I
want to make friends with my neighbor and go into
partnership with him.
want to make friends with my neighbor and go into
partnership with him.
Soviet Union - 1931 - Fighting the Red Trade Menace
FIGHTING THE RED TRADE MENACE 251
than an export of their goods into Soviet territory.
Whether there is any causal connection or not may
be difficult to establish, but it is interesting to observe
that, whereas these nine countries sold $193,000,000
worth of goods to the Soviet Union in 1930, they
bought from the Soviet Union $340,000,000 worth.
The Soviet Union spent 39 per cent of its total funds
available for purchases abroad on purchases from
these nine countries, but of all the Soviet Union's
sales abroad 67 per cent went to these countries.
An export credit system, granting government
guarantees on the sales by its citizens to the Soviet
Union, may be interpreted in a way as an expression
of good will toward the Soviet Union, or, at any rate,
as an expression of a desire to improve trade rela-
tions. Curiously enough, however, those countries,
that grant such governmental guarantees, enjoy but
39 per cent of the Soviet Union's total purchases and
buy from the Soviet Union two-thirds of all Soviet
Union exports.
However that may be, a more important conclu-
sion from this analysis of Soviet foreign trade is that,
while cries against "Soviet dumping" were making
the World's economic welkin ring and while some ob-
servers noted with satisfaction that Europe was tak-
ing adequate measures, these measures, when added
up, result in the following balance: The Soviet Union
lost 1. 6 per cent of its total exports.
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? 252 FIGHTING THE RED TRADE MENACE
It was effectively debarred from submitting its
goods to 5 per cent of the world's purchasing power.
It was ineffectively debarred from presenting its
goods to another 9 per cent of the world's purchasing
power. It was encouraged to present its goods to 31
per cent of the world's purchasing power, while na-
tions representing 55 per cent of the world's purchas-
ing power did nothing one way or another officially
to influence Soviet trade, but continued privately to
do normal business.
All of the countries that put effective embargoes on
Soviet goods were countries with no diplomatic re-
lations with the Soviet Union, most of them were
countries with long standing political grudges against
the Soviet Union, and all were countries that really
suffered from Soviet exports, not in their home mar-
kets to any important extent, but in their foreign
markets. Special political differences and historical
reasons made it easy for Rumania, Hungary, Bul-
garia, Jugoslavia and Albania to cut off Soviet trade.
In Rumania, the question of Bessarabia has re-
sulted in a permanent state of latent war between the
two nations. One of the world's great rivers, the
Dniester, separates Rumania from Russia. It is not
so wide but that a row boat can cross it in half an
hour. But so wide are the political differences of the
two countries that a Rumanian citizen who wishes to
visit a relative just across the river, five miles away,
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? FIGHTING THE RED TRADE MENACE 253
has to travel about four thousand miles to reach his
relative's home. Quick-triggered sentries guard the
river on both sides and hardly a week passes without
report of some incautious citizen meeting death in
an attempt to slip across. This risk leads most Ru-
manians to prefer to travel to Berlin and wait there
weeks or months on the improbable chance of getting
a Soviet visum which, when obtained, will permit them
to enter Russia by way of Nigorelye, thence to Mos-
cow and down to the Soviet side of the Dniester River.
The Soviet Union still claims Bessarabia and has
repeatedly declared it will never relinquish the claim.
It was Rumanian until 1812, when Czar Alexander I
seized it for Russia. The Rumanians, therefore, ar-
gued in 1918 that they were only reoccupying Ru-
manian territory when their troops took possession
of Bessarabia. In 1924 a Russian-Rumanian con-
ference was held in Vienna in an attempt to come to
some agreement, but after sharp conflicts the con-
ference broke up without results. The two countries
living now on the worst possible terms have never had
any trade save that of smugglers. The Rumanian
Government's decree last year against imports of
Russian goods was merely a gesture emphasizing this
long established fact.
More threatening to Soviet trade was Rumania's
recent attempt to bar the Danube to Soviet cargoes.
The Soviet Union, however, appealing to the Euro-
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? 254 FIGHTING THE RED TRADE MENACE
pean Danube Commission, established to guarantee
freedom of navigation on that river, obtained a ver-
dict ordering Rumania to open traffic to Soviet boats.
With this decision Rumania lost her only chance ef-
fectively to influence Soviet trade.
Rumania has as many reasons to wish to retaliate
against the Soviet Union as any other country, for
in addition to her territorial quarrel and historical
differences, she has suffered from Soviet competition
in three categories: oil, lumber and grain, the three
largest Soviet exports and the three largest Ru-
manian exports. All this competition, however, takes
place in foreign markets over which Rumania has no
control, so that her efforts at reprisal remain futile.
Hungary's quarrel with the Soviet Union is essen-
tially based on international political reasons in a
country that will never forget during this genera-
tion the five months of its own Soviet regime under
Bela Kun. The so-called "white terror," that for two
years took the place of Kun's red variety, left a
habit of mind that still governs Hungarian views of
the Soviet Union. Hungary went on the principle that
the Bolsheviks had at least taught their opponents
one thing: that by far the most effective method of
disposing of one's enemies is physically to destroy
them. This system effectually removed most of Hun-
gary's domestic "red menace" during the first years
of the "white terror" and, while now there are few
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? FIGHTING THE RED TRADE MENACE 255
death sentences passed on Communists, hundreds
have been sent to prison for long terms during the
last few years. Fear of Bolshevism, and not of Bol-
shevik trade, has been dominant in Hungary's atti-
tude toward the Soviet Union, and the Government's
decree last March requiring licenses for the import
of Soviet goods was also only a gesture confirming
the fact that Soviet trade is virtually non-existent.
Unlike the case in France and Belgium, the Hun-
garian license system operated as a real embargo, for
the Government reports that, since its inauguration,
not a single application has been received for a license
to import Soviet goods. With its license system Hun-
gary, too, had hoped to do what it could to strike a
blow at the Soviet Union out of resentment at Soviet
competition in grain in Hungary's markets abroad.
The sole effect of the license system, however, has
been to eliminate the Soviet purchases of Hungarian
livestock that, in 1930, amounted to $125,000. Mean-
while, Italy, the great patron of Soviet trade and the
patron, too, of Hungary, has been bringing pressure
on Budapest, not only to withdraw the restrictions
on Soviet imports, but to establish good commercial
relations with Moscow. While these efforts have been
going on, Italian dealers manage to ship a considera-
ble quantity of Soviet products into Hungary under
false certificates of origin.
For Jugoslavia, too, it cost no heart searching to
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? 256 FIGHTING THE RED TRADE MENACE
cut off Soviet trade. Historically, Jugoslavia, a de-
voted protege of the Russian Czars, is no friend of
the Soviets. Czarist Russia always backed the Serbs,
backed them, indeed, into the great war. A common
religion ties the Serbians with the orthodox Russians,
but not with the atheist Russian Bolsheviks. These
sentiments rendered Jugoslavia hospitable to Czarist
emigres and Wrangel's army was for a long time
quartered there.
With no official relations of any kind between the
two countries and with almost no trade, it was again
rather a futile gesture when Jugoslavia decreed a ban
on Soviet products. The ban stopped official Soviet
exports to Jugoslavia of $50,000 yearly, but re-
ports from Susak, the Jugoslav half of Fiume, have
it that, through Fiume, Italian merchants send Soviet
goods to at least that value into Jugoslavia, also
under false certificates of origin.
The fourth of the Balkan quintet against Soviet
trade is little Bulgaria, too poor to have much trade
in any case, but too thoroughly frightened of the
Communists within her borders to permit any sort of
contact with the Soviet Union. Albania, included for
the sake of completeness, has an odd reason for not
doing business with the Soviet Union.
