PRESIDENTIAL ADDRESS. 499 



that industry not only proceeds by separating processes of production, but also 

 in surmounting the lines of division formerly regarded as distinct. Thus 

 Dr. Marshall has shown that the operatives in a watch-making factory could 

 work the machines used in gun-making or in se>ving-machine-making, or in the 

 making of textile machinery.* The experience of the early months of the war 

 has fully confirmed the anticipations of economic theory as to the power of 

 transference of specialised capital and labour from one process (for which the 

 demand has temporarily declined) to another (in which it has increas«<l). It is 

 not remarkable that cotton operatives should migrate to woollen mills to make 

 khaki, but it might at first occasion surprise to hear that many makers of brass 

 door-handles soon were at work in helping to produce shrapnel shells — their con- 

 tribution consisting of the brass driving-rings and copper bands. At the 

 beginning of the winter machines that formerly made spokes for cycle wheels 

 produced knitting needles. Plant normally used to make gear-cases turned out 

 hollow ware tins and basins for the troops. Pen-making factories found new 

 employment in manufacturing military buttons. The list of war uses for plant 

 during the first months of hostilities could be very greatly extended, and the 

 establishment of the Ministry of Munitions has added immensely to the em- 

 ployment of plant for war purposes ; but enough has been said to show that 

 economic theory has been proved right in anticipating a large measure of 

 recuperative power in productive processes enabling them to re-employ under 

 the new conditions capital and labour which were temporarily idle. All this is 

 satisfactory for the war period ; it must be remembered that on the return of 

 peace the reverse change will have to be made. There may be a short trade boom 

 (arising out of the attempt to restore some of the material ravages of war), 

 but the joint demand from it and from the trades re-opened is likely to be 

 considerably less than the huge present expenditure on manufactures for war. 

 Thus the unemployment occasioned by dislocation of industry through hostili- 

 ties is likely to be carried forward as a species of suspense account which must 

 be liquidated not very long after peace. Moreover, international credit is likely 

 to re-act on the situation in a prejudicial manner. Even already the financial 

 system of Germany is more strained than appears on the surface. This fact is 

 advantageous to us as belligerents, but it will probably be prejudicial to us 

 not long after the re-establishment of peace. At present much of the incon- 

 vertible paper circulating on the Continent does not affect us here. When the 

 inflation has to be squeezed out after the war, a disturbance of credit is not 

 unlikely. 



Important as the flexibility of capital and labour have been, the striking 

 success of maintaining our communications within the Empire and with neutrals 

 has been even more remarkable. Steam and wireless telegraphy have had the 

 effect, when supported by adequate naval strength and preparation, of simpli- 

 fying the protection of maritime trade routes. The events of the early months 

 of the war afford a brilliant justification of the views of many economists of 

 the advantages of diversified sources of supply of food and raw materials from 

 the colonies and foreign countries. The later operations of German submarines 

 against our commerce and even against passenger ships can bring no real 

 advantage to the enemy, and one cannot find words to describe adequately the 

 infamy of the sinking of the Lusitania. Some of the destruction of trawlers 

 and drifters cannot pay the cost of torpedoes, that of the rest is at the worst 

 an inconvenience, but in material loss it is incomparably less than the damage 

 of property which is happening every day on the Western battle front when 

 villages and towns are destroyed by artillery fire. 



The inestimable services of the Navy in the general protection of sea-borne 

 commerce may be illustrated to a partial extent by reference to the last occasion 

 on which our maritime trade was subject to serious interruption, namely, during 

 the years of hostilities between 1793 and 1815. At that period Great Britain 

 possessed an overwhelming naval superiority, yet freights and marine insurance 

 were often extraordinarily high. For instance, these charges on hemp and 

 tallow from Petrograd to London were ten times the normal rate. Insurance 

 pn hemp was 20 per cent, to 40 per cent, of the value. In some cases the freight 



• Principles, p. 339. 



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