Chapter XII: Section 14: of the Lever Bill, which became the Food Control (4)

"The example of the Holland-America Line shows best what
enormous progress took place in the inner consolidation of the
Dutch firms. The reserve of this company, which in 1913
amounted to 6,600,000 florins, grew to 24,800,000 by the end of
1916--in other words, the previous stock capital (which in the
meantime had been increased by 15,000,000 florins) by more than
double. In addition, the company has available funds amounting
in all to 21,700,000 florins. The reserves in the Nederland
Company, which have increased in the same period from 6,700,000
to 23,000,000 florins, exceed the capital by 4,000,000 florins.
The available funds of the Rotterdamsche Lloyd amounted at the
end of 1916 to about 25,000,000 florins, with a share capital
of 15,000,000 florins and a ready reserve of 16,000,000
florins.

"But the business successes of the neutral European shipping
firms are far surpassed by the earnings of the Japanese
overseas lines. Thus the largest Japanese shipping firm, Nippon
Yusen Kaisha, that sails from East Asia to all the important
shipping markets, had a net profit in the summer half-year 1916
of 19,780,000 yen (the Japanese yen is equivalent to $0.498
United States currency); in the winter half-year 1916--17
actually 22,150,000; in a single fiscal year it earned,
therefore, about 42,000,000 yen. The company's capital stock
amounted at the end of the fiscal year 1916--17, after a
previous increase through the distribution of free shares, to
27,500,000 yen, the net profits of this single company being
thus about 15,000,000 yen more than the amount of the capital.

"The company's fleet has grown considerably. The total
available reserves amount to nearly 63,000,000 yen. Of ready
money the company had at its disposal at the end of March,
1917, 55,300,000 yen."

GERMANS AT WORK IN SPAIN

Germany's astuteness in dealing with neutral countries was especially marked in Spain. The country was filled with German propaganda and there were skeleton German trade organizations ready to begin functioning at a moment's notice. The extent to which this propaganda was carried on was described by a correspondent of the _Saturday Evening Post_, Mr. I. F. Marcosson, in an address to the National Machine Tool Builders' Association at Atlantic City:

"The German propagandists have carried on a campaign on the
proposition of the Kaiser. It has been the finest selling
campaign that I have ever seen. They have organized it. Each
man had his territory, his selling territory; each man has his
line of samples, and that line of samples was the finest lot of
German gold and German 'hot air' that any propaganda has ever
produced.

"The Germans have sold Spain on the proposition of German trade
and German good-will, because they are giving the Spaniard, as
they did in business before the war, what the Spaniard had in
mind.

"Germany went into Spain to fill the Spaniard with 'hot air'
and to tell him he was the finest aristocrat in the world. And
he got it over. And if you had gone, as I have, from one end of
Spain to the other and looked into these great warehouses you
would have found hundreds of them jammed and packed with copper
and oil and cotton, and all the material with which to
re-establish a great industry. And today, whenever there is a
water-right for sale, whenever there is stock for sale, or
whenever anything can be leased, or a factory can be bought,
who buys it? =The Germans.=

"They have got the finest industrial secret service in Spain that I
have seen in my life. And to what end? All to the great end that
when the war is over, in Spain as in Holland and in Switzerland,
the wheels of German output will be going.... Germany will put on
the goods, as I have seen with my own eyes, 'Made in Spain,' 'Made
in Switzerland,' and 'Made in Holland.' Your own goods, machine
tools, are going out in the markets of the world now and
forevermore in competition with German-made stuff, made by German
hands, made by German capital, part with stuff that is marked
offensive, in competition with stuff that is marked as I have said
it would be marked."

An Antidote for the Submarine Pest

Quantity production of eighty-foot motor boats in a shipyard at Bayonne, N. J., for use as scouts and submarine hunters.]

NO ECONOMIC BOYCOTT AFTER THE WAR

The official leaders of the Allied Governments soon found that the scheme to start an economic war after peace had been negotiated had no very strong support. President Wilson took a hand in subjecting the Paris resolutions advocating this economic war to unfavorable criticism. The British Trades Union by a large majority showed their disapproval of them. The London _Economist_ also disapproved of the program of a vindictive trade policy after the war, though it thought that an economic boycott might be used as a threat to force Germany to make peace. Lord Robert Cecil took the ground that it would not be wise to attempt an economic war. The labor point of view was that an economic war was bound to produce another outbreak of militarism. The Speaker of the British House of Commons, who always occupies a non-partisan position, in an address at Carlisle on war aims, showed no sympathy with the proposal:

"We had heard of war after the war, and it had been suggested
that whatever the terms of peace might be we in England should
have no dealings with Germany, that we should boycott them
commercially, allow none of our raw materials to go to Germany,
that we should form a combination with our Allies, and that
together we should cut her off altogether and treat her as
though she were a leper. He did not believe in this idea. He
was out for peace, and when he said he wanted peace he meant a
lasting peace. He wanted peace founded on sound conditions,
which would stand wear and tear and last forever, if
possible--at all events, for many, many years, it might be
centuries; but a boycott of Germany would not be the way to
attain a peace of that kind. That would be a way of carrying on
the war, and although it would not be with the weapons we were
now using, there would be the same hatred and struggle between
one combination of nations and another, and it would leave the
world divided and engender seeds of hatred and dissent. In many
respects it would be almost as bad as the war at the present
time. He did not, therefore, accept that condition of things."