Indirectly, the present King Zog owes his crown
to Moscow. Zog's predecessor, pious, pink Bishop
Fan Noli, was about to recognize the Soviet Govern-
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? FIGHTING THE RED TRADE MENACE 257
ment and the great Powers looked with much dis-
favor upon what they thought would be equivalent to
Moscow's gaining a foothold on the Adriatic. Out of
these considerations the Powers gave their permission
to Zog to make a "revolution," overthrow Fan Noli
and set up a kingdom. There is, therefore, no per-
ceptible inclination on the part of Zog to do business
with the Soviets.
This completes the roster of European nations that
have taken any effective measures to keep out Soviet
imports. But in the Balkans alone the loss of the
Soviet Union in these five nations of $1,050,000 in
goods is more than compensated by the Soviet trade
with Greece. The only Balkan nation that has given
diplomatic recognition to the Soviet Union, Greece,
buys an average of $2,000,000 worth of Soviet goods
a year and, lacking within her own territory the goods
the Soviet Union has to offer, Greece takes the atti-
tude toward Soviet "dumping" that the lower the
prices, the better for Greek consumers. Her imports
from the Soviet Union are chiefly grain and she is so
glad to get that cheaply, that she raises no protest at
the fact she sells to the Soviet Union only a yearly
bill of around $30,000 worth of miscellaneous prod-
ucts.
When Austria, Czecho-Slovakia and Poland are
taken into consideration, the Soviet trade with these
countries is so large and is growing so rapidly that
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? 258 FIGHTING THE RED TRADE MENACE
the importance of anti-Soviet embargoes in the out-
spokenly unfriendly Balkan states becomes nil. Aus-
tria is one of the governments that guarantee Soviet
credit. Her trade balance with the Soviets is active.
In 1930 she sold $3,000,000 worth of goods to the
Soviet Union and bought $2,000,000 in goods from
the Soviet Union.
Once, and only once, did Austria make a motion
toward restraining Soviet trade. It supplied in minia-
ture a perfect example of the sort of thing that has
constantly recurred in the Soviet Union's commercial
relationships with other and larger countries. Under
the influence of the clerical journals of Vienna,
which in turn, had been impressed by the Vatican's
manifestoes against the Godless Muscovites, the Aus-
trian Minister of Agriculture, a young, enthusiastic
man, suddenly issued a decree forbidding the import
of Russian eggs. The poultrymen and clericals ap-
plauded, but the Soviet foreign trade representative
countered with telephone messages to all Austrian in-
dustrialists, to whom the Soviet Union had given or-
ders for machines, telling them that their orders were
canceled.
Dumbfounded, they asked why. The Soviet repre-
sentative replied, "You don't take our eggs, we don't
take your machines. " In precisely twenty-four hours
the Minister of Agriculture withdrew his ban on
Russian eggs and nothing has since occurred to mar
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? FIGHTING THE RED TRADE MENACE 259
the Austro-Soviet commercial harmony. With full
diplomatic relations, the two countries look back upon
their egg quarrel as one of the most serious of their
differences.
Between the Soviet Union and Czecho-Slovakia
exist formally cool de facto but not de jure relations,
but, commercially, very lively connections. No pro-
test against Soviet "dumping" has been raised in
Czecho-Slovakia because the chief Czecho-Slovakian
imports from the Soviet Union are petroleum prod-
ucts, which compete not with Czecho-Slovakian
products but with those of foreign oil countries.
It is worth noting that the Czech friendship for her
Little Entente ally, Rumania, has not prevented her
from buying Soviet petroleum in preference to that
of her political friend. The Czechs are also grateful
for the fact that the Soviet Union buys about $9,500,-
000 worth of her products, while the Soviet Union
sells about $1,000,000 less per year to Czecho-
slovakia.
Poland, most important of all the countries under
consideration here and quite unique in her relation-
ship to the Soviet Union, deserves a whole chapter.
Suffice it is to say, Poland is the one country in Eu-
rope which, even more than Rumania, is under per-
manent Soviet suspicion and is constantly being
charged by Moscow with plotting war.
Poland ended its last war with the Soviet Union
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? 260 FIGHTING THE RED TRADE MENACE
just ten years ago and the Kremlin has lain awake at
the dawn of every spring, listening to Pilsudski
sharpening his saber. Yet Poland today is discussing
a bill to follow the example of so many European
governments and guarantee Soviet credits, and Po-
lish industrialists are vying with their German col-
leagues in singing the praises of a Five-Year Plan
that bring such welcome orders.
These orders have wrought a marvelous change in
Warsaw's attitude. Since they began, two years ago,
border incidents have ceased and quiet has settled on
the Pripet marshes. Last year Poland sold Russia
$15,000,000 in goods and bought only $5,000,000 in
goods and cheered the active balance.
This year a group of Polish industrialists visited
the Soviet Union and returned with promises of more
orders. Details for the realization of these promises
are being worked out. Meanwhile, cynical Berlin
newspapers, which are not, however, cynical when the
same observations might be made of Germans take
pleasure in relating an illuminating tale concerning
Pan Wierzbicki, director of the Federation of Polish
Industry, Finance and Commerce and leader of the
Polish delegation to view the Five-Year Plan. Pan
Wierzbicki, magnate of parts and a conservative
Pole and with all of a conservative Pole's profound
distrust of the Soviet Union, experienced a conversion
when he arrived in Moscow and found Soviet orders
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? FIGHTING THE RED TRADE MENACE 261
waiting in profusion for his factories. Full of en-
thusiasm, he visited a small Russian village where,
incognito, he attended a conference of peasants dis-
cussing the necessity of ordering machines. Wierz-
bicki, master of the Russian language, joined in the
discussion eloquently. Whereupon as he finished his
speech, the peasants rose as one man and cried, "Let's
elect this comrade chairman. " "Comrade Wierzbicki"
and his colleagues report that the Soviet Union will
buy $20,000,000 worth from Poland by the end of
this year.
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? CHAPTER XXIII
Berlin:
A race, a sweepstakes, is deciding today the destiny
of Europe. The race is between the "tempo" of the
Soviet Union's Five-Year Plan and the "tempo" of
this continent's efforts to organize a United States
of Europe. The Five-Year Plan so far is a length
ahead.
This is the German formulation of the meaning of
the Five-Year Plan for Europe. It is of course not
every German's formulation. It is only one German's
formulation, printed in the most remarkable series
of articles on the Five-Year Plan that has appeared
in the German press since the plan passed its two-
year mark, a series printed in the Berliner Tageblatt
under the pseudonym "Z. "
Herr "Z" whoever he may be, while retaining his
anonymity has achieved among informed circles in
this country an influence that justifies calling his
opinion "the German formulation. "
His anonymity is worth pausing to consider for it
throws a most instructive light upon the German at-
titude toward the Soviet Union. For the fact of the
matter is that no "bourgeois" German can yet afford
to write under his own name in the non-Communist
?
262
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? FIGHTING THE RED TRADE MENACE 263
press of Germany that the Five-Year Plan is suc-
ceeding. That bare admission with no conclusions
and no prophecies is much too great a risk in a coun-
try that has seventy-seven Communists in a Reichstag
of 589 members.
It is much too great a risk in a country whose in-
dustrialists believe they may safely deliver machines
to Russians because Russians won't know how to use
them. It is much too great a risk for a country whose
government since 1922 has based its entire foreign
policy upon the hope that the Soviet Union may grow
strong enough to frighten France but not so strong
that it may injure Germany.
In Italy, in France and in England they all say
today, "Germany is next in line. Let Germany
worry. " Prime Minister MacDonald put it crystal
clear in his recent address to Parliament: "If there
were any trouble Germany would be in trouble, would
be involved and whirling in the maelstrom long before
we either at home or abroad would be involved. "
This Germany knows better than England, France
or Italy, but, as one observer of this country's foreign
policy has said, Germany's answer is, "If my house
catches fire so will that of my neighbor, France.
