virtually authorised to stop any transaction that conferred direct or indirect advantage upon the enemy. This was a greater power than that enjoyed by the contraband committee, who were only empowered to stop indirect commerce in contraband, if sufficient evidence could be collected. The power to control British exports was, moreover, incomparably greater than the powers granted under the second order in council, which suspended our right of intercepting indirect trade, until a particular country could be proved to be a base of supply. Furthermore the proclamation was supplemented by a regulation that obliged all shippers and receivers of goods in the United Kingdom to present certificates of destination and origin to the custom house authorities, if they were [181] trading with any port in Europe, unless it were a port in Russia, Belgium, France, Spain or Portugal. It is hardly doubtful, that city merchants were still free to obtain these certificates without making very scrupulous enquiries,¹⁵ but if all the certificates presented had been inspected as critically as the manifests of neutral ships were inspected by the contraband committee, the new regulations would have stopped British supplies from reaching the enemy's countries in any quantity. They continued to do so, because enlightened opinion still doubted whether this would be wise.

Sir John Simon introduced the trading with the enemy act on the day that the second proclamation was issued. The bill prescribed penalties for breach of the existing regulations, and empowered the Board of Trade to inspect the books of all firms suspected of trading with the enemy, and to take such measures as were necessary for appointing receivers to a business, if it had been abandoned by its German directors, and if it were judged expedient in the national interest, that it should continue in operation. The existing regulations were deemed sufficient to prevent any profits of the business from being transmitted to Germany. In its operation, the act more affected the domestic administration of firms with enemy affiliations than the control of sea-borne commerce; but, when introduced, the bill provoked a discussion, in which the abstract principles of economic warfare were enunciated and examined, in such a way as to leave no doubt that parliament was not yet prepared to endorse an unrestricted campaign. Mr. Henderson, the member for west Aberdeen, at once advocated the principles embodied in the French legislation: To attack the enemy's trade wherever it was known to flow, to stop any transaction that was of any benefit to him, to ruin every business that gave any yield upon the enemy's capital:

      If we are to carry on war against any nation ruthlessly because that nation is carrying on war against us, then we ought to attack their trade in every form we can. I think that must be common sense for the sooner you destroy their trade the sooner you destroy their army. One is as important as the other, and one leads a great deal further, very often, than the other......¹⁶

Mr. Henderson subsequently illustrated his argument by facts about the trade in copper between the United Kingdom and Holland, and announced that he would propose an amendment for making the bill more embracing.

It is something of a misfortune, that Mr. Henderson's amendment was a rather impracticable proposal to wind up every firm in the country that might be under enemy influence, for this deflected the discussion from the general question, whether British exports should be treated as severely as the sea-borne commerce of neutrals, who were suspected of dealings with the enemy. The house does not seem to have grasped that this was the great issue; and accepted Mr. Duke's statement, that firms originally under German management were completely isolated from the enemy, as though it disposed of the question raised about indirect trade. Mr. Henderson's statement of abstract principles was, consequently, neither attacked nor endorsed, and was soon buried under the criticism of particular clauses. But the general temper of the house was made sufficiently plain. The more thoughtful of the national representatives were not prepared to assimilate the economic to the military campaign; there is a reverberation of the old hesitations in each succeeding speaker's remarks.¹⁷

[182]
xi) The recommendations of the restriction of enemy supplies committee

These doubts and hesitations were as strong in the administrative offices of the government as they were in the house of commons; and even those bodies, which, by their constitution, would have been most inclined to recommend heavy constraints, were satisfied with the law as it then stood. The terms of reference given to the restriction of the enemy's supplies committee were: To examine and watch continually all means or routes by which supplies of food and raw material may reach Germany and Austria; to recommend by what methods financial, commercial, diplomatic and military, they may be hampered, restricted, and if possible stopped[.] A commission so embracing made the committee independent of the calculations of profit and loss which influenced a department like the Board of Trade, for Sir Francis Hopwood and his colleagues were instructed only to consider how the enemy's wants were to be aggravated. But the committee, after examining how the produce of the British empire should be withheld from the enemy, pronounced the existing measures sufficient; and after considering whether the dominions should be invited to send their domestic exports only to Great Britain and the allies, decided that this was not to be recommended. Sir Francis Hopwood did, however, make some specific suggestions with regard to materials almost entirely under British and allied control: nickel, bauxite, manganese, plumbago, rubber and jute.