In explaining England's position as to war aims the Premier, Lloyd George, made the following observations:

"Germany has occupied a great position in the world. It is not
our wish or intention to question or destroy that position for
the future, but rather to turn her aside from hopes and schemes
of military domination and to see her devote all her strength
to the great beneficent tasks of the world.... The economic
conditions at the end of the war will be in the highest degree
difficult. Owing to the diversion of human effort to warlike
pursuits, there must follow a world shortage of raw materials,
which will increase the longer the war lasts; and it is
inevitable that those countries which have control of the raw
materials will desire to help themselves and their friends
first."

AN IMPOSSIBLE PROGRAM

In the emotional atmosphere of the war period some astonishing economic propositions were accepted as if they were axiomatic truths. Notably was this the case in the discussion of Germany's program of peaceful penetration in the economic sphere. It was undoubtedly linked up with schemes of military aggression. There was wide discussion of the methods to be used to guard against Germany's commercial policy. Sometimes these proposals indicated the desire that those who opposed Germany should take a leaf from her dog-in-the-manger policy. Strange conceptions of international trade that suggest the mercantilism of the seventeenth and eighteenth centuries were revived in order to guard against any attempt on the part of Germany to secure a privileged industrial position after the war. As early as 1916 there was the famous proposal of an anti-German economic league contemplated in the Paris resolutions of that date. In Great Britain the supporters of this policy also actively advocated a system of imperial preference by which special advantages would be given to countries within the bounds of the British Empire. The result of upholding any double-barreled policy of this type is described by the Edinburgh _Review_ as impossible of realization.

"Even if Belgium, France, and Italy alone took that course, the
whole policy of an economic boycott, or partial boycott, to
prevent German expansion or to punish German crimes would fall
to the ground. We cannot imprison Germany in an economic strait
jacket if her territorial neighbors are willing to trade with
her. As a matter of fact before the war the most important and
the most expansive portion of German export trade was with the
continent of Europe."

COMMERCIAL AVIATION

A great advance in aeroplane development was one of the most spectacular results of war activity. The military side of this development must be discussed in another place, but the fact that aeroplanes had to be constructed substantial enough to carry a large amount of explosives naturally brought up the whole question of the commercial side of aeroplane employment. Although the aeroplane has been developed to a remarkable extent for war purposes, it must not be taken for granted that every type of aeroplane has its use for peace. In the military machine regard has been paid rather to gun positions, bomb carrying capacity and performance than to economy in operation and large cargo space, which are the essential peace requirements. This aspect of the problem was discussed by F. Handley-Page in an article in the _Fortnightly Review_.

"The type of aeroplane for commercial work requires careful
consideration and design. In estimating the value of a
transport vehicle account must be taken of the respective
proportions of the load that are and are not remunerative. A
steam motor wagon that was only just able to transport the coke
for its own consumption would be useless for transport work.
The large quantity of fuel the aeroplane must carry makes this
point an important one regarding it. It affects very largely
the _type_ of aeroplane that must be chosen for each duty.

"The total lift of a large bombing aeroplane of medium speed is
about 20 lbs., while that of a small high-speed scout may not
be more than about 8 to 10 lbs. per horse-power. From these
lifts have to be deducted the weight per horse-power of the
aeroplane structure and engines. These leave a margin of about
11 pounds per horse-power in the case of the large machine and
of only about two to four pounds per horse-power in the case of
the smaller and higher speed machine. From these margins have
to be deducted the weight _per horse-power_ of the pilot and of
the fuel to be carried."

According to this expert's opinion there is little probability of using for commercial purposes the small high-powered aeroplane. But if large machines are used with a speed limit of 100 miles an hour and fitted with twin engines, Mr. Page thinks that such machines will have economic possibilities. Countries now far distant from one another can be brought close together. For example Australia will be within a week of London, and he thinks that passengers can be carried at the rate of about six cents a mile. If air transport is to be systematized he is in favor of strict state regulation:

"There must be no possible chance of the wildcat schemes of the
early railway days recurring, nor must aircraft or their pilots
be below a specified standard. The State must see that projects
doomed to failure owing to lack of financial or technical
backing are prevented from being placed before the public.

"Regulations must be drawn up which will insure that the
machines cannot be used for the public service until they have
received a certificate similar to that now issued by Lloyd's
for ships. Pilots must not be allowed to fly machines conveying
the public or mails, unless they have received a certificate
equivalent to that issued to the master of a ship by the Board
of Trade before he can take charge.

"The aeroplane will not compete with the telegraph system,
cable, or wireless, but will be a useful adjunct conveying
written signed statements, important documents, long reports,
and descriptive letters in the time of a week-end cable and at
a fraction of the cost.

"It will enable the business man to visit his overseas agencies
and friends, to discuss matters with them on the spot and
examine the requirements of their districts, at the cost of a
few _days_ instead of months of travel."

