ing to 118 per cent in the eighteen years from 1890 to 1907. This was 60 per cent more than the increase in the trade of England, and 25 per cent more than that of Germany. However, Italy always imported more than she exported before the war, and this feature of her trade developed to a dangerous extreme during the war. The excess of imports increased over 1000 per cent, and amounted in 1917 to twice the excess of imports of Great Britain in 1913. To restore the balance of exports and imports it will be necessary for Italy to rely less upon the gold sent to her by her nationals resident abroad and more upon merchandise exported and exchanged for imports. This kind of a balance involves more extended industrialization, and the utilization in local manufacture of available raw materials.

To achieve this end aid is expected from the Government. It is hoped that consular agents will be able not only to speak Italian but also to care for Italian interests, that a consistent export policy will be followed, and that the restrictions on exports will be entirely abolished. Furthermore, the Government has a commission at work to revise the tariff and to negotiate new commercial treaties. Italy's industries have been investigated by a tariff commission and it is likely that a bargaining tariff will be framed with concessions and penalties for securing favorable treatment and as a means of defense against discrimination. The commercial treaties in force at present are provisional and may be terminated at the end of any quarter-year as in the case of the treaty with France or at the end of the year as in the case of the treaties with Brazil, Japan, Roumania, Serbia, Spain, and Switzerland.

The development of commerce depends upon the fostering of industry, and both are related to the problem of supplying an adequate merchant marine. In spite of her long seacoast, far greater than Germany's, Italy ranks seventh among the maritime nations of the world. Her submarine losses reduced her tonnage considerably, and steps have been taken to restore the Italian merchant marine.

A Ministry of Land and Marine Transport, with a bureau for the merchant marine, was set up in June, 1916. At the end of

1916 a combination of the leading shipping interests, with a capital of over 100,000,000 lire, was formed to foster trade with South America. The Government has authorized the construction of a drydock at Naples which is to be the largest in the Mediterranean. The questions of ship mortgages, advances to ship builders, and subsidies to ship operators are being discussed.

Before the war Italian finance was under German control. The Banca Commerciale, a German institution established in 1895 and backed by the Bleichroeders, exerted a powerful influence, both financially and industrially. It fostered new enterprises (over a hundred and fifty companies), with a total capitalization of one and a third billion lire. It restored exports, which had been declining before its energizing influence was felt. Ninety-nine per cent of the electric power in the Province of Venetia was in the hands of interests allied with the Banca Commerciale. As a result of the war German influence was completely eliminated and closer financial connections with England formed. The Credito Italiano, in coöperation with Lloyd's Bank and the London County and Westminster Bank, founded the Compagnia ItaloBritannica of Milan with a capital of 10,000,000 lire to promote trade relations between Great Britain and Italy. Its counterpart was the British-Italian Corporation in London. It is hoped that the union of British and Italian financial interests will be as productive as Italians admit the Teutonic commercial alliance

was.

(ii) Italy's Economic Prospects

There has been much discussion of an anti-Teutonic boycott. However, the sober economists point to the fact that about onequarter of Italy's trade, both inward and outward, was transacted with the Germanic powers. Of the Italian exports of fresh vegetables in 1913, 69 per cent were sent to the Central Empires. About 200,000,000 lire worth of fruits and vegetables were shipped annually from Italy to Germany and Austria, in bulk, amounting to over half a million tons. Whether a boycott can be effective in the face of such profitable trade is very much of a

question. But propinquity leads to a development of mutual economic interests, and trade with Germany cannot be sidetracked except at Italy's loss. As an Italian merchant put it, "No matter how patriotic we are, if Germany can sell goods at one dollar, which cost two dollars elsewhere, Germany will get the business."

Can Italy dispense with the benefits that Germany conferred upon her before the war? Ferrero, the historian, said:

"Everything became Germanized, army, banks, railways, industry, commerce, science, philosophy, social theories, schools, and universities. The present generation in Italy has no thought to spare for anything but how to develop industrial machinery, how to increase salary, income, profits, and production, and to insure the progress of the country in accordance with a rudely quantitative conception of progress." Other writers see "a strange affinity between Italy and Germany." Others say, "Italy resembles Germany rather than England or France." 6 An Englishman says:

5

"During the present century Germany has stood forth in the eyes of the people of Italy as the embodiment of all the essential characteristics by which world power is achieved. Italy stood bewildered at the thought that she would perhaps share this power and enjoy this wealth and prosperity."

In any survey of after-war prospects there is always prominent the question of the ability of Italy to dispense with the admittedly invigorating influence of Germany before the war, and in the disorganized state of international trade to impose any additional restrictions upon the fairly free flow of commerce as it existed before the war.

A limiting factor is the lack of raw materials. The Italian soil is exhausted after twenty-five centuries of continuous cultivation. Italian waters are full of coral, but lacking in fish. The agricultural products include specialties like almonds, oranges, olives, and figs, but staples like cereals, potatoes, and legumes 'Jacques Bainville.

Sidney Low, "Italy in the War."

are insufficient. Italy must continue to be dependent upon foreign economic support whether it be German or some other.

Finally, the effects of the war have been very serious. "The war has upset the whole country, and is incapable of giving any tangible result proportional to the sacrifices it has cost."?

The burdens of the war include an addition of thirty billion lire of indebtedness, a greatly depreciated exchange, and a discrimination against the luxury trade, in Italian silks and art products, upon the part of Italy's customers. The additional territory which the peace conference has granted Italy may prove not a source of revenue, but like the German colonies in Africa, an expensive gratification of a national whim.

However, none of these difficulties are insuperable. In many of them she is not alone. She shares with Britain an increase in debt; with France a derangement of exchange, with Belgium a devastation of territory. Except for coal, iron, and potash, Germany's economic progress was built up on imported raw materials. Italy's future need therefore be no less bright than that of Germany in 1880. The great lesson of the economic rise of Germany, indeed the moral of the war, is that the real resources of a country are its citizens, its trained mechanics, its pioneering scientists. Italy has her leaders in science and industry. She needs but to promote education for the masses in order to multiply the sources of her national power. In her abundant labor lies her potential greatness.

'Ferrero, "Revue des Nations Latines," January, 1918.

CHAPTER VII

JAPAN 1

A. Pre-War Conditions and the Effect of the War
(i) The Effect of the War in General

Before proceeding to a consideration of Japanese commerce in its relation to the war, let us briefly summarize the effect of the war on Japanese economic life in general for the period January, 1914, to January, 1918. As in all other countries retail prices rose considerably. Company profits increased; dividends were large. Security prices rose. Railroad gross earnings increased. Imports rose rapidly, and exports increased more so. The specie reserve trebled and the note issue more than doubled. Postal savings deposits increased. The banks more than trebled their deposits, and slightly increased their capital. The public debt declined. The data given in the following tables illustrate these facts.

ECONOMIC EFFECT OF THE WAR ON JAPAN.
[All amounts in million yen; 000,000 omitted]
RELATIVE RETAIL PRICE.

'Some of this material has been presented in extended form in a valuable monograph, "Japan: Trade During the War," issued by the U. S. Tariff Commission.

'London Economist, August 3rd, 1918.