It rested rather with the governments of the dominions, than with the British, to impose unbreakable restrictions upon the export of these substances. The Canadian government had no objection to enforcing all measures necessary for stopping nickel from reaching the enemy, and French legislation was sufficiently explicit to make it easy for the authorities to control exports of bauxite, a mineral which is the principal ingredient in the manufacture of aluminium.¹⁸ Manganese, plumbago and jute are, however, produced in India, and the Indian government, which had to estimate the political consequences of every measure of economic restraint, and to decide whether it would directly or indirectly strengthen the disruptive agencies within the country, did not consider it would be wise to issue a sweeping prohibition upon the export of jute, as the committee recommended. They did nevertheless place considerable restraints upon its export.

The control of rubber repeatedly engaged the committee's attention during the first months of the war. Rubber was upon the contraband list and upon the lists of prohibited export, and the committee evidently did not consider that its re-export from neutral countries in Europe was likely. This contingency was, at all events, not examined. The committee did think, however, that it was almost as dangerous to prohibit all supplies of rubber from going to the United States - which was done on 10th November, 1914, when it was placed on the list of absolute prohibitions - as it was to allow it to be exported to America without restraint, which had been done previously. They therefore recommended, that licences should be given for exporting rubber to the United States from Great Britain, Ceylon and the Strait Settlements, provided that each American purchaser gave a special bond for each shipment. This recommendation was not embodied in an agreement until several months later.

The committee examined another question very carefully, whether special restrictions should be placed upon the export of tea, coffee and cocoa. The policy finally adopted exposed us to fierce criticism from our allies, and from neutrals; it is therefore proper to discover the motives and calculations that were the original sources of the policy as accurately as they can be discovered from documents, and to explain them without prejudice.

[183] The tea crop that is produced under British supervision and control is of considerable value. In the year 1914, the Ceylon and Indian plantations yielded about 540 million pounds of tea, and the Chinese estates about 140. The industry is therefore a sort of prop to British rule in the east; for British doctors, British schools and rudimentary British institutions, gather round estates that support thousands of natives who, in other occupations would be unaffected by British influences. The planters in China support a great structure of credit and influence in the far east by their wealth and power.

Most of the tea produced by British capital is consumed in Great Britain and the dominions, but the consumption of other countries has always been considerable enough to constitute an important revenue. Forty-four million lbs. were exported in the year before the war, and as all the great estates shared in the profits of these foreign sales, the loss of the foreign market would have been felt by a large number of natives, and would, in consequence, have exposed additional strata of the Indian population to subversive influences.

In the early months of the war, which we are now considering, it was not likely that the foreign tea market would be lost: the question was, to what proportions would the market expand. Its extraordinary inflation is best expressed in tabular form:

Being aware by these, and by other statistics equally impressive, that the British tea merchants were almost pressing their goods upon the enemy, the committee looked into the matter. They were not unanimous, but they reported, that, as tea does not support life, and as it is not an article of military supply, they could not recommend that its export should be severely restricted; nevertheless, they gave instructions that the figures should be brought to the notice of the leading tea merchants. The Board of Trade evidently knew that this appeal to the principle of honour would not be of the slightest effect, and placed tea on the list of restricted exports. It will be shown, later, how the tea magnates adjusted the contending claims of honour and commercial advantage.