"Left, right--one, two, three, four," was the slogan heard throughout the National Army cantonments, such as this at Camp Dodge, Des Moines, Ia., during the first days in teaching the recruits one of the first lessons of the soldier; how to keep step.

Copyright International Film Service]

V--THE MONEY COST OF THE WAR

Over $210,000,000,000 Spent by the Belligerents--How This Stupendous Sum Was Raised--What the War Cost Uncle Sam

By EDWIN R. A. SELIGMAN

Professor of Political Economy and Finance in Columbia University

The cost of a war may mean several different things. It may mean, in the first place, the actual money cost, or expenditure in dollars and cents, directly involved in prosecuting the war. Or, secondly, it may mean the war cost, both direct and indirect, from the economic point of view. The real cost of a war from this latter point of view may mean either actual loss of lives and property or the diminution of the annual social production. The wealth of a country measured in its social income may be reduced either by the actual loss of territory, as in Germany; by the impairment of its natural resources like the coal mines and forests, as in France; by the reduction of labor power, due to the wounded workmen or the results of starvation or privation, as in many countries of Europe; or by the loss of economic efficiency due to a reduction of the standard of life or to a changed attitude toward habits of work. The real costs of war, although often incalculable, are none the less of profound significance.

The actual money costs or expenditures of government for war include not only the actual outlays for military and naval purposes, but also the whole range of expenditures incurred in industrial life to prepare the wherewithal for the Army and Navy; and they also comprise the sums devoted to the maintenance of the families of the soldiers. All these items are far greater in modern times than they used to be. It is a far cry from the meeting of two savage tribes armed only with bows and arrows or javelins, to the modern 16-inch guns, the dreadnoughts, the airplanes, the submarines, the poison gas and the innumerable technical adjuncts of modern warfare. The consequence is that the money costs of the World War have far transcended those of all previous conflicts.

The attempt to present in figures the costs of the war meets with several difficulties. In the first place the question arises as to the period at which we ought to stop. In one sense the war ceased when the armistice was declared. In another sense the war did not actually stop until the peace was declared--in this case a matter of many months additional. But even when peace was declared the war expenses were by no means over. The process of demobilization is a slow one: moreover it is necessary to continue for some time the policing of the conquered countries; and finally comes the question of the pensions to the wounded soldiers or to the families of the dead. It will be seen, therefore, how impossible it is to state with any accuracy at the present time the costs of the war, when those are still being incurred. Furthermore, the figures ordinarily given contain additional inaccuracies. The richer countries make loans to the poorer countries and these expenditures are consequently counted twice in the total,--a procedure legitimate only on the assumption that the loans will not be repaid. Again, in a country like the United States, which has substituted an insurance system for the pension system, the nominal expenditures appear smaller than is really the case, because of the receipt of vast insurance premiums which will ultimately all be expended again. Finally the figures make no allowances for the change in the price level or the alteration in the value of money. In a great war like the present, prices have risen: in some countries they have doubled, in some countries they have more than tripled, for reasons which it is needless to discuss here. What appears, therefore, to be a great and increasing outlay from year to year may be in reality due in part, at least, to this cause.

After making all allowances for these difficulties we may proceed to state some of the facts as to the actual outlays of various countries.

THE COST OF THE WAR DAY BY DAY

In all the belligerent countries it naturally took some time for them to get into their stride. This is especially true of Great Britain. The figures of the average daily expenditures, as given by the Chancellor of the Exchequer, amounted to almost $10,000,000 in the opening months of the war and reached a maximum of almost $36,000,000 by 1918. These figures, however, are not exact because they include all of the expenditures. The real war expenditures may be arrived at by deducting in each case the amount of the expenditures in the last year of peace, ending March 31, 1914. Making these corrections, it appears that the average daily war expenditures in England rose from about $9,500,000 during the first eight months of the war to about $33,500,000 in 1918, then slowly receding in 1919. In France the average daily expenditures were naturally somewhat less, rising from about $8,500,000 during the first three months of the war to over $21,000,000 during 1917, the last full year of the war. In Germany the daily expenses were approximately the same as in Great Britain, rising from about $13,000,000 in the first nine months of the war to $34,500,000 during the last six months of 1918. In the case of both Germany and France, it is not known whether the figures comprise the total expenditures or only the pure war expenditures. In the former event the daily expenditures of Germany would be a little less than those of Great Britain; in the latter, they would be a little more. In Italy and Austria-Hungary the daily expenditures were naturally smaller, amounting at the maximum to about $10,500,000 and $20,000,000 respectively. In Russia the daily expenditures rose in 1916 to about $20,000,000 and in 1917, just prior to the October revolution, nominally to $47,000,000. But, owing to the great depreciation of the ruble, the actual expenditures were much less.

OUR WAR EXPENSES MONTH BY MONTH

When the United States entered the war the scale of its operations became so stupendous that its daily war expenditures soon far exceeded those of any other belligerent. In the second month of the war the average daily expenditures for pure war purposes were $15,000,000 and little over a year later they had risen to almost $50,000,000. By the end of 1918, the daily average war expenditures reached the staggering figure of $64,500,000.

