If our analysis of present-day society is correct, we have the enormous populations of the modern industrial countries, living always on the verge of starvation, their chance for survival depending at all times upon the ability of their employers to find a profitable market for a surplus of goods. At first the employer seeks that market at home; but when the home markets are glutted, he goes abroad; and so develops the phenomenon of foreign trade and rivalry for foreign trade, as the basic fact of capitalism, and the fundamental cause of modern war.

Let us get clear a simple distinction concerning foreign trade. There is a kind of trade which is normal, and would thrive in a "free" society. In the United States we can produce nearly all the necessities of life, but there are a few which we cannot produce—rubber, for example, and bananas, and good music. These things we wish to import. We buy them from other countries, and incur a debt, which we pay with products which the other countries need from us; wheat, for example, and copper, and moving pictures with cowboys in them. This is equal exchange, and a natural phenomenon. A "free" society would produce such surplus goods as were necessary to procure the foreign products that it desired. When it had produced that much, the workers would stop and take a vacation until they wanted more foreign products.

But under capitalism we have an entirely different condition—we produce a surplus of goods which we have to sell in order to keep our factories running, and to keep our working population from starving. And note that it does not help us to get back an equal quantity of foreign goods in exchange. We must have what we call "a favorable balance"; that is, we must have other people going into debt to us, so that we can be continually shipping out more goods than we take back; continually piling up credits which we can "negotiate," or turn into cash, so that we can go on and repeat the process of making more goods, selling them for more profits, and putting the surplus into the form of more machinery, to make still more goods and still more profits.

And then, after a while, we come upon this embarrassing phenomenon; nations which buy and do not sell must either do it by sending us gold, or by our giving them credit. The sending of gold cannot go on indefinitely, because then we should have all the gold, and if other nations had none that would destroy their credit. On the other hand, business cannot be done by credit indefinitely; for the very essence of credit is a promise to pay, and payment can only be made in goods, and how can we take the goods without ruining our own industry?

Fifteen years ago I pointed this out in a book. The argument was irrefutable, and the conclusion inescapable, but the few critics who noted it repeated their usual formula about "dreamers and theorists." Now, however, the business mills have ground on, and what was theory has become fact before our eyes. We have trusted the nations of Europe for some $10,000,000,000 worth of goods, and they are powerless to pay, and if they did pay, they would bankrupt American industry. France wishes to collect an enormous indemnity from Germany, but nobody can figure out how this indemnity can be paid without ruining French industry. The French have demanded coal from Germany, and have got more than they can use, and are "dumping" it in Belgium and Holland, with the result that the British coal industry is ruined. The French clamor that the Germans must pay for the destruction they wrought in Northern France, and the Germans offer to send German workmen to rebuild the ruined towns; but the French denounce this as an insult—it would deprive French workingmen of their jobs! So I might continue for pages, pointing out the manifold absurdities which result from a system of industry for the profit of a few, instead of for the use of all.

Ever since I first began to read the newspapers, some twenty-five or thirty years ago, all our political life has been nothing but the convulsions of a social body tortured by the constricting ring of the profit system. Everywhere one group struggling for advantage over another group, and politicians engaged in playing one interest against another interest! My boyhood recollections of public life consist of campaign slogans having to do with the tariff: "production and prosperity," "reciprocity," "the full dinner pail," "the foreigner pays the tax," etc.

The workingman, under the profit system, is like a man pounding away at a pump. He can get a thin trickle of water from the spout of the pump if he works hard enough, but in order to get it he has to supply ten times as much to some one who has tapped the pipe. But the tapping has been done underground, where the workingman cannot see it. All the workingman knows is that there is no job for him if the products of "cheap foreign labor" are allowed to be "dumped" on the American market. That is obvious, and so he votes for a tax on foreign imports, high enough to enable his own employer to market at a profit. He does not realize that he is thus raising the price of everything that he buys, and so leaving himself worse off than he was before.

All governments are delighted with this tariff device, because they are thus enabled to get money from the public without the public's knowing it. "The foreigner pays the tax," we are told, and as a result of this arrangement the steel trust just before the war was selling its product at a high price to the American people, and taking its surplus abroad and selling it to the foreigner at half the domestic price. And we see this same thing in every line of manufacture, and all over the world. We see one nation after another withdrawing itself as a market for manufactured products, and entering the lists as a marketer. One more nation now able to fill all its own needs, and going out hungrily to look for foreign customers, adding to the glut of the world's manufactured products and the ferocity of international competition!

At the close of the Civil War the total exports of the United States averaged approximately $300,000,000, and the total imports were about the same. In 1892 the exports first touched $1,000,000,000, while the imports were about nine-tenths of that sum. In the year 1913 the exports were nearly $2,500,000,000, while the imports were $600,000,000 less; and in the year 1920 our exports were over $8,000,000,000 and our imports a little over $5,000,000,000! So we have a "favorable balance" of almost $3,000,000,000 a year—and as a result we are on the verge of ruin!

This "iron ring" of overproduction and lack of market exercises upon our industrial body a steady pressure, a slow strangling. But because the body is in convulsions, struggling to break the ring, the pressure of the ring is worse at some times than at others. We have periods of what we call "prosperity," followed by periods of panic and hard times. You must understand that only a small part of our business is done by means of cash payments, whether in gold or silver or paper money. Close to 99% of our business is done by means of credit, and this introduces into the process a psychological factor. The business man expects certain profits, and he capitalizes these expectations. Business booms, because everybody believes everybody else's promises; credit expands like a huge balloon, with the breath of everybody's enthusiasm. But meantime real business, the real market, remains just what it was before; it cannot increase, because of the iron ring which restricts the buying power of the mass of the people by the competitive wage. So presently the time comes when somebody realizes that he has over-capitalized his hopes; he curtails his orders, he calls in his money, and the impulse thus started precipitates a crash in the whole business world. We had such a crash in 1907, and I remember a Wall Street man explaining it in a magazine article entitled, "Somebody Asked for a Dollar."

We learned one lesson by that panic; at least, the big financial men learned it, and had Congress pass what is called the "Federal Reserve Act," a provision whereby in time of need the government issues practically unlimited credit to banks. This, of course, is fine for the banks; it puts the credit of everybody else behind them, and all they have to do is to stop lending money—except to the big insiders—and sit back and wait, while the little men go to the wall, and the mass of us live on our savings or starve. We saw this happen in the year 1920, and for the first time we had "hard times" without having a financial panic. But instead we see prices staying high—because the banks have issued so much paper money and bank credits.