The case for restricting our cocoa exports was strong. Food and provisions had been placed on the contraband list, and cocoa is certainly human food: it contains fat and sugar, and is obviously a valuable article of diet in countries where food supplies are running short. The rising export figures showed, moreover, that the German population were substituting cocoa for some of the foodstuffs that were becoming difficult to obtain. On the other hand, cocoa was not required by the forces in the field; it was no part of a German soldier's food rations; and both the British War Office and the French authorities reported, that there was no demand for it in the armies. Nevertheless, if the tests that had been applied to other similar questions had been applied to cocoa, there would have been a strong case for declaring it to be at least conditional contraband, and for treating it accordingly. The authorities did not, however, consider that the problem could be separated from the larger issues of imperial policy. The cocoa farms of the Gold coast are the outcome of one of the most creditable experiments in British administration. The great industries of India and South Africa are concerns in which the native races are servants to the European directors; the farms of Australia and New Zealand, and the Tasmanian orchards, are established on lands from which the native aborigines [184] have been expelled; the Canadian granary is ploughed, sowed and reaped by the European farmer, who has long since confined the Indian huntsman of the steppes in reservations and compounds. In contrast to all this, the Gold coast cocoa is grown by a society of negro yeomen, who own and work their plantations without the aid of British capital or British guidance, and who, in 1914, were steadily outstripping all rival growers. The competition was, however, not decided in the closing months of 1914, when the matter was being examined. The Gold coast farmers now supply about half the cocoa consumed in Europe, America and Asia; they then provided about a quarter, and their principal rivals were the Portuguese of San Thomé, and the great landowners of Brazil and Ecuador, who worked their estates by a system of forced labour, which impartial observers consider to be as oppressive and as cruel as organised slavery. The committee were satisfied that severe restrict[i]ons on British colonial produce would benefit not so much a rival producer as a rival system. It is true, that by declaring cocoa to be contraband, the British government would have imposed equal restrictions on all sea-borne cargoes, but this would have damaged the native grower more than his slave-owning rival. Being aware that the market was expanding, the Gold coast farmers were increasing their crops very fast; so that any general measure of restraint would have glutted the London receiving houses, and would have caused a ruinous fall in price, which the Portuguese and Brazilian landowners could have borne more easily than the native farmer. The governor of the Gold coast was, indeed, very much concerned about the surplus that might accumulate in the colony to the utter ruin of the industry.

The committee therefore pronounced strongly against an export prohibition, and, as the authorities could not be persuaded to declare it contraband, British colonial cocoa was transported to border neutrals without restraint, until the government were forced by circumstances to design and operate a plan of economic warfare more in harmony with the fierceness of the military struggle.

xii) Increasing restrictions upon exports

It will be evident from all this, that, although particular branches of our export trade were from time to time examined, our system of control, and the purposes it served were not discussed or criticised during the first months of the war. No person, or body of persons, in authority enquired, whether our policy should continue to be purely defensive of British commercial interests - which the Board of Trade had virtually urged before the war - or whether the moment had arrived, when we should reconsider the position, and use the resources of the British empire as a coercive weapon. The question was raised in parliament but not examined. In the mere execution of their considered policy, the Board of Trade were, nevertheless, preparing for more aggressive measures. In the first place, they had been compelled to reverse their previous recommendations about sugar imports. When this matter had been considered in 1912, the Board of Trade experts had maintained, that it would be most unwise to prohibit imports of German sugar. In October, 1914, a proclamation was issued which forbad all persons resident in Great Britain to receive German sugar, directly or indirectly. Apart from this, the list of British exports that were prohibited or restricted at the end of 1914 was far longer than any list that the Board of Trade would have sanctioned before the war. Coal had certainly been removed from the list; its first appearance had provoked an outcry from British shipowners in every part of the world; but many articles of general commerce had been added, and it will possibly be instructive to examine the materials that were now, in theory, withdrawn from the enemy, and to estimate in what degree this withdrawal of British supplies accentuated the shortage that was apparent in Germany at the close of the year.

[185] Our power to injure the textile trades of Germany was formidable but not decisive. It was derived from our control of jute production, which was absolute, and from our partial control of German wool supplies, of which well over half were drawn from Great Britain and the Dominions. In the matter of cotton, we had no outstanding advantage. It is true, that a great proportion of the cotton yarns and cotton goods which were bought by Germans in overseas markets, were purchased from England; this, however, did not give us any real control of the German cotton industries. The Germans were spinners, weavers, and dyers, of cotton, and the raw material was the nutritive essential to the industry as a whole. If this was assured, the subordinate trades in yarns and finished products were safe. Now the bulk of the raw material was bought from America, so that, for so long as the British government were unable to declare cotton contraband, the German industry was tolerably secure. Our control of Sudanese and Indian cotton was not dangerous to the enemy, and it was, presumably, for this reason that the Board of Trade had placed cotton waste, and not raw cotton, upon the restricted list; for cotton waste was the only product of the raw material that was then being used in the manufacture of explosives.