Mr. Bonar Law talking with M. Clementel (Minister of Commerce) and M. Doumergue (Colonies) in the garden of the foreign ministry.]

If, now, we attempt to present the statistics of the total cost of the war we must be mindful of the difficulties mentioned above. The figures are not entirely accurate, and cannot be made entirely accurate for the following reasons: In the first place, the last date in the official return differs from country to country. They are, however, all subsequent to the armistice, with the exception of Russia, where we have no trustworthy figures after the advent of Bolshevism. In the second place, we do not know, except in the case of the United States and Great Britain, whether the figures comprise the total expenditures or only the purely war expenditures. Even making allowance for these differences it will be seen that the total war expenditures amount to over $232,000,000,000. In Japan and some of the minor belligerents, there were virtually no war expenses. Inasmuch, however, as most of the countries will continue to have expenses attributable to the war for some little time in the future, it is probable that the total war expenditures will amount, by the end of 1920, to almost $236,000,000,000. From this must, however, be deducted the sums counted twice, because advanced to their allies by the United States, Great Britain, France and Germany. Making allowance for this, it is safe to say that the total net war expenditures will be about $210,000,000,000.

WAR EXPENDITURES OF ALL BELLIGERENTS In Millions ==================================================================== | From entrance | To | | | into war | | | --------------+----------------+----------------+----------+-------- Great Britain | August 4, 1914 | March 31, 1919 | £ 8,601| $41,887 | | | | Australia | August 4, 1914 | March 31, 1919 | £ 291| 1,461 | | | | Canada (inc. | August 4, 1914 |August 31, 1919 | | 1,545 Newfoundland) | | | | New Zealand | August 4, 1914 | March 31, 1919 | £ 76| 365 | | | | South Africa | August 4, 1914 | March 31, 1919 | £ 33| 243 | | | | India | August 4, 1914 | March 31, 1919 | £ 119| 584 | | | | ------- British Empire| | | | $46,083 | | | | France | August 3, 1914 | March 31, 1919 |fr 169,000| $32,617 | | | | Russia | August 1, 1914 |October 31, 1917| ru 51,500| 26,522 | | | | Italy | May 23, 1915 |October 31, 1918| li 81,016| 15,636 | | | | Belgium | August 2, 1914 |October 31, 1918| fr 5,900| 1,387 | | | | Rumania |August 27, 1916 |October 31, 1918| | 907 | | | | Serbia | July 28, 1914 |October 31, 1918| | 635 | | | | United States | April 15, 1917 | June 30, 1919 | | 32,261 | | | |-------- Entente Powers| | | |$156,050 | | | | Germany | August 1, 1914 |October 31, 1919|mk 204,268| 48,616 | | | | Austria- | July 28, 1914 |October 31, 1919|kr 119,504| 24,858 Hungary | | | | Turkey |November 3, 1914|October .., 1919| | 1,802 | | | | Bulgaria |October 4, 1915 |October .., 1919| | 732 | | | | ------- Central Powers| | | | $76,008 | | | | Total | | | In |$232,058 | | | Millions | ====================================================================

HOW MONEY FOR WAR WAS RAISED

The question now arises as to the steps taken by the various countries to meet these stupendous outlays. Of the older expedients, such as war treasures, or the sale of public property there was naturally no question. In only one country, viz., Germany, was there a war treasure; but this was so small as to be well-nigh negligible. The only two available resources were accordingly taxation and borrowing.

When we compare these two expedients, we are struck not only by the great difference in the theories of war finance followed by the various countries, but also by the diversity in the economic conditions which largely influenced the choice. In a general way, it may be said that all countries were compelled to rely to an overwhelming extent on public loans, but that Great Britain and the United States raised a far greater share by taxation than did other countries. Italy was able to raise by new taxation only just about enough to pay the interest on the new loans; Germany accomplished this only in part; while France was not in a position to defray any of her war expenditures from additional taxation. The same is true of the other belligerents, with the exception of the British colonies.

Proceeding now to take up this matter in detail, we shall first attempt to set forth the facts as to war taxation.

UNITED STATES ----------------------------+-------------+-------------+------------ | Monthly | | |Expenditures | | |exclusive of | | |the principal| | | of the | Monthly | Average | public debt | War | Daily |and of postal|Expenditures |Expenditures |expenditures | [19] | ----------------------------+-------------+-------------+------------ | Million $ | Million $ | Million $ April 6--30, 1917 | 279 | 219 | 8. May, 1917 | 527 | 467 | 15. June, 1917 | 410 | 350 | 11.7 | ------ | ------ | Total April 6--June 30, 1917| 1,216 | 1,156 | | | | July 1917 | 662 | 602 | 19.4 August 1917 | 757 | 697 | 22.5 September 1917 | 746 | 686 | 22.9 October 1917 | 944 | 884 | 29.5 November 1917 | 986 | 926 | 30.9 December 1917 | 1,105 | 1,045 | 33.7 January 1918 | 1,090 | 1,030 | 33.2 February 1918 | 1,012 | 952 | 34. March 1918 | 1,156 | 1,096 | 35.9 April 1918 | 1,215 | 1,155 | 38.5 May 1918 | 1,508 | 1,448 | 46.7 June 1918 | 1,512 | 1,452 | 48.4 | ------ | ------ | Total for fiscal year, 1918 | 12,697 | 11,977 | July 1918 | 1,608 | 1,548 | 49.9 August 1918 | 1,805 | 1,745 | 56.8 September 1918 | 1,557 | 1,497 | 49.9 October 1918 | 1,665 | 1,605 | 51.8 November 1918 | 1,935 | 1,875 | 62.5 December 1918 | 2,061 | 2,001 | 64.5 January 1919 | 1,962 | 1,902 | 61.4 February 1919 | 1,189 | 1,129 | 40. March 1919 | 1,379 | 1,319 | 42.5 April 1919 | 1,429 | 1,369 | 45.6 May 1919 | 1,112 | 1,052 | 33.9 June 1919 | 809 | 749 | 24.9 | ------ | ------ | Total for fiscal year 1919 | 18,505 | 17,785 | | | | Total April 6, 1914 to June | | | 30, 1919 | 32,428 | 30,918 | ----------------------------+-------------+-------------+------------