I
want to make friends with my neighbor and go into
partnership with him. But my neighbor is afraid of
me and won't take me into partnership on my terms.
Therefore I will feed this fire on the other side of me
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? 264 FIGHTING THE RED TRADE MENACE
until my neighbor becomes so frightened of the fire
reaching his house that he will make friends with me
and take me into partnership on my terms. I hope
this will happen before the fire really sets my own
house ablaze. "
This simile has flaws and is too simple to fit all the
facts, especially since there are economists, business-
men and statesmen beyond reproach of Bolshevism
who declare that the fire is not a fire to burn down
houses but one to warm world trade. Nevertheless, it
is a simile as good as any other for an explanation of
the intricate relationship between Germany and the
Soviet Union on one hand, and Germany and France
on the other hand. It explains why Germany watches
the progress of the Five-Year Plan more closely than
any other country in Europe does. It also explains
why Germany does not want to admit that the Five-
Year Plan is going ahead too fast and hopes that
France will see the light before the paint on Ger-
many's house begins to scorch.
Finally, it explains why the leaders of German
foreign policy are more disturbed today at the recent
French overtures to Moscow than at all of France's
protests against the Austro-German customs union.
For if France too begins to feed the fire what becomes
of the chance that France may eventually, from fear
of the Soviet Union capitulate to German terms?
Today, too, Germany has an added anxiety. She
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? FIGHTING THE RED TRADE MENACE 265
sees Poland sending industrialists to the Soviet Union,
accepting joyfully Soviet orders and discussing now
the establishment of a system of government guaran-
tees for Polish credits to the Soviet Union. And Ger-
many remembers the statement of one Polish Govern-
ment spokesman that, "Rather than give two villages
to Germany we will invite the Bolsheviks into Poland. "
Down the map a little further southeast lies
Czecho-Slovakia, like Poland, for a long time at outs
with the Soviet Union; like Poland one of Germany's
least well disposed neighbors, and like Poland, allied
to France. In Czecho-Slovakia, too, the atmosphere
has turned pro-Soviet, the Government is said to be
contemplating de jure recognition of Moscow and
also to be planning a system of government guaran-
tees on credits to the Soviet Union.
With France talking of a trade treaty with the
Soviet Union, and Poland and Czecho-Slovakia mak-
ing unmistakably friendly overtures toward Moscow,
Germany's former monopoly on good relations with
the Soviet appears threatened. And Germany is
frankly worried.
Recent developments between the Soviet Union on
the one hand and Germany, France, Poland, Czecho-
slovakia and Austria on the other hand, afford a
classic example of the beneficial effect upon the Soviet
Union of every quarrel that arises among non-Soviet
European nations. For it is not merely the growth of
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? 266 FIGHTING THE RED TRADE MENACE
Soviet trade that has attracted France and her allies
to Moscow. A large role was played by the Austro-
German customs union. That issue will be settled
juridically before The Hague Court. But before the
court's decision comes, France and her allies, who ob-
jected most strongly to Germany's step toward amal-
gamation with Austria, intended to take practical
measures against Germany's "active foreign policy. "
In other words, it appears and, Germany believes,
that France, Poland and Czecho-Slovakia today are
trying to drive a wedge between Germany and the
Soviet Union and Germany's hope, though a faint
one, is that the French, however, don't really mean it.
If they do mean it--and to one outside observer it
looks as though they do--its significance for the
Soviet Union is that the last possible hindrance to
Soviet economic expansion on the Continent has dis-
appeared. To Germany it would mean that her
French neighbor had turned the tables. With the Bol-
shevik fire, France, it may transpire, intends to scorch
Germany into submission to France's terms for that
famous Franco-German "understanding" upon which
it is admitted rests the future of Europe.
In any case, Moscow has profited. How much she
has done so economically is shown by examination of
the recent transaction whereby Germany was said to
be going to receive an "extra" $75,000,000 worth of
orders from the Soviet Union "over and above the
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? FIGHTING THE RED TRADE MENACE 267
orders the Soviet Union would normally have placed
in Germany in a year. "
This transaction has been the object of consider-
able misunderstanding both abroad and here. It was
popularly believed to mean that Germany at the end
of the year would show exports to the Soviet Union
of at least $75,000,000 more than last year when
Germany sent into Russia $107,000,000 worth of
goods. This was hailed in Germany as a stroke of
great good fortune and abroad was variously but
chiefly estimated as an example of the Soviet Union's
commercial friendliness to this country. In America
it was taken for granted that it meant the Soviet
Union had switched most of those new orders from the
United States to Germany.
It now appears, however, that the transaction must
be judged as better proof of Germany's commercial
friendliness to the Soviet Union than vice-versa. For,
as now transpires, it meant not that the Soviet Union
would purchase in Germany goods to the value of
$75,000,000 more than she purchased last year, but
it meant that the German Government had extended
its guarantees to cover $75,000,000 of Soviet pur-
chases more than the Reich already had insured, and
that was quite another thing.
Germany was the initiator of the now widespread
system of Government guarantees on Russian credits.
Eight other countries have now adopted that system
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? 268 FIGHTING THE RED TRADE MENACE
and France, Poland and Czecho-Slovakia are said to
be about to follow suit. This country guarantees 70
per cent of the face value of Soviet notes, 40 per cent
of the guarantee being taken over by the Reich, 30
per cent by the German states.
By April 1, 1931, these guarantees on Soviet busi-
ness totaled coverage of $125,000,000. That was the
sum the Soviet Union owed German manufacturers.
And that was the sum the German Government was
inclined to believe should be the limit beyond which it
should not go. It was willing to keep up to that limit
and use its funds to guarantee new Soviet purchases
as fast as old ones were paid for, but it did not wish
to pledge any more guarantees than on a total of
$125,000,000.
Early this spring, however, Moscow invited a dele-
gation of German industrialists to visit the Soviet
Union. There the prospect was held out that if they
offered sufficiently good credit terms they would re-
ceive $75,000,000 worth of new orders. The indus-
trialists returned to Germany enthusiastic, pressed
the Government to extend its credit guarantees to
include new orders and finally succeeded. Some ap-
prehension was felt, however, as to public opinion on
the advisability of the Government extending its
credit guarantees to cover what would then amount to
$200,000,000 worth of Soviet notes.
It may not have been calculated, but nevertheless
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? FIGHTING THE RED TRADE MENACE 269
the impression certainly was allowed to prevail at
that time that the $75,000,000 of "new" orders were
to be "over and above the normal amount of Soviet
purchases in Germany," "normal" being taken to
mean the amount purchased last year. Under the in-
fluence partly of this belief the German public was
agreeable to the Government's action and only one
man raised his voice in the Reichstag to warn that
Germany "should not sell her political birthright for
a tip. "
Supported by public opinion, the Government ad-
vanced the necessary funds, so that when all the
Soviet orders are placed by August 31, 1931, as re-
quired by the agreement entered into between the
Germans and the Russians, the Soviet Union will owe
German firms a total of $200,000,000 secured to 70
per cent by German Government guarantee.
It now appears, however, that the transaction's
chief effect was to extend the length of credit time
granted by Germany to the Soviet Union by from
two to five months and that while this extension of
credit will, it is true, increase German exports to the
Soviet Union probably by $15,000,000 to $20,000,-
000 in 1931, it will not mean the increase of $75,000,-
000 which had been anticipated by an ill-informed
public.
In the case of orders on which up to now twelve
months' credit had been granted the Soviet Union an
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? 270 FIGHTING THE RED TRADE MENACE
average time credit of fourteen months was estab-
lished : in the case of orders on which eighteen months'
credit previously was granted an average of twenty-
one now is granted, and in the case of orders on which
twenty-four months hitherto was granted an average
of twenty-eight now is granted. Twenty per cent of
each order must be pledged by the Soviet Union by
bill of exchange with the order, payable, however,
thirteen months after delivery running up to a maxi-
mum of thirty-three months. In other words the So-
viet Union pays no cash down and makes the first
payment thirteen months after delivery.