We controlled two sources of metal that the Germans could ill afford to lose, for half the zinc and lead that were normally brought into Germany was supplied by the British empire. The German supplies of iron, copper and aluminium were not, however, greatly affected by our prohibitions. The same was true in respect of mineral oils.¹⁹ Our control of these was exercised mainly through the Russian prohibitions, which stopped only one tenth of the whole supply. We sold the Germans nearly one-half of the rubber that they purchased in a normal year, and the withholding of it was a serious matter to the motor industry. On the other hand, the economic duress that we could eventually exert against Germany was not calculable by juxtaposing British exports of certain goods to the German consumption of them. The Germans were exporters of goods manufactured from British raw materials; and any exporting country possesses large stocks, which can be used for internal use. The Germans had thus a sort of economic savings bank at their disposal, from which they could make good their loss of French silk goods, British woollens, British zinc, lead and rubber, for a considerable period of time. In any case, the quantities of British and allied goods that could be withheld from Germany by export prohibitions were only a small proportion of what could be withheld by controlling overseas supplies; our lists of exports restricted and forbidden were, therefore, no more than a slight reinforcement to our endeavour to exert a stronger hold over the neutral commerce of northern Europe.

It was nevertheless important, that the reinforcement should be as strong as it could be made, and the tropical products, which we largely controlled: copra, palm oil and so on, were not on the list. It was, indeed, very apparent, during the last months of the year, that we were not exerting as much pressure as we could.

xiii) British export trade with neutrals bordering on Germany

The statistics of general commerce showed how severely the convulsion had damaged our export trade as a whole. During the last quarter of the year we exported £44,450,122 of goods, which was only just over half the corresponding [186] figure in the previous year, £84,170,820. It was therefore peculiar, that, notwithstanding this tremendous decline, the exports to the neutrals bordering on Germany were slightly above the normal. The figures were:

As against this, however, exports to Italy and Switzerland fell considerably; those to the Netherlands declined by nearly a third, £2,840,079 as against £4,083,750. This proved that the movement of British goods towards border neutrals, and thence, presumably towards Germany, was local; the tendency was, however, well proved by the statistics of the re-export trade in foreign and colonial goods.

This branch of our trade had declined from £22,990,395 - the value of our re-exports in the last quarter of 1913 - to £16,119,848, a decrease of about thirty per cent. The fall had therefore not been proportionate to the fall in our domestic exports, and the explanation was easy to find. Our re-exports of foreign and colonial goods to the neutrals bordering on Germany had risen in the following fantastic proportions:

It is, unfortunately, impossible to analyse these totals: the relevant materials are in the archives of the Board of Customs and Excise, and it would be an enormous labour to convert these values into the corresponding commodities. Figures are, however, available which show the general character of the trade.

In the case of Sweden, the largest increases were in respect to cocoa, oils and fats. The figures for cocoa must, indeed, have relieved the anxieties of those colonial authorities who feared the utter ruin of the industry. In 1913 the Swedes had bought about 150,000 lbs. of British cocoa; in 1914 they imported 2,403,733. The rises in respect to oils, fats, soda ash, jute and tea were these:

[187] In the case of Norway the rises, though proportionately large, were in respect of different commodities: coffee, colonial grain, tea, raw cotton and soda ash. The figures were:

And for Denmark and the Netherlands:

British exports and re-exports of			Total for the year
			1913.			1914.
To Denmark		Soda compounds Coffee Corn and grain (colonial) Tea Oil nuts Petroleum	53,575 4,699 39,232 830,014 542 43,348	cwts. cwts. cwts. lbs. tons. galls.		120,763 18,511 933,186 4,422,298 3,372 86,170	cwts. cwts. cwts. lbs. tons. tons.
To Netherlands		Cocoa Coffee Tea Corn and grain (colonial) Oil seeds Cotton seed oil Soda compounds Jute piece goods Manures	2,205,282 105,865 3,810,730 29,828 5,265 7,538 121,288 1,676,400 4,669	lbs. cwts. lbs. cwts. qrs. tons. cwts. yds. tons.		12,203,463 282,369 19,839,338 783,958 15,943 14,662 310,023 4,016,300 11,247	lbs. cwts. lbs. cwts. qrs. tons. cwts. yds. tons.