[19] Obtained by deducting 11/12 of the annual (peace) expenditures for 1915--1916 exclusive of postal expenditures, i. e. 11/12 of $1,008--287 millions--60 millions. Secretary Glass in his letter of July 9, 1919 to the Chairman of the Committee of Ways and Means excludes postal expenditures in the first column, but fails to exclude them when making the deduction for peace expenditures. He consequently arrives at the figure of 30,177 billions as the cost of the war; making allowance for this fact, and using the final corrected figures, we reach the figure of $32,261,000,000 as the cost of the war to June 30, 1919.

WAR TAXATION IN OTHER COUNTRIES

Great Britain, as the wealthiest country at the outbreak of the war, endeavored to raise as much as possible from taxation. From year to year, as the expenses mounted up, more and more demands were made upon the taxpayer. But the expenditures for the war were so enormous that it soon turned out to be impracticable, even with the best of will, to secure more than a comparatively small proportion of the total cost from taxation. The figures usually advanced by the various Chancellors of the Exchequer and repeated parrot-like by most commentators take the proportion that total taxes bear to total expenditures. This method of calculation, as will be seen from the table, shows that almost a quarter of the total expenditures, or to be more exact, 24.9 per cent., was derived from taxes. These figures, however, err doubly. In the first place the significant problem is to ascertain the war expenditures, not simply the total expenditures. These can naturally be obtained only by deducting from the annual total expenditures the sums equal to the peace expenditures, _i. e._, the expenditures for the last full year of peace. In the second place, what is significant is not the total taxes, but the war taxes; that is, the proceeds of the additional taxes raised during the war. These again can be obtained only by deducting from the total tax revenue the proceeds of the taxes during the last full year of peace. If then we endeavor to ascertain how much of the war expenditures were met by war taxes--and this is really the important problem--we find that, immense as were the burdens resting upon the British taxpayer, the percentage of war expenditures raised by war taxes is much smaller than is usually stated. As a matter of fact, in the first year of war only a little over 7 per cent. of the total war expenditures were raised from taxes. With every succeeding year the percentage increased until the last year of war, 1918--19, a little over one-quarter of the war expenditures were met from war taxes. For the entire five years the proportion of war taxes to war expenditures was slightly over 17 per cent.

In the other belligerent countries the showing was by no means so good. France struggled under a double difficulty. In the first place France was invaded at the very outset of the war, and the territory occupied, although relatively small in extent, represented the richest and the most industrially developed part of the country. This operated largely to reduce the ordinary revenues. In the second place the resultant economic confusion, as well as the general political situation, made it very difficult to impose any new taxes at all. The consequence was that for the first three years of the war, the tax revenues of France did not even suffice to defray the ordinary peace expenditures.

After a little while, indeed, France found it possible to levy some war taxes; but these were exceedingly slight compared with what had been accomplished in Great Britain. The result is that the new war taxes of France were only just about sufficient to make up the deficit on the ordinary peace budget--a deficit caused chiefly by the devastation of the occupied territory. In France, therefore, we may say that as a result no part of the expenditures was met by war taxes.

In Italy the situation was a little better. Italy had not been invaded and its financial situation was not so desperate as that of France. Moreover, Italy entered the war somewhat later and did not have to endure a strain for so long a time. Italy consequently proceeded as soon as possible to levy new war taxes; but as Italy had always been relatively overtaxed, as compared with Great Britain, it was not feasible to do as much. As a result, the war taxes levied by Italy were just about sufficient to pay the interest on the war loans. While Italy, therefore, did better than France, she also was not able to defray any of the war expenditures proper out of war taxation.

The condition of Russia soon became worse than that of France and Italy, and even before the October revolution, Russia was able to put very little reliance upon revenues from war taxation.

Among the Central Powers the situation was much the same, but for a different reason. Germany at the outset of the war had so confidently counted upon victory and upon huge indemnities that it resolved to defray its war expenses entirely from loans. It must, however, be observed that in Germany a not insignificant part of the war expenses were met by the separate states; and in these various states a considerable increase of taxation was provided for at once. As the war proceeded and the hopes of a speedy and complete victory gradually faded away, Germany began to change her policy and decided, especially from 1916 on, to impose more and more taxes. The result was that by the end of the war Germany had done a little better than France.