Obviously this would provide German industrial-
ists few funds with which to run their plants on Soviet
orders if they were unable to discount Soviet bills
and for all except the very largest and most responsi-
ble German firms it was necessary to have the Govern-
ment's guarantee in order to borrow on Soviet
business. It was equally obvious that these were excep-
tionally good credit terms for the Soviet Union and
that credit guarantees to cover $200,000,000 worth of
trade with the Soviet Union represented a large sum
for the Government to invest in any single foreign
trade enterprise.
It was therefore plain that there was a certain ad-
vantage to a government desirous both of serving
its own political interests with the Soviet Union and
of serving what it believed to be economic interests of
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? FIGHTING THE RED TRADE MENACE 271
the country and of aiding legitimate industrial enter-
prise if public opinion at the moment was under the
impression that the total German sales to the Soviet
Union were immediately to rise by $75,000,000. Ac-
tual German exports this year, however, are expected
on an authoritative estimate to equal no more than
$115,000,000 to $120,000,000 or considerably less
than the $140,000,000 that the United States ex-
ported to the Soviet Union last year.
It must, however, be mentioned that had the Ger-
man Government been willing to extend its credit
guarantees to cover another $50,000,000, or, rather,
if German banks had been willing to discount that
much more of Soviet bills, the Germans would have
received another $50,000,000 more of Soviet orders.
But the German banks declared they could spare
funds for no more than the $75,000,000 and when the
Germans applied to the Basle Bank for International
Settlements to rediscount some of their Russian paper
they were not satisfied with the reception they re-
ceived.
This German attempt to rediscount Russian notes
at the Bank for International Settlements deserves
more than passing notice. In it is contained an epi-
tome of Franco-German-Soviet relations and a por-
tent, perhaps, for the future of Soviet relations with
Europe.
In the normal course of affairs the German indus-
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? 272 FIGHTING THE RED TRADE MENACE
trialist who sells 100,000 marks' worth of goods to
the Soviet Union receives from the Soviet trade rep-
resentative two promissory notes, one for 70,000
marks and one for 30,000. With the Reich's guaran-
tee on the 70,000-mark note, the industrialist takes
it to the so-called Gold Diskont Bank, which will ad-
vance him the total amount of the face value of the
note, less the Reichsbank discount rate and 2 per
cent and about 1 per cent commission, making a total
of about 7 per cent. The 30,000-mark note that does
not bear the Government guarantee must either be
bucked away in the industrialist's strong box to be
carried until maturity or else must be submitted
for discount with the industrialist's own indorse-
ment.
If the concern in question possesses good credit and
the bank is possessed of sufficient funds the bank may
discount even this unguaranteed 30,000-mark bill
for only slightly more than the Government guaran-
teed bill. If, however, the industrialist either is not
strong enough for the credit or wishes to obtain dis-
count without recourse on himself he must peddle his
bill on the "Black Exchange" at the usual discount
of 20 to 30 per cent. Here, in other words, one meets
again the odd situation that banks will not advance
money at normal discount rates on the Soviet Union's
unsupported promise to pay, although eight govern-
ments in Europe are willing to guarantee the Soviet
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? FIGHTING THE HED TRADE MENACE 273
Union's promise to pay up to 70 per cent of its ob-
ligations.
At any rate, in the course of its business of dis-
counting Soviet notes on these terms the Gold Diskont
Bank exhausted the funds it had available for that
particular branch of its activities. It applied to the
Bank for International Settlements, the bank that
had been founded to promote international commerce,
and asked the Basle directors to rediscount some of
the Soviet notes. It is important to emphasize that
these notes were guaranteed by the German Govern-
ment. At the time this occurred it was announced at
Basle that the notes in question were not notes that
had been guaranteed by the German Government,
but the writer was authoritatively informed that
every one of them was indorsed by the Reich.
The Bank of International Settlements refused to
rediscount the notes. Its French members explained
to Reich Bank President Luther that the Basle Bank
that had for one of its duties the task of encouraging
all countries to stabilize their currencies could not
afford to rediscount bills of a country such as the
Soviet Union, whose currency was not "regulated. "
What Soviet currency has to do with payment of
Soviet bills that are always paid in foreign currency
obtained by the sale of Soviet exports and never paid
in Soviet rubles remained unexplained.
The Germans, however, were convinced that the
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? 274 FIGHTING THE RED TRADE MENACE
real reason the Bank for International Settlements
did not want to rediscount the Soviet bills was be-
cause they were Soviet bills issued to Germans and
the Basle Bank, under French influence, did not want
to promote German-Soviet trade. The Germans are
equally convinced that if France really reaches an
understanding with the Soviet Union, negotiates a
trade treaty and establishes perhaps its own Gov-
ernment guarantees for Soviet credits, the Bank for
International Settlements will change its mind and
accept Soviet notes for rediscount.
What this would mean for Soviet credit and for
Soviet trade may be estimated from the fact that if
the Basle Bank had been willing now to rediscount
Soviet bills Germany would have been able to take
that extra $50,000,000 worth of orders offered her by
Moscow. Even as it is, the Basle Bank, it is reliably
reported, was forced to yield to German pressure to
the extent of granting the Gold Diskont Bank a
short-term loan said to have totaled around $25,000,-
000. The Gold Diskont Bank then used this loan to
rediscount Soviet bills itself, so that the Basle Bank's
principles were saved and no precedent established
for its rediscounting Soviet bills while in effect Ger-
many obtained in part and by indirection what she
wanted.
More interesting than all these evidences of Ger-
many's resolute intention to pursue to the end the
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? FIGHTING THE RED TRADE MENACE 275
path of cooperation with the Soviet Union upon
which she entered in the Treaty of Rapallo in 1922 is
the appearance in this country of a small but growing
group that, while admitting that progress of the
Five-Year Plan means fire in Europe, contends that
fire can only be fought with fire. Leading the proph-
ets who foresee the possible adoption by Germany of
a state economic form similar to that of the Soviet
Union, these men declare the only salvation of the
present non-proletarian classes is to see to it that the
change comes about from the top and not from the
bottom.
The initial impulse to this movement, which it must
be admitted has not yet penetrated to governmental
circles, was observation of the great tactical advan-
tages possessed by the Soviet Union in its Foreign
Trade Monopoly. Adoption by private capitalist
states of foreign trade monopolies will become a more
pressing necessity, it is argued, as the Soviet Union
expands economically, but this adoption, they say,
will necessarily bring about within the domestic econ-
omy of the countries in question a gradual concentra-
tion of industry into the hands of the state, with a
corresponding concentration of banking and com-
merce.
The net result will be, they believe, a transition
from private to state capitalism with the same sort of
planned national economy now being attempted by
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? 276 FIGHTING THE RED TRADE MENACE
the Soviet Union. If the Soviet Union fails with its
planned national economy, if the Five-Year Plan
fails, then it is argued, there will be no necessity for
other states to adopt state capitalism. If the Soviet
Union succeeds, however, it will have provided such a
powerful argument for the superiority of the state
capitalist system as an instrument of production and
of trade if not as an instrument for the achievement
of human happiness that other states will be forced to
follow suit or be crushed by the juggernaut from the
East. And, they say, it will be much better for this
generation if this transition, granted it has to come,
should come from above than from below. For the
Soviet Union has provided a sufficient example of
what happens to a governing class when the transi-
tion comes from below to make the governing class
chary of achieving state capitalism under the Marx-
ist banner of "class struggle. " This movement's prin-
cipal significance lies in the fact that its proponents
form the intellectual fringe of the National Socialist
Party, exercise a constantly growing influence upon
that party and conceivably may make their ideas de-
cisive for that party's program should it advance to
the position of power it hopes for itself.