It would be hasty to suppose that all these commodities were re-exported to Germany. Soda ash, and soda compounds are used as bleachers of cotton and linen textiles, and countries with large spinning industries naturally accumulate stocks of soda for export. Normally, Scandinavian countries bought their soda from Germany, and the unusual exports from Great Britain were presumably making good a supply that had failed after German mobilisation had been ordered. Nevertheless, it is hardly doubtful, that the greater part of the abnormal exports of foodstuffs were passed on to the enemy; and that commodities from Great Britain and the dominions were making good some of the shortages that had been imposed by the restrictions exercised against neutral commerce. The extraordinary sales of cocoa in Sweden and the Netherlands, and the heavy sales of oily substances and oil nuts showed, clearly enough, that the Germans had been substituting new nutrients for those that were difficult to buy; and that the resources of the British empire had virtually been placed at their disposal. The colonial corn and grain, which all the border neutrals had bought so heavily, may conceivably have been for domestic consumption; for, as has been repeatedly said before, the sudden loss of the Russian and German supplies had placed the neutrals of Europe in an awkward predicament. Nevertheless, corn and grain were conditional contraband; many neutral cargoes of cereals had been held up during the last quarter of the year; and had only been released after neutral governments had pledged their word that they would not be exported. The colonial corns and grains had been allowed after the re-shippers had filled in their certificates of ultimate destination. In the case of neutral cargoes, therefore, a government was required to take responsibility, knowing well that if they were careless, or if they allowed themselves to be deceived, [188] strong diplomatic protests would be made. The oath of a British merchant was the only guarantee required in respect to British goods, and this guarantee was judged valueless by our minister at the Hague, and proved to be so by our statistics of trade, before the proclamations had been in operation for a month. The difference in the strength of the two guarantees was flagrant. Moreover, the extraordinary sales of jute goods to the Netherlands showed, that the legal restrictions might be so operated that they positively stimulated exports, instead of cutting them down.

But when these figures are scrutinised, it must never be forgotten, that they are in some respects the records of a policy that the Board of Trade had announced beforehand. Colonial oils and fatty substances were not restricted, because, large as the British supplies were, the Netherlands East Indies were a rival producer, and the Board of Trade's experts had repeatedly said, that it would be folly to damage our own commerce and to benefit a rival's, without inflicting appreciable injury upon the enemy. Also, it cannot be too often repeated, that in the autumn of 1914, we were not engaged in an unlimited economic campaign in which every commercial transaction, and every branch of trade, is considered as though it were an economic weapon for use against the enemy. The campaign that was being conducted was still for the interception of contraband, and was of sufficiently limited compass to justify old fashioned estimates of commercial gains and losses. When Colonel Hankey reported the defects and weaknesses of the administrative machinery, he particularly reminded the government, that the additions to our restrictions of export had been made by different bodies and for different objects: It must be borne in mind, he wrote, that these lists are not drawn up solely from the point of view of injuring the enemy. Yet, even when every allowance has been made for the inclinations of a department of state constituted for the assistance and encouragement of British trade, it may be doubted whether our re-exports to border neutrals should have been allowed to swell to such proportions at such a time. Some middle way could surely have been found between so restricting our exports that a rival would benefit, which we were careful never to do, and allowing them to expand so prodigiously for an enemy's advantage, which we adopted as the only alternative. Indeed, if the authorities who allowed these huge exports of feeding substances had attempted to co-ordinate their measures with those taken by other departments, they would have realised, that the moment had arrived when our commercial policy was to be reconsidered. Since the October order in council had been issued, that is, during the last two months of the year, the Foreign Office had repeatedly warned neutrals, that we could not allow their countries to become bases of supply for the enemy; and that we should consider ourselves justified in presuming that the commodities were being passed to the enemy, if abnormal quantities were being imported. Sir Eyre Crowe's long negotiations with Mr. Clan had turned round the charge, that Danish imports showed that the country was becoming a German base. It was, therefore, very damaging to our reputation for honourable dealing, that British supplies had helped to make it so; and that while we were stopping Danish supplies of American lards and fats, we were glutting the country with British tea and cocoa. It was a poor defence, that most of our re-exports were not contraband; in fact the excuse only made our case worse. The British contraband list declared that foodstuffs were conditional contraband, and the contraband committee virtually interpreted the word as anything that was either edible or nutritive. This being so, the exception in favour of cocoa was an exception so obviously to our own advantage, that, by making it, our authorities excited universal suspicion of our honesty, and helped to build up a charge that many thoughtful foreigners consider to have been proved against us: that the British authorities laboriously and consistently endeavoured to substitute British goods for those neutral wares that had been stopped, or confiscated, by the most formidable fleet that has ever been assembled at sea; that the goods we sold in the markets that we had depleted by force, sustained the [189] enemy's resistance; and that, as all this was done deliberately and by calculation, we showed ourselves more careful of the profits of a few gluttonous city merchants than of the blood of our fellow countrymen and of our allies. Those parts of the charge which relate to bare facts are substantially true; those which relate to motive not so. Motive implies a considered plan; and the exports and re-exports that so injured our reputation were sanctioned, because our commercial policy, and our restraints upon neutral commerce had not been combined into a general system. The Board of Trade's anxiety to interfere as little as possible with British exports to neutrals; the decisions taken with regard to cocoa, tea and coffee were in themselves reasonable; but were so in conflict with the restraints exercised against indirect trade between neutrals and Germany, that they might have been taken by two rival governments. Our fault was therefore one of omission rather than of deliberate intention: the government had neither co-ordinated the divergent policies of the two departments of state, nor established a central authority with the necessary powers. Foreigners may therefore be excused, if they believe us guilty of their accusations, for they cannot be expected to understand the real explanation: that two departments of state, with their headquarters in the same thoroughfare, and separated by only a few yards of pavement, were engaged on two opposite endeavours, at a moment of great national danger.