OUR WAR TAXES COMPARED WITH WAR EXPENDITURES

We come finally to the experience of the United States. When the United States entered the war it was confronted by two rival theories of public finances. One was to the effect that the war expenses should be defrayed entirely by war loans, as had been the case in the early years of the Civil War and as was true of many of the belligerents during this war. The other theory was that the war expenditures ought to be defrayed entirely out of war taxes. This was equally extreme and perilous as the former theory, and labored under the additional disadvantage of being impossible of achievement. The President went so far as to adopt the fifty-fifty theory, namely, that half of the war expenditures ought to be defrayed from taxation.

The prodigious profits made during the beginning years of the European war and the resulting prosperity throughout the country enabled Congress to levy taxes far higher than had before been attempted in our history. Even with an immense addition to taxation, however, the proportion of war expenses derived from war taxes was relatively small. Here, again, we must observe the same caution as in the case of the British figures. We must not compare total expenditures with total taxes, but war expenditures with war taxes. War expenditures are easily ascertained by deducting for each year the amount of the expenditures for the last year of peace, the year ending June 30, 1916. In the case of war taxes, however, it is more exact to deduct from the total revenues the tax revenues for the year ending June 30, 1915. For during the year 1915--16 a number of taxes were already levied in preparation for our possible entrance into the war.

As a matter of fact, during the first quarter of war ending June 30, 1917, the proportion of war expenditures derived from war taxes was less than one-third or 30 per cent. If we exclude loans to Allies on the assumption that they will all be repaid some day, the showing is somewhat better--as two-thirds of the expenditures of that period consisted of such loans.

As soon, however, as we struck our full gait the situation was less satisfactory. The proportion of war expenditures derived from war taxes during the year 1917--18 was less than one-quarter or more exactly only 24.8 per cent. and if we again exclude loans to Allies, only 30 per cent. In the last year of the war the showing was still less favorable. If we take the expenditures for the entire period of our participation in the war the figures are respectively 21.7 per cent. and 27 per cent. For the entire period of our participation in the war, less than one-fourth (or exactly 23.3 per cent.) of the war expenditures were paid out of war taxes. And if the loans to Allies are again excluded the proportion is still under one third, or more exactly 32.5 per cent.

=Lord Reading=

President of the Anglo-French loan mission to the United States in 1915, and special envoy of the British Government to the United States in 1917.]

This compares favorably even with the British figures. But it conclusively shows how impossible it is even with the best of will, to raise more than a relatively small part of war expenses from war taxes; especially during the early period of a war.

CHARACTER OF WAR TAXATION

The next point of interest is that of the character of the war taxes imposed by the various countries. Here again we notice a very great difference. In all of the European belligerents on the continent, at least as much additional revenue was raised from direct, as from indirect, taxation. In France about as much new revenue came from indirect taxation or taxes on consumption as from direct taxation or taxes on wealth.

The situation is still less satisfactory in the other continental countries.

In England, on the other hand, a different path was pursued from the beginning. While it is true that a considerable increase of revenue was derived from indirect taxes like customs and excise, the chief reliance was placed on the increase of the income tax, on a new war profits tax and finally, although to a minor degree, on an increase in the inheritance tax.

When we come, however, to the situation in the United States we find the democratic movement so strong that the overwhelming proportion of the new tax revenue was derived from direct taxation on wealth rather than from indirect taxation on consumption. In the great Revenue Act of 1917 over 79 per cent. of the new tax revenue came from direct taxation, principally the income tax and the excess profits tax. In the second great Revenue Act of 1918, the proportions were still more favorable, the amount ascribable to direct taxation in 1919 being almost 81 per cent.

UNITED STATES
Internal Revenue Receipts
In millions of dollars

Per Per
Year ending June 30 1918 Cent. 1919 Cent.
Income and profits taxes 2,839 2,596[20]
Munition manufacturers tax 13 .....
Estate tax 47 82
Corporate capital stock tax 25 29
----- -----
Total taxes on wealth 2,924 79.1 2,707 70.5

Distilled spirits 318 365
Fermented liquors 126 118
Tobacco 158 206
Stamp taxes 19 37
Transportation 71 234
Insurance 6 15
Excise taxes 37 78
Soft drinks 2 7
Admissions 26 51
Miscellaneous 8 22
---- ----
Total taxes on consumption,
transactions and
commodities 771 20.9 1,133 29.5
Total 3,695 .... 3,840 ....

[20] As the new taxes are payable in instalments, about 2 millions
of the 1919 tax will not be received until the fiscal year 1920.
Making allowance for this the proportion of taxes on wealth
really ascribable to the year 1919 rises to 80.6 per cent.

With the impossibility of securing more than a comparatively small proportion of the war expenditures from taxation, it accordingly became necessary to resort to borrowing. This was consequently done by every country on a gigantic scale; although here again the fiscal and economic conditions in the various countries were so different that they employed quite diverse expedients.