Thinking Germans are profoundly and sincerely
pessimistic over the future of their country and over
the future of Europe. I asked one of them for whose
knowledge and insight into this continent's affairs I
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?
than an export of their goods into Soviet territory.
Whether there is any causal connection or not may
be difficult to establish, but it is interesting to observe
that, whereas these nine countries sold $193,000,000
worth of goods to the Soviet Union in 1930, they
bought from the Soviet Union $340,000,000 worth.
The Soviet Union spent 39 per cent of its total funds
available for purchases abroad on purchases from
these nine countries, but of all the Soviet Union's
sales abroad 67 per cent went to these countries.
An export credit system, granting government
guarantees on the sales by its citizens to the Soviet
Union, may be interpreted in a way as an expression
of good will toward the Soviet Union, or, at any rate,
as an expression of a desire to improve trade rela-
tions. Curiously enough, however, those countries,
that grant such governmental guarantees, enjoy but
39 per cent of the Soviet Union's total purchases and
buy from the Soviet Union two-thirds of all Soviet
Union exports.
However that may be, a more important conclu-
sion from this analysis of Soviet foreign trade is that,
while cries against "Soviet dumping" were making
the World's economic welkin ring and while some ob-
servers noted with satisfaction that Europe was tak-
ing adequate measures, these measures, when added
up, result in the following balance: The Soviet Union
lost 1. 6 per cent of its total exports.
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? 252 FIGHTING THE RED TRADE MENACE
It was effectively debarred from submitting its
goods to 5 per cent of the world's purchasing power.
It was ineffectively debarred from presenting its
goods to another 9 per cent of the world's purchasing
power. It was encouraged to present its goods to 31
per cent of the world's purchasing power, while na-
tions representing 55 per cent of the world's purchas-
ing power did nothing one way or another officially
to influence Soviet trade, but continued privately to
do normal business.
All of the countries that put effective embargoes on
Soviet goods were countries with no diplomatic re-
lations with the Soviet Union, most of them were
countries with long standing political grudges against
the Soviet Union, and all were countries that really
suffered from Soviet exports, not in their home mar-
kets to any important extent, but in their foreign
markets. Special political differences and historical
reasons made it easy for Rumania, Hungary, Bul-
garia, Jugoslavia and Albania to cut off Soviet trade.
In Rumania, the question of Bessarabia has re-
sulted in a permanent state of latent war between the
two nations. One of the world's great rivers, the
Dniester, separates Rumania from Russia. It is not
so wide but that a row boat can cross it in half an
hour. But so wide are the political differences of the
two countries that a Rumanian citizen who wishes to
visit a relative just across the river, five miles away,
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? FIGHTING THE RED TRADE MENACE 253
has to travel about four thousand miles to reach his
relative's home. Quick-triggered sentries guard the
river on both sides and hardly a week passes without
report of some incautious citizen meeting death in
an attempt to slip across. This risk leads most Ru-
manians to prefer to travel to Berlin and wait there
weeks or months on the improbable chance of getting
a Soviet visum which, when obtained, will permit them
to enter Russia by way of Nigorelye, thence to Mos-
cow and down to the Soviet side of the Dniester River.
The Soviet Union still claims Bessarabia and has
repeatedly declared it will never relinquish the claim.
It was Rumanian until 1812, when Czar Alexander I
seized it for Russia. The Rumanians, therefore, ar-
gued in 1918 that they were only reoccupying Ru-
manian territory when their troops took possession
of Bessarabia. In 1924 a Russian-Rumanian con-
ference was held in Vienna in an attempt to come to
some agreement, but after sharp conflicts the con-
ference broke up without results. The two countries
living now on the worst possible terms have never had
any trade save that of smugglers. The Rumanian
Government's decree last year against imports of
Russian goods was merely a gesture emphasizing this
long established fact.
More threatening to Soviet trade was Rumania's
recent attempt to bar the Danube to Soviet cargoes.
The Soviet Union, however, appealing to the Euro-
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? 254 FIGHTING THE RED TRADE MENACE
pean Danube Commission, established to guarantee
freedom of navigation on that river, obtained a ver-
dict ordering Rumania to open traffic to Soviet boats.
With this decision Rumania lost her only chance ef-
fectively to influence Soviet trade.
Rumania has as many reasons to wish to retaliate
against the Soviet Union as any other country, for
in addition to her territorial quarrel and historical
differences, she has suffered from Soviet competition
in three categories: oil, lumber and grain, the three
largest Soviet exports and the three largest Ru-
manian exports. All this competition, however, takes
place in foreign markets over which Rumania has no
control, so that her efforts at reprisal remain futile.
Hungary's quarrel with the Soviet Union is essen-
tially based on international political reasons in a
country that will never forget during this genera-
tion the five months of its own Soviet regime under
Bela Kun. The so-called "white terror," that for two
years took the place of Kun's red variety, left a
habit of mind that still governs Hungarian views of
the Soviet Union. Hungary went on the principle that
the Bolsheviks had at least taught their opponents
one thing: that by far the most effective method of
disposing of one's enemies is physically to destroy
them. This system effectually removed most of Hun-
gary's domestic "red menace" during the first years
of the "white terror" and, while now there are few
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? FIGHTING THE RED TRADE MENACE 255
death sentences passed on Communists, hundreds
have been sent to prison for long terms during the
last few years. Fear of Bolshevism, and not of Bol-
shevik trade, has been dominant in Hungary's atti-
tude toward the Soviet Union, and the Government's
decree last March requiring licenses for the import
of Soviet goods was also only a gesture confirming
the fact that Soviet trade is virtually non-existent.
Unlike the case in France and Belgium, the Hun-
garian license system operated as a real embargo, for
the Government reports that, since its inauguration,
not a single application has been received for a license
to import Soviet goods. With its license system Hun-
gary, too, had hoped to do what it could to strike a
blow at the Soviet Union out of resentment at Soviet
competition in grain in Hungary's markets abroad.
The sole effect of the license system, however, has
been to eliminate the Soviet purchases of Hungarian
livestock that, in 1930, amounted to $125,000. Mean-
while, Italy, the great patron of Soviet trade and the
patron, too, of Hungary, has been bringing pressure
on Budapest, not only to withdraw the restrictions
on Soviet imports, but to establish good commercial
relations with Moscow. While these efforts have been
going on, Italian dealers manage to ship a considera-
ble quantity of Soviet products into Hungary under
false certificates of origin.
For Jugoslavia, too, it cost no heart searching to
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? 256 FIGHTING THE RED TRADE MENACE
cut off Soviet trade. Historically, Jugoslavia, a de-
voted protege of the Russian Czars, is no friend of
the Soviets. Czarist Russia always backed the Serbs,
backed them, indeed, into the great war. A common
religion ties the Serbians with the orthodox Russians,
but not with the atheist Russian Bolsheviks. These
sentiments rendered Jugoslavia hospitable to Czarist
emigres and Wrangel's army was for a long time
quartered there.
With no official relations of any kind between the
two countries and with almost no trade, it was again
rather a futile gesture when Jugoslavia decreed a ban
on Soviet products. The ban stopped official Soviet
exports to Jugoslavia of $50,000 yearly, but re-
ports from Susak, the Jugoslav half of Fiume, have
it that, through Fiume, Italian merchants send Soviet
goods to at least that value into Jugoslavia, also
under false certificates of origin.
The fourth of the Balkan quintet against Soviet
trade is little Bulgaria, too poor to have much trade
in any case, but too thoroughly frightened of the
Communists within her borders to permit any sort of
contact with the Soviet Union. Albania, included for
the sake of completeness, has an odd reason for not
doing business with the Soviet Union.