xiv) The war trade department instituted

It was, however, something of a misfortune, that the incoherencies of our administration were apparent to the whole world, when other governments were able to detect faults in their own systems without public scandal; for it may be doubted whether any allied government re-organised and expanded their administrative departments as rapidly and effectively as we did ourselves. At the beginning of the new year, at all events, the defects in the administration of British exports were reported to the Committee of Imperial Defence by the secretary, and the remedies suggested by him were very readily adopted. After reviewing the existing procedure, and showing that it was faulty because the licensing committee was too loosely connected to the other branches of the administration, Colonel Hankey suggested, that the licensing committee should be expanded into a small department with a permanent secretariat and staff. The office was to be subdivided into branches, or divisions, corresponding to the geographical distribution of our export trade (i) a branch for granting licences to neutrals bordering on Germany, (ii) a branch for granting export licences to the United States and (iii) a branch for all other countries. The essence of the reform consisted in the better distributing of commercial intelligence. The postal and cable censors, and the various departments of state were each collecting information that was of the utmost value to the committee dealing with contraband, indirect trade, and exports, but no provision had been made for digesting it into a coherent corpus of intelligence. Colonel Hankey therefore urged, that reports from all sources should be collected by a central authority and should be by them redistributed after critical scrutiny had been made of them. These proposals were approved by the Committee of Imperial Defence; and the war trade department was instituted in February. It consisted of divisions, and of a war trade intelligence department, organised roughly as Colonel Hankey had suggested, and of a statistical department, which issued reports of the imports of northern neutrals in tabular form.

²Vigilantia I, C.R., p. 15. ...back...

³Indian Chief 3, C.R., p. 18. ...back...

⁴See Senior, Law Quarterly Review, January, 1918, for the law and practice of ransom bills, and their antiquity. Mr. Senior also shows, by quotations from a privateer's journal, that ransoming was very much preferred to capturing. ...back...

⁵See Samual Puffendorff's [Scriptorium: sic] letter in Groningius - Bibliotheca Universalis librorum juridicorum. ...back...

⁶See Clark, The Dutch alliance and war against French trade. Longmans, Green & Co. ...back...

⁷See Article 16 of the Hague Regulations concerning the laws and usages of war on land. ...back...

⁸6th December, 1912. ...back...

⁹The exportation of arms act 1900, and Customs and Inland Revenue Act 1879. The empowering clauses run thus:
      Exportation of Arms Act. It shall be lawful for Her Majesty by proclamation to prohibit the exportation of all or any of the following articles namely: arms, ammunition, military and naval stores, and any article which Her Majesty shall judge capable of being converted into or made useful in increasing the quantity of arms, ammunition, or military or naval stores, to any country or place therein named, whenever Her Majesty shall judge such prohibition to be expedient in order to prevent such arms, ammunition, military or naval stores being used against Her Majesty's subjects or forces, or against any forces engaged, or which may be engaged, in military or naval operations in co-operation with Her Majesty's forces.
      This act shall be read as one with the Customs and Inland Revenue Act 1879, and all the provisions of that act, so far as they are applicable to the exportation of prohibited goods shall apply, as if they were embodied in this act, and as if section one of this act were part of section eight of that act.
      Customs and Inland Revenue Act. The following goods may by proclamation or order in council be prohibited either to be exported or carried coastwise; arms, ammunition and gunpowder, military and naval stores and any articles which Her Majesty shall judge capable of being converted into or made useful in increasing the quantity of military or naval stores, provisions, or any sort of victual that may be used as food for man: and if any goods so prohibited shall be exported, or brought to any quay or other place to be shipped for exportation from the United Kingdom or carried coastwise, or be waterborne to be so exported or carried, they shall be forfeited, and the exporter or his agent, or the shipper of any such goods shall be liable to the penalty of one hundred pounds. ...back...