Great Britain provided at the outset of the war for immediate needs by the selling of short time securities, principally Treasury Bills. Before long these had amounted to such a sum that it became necessary to issue long time bonds. Accordingly, subscriptions were invited to the first war loan, which was issued on March 1, 1915, followed by the second war loan on June 1, 1915. These bore interest at the rate of 3½ and 4½ per cent. and the amount issued was $1,703,000,000 and $2,883,000,000 respectively. On February, 1916, a continuous issue of War Savings Certificates was inaugurated. On April 15, 1917, the third war loan was issued at 4 per cent., followed on June 1, by the issue of 5 per cent. bonds. Of these $4,811,000,000 were issued.

Beginning on October 2, 1917, a continuous issue of 4 and 5 per cent. National War Bonds was made, the difference in the rate of interest being due to the tax exemption. The temporary and short time paper was gradually funded into these bonds. In the meantime the Anglo-French loan of $500,000,000, of which England had one-half, had been contracted in the United States; and with the entrance of the United States into the war on April 6, 1917, continually larger sums were borrowed from the American Government. During the period of the war the British debt rose from £650,000,000 to £7,643,000,000 or from $3,115,000,000 to $37,221,000,000. It is expected that $250,000,000 will be borrowed during the year 1919--20, so that in all probability the debt of Great Britain at the end of 1920 will amount to almost £8,000,000,000, or $38,500,000,000, meaning that the war debt probably will amount to about £7,500,000,000, or $35,000,000,000.

France was in a far less favorable situation than England at the outset of the war. The total debt of France at the close of 1913 amounted to fr. 32,594,000,000, or $6,291,000,000, and the ordinary budget had closed with a large deficit. So that it had been necessary to issue a loan during the spring and summer of 1914. When the war suddenly broke out, precipitating an economical and financial crash, it became practically impossible to issue another loan. The government was therefore compelled to rely upon advances from the Banque de France, which was permitted correspondingly to increase its notes issue. It was not until November, 1915, that France saw her way to issue her first war loan of 5 per cent. bonds. This was followed on August 6, 1916, by the second war loan, also of 5 per cent. bonds, on December 15, 1917, by the third war loan of 4 per cent. bonds, and on Dec. 15, 1918, by the fourth war loan, also at 4 per cent. The first war loan issued at 88 yielded $1,894,000,000; the second, at 83.75, yielded $1,981,000,000; the third at 68.60 yielded $2,914,000,000 and the fourth at 70.8 yielded $5,382,000,000. Meanwhile National Defense Bonds were issued continuously from February 25, 1915, and foreign loans had been contracted in England, in the United States and in Japan. The result was that at the close of the year 1918 the French debt amounted to fr. 167,469,000,000 or $32,322,000,000. This meant that the debt due to the war amounted to fr. 134,875,000,000 or $26,031,000,000. It is expected, however, that a considerable sum will still have to be borrowed during the year 1919, thus bringing the total French debt to 27 or 28 billions of dollars.

Not all brave hearts beat under khaki during the war. More than $20,000,000,000 was raised by the four Liberty Loans and the Fifth Victory Loan. Among those who bought bonds were hundreds of thousands of wives and children of the men at the front.

Courtesy McClure's Magazine]

Russia was the first of the Entente Powers to issue public loans. On September 14, 1914, it issued a 5 per cent. loan at 94, yielding $259,000,000. This was followed at regular intervals by six more loans prior to the revolution of 1917. After the revolution there was considerable confusion which, of course, was much accentuated by the advent of Bolshevism. The consequence was that the public debt of Russia, which amounted for July, 1914, to $4,623,000,000, increased by the time of the October revolution in 1917 to 49,288 millions of rubles or 25,383 millions of dollars. This would mean a war debt of almost twenty-one billions of dollars. As a matter of fact of course it is very uncertain whether the debt will ever be redeemed at these figures.

The debt of Italy before it entered the war amounted to lire 13,636,000,000 or $2,621,000,000. Italy started at once with a so-called mobilization loan followed by its first war loan in July, 1915, and successive war loans on the first of January of each of the following years. The result was that on October 31, 1918, the total debt amounted to lire 63,093,000,000 or $12,177,000,000. By the end of May, 1919, the debt had grown to 77,763,000,000 lire or $15,009,000,000 leaving as the war debt lire 64,127,000,000 or $12,388,000,000.

Of the Central Powers, Germany started at once on October 1, 1914, to issue a war loan at 5 per cent., having from the outset decided to rely upon comparatively long time bonds rather than upon temporary or short time securities as was the case in England and in France. There followed in regular succession eight war loans bearing 4½ and 5½ per cent. interest. As a result, the debt of Germany, which before the war amounted to Mk. 4,732,000,000 increased on October 31, 1919, to Mk. 204,000,000,000 or $48,552,000,000; the war debt proper in Germany would therefore amount to $47,426,000,000.