Indirectly, the present King Zog owes his crown
to Moscow. Zog's predecessor, pious, pink Bishop
Fan Noli, was about to recognize the Soviet Govern-
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? FIGHTING THE RED TRADE MENACE 257
ment and the great Powers looked with much dis-
favor upon what they thought would be equivalent to
Moscow's gaining a foothold on the Adriatic. Out of
these considerations the Powers gave their permission
to Zog to make a "revolution," overthrow Fan Noli
and set up a kingdom. There is, therefore, no per-
ceptible inclination on the part of Zog to do business
with the Soviets.
This completes the roster of European nations that
have taken any effective measures to keep out Soviet
imports. But in the Balkans alone the loss of the
Soviet Union in these five nations of $1,050,000 in
goods is more than compensated by the Soviet trade
with Greece. The only Balkan nation that has given
diplomatic recognition to the Soviet Union, Greece,
buys an average of $2,000,000 worth of Soviet goods
a year and, lacking within her own territory the goods
the Soviet Union has to offer, Greece takes the atti-
tude toward Soviet "dumping" that the lower the
prices, the better for Greek consumers. Her imports
from the Soviet Union are chiefly grain and she is so
glad to get that cheaply, that she raises no protest at
the fact she sells to the Soviet Union only a yearly
bill of around $30,000 worth of miscellaneous prod-
ucts.
When Austria, Czecho-Slovakia and Poland are
taken into consideration, the Soviet trade with these
countries is so large and is growing so rapidly that
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? 258 FIGHTING THE RED TRADE MENACE
the importance of anti-Soviet embargoes in the out-
spokenly unfriendly Balkan states becomes nil. Aus-
tria is one of the governments that guarantee Soviet
credit. Her trade balance with the Soviets is active.
In 1930 she sold $3,000,000 worth of goods to the
Soviet Union and bought $2,000,000 in goods from
the Soviet Union.
Once, and only once, did Austria make a motion
toward restraining Soviet trade. It supplied in minia-
ture a perfect example of the sort of thing that has
constantly recurred in the Soviet Union's commercial
relationships with other and larger countries. Under
the influence of the clerical journals of Vienna,
which in turn, had been impressed by the Vatican's
manifestoes against the Godless Muscovites, the Aus-
trian Minister of Agriculture, a young, enthusiastic
man, suddenly issued a decree forbidding the import
of Russian eggs. The poultrymen and clericals ap-
plauded, but the Soviet foreign trade representative
countered with telephone messages to all Austrian in-
dustrialists, to whom the Soviet Union had given or-
ders for machines, telling them that their orders were
canceled.
Dumbfounded, they asked why. The Soviet repre-
sentative replied, "You don't take our eggs, we don't
take your machines. " In precisely twenty-four hours
the Minister of Agriculture withdrew his ban on
Russian eggs and nothing has since occurred to mar
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? FIGHTING THE RED TRADE MENACE 259
the Austro-Soviet commercial harmony. With full
diplomatic relations, the two countries look back upon
their egg quarrel as one of the most serious of their
differences.
Between the Soviet Union and Czecho-Slovakia
exist formally cool de facto but not de jure relations,
but, commercially, very lively connections. No pro-
test against Soviet "dumping" has been raised in
Czecho-Slovakia because the chief Czecho-Slovakian
imports from the Soviet Union are petroleum prod-
ucts, which compete not with Czecho-Slovakian
products but with those of foreign oil countries.
It is worth noting that the Czech friendship for her
Little Entente ally, Rumania, has not prevented her
from buying Soviet petroleum in preference to that
of her political friend. The Czechs are also grateful
for the fact that the Soviet Union buys about $9,500,-
000 worth of her products, while the Soviet Union
sells about $1,000,000 less per year to Czecho-
slovakia.
Poland, most important of all the countries under
consideration here and quite unique in her relation-
ship to the Soviet Union, deserves a whole chapter.
Suffice it is to say, Poland is the one country in Eu-
rope which, even more than Rumania, is under per-
manent Soviet suspicion and is constantly being
charged by Moscow with plotting war.
Poland ended its last war with the Soviet Union
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? 260 FIGHTING THE RED TRADE MENACE
just ten years ago and the Kremlin has lain awake at
the dawn of every spring, listening to Pilsudski
sharpening his saber. Yet Poland today is discussing
a bill to follow the example of so many European
governments and guarantee Soviet credits, and Po-
lish industrialists are vying with their German col-
leagues in singing the praises of a Five-Year Plan
that bring such welcome orders.
These orders have wrought a marvelous change in
Warsaw's attitude. Since they began, two years ago,
border incidents have ceased and quiet has settled on
the Pripet marshes. Last year Poland sold Russia
$15,000,000 in goods and bought only $5,000,000 in
goods and cheered the active balance.
This year a group of Polish industrialists visited
the Soviet Union and returned with promises of more
orders. Details for the realization of these promises
are being worked out. Meanwhile, cynical Berlin
newspapers, which are not, however, cynical when the
same observations might be made of Germans take
pleasure in relating an illuminating tale concerning
Pan Wierzbicki, director of the Federation of Polish
Industry, Finance and Commerce and leader of the
Polish delegation to view the Five-Year Plan. Pan
Wierzbicki, magnate of parts and a conservative
Pole and with all of a conservative Pole's profound
distrust of the Soviet Union, experienced a conversion
when he arrived in Moscow and found Soviet orders
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? FIGHTING THE RED TRADE MENACE 261
waiting in profusion for his factories. Full of en-
thusiasm, he visited a small Russian village where,
incognito, he attended a conference of peasants dis-
cussing the necessity of ordering machines. Wierz-
bicki, master of the Russian language, joined in the
discussion eloquently. Whereupon as he finished his
speech, the peasants rose as one man and cried, "Let's
elect this comrade chairman. " "Comrade Wierzbicki"
and his colleagues report that the Soviet Union will
buy $20,000,000 worth from Poland by the end of
this year.
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? CHAPTER XXIII
Berlin:
A race, a sweepstakes, is deciding today the destiny
of Europe. The race is between the "tempo" of the
Soviet Union's Five-Year Plan and the "tempo" of
this continent's efforts to organize a United States
of Europe. The Five-Year Plan so far is a length
ahead.
This is the German formulation of the meaning of
the Five-Year Plan for Europe. It is of course not
every German's formulation. It is only one German's
formulation, printed in the most remarkable series
of articles on the Five-Year Plan that has appeared
in the German press since the plan passed its two-
year mark, a series printed in the Berliner Tageblatt
under the pseudonym "Z. "
Herr "Z" whoever he may be, while retaining his
anonymity has achieved among informed circles in
this country an influence that justifies calling his
opinion "the German formulation. "
His anonymity is worth pausing to consider for it
throws a most instructive light upon the German at-
titude toward the Soviet Union. For the fact of the
matter is that no "bourgeois" German can yet afford
to write under his own name in the non-Communist
?
262
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? FIGHTING THE RED TRADE MENACE 263
press of Germany that the Five-Year Plan is suc-
ceeding. That bare admission with no conclusions
and no prophecies is much too great a risk in a coun-
try that has seventy-seven Communists in a Reichstag
of 589 members.
It is much too great a risk in a country whose in-
dustrialists believe they may safely deliver machines
to Russians because Russians won't know how to use
them. It is much too great a risk for a country whose
government since 1922 has based its entire foreign
policy upon the hope that the Soviet Union may grow
strong enough to frighten France but not so strong
that it may injure Germany.
In Italy, in France and in England they all say
today, "Germany is next in line. Let Germany
worry. " Prime Minister MacDonald put it crystal
clear in his recent address to Parliament: "If there
were any trouble Germany would be in trouble, would
be involved and whirling in the maelstrom long before
we either at home or abroad would be involved. "
This Germany knows better than England, France
or Italy, but, as one observer of this country's foreign
policy has said, Germany's answer is, "If my house
catches fire so will that of my neighbor, France.
I
want to make friends with my neighbor and go into
partnership with him. But my neighbor is afraid of
me and won't take me into partnership on my terms.