¹⁰I have no documentary authority for what follows: nor have I any knowledge of eastern literature and philosophy. My authority is Commander Shigetada Horiuchi, I.J.N., who has explained the matter to me with great particularity and has shown me the Japanese and Chinese derivations of all words expressing conceptions of public duty. ...back...

¹¹See The Ping Fa, or art of war. ...back...

¹²The Austro-Hungarian law was enunciated in four decrees. By the first (16th October, 1914) it was merely stated, that the government was empowered to issue regulations for controlling and stopping legal and commercial communications with the enemy; and that the penalty for disobeying the regulations would be imprisonment or fine. In the second decree (22nd October, 1914) it was announced, that by virtue of the law of reprisal, all persons and corporate bodies within the Austro-Hungarian empire might be freed of all claims that might be made against them by subjects of the enemy powers; and that all property against which enemy subjects might have claims might be placed in the custody of a bank, or other authority, selected by the government. In the third decree (22nd October, 1914), all payments, direct or indirect, by any kind of negotiable instrument, to subjects of Great Britain and Ireland, or of France and her colonies, were forbidden. Persons resident in those countries were included in the prohibition. By the fourth decree (28th October, 1914) an exception was made to the prohibition enunciated in the third decree if the payments were for maintaining or prolonging patents, or for sample and trade mark rights. The Belgian government issued a decree on the French model. The Serbian and Montenegrin decrees have not been recorded anywhere. See: Wirtschaftskrieg. Sammlung der in den kriegführenden Staaten erlassenen Zahlungs und Handelsverbote, u.s.w. Zusammengestellt vom Bureau der Handels und Gewerbe kammer für das Erzhogtum [Scriptorium: sic] Österreich unter der Enns. Wien. 1915. ...back...

¹³See remarks by: Mr. Taylor, Sir G. Younger, Mr. Duke, Mr. Holt, Mr. Leslie Scott. Hansard, 9th September, 1914, pp. 587 et seq. ...back...

¹⁴See Mr. Leslie Scott's question and Sir John Simon's answer. Hansard, Vol. 66, pp. 598 et seq. ...back...

¹⁵There appears to have been universal scepticism about the honesty of these declarations by business firms. See Sir Alan Johnstone's telegram No. 122 Commercial received 23rd February: Commercial Attaché mentioned scheme suggested by Sir N. Highmore, that the British Custom House should in future inform Dutch Custom House authorities of all consignments leaving Great Britain with declarations of ultimate destination to render re-export to enemy countries impossible. There are grave doubts whether such scheme would be effective, as Dutch customs have no control once goods have been handed to consignee, who does not consider himself bound by the British consignor's declaration [of which the British consigner must have been aware.]
      Root of the evil is in Great Britain, where declarations are given recklessly [a very polite word]...... Declarations without subsidiary safeguards are regarded as a farce by Dutch experts and officials. ...back...

¹⁶Hansard, Vol. LXVI, pp. 694 etc. ...back...

¹⁷See Remarks by Mr. Duke and Sir Frederick Low. ...back...

¹⁸About half of the world's supplies of bauxite are produced in France. ...back...

¹⁹The figures are:

Commodity.	(a) Total German imports.	(b)   Imports from sources   affected by allied prohibitions of export.	Percentage of (b) to (a).
Mineral oils, all kinds	1,282,256 tons	162,891 tons	12 per cent.

...back...

A History of the Blockade of Germany
and of the countries associated with her in the Great War:
Austria-Hungary, Bulgaria and Turkey.
by A. C. Bell (Historical Section, Committee of Imperial Defence).