of the second phase of the industrial revolution. The world witnessed the coming of the railroad, the steamship, the telegraph, and the telephone. Transportation and communication welded the world together. journey that to Marco Polo was as a historical event became a mere business undertaking. Transportation and communication, developed by industry and trade, in turn stimulated them. With the increased industrialization of Great Britain, and later of the United States and of Germany, came the seeking for raw materials and markets in the less economically advanced parts of the world. Colonies hitherto almost forgotten became important. "Spheres of influence" were carved out of Africa and Asia. The new largescale industry depended for its effectiveness on division of labor, and division of labor was limited by the extent of the market. Mass production for a great market was the keynote of the new industrial régime. More goods were produced than the home market could absorb at a profitable price. Foreign markets became essential. Following the growth of industry and the extension of the market came the export of capital. Investments and concessions abroad were in some cases more profitable than home enterprise. The idea of freedom and laissez faire, limited in some degree in domestic affairs, reigned supreme in foreign business ventures. Governments, instead of exercising restraint over their citizens, backed them up. Nationalism was perverted and developed into a combative imperialism. The Great War was in large measure the product of the second phase of the industrial revolution. It also brought it to a close. Under the necessity of war industry became the servant of society. Competition was restricted, output was regulated, prices were fixed, profits were limited. Man demonstrated that he could control the so-called economic laws which some individualists said controlled him. If there is one lesson that the war has taught clearly, it is that free competition - the doctrine of laissez faire is a failure in domestic and particularly in international life. The war initiated the third stage of the industrial revolution. In it mankind will undertake to direct industry and trade in such ways as to prevent conflicts between nations and to achieve the nobler aims of society. Democratic ideas which have determined our political institutions will become also the test of adequacy in the economic relationships in both national and international affairs. Industry and government were drawn close together by the war, and their coöperation is likely to be one of the permanent results of the great struggle. Peoples have realized as never before how vital to their very existence their industries may be. They have seen clearly that modern armies and navies cannot fight if the men and the women in the factories and on the farms will not work. Government has interfered with industry more in Great Britain, France, Germany, and Japan than in the United States, chiefly because these nations. were longer in the war. But even here production was curtailed in non-essential lines and stimulated in essentials. Raw materials were controlled and allocated. New industries were subsidized. Imports and exports were regulated for the accomplishment of the Government's purpose. Industry was made more efficient by improved management, automatic machinery, and the standardization of products. The benefits of wide research were made available for practical use. The facilities of production and distribution were concentrated and the inefficient eliminated. This partnership between Government and industry will not be broken up quickly, if at all. The supplying of the needs of peoples and the repairing of the wastage of war are of too vital import to permit the economic system of nations to return to the old order of unrestricted competition. The dangers of uncontrolled trade and finance are now apparent and the very essence of progress requires a constructive national and international programme that will meet these dangers squarely. The forces of government as well as of industry and commerce must be turned into channels that will serve, not destroy, men. We have seen their dangers as masters; we have learned and shall not forget their usefulness as servants. The fighting in France, Belgium, and Italy was not merely blasting the Allies' victorious way through the German lines; it was also shattering a political and economic system that had fastened itself on the world. Peoples are no longer satisfied merely with political democracy. They are demanding the democratization of industry, trade, and finance, both within the nation and in world affairs. This book is written in the firm belief that society need not always drift, and that the peoples of the great nations, having a vision of better things and an aspiration to attain them, can, through their leaders, act to achieve their purpose. It is written in the hope that it may be a contribution toward the establishment of a body of opinion in favor of a liberalized commercial policy-a policy that takes into account the essential interests of individual nations, and at the same time subjects truly international problems to world control. CHAPTER II EFFECT OF THE WAR IN DIVERSIFYING AMERICAN INDUSTRY America's industrial position in 1914. in motion by the war - Diversifying influences set New glass products, including laboratory and optical glass Surgical instruments. - Sueded gloves Venetians Camphor. At the time of the outbreak of the war in Europe in 1914 the United States was recognized as one of the leading industrial nations of the world. The number of manufacturing establishments operating in the country just before the war was in round numbers 275,800, employing, on the average, approximately 7,000,000 wage earners. The annual value of the products turned out was a little over 24 billion dollars.1 This production represented a wide range of industrial activity. The value of manufactured food products was in round numbers $4,800,000,000; of textiles, $3,400,000,000; of iron and steel products, $3,200,000,000; of other metal products, $1,400,000,000; of lumber products, $1,600,000,000; of leather products, $1,100,000,000; of paper and printing, $1,450,000,000; of liquors and beverages, $770,000,000; of chemicals, $2,000,000,000; of stone, clay and glass products, $600,000,000; of tobacco manufactures, $490,000,000; of vehicles for land transportation, $1,000,000,000; of railroad repair shops, $550,000,000; and of products of miscellaneous industries, $1,750,000,000.2 1 Abstract of the Census of Manufactures, 1914, p. 29. See Appendix I. 2 A more detailed statement is given in Appendix I. One important effect of the war was to diversify further the already complex industrial life of the United States. The curtailment and final stoppage of exports from Central Europe compelled the United States to erect or extend factories to produce goods that had been obtained in whole or in part from belligerent countries. The blockade of Germany established by the British Navy brought forcibly to our attention the fact that in the case of a number of essential commodities we had in this country neither the plant nor the organized technical skill necessary for their production. The curtailment of production in some lines in Great Britain resulting from the taking over of industry to supply war demands had a similar but less revolutionary effect on American industry. The British Government found it necessary to use the productive capacity of some factories for the products of which the United States had been the chief market, and to meet this decline in foreign supplies American manufacturers increased their production. Shortage of shipping was also a stimulus to the increasing diversification of American industry. There was a tendency to produce at home those products which the uncertainties and the scarcity of ocean shipping made it increasingly difficult to obtain from abroad. Prior to April, 1917, the absorption of the European nations in the great struggle left their foreign markets unsupplied, and American industries were called upon to supply a part of this unsatisfied demand. The tremendous increase of export trade brought in its wake a corresponding development and extension of domestic industry and commerce. Finally, there came the enormous demand for war supplies, first by the Allies, and then, after April, 1917, by our own Government. All of these influences brought to bear on Ameri |