Therefore I will feed this fire on the other side of me
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? 264 FIGHTING THE RED TRADE MENACE
until my neighbor becomes so frightened of the fire
reaching his house that he will make friends with me
and take me into partnership on my terms. I hope
this will happen before the fire really sets my own
house ablaze. "
This simile has flaws and is too simple to fit all the
facts, especially since there are economists, business-
men and statesmen beyond reproach of Bolshevism
who declare that the fire is not a fire to burn down
houses but one to warm world trade. Nevertheless, it
is a simile as good as any other for an explanation of
the intricate relationship between Germany and the
Soviet Union on one hand, and Germany and France
on the other hand. It explains why Germany watches
the progress of the Five-Year Plan more closely than
any other country in Europe does. It also explains
why Germany does not want to admit that the Five-
Year Plan is going ahead too fast and hopes that
France will see the light before the paint on Ger-
many's house begins to scorch.
Finally, it explains why the leaders of German
foreign policy are more disturbed today at the recent
French overtures to Moscow than at all of France's
protests against the Austro-German customs union.
For if France too begins to feed the fire what becomes
of the chance that France may eventually, from fear
of the Soviet Union capitulate to German terms?
Today, too, Germany has an added anxiety. She
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? FIGHTING THE RED TRADE MENACE 265
sees Poland sending industrialists to the Soviet Union,
accepting joyfully Soviet orders and discussing now
the establishment of a system of government guaran-
tees for Polish credits to the Soviet Union. And Ger-
many remembers the statement of one Polish Govern-
ment spokesman that, "Rather than give two villages
to Germany we will invite the Bolsheviks into Poland. "
Down the map a little further southeast lies
Czecho-Slovakia, like Poland, for a long time at outs
with the Soviet Union; like Poland one of Germany's
least well disposed neighbors, and like Poland, allied
to France. In Czecho-Slovakia, too, the atmosphere
has turned pro-Soviet, the Government is said to be
contemplating de jure recognition of Moscow and
also to be planning a system of government guaran-
tees on credits to the Soviet Union.
With France talking of a trade treaty with the
Soviet Union, and Poland and Czecho-Slovakia mak-
ing unmistakably friendly overtures toward Moscow,
Germany's former monopoly on good relations with
the Soviet appears threatened. And Germany is
frankly worried.
Recent developments between the Soviet Union on
the one hand and Germany, France, Poland, Czecho-
slovakia and Austria on the other hand, afford a
classic example of the beneficial effect upon the Soviet
Union of every quarrel that arises among non-Soviet
European nations. For it is not merely the growth of
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? 266 FIGHTING THE RED TRADE MENACE
Soviet trade that has attracted France and her allies
to Moscow. A large role was played by the Austro-
German customs union. That issue will be settled
juridically before The Hague Court. But before the
court's decision comes, France and her allies, who ob-
jected most strongly to Germany's step toward amal-
gamation with Austria, intended to take practical
measures against Germany's "active foreign policy. "
In other words, it appears and, Germany believes,
that France, Poland and Czecho-Slovakia today are
trying to drive a wedge between Germany and the
Soviet Union and Germany's hope, though a faint
one, is that the French, however, don't really mean it.
If they do mean it--and to one outside observer it
looks as though they do--its significance for the
Soviet Union is that the last possible hindrance to
Soviet economic expansion on the Continent has dis-
appeared. To Germany it would mean that her
French neighbor had turned the tables. With the Bol-
shevik fire, France, it may transpire, intends to scorch
Germany into submission to France's terms for that
famous Franco-German "understanding" upon which
it is admitted rests the future of Europe.
In any case, Moscow has profited. How much she
has done so economically is shown by examination of
the recent transaction whereby Germany was said to
be going to receive an "extra" $75,000,000 worth of
orders from the Soviet Union "over and above the
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? FIGHTING THE RED TRADE MENACE 267
orders the Soviet Union would normally have placed
in Germany in a year. "
This transaction has been the object of consider-
able misunderstanding both abroad and here. It was
popularly believed to mean that Germany at the end
of the year would show exports to the Soviet Union
of at least $75,000,000 more than last year when
Germany sent into Russia $107,000,000 worth of
goods. This was hailed in Germany as a stroke of
great good fortune and abroad was variously but
chiefly estimated as an example of the Soviet Union's
commercial friendliness to this country. In America
it was taken for granted that it meant the Soviet
Union had switched most of those new orders from the
United States to Germany.
It now appears, however, that the transaction must
be judged as better proof of Germany's commercial
friendliness to the Soviet Union than vice-versa. For,
as now transpires, it meant not that the Soviet Union
would purchase in Germany goods to the value of
$75,000,000 more than she purchased last year, but
it meant that the German Government had extended
its guarantees to cover $75,000,000 of Soviet pur-
chases more than the Reich already had insured, and
that was quite another thing.
Germany was the initiator of the now widespread
system of Government guarantees on Russian credits.
Eight other countries have now adopted that system
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? 268 FIGHTING THE RED TRADE MENACE
and France, Poland and Czecho-Slovakia are said to
be about to follow suit. This country guarantees 70
per cent of the face value of Soviet notes, 40 per cent
of the guarantee being taken over by the Reich, 30
per cent by the German states.
By April 1, 1931, these guarantees on Soviet busi-
ness totaled coverage of $125,000,000. That was the
sum the Soviet Union owed German manufacturers.
And that was the sum the German Government was
inclined to believe should be the limit beyond which it
should not go. It was willing to keep up to that limit
and use its funds to guarantee new Soviet purchases
as fast as old ones were paid for, but it did not wish
to pledge any more guarantees than on a total of
$125,000,000.
Early this spring, however, Moscow invited a dele-
gation of German industrialists to visit the Soviet
Union. There the prospect was held out that if they
offered sufficiently good credit terms they would re-
ceive $75,000,000 worth of new orders. The indus-
trialists returned to Germany enthusiastic, pressed
the Government to extend its credit guarantees to
include new orders and finally succeeded. Some ap-
prehension was felt, however, as to public opinion on
the advisability of the Government extending its
credit guarantees to cover what would then amount to
$200,000,000 worth of Soviet notes.
It may not have been calculated, but nevertheless
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? FIGHTING THE RED TRADE MENACE 269
the impression certainly was allowed to prevail at
that time that the $75,000,000 of "new" orders were
to be "over and above the normal amount of Soviet
purchases in Germany," "normal" being taken to
mean the amount purchased last year. Under the in-
fluence partly of this belief the German public was
agreeable to the Government's action and only one
man raised his voice in the Reichstag to warn that
Germany "should not sell her political birthright for
a tip. "
Supported by public opinion, the Government ad-
vanced the necessary funds, so that when all the
Soviet orders are placed by August 31, 1931, as re-
quired by the agreement entered into between the
Germans and the Russians, the Soviet Union will owe
German firms a total of $200,000,000 secured to 70
per cent by German Government guarantee.
It now appears, however, that the transaction's
chief effect was to extend the length of credit time
granted by Germany to the Soviet Union by from
two to five months and that while this extension of
credit will, it is true, increase German exports to the
Soviet Union probably by $15,000,000 to $20,000,-
000 in 1931, it will not mean the increase of $75,000,-
000 which had been anticipated by an ill-informed
public.
In the case of orders on which up to now twelve
months' credit had been granted the Soviet Union an
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? 270 FIGHTING THE RED TRADE MENACE
average time credit of fourteen months was estab-
lished : in the case of orders on which eighteen months'
credit previously was granted an average of twenty-
one now is granted, and in the case of orders on which
twenty-four months hitherto was granted an average
of twenty-eight now is granted. Twenty per cent of
each order must be pledged by the Soviet Union by
bill of exchange with the order, payable, however,
thirteen months after delivery running up to a maxi-
mum of thirty-three months. In other words the So-
viet Union pays no cash down and makes the first
payment thirteen months after delivery.
