* This essay is based on a lecture delivered at Marquette University's 75th Anniversary Conference, “From Disorder to World Order,” Milwaukee, November 9, 1955. It attempts to answer the following questions posed by the Program Committee: “Can capitalism in its present form achieve a growing welfare of the nations living under it when a great part of mankind lives in a collectivistic form? Can a collectivistic economic system prevail in the long run in a great part of mankind when capitalism flourishes in the rest? Is coexistence of the two systems possible in the long run, and compatible with the welfare of all nations? What means are available of ameliorating the extreme effects of the conflict of systems?”

¹ It might even be questioned whether they are at all interested in raising the standard of living of their people, except to the extent necessary for keeping the population quiet and cooperative. The remarkable and painstaking study based on Russian statistical sources by Janet Chapman, G. “Real Wages in the Soviet Union, 1928–1952,” Review of Economics and Statistics, XXXVI, (1954)Google Scholar, concludes that the level of real wages, after taxes and bond purchases, in 1937 was 81 and in 1952 at 90 compared with 100 in 1928. Before taxes and bond purchases the figures are 100, 82, 103. These startling results are based on a cost of living index using 1937 weights. This method, in fact, overstates the actual level of real wages. If 1928 weights are used the index of real wages before taxes and bond purchases in 1952 is 73, and, after taxes and bond purchases, 63.

² That she has not grown relatively to the West is probably true as far as total output per head is concerned and is certainly true with regard to economic welfare. But this does not exclude that her military potential has increased as compared with that of the West. The latter depends not only on total output but also upon the percentage of it that is currently devoted for military purposes and on how much could be so devoted in case of war. In these two respects the West obviously labors under great disadvantages.

³ The factual statements about trade are taken from reports of the U.N. Economic Commission for Europe (ECE), especially Economic Survey of Europe in 1954, (Geneva, 1955)Google Scholar and Economic Bulletin for Europe, VII, No. 2 (Geneva, 08 1955).Google Scholar

⁴ Since these sums represent current (undeflated) dollars, and prices have risen substantially, the real value of trade has not tripled, although it is greater than it was in 1937. But the real value of the Soviet bloc's trade with the West is half or less than half of what it used to be before the war. ECE computed a volume index of the “General Level of Trade between Eastern and Western Europe.” (Not of the total trade of the whole Communist bloc. See the August 1955 Bulletin, p. 35.)Google Scholar According to that table imports from Eastern Europe into Western Europe fell from 305 in 1938 to 85 in 1952 and then rose again to 106 in 1954. The corresponding figures for exports from Western Europe to Eastern Europe are 205, 91, 126.

⁵ This fact makes it impossible for these countries, so long as they remain under Russian domination, to play the role they played before 1939 as suppliers of materials or markets for Western industries. Those who speak hopefully or nostalgically of the importance of Eastern markets—and such views are frequently expressed even by people who are far from being sympathizers of Communism or fellow travelers—completely delude themselves on this point.

⁶ In 1934 for the whole of Germany the share of Eastern European trade was about 13% in exports and in imports. This, however, does not include the prewar trade between Western and Eastern Germany. For Western Germany in 1954 the percentage of Eastern European trade (including trade with Eastern Germany) was 1.9 in imports and 1.5 in exports. EGE Bulletin, August, 1955.

⁷ It is therefore simply not true that Germany “needs Eastern trade.” Developments since the end of the war conclusively demonstrate that she can do very well without it—at least so long as the Western World does not suffer from a severe depression. (More on this aspect of the problem presently.)

It will perhaps be objected that Germany improved her trade position at the expense of other industrial countries, especially of Britain. This objection overlooks the fact that Britain too has improved her trade position. True, she is at present (1955) suffering from mild balance of payments difficulties. But the cause of this indisposition is clearly a mild spell of internal inflation. Moreover her balance of payments crises in 1947 and 1949, before Germany's reappearance on the World markets, were much more severe than those of 1951 and 1955.

⁸ It is true that the mild recession of 1953–54 contrary to widespread alarmist views—“a sneeze of the United States economy,” it was said, “causes pneumonia abroad owing to the huge size of the U. S.”—did not lead to a widening of the dollar gap. But this would not be true of a more serious setback.

⁹ Interestingly enough it was only during the depression in the thirties that Soviet trade amounted to a substantial factor for some Western countries and industries. For example, in 1932 the U.S.S.R. took 11% of German exports. In 1931 Russia accounted for 55% of all machine tools exported from the U. S. In 1932 she took 81% of all British machine tool exports, and 74% of German export of machine tools. In 1931 Russia imported 90% of the aggregate world exports of tractors. (See Gerschenkron, A., Economic Relations with the U.S.S.R., (New York, 1945), p. 20.)Google Scholar

¹⁰ See ECE Bulletin, 08 1955, p. 37.Google Scholar

¹¹ For 1948 Yugoslavia's trade is not included. Yugoslavia's trade with the East fell from 49.8% (exports) and 43.3% (imports) in 1948 to practically nothing during the next few years. In 1954 the share in exports was again up to 2.6% and in imports to 1.2%.

¹² On this see ECE Economic Survey of Europe in 1954, pp. 125–135.Google Scholar

¹³ Yugoslavia did, of course, receive substantial American aid mainly the form of grants for military purposes.

¹⁴ In the theoretical literature much has been made of the advantages enjoyed by centrally planned economies to exploit in monopolitical and monopsonistic fashion competitive markets in the rest of the world. Unorganized buyers and sellers are always at the mercy of a monopolist or monopsonist. There is, however, ample evidence that the “theoretical” advantage is in practice outweighed by the clumsiness, inefficiency and slowness of the bureaucracy of a planned economy. The theory of the private monopolist in a competitive society cannot readily be applied to the government trade monopoly of a planned economy.

¹⁵ Moreover, it should be noted that I am not speaking here of the delivery of military end items. If, as has been reported a few years ago, the sale of jet planes to Russia has enabled her to copy them and to save precious time in the development of these machines of war, we have here an inexcusable mistake.

¹⁶ Let me repeat the warning that larger output and higher standard of living do not necessarily imply greater military strength.