Obviously this would provide German industrial-
ists few funds with which to run their plants on Soviet
orders if they were unable to discount Soviet bills
and for all except the very largest and most responsi-
ble German firms it was necessary to have the Govern-
ment's guarantee in order to borrow on Soviet
business. It was equally obvious that these were excep-
tionally good credit terms for the Soviet Union and
that credit guarantees to cover $200,000,000 worth of
trade with the Soviet Union represented a large sum
for the Government to invest in any single foreign
trade enterprise.
It was therefore plain that there was a certain ad-
vantage to a government desirous both of serving
its own political interests with the Soviet Union and
of serving what it believed to be economic interests of
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? FIGHTING THE RED TRADE MENACE 271
the country and of aiding legitimate industrial enter-
prise if public opinion at the moment was under the
impression that the total German sales to the Soviet
Union were immediately to rise by $75,000,000. Ac-
tual German exports this year, however, are expected
on an authoritative estimate to equal no more than
$115,000,000 to $120,000,000 or considerably less
than the $140,000,000 that the United States ex-
ported to the Soviet Union last year.
It must, however, be mentioned that had the Ger-
man Government been willing to extend its credit
guarantees to cover another $50,000,000, or, rather,
if German banks had been willing to discount that
much more of Soviet bills, the Germans would have
received another $50,000,000 more of Soviet orders.
But the German banks declared they could spare
funds for no more than the $75,000,000 and when the
Germans applied to the Basle Bank for International
Settlements to rediscount some of their Russian paper
they were not satisfied with the reception they re-
ceived.
This German attempt to rediscount Russian notes
at the Bank for International Settlements deserves
more than passing notice. In it is contained an epi-
tome of Franco-German-Soviet relations and a por-
tent, perhaps, for the future of Soviet relations with
Europe.
In the normal course of affairs the German indus-
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? 272 FIGHTING THE RED TRADE MENACE
trialist who sells 100,000 marks' worth of goods to
the Soviet Union receives from the Soviet trade rep-
resentative two promissory notes, one for 70,000
marks and one for 30,000. With the Reich's guaran-
tee on the 70,000-mark note, the industrialist takes
it to the so-called Gold Diskont Bank, which will ad-
vance him the total amount of the face value of the
note, less the Reichsbank discount rate and 2 per
cent and about 1 per cent commission, making a total
of about 7 per cent. The 30,000-mark note that does
not bear the Government guarantee must either be
bucked away in the industrialist's strong box to be
carried until maturity or else must be submitted
for discount with the industrialist's own indorse-
ment.
If the concern in question possesses good credit and
the bank is possessed of sufficient funds the bank may
discount even this unguaranteed 30,000-mark bill
for only slightly more than the Government guaran-
teed bill. If, however, the industrialist either is not
strong enough for the credit or wishes to obtain dis-
count without recourse on himself he must peddle his
bill on the "Black Exchange" at the usual discount
of 20 to 30 per cent. Here, in other words, one meets
again the odd situation that banks will not advance
money at normal discount rates on the Soviet Union's
unsupported promise to pay, although eight govern-
ments in Europe are willing to guarantee the Soviet
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? FIGHTING THE HED TRADE MENACE 273
Union's promise to pay up to 70 per cent of its ob-
ligations.
At any rate, in the course of its business of dis-
counting Soviet notes on these terms the Gold Diskont
Bank exhausted the funds it had available for that
particular branch of its activities. It applied to the
Bank for International Settlements, the bank that
had been founded to promote international commerce,
and asked the Basle directors to rediscount some of
the Soviet notes. It is important to emphasize that
these notes were guaranteed by the German Govern-
ment. At the time this occurred it was announced at
Basle that the notes in question were not notes that
had been guaranteed by the German Government,
but the writer was authoritatively informed that
every one of them was indorsed by the Reich.
The Bank of International Settlements refused to
rediscount the notes. Its French members explained
to Reich Bank President Luther that the Basle Bank
that had for one of its duties the task of encouraging
all countries to stabilize their currencies could not
afford to rediscount bills of a country such as the
Soviet Union, whose currency was not "regulated. "
What Soviet currency has to do with payment of
Soviet bills that are always paid in foreign currency
obtained by the sale of Soviet exports and never paid
in Soviet rubles remained unexplained.
The Germans, however, were convinced that the
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? 274 FIGHTING THE RED TRADE MENACE
real reason the Bank for International Settlements
did not want to rediscount the Soviet bills was be-
cause they were Soviet bills issued to Germans and
the Basle Bank, under French influence, did not want
to promote German-Soviet trade. The Germans are
equally convinced that if France really reaches an
understanding with the Soviet Union, negotiates a
trade treaty and establishes perhaps its own Gov-
ernment guarantees for Soviet credits, the Bank for
International Settlements will change its mind and
accept Soviet notes for rediscount.
What this would mean for Soviet credit and for
Soviet trade may be estimated from the fact that if
the Basle Bank had been willing now to rediscount
Soviet bills Germany would have been able to take
that extra $50,000,000 worth of orders offered her by
Moscow. Even as it is, the Basle Bank, it is reliably
reported, was forced to yield to German pressure to
the extent of granting the Gold Diskont Bank a
short-term loan said to have totaled around $25,000,-
000. The Gold Diskont Bank then used this loan to
rediscount Soviet bills itself, so that the Basle Bank's
principles were saved and no precedent established
for its rediscounting Soviet bills while in effect Ger-
many obtained in part and by indirection what she
wanted.
More interesting than all these evidences of Ger-
many's resolute intention to pursue to the end the
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? FIGHTING THE RED TRADE MENACE 275
path of cooperation with the Soviet Union upon
which she entered in the Treaty of Rapallo in 1922 is
the appearance in this country of a small but growing
group that, while admitting that progress of the
Five-Year Plan means fire in Europe, contends that
fire can only be fought with fire. Leading the proph-
ets who foresee the possible adoption by Germany of
a state economic form similar to that of the Soviet
Union, these men declare the only salvation of the
present non-proletarian classes is to see to it that the
change comes about from the top and not from the
bottom.
The initial impulse to this movement, which it must
be admitted has not yet penetrated to governmental
circles, was observation of the great tactical advan-
tages possessed by the Soviet Union in its Foreign
Trade Monopoly. Adoption by private capitalist
states of foreign trade monopolies will become a more
pressing necessity, it is argued, as the Soviet Union
expands economically, but this adoption, they say,
will necessarily bring about within the domestic econ-
omy of the countries in question a gradual concentra-
tion of industry into the hands of the state, with a
corresponding concentration of banking and com-
merce.
The net result will be, they believe, a transition
from private to state capitalism with the same sort of
planned national economy now being attempted by
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? 276 FIGHTING THE RED TRADE MENACE
the Soviet Union. If the Soviet Union fails with its
planned national economy, if the Five-Year Plan
fails, then it is argued, there will be no necessity for
other states to adopt state capitalism. If the Soviet
Union succeeds, however, it will have provided such a
powerful argument for the superiority of the state
capitalist system as an instrument of production and
of trade if not as an instrument for the achievement
of human happiness that other states will be forced to
follow suit or be crushed by the juggernaut from the
East. And, they say, it will be much better for this
generation if this transition, granted it has to come,
should come from above than from below. For the
Soviet Union has provided a sufficient example of
what happens to a governing class when the transi-
tion comes from below to make the governing class
chary of achieving state capitalism under the Marx-
ist banner of "class struggle. " This movement's prin-
cipal significance lies in the fact that its proponents
form the intellectual fringe of the National Socialist
Party, exercise a constantly growing influence upon
that party and conceivably may make their ideas de-
cisive for that party's program should it advance to
the position of power it hopes for itself.
Thinking Germans are profoundly and sincerely
pessimistic over the future of their country and over
the future of Europe. I asked one of them for whose
knowledge and insight into this continent's affairs I
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