TOTAL WAR DEBT, UNITED STATES

When the United States entered the war it depended, for the time being, on temporary war certificates. But at the beginning of June, 1917, Liberty Loans were issued in continually greater dimensions. In the table below the details of the four Liberty Loans and the Fifth Victory Loan are given, showing that over $20,000,000,000 were raised from bonds alone. To these is to be added the unfunded loans. It appears that the total net debt of the United States, which in April, 1917, was $1,190,000,000, increased by June 30, 1919, to $24,232,000,000, making a war debt of $23,042,000,000. Inasmuch, however, as somewhat over a billion dollars from the Victory Loan will be paid in the course of the year 1919--20, and as still more will have to be borrowed temporarily, the total war debt of the United States by the end of 1920 will amount to over $25,000,000,000, including the nine billions advanced to the Allies.

UNITED STATES
In Millions
Debt Less Annual
Cash in Interest
Treasury Charge
April 5, 1917 $1,189 $23
June 30, 1917 1,909 84
June 30, 1918 10,924 466
June 30, 1919 24,233 619

DEBT ON JUNE 30, 1919
Bonds
Pre-war bonds 833
War loans
First Liberty Loan $1,985
Second Liberty Loan 3,566
Third Liberty Loan 3,959
Fourth Liberty Loan 6,795
Victory Loan (notes) 3,468 20,455
Treasury Certificates 3,634
Old debt on which interest increased 2
Non-interest bearing debt 236
------
Total gross debt 25,485
Cash on hand 1,252
-------
Net debt (In Millions) $24,233

The other belligerents need not be treated separately. The total pre-war debt, including Japan, whose debt was increased only by the money raised to loan to Great Britain and France, amounted to almost $28,000,000,000. The debt at the close of the war amounted to over $224,000,000,000, making the net war debt somewhat over $196,000,000,000. When we compare this with the total cost of the war, which, as we have seen, will amount to about $210,000,000,000, it appears that almost the entire cost of the war will have been defrayed from loans, the difference of well-nigh $15,000,000,000 derived from taxation being due almost entirely to the efforts of Great Britain and the United States respectively.

PUBLIC DEBT OF THE BELLIGERENTS
000,000 omitted
==========================================================
|Before | | After | War debt |
|the war| |the war | |
---------+-------+----------+--------+-----------+
Great |Aug. 4,| £650 = |Mar. 31,|£7,643[21] | $34,056
Britain | 1914 | $3,165 | 1919 | = $37,221 |
| | | | |
Australia|Aug. 4,| 97 = 472 |Jan. 31,|[22] 336 = | 1,162
| 1914 | | 1919 | 1,634 |
| | | | |
Canada. |Aug. 4,| 332 |Mar. 31,| 1,584 | 1,250
| 1914 | | 1919 | |
| | | | |
New |Aug. 4,|100 = 487 |Mar. 31,| 170 = 828 | 341
Zealand | 1914 | | 1919 | |
| | | | |
South |Aug. 4,|126 = 614 |Mar. 31,| 175 = 846 | 332
Africa | 1914 | | 1919 | |
| | ------ | | ------- | -------
British | | $5,070 | | $42,213 | $37,143
Empire | | | | |
| | | | |
France | July |fr. 32,594|Dec. 31,|fr. 167,459| 26,031
| 1914 | = $6,291 | 1918 | = 32,322 |
| | | | |
Russia | July |ru. 8,800 |Jan. 1, |ru. 49,288 | 20,760
| 1914 | = 4,623 | 1918 | = 25,383 |
| | | | |
Italy | May |li. 13,636|Oct. 31,|li. 77,763 | 12,388
| 1915 | = 2,621 | 1918 | = 15,009 |
| | | | |
Belgium |Aug. 2,|fr. 3,743 |Apr. 30,|fr. 9,787 =| 1,166
| 1914 | = 722 | 1919 | 1,888 |
| | | | |
Rumania | Aug. | 292 |Oct. 31,| 1,020 | 728
| 1916 | | 1918 | |
| | | | |
Serbia | July | 271 |Oct. 31,| 730 | 459
| 1914 | | 1918 | |
| | | | |
Japan | July |yen 2,494 |July 31,|yen 2,530 =| 18
| 1914 | = 1,190 | 1918 | 1,265 |
| | | | |
United |Apr. 5,| 1,190 |June 30,| 24,232 | 23,042
States | 1917 | | 1919 | |
| | ------ | | ------- | -------
Entente | | $22,327 | | 144,062 | 121,735
Powers | | | | |
---------+-------+----------+--------+-----------+--------
Germany |Aug. 1,|mk. 4,732 |Dec. 31,|mk. 204,000| 47,426
| 1914 | = $1,126 | 1918 | = $48,352 |
| | | | |
Austria- |Aug. 1,| 3,726 |Oct. 31,|kr. 137,858| 24,858
Hungary | 1914 | | 1918 | = 25,584 | [23]
| | | | |
Turkey | Nov. | LT 112 = |Oct. 31,| LT 455 = | 1,517
| 1914 | 485 | 1918 | 2,002 |
| | | | |
Bulgaria |Oct. 4,| 219 |Oct. 31,| 974 | 755
| 1915 | | 1918 | |
| | ------ | | ------- | ------
Central | | $5,556 | | $80,112 | 74,556
Powers | | | | |
| | | | |
Total | | $27,883 | | $224,174 | 196,291
| |In Millions |In Millions|
==========================================================

[21] Counting on repayments of one half of the loans to the Allies (£816 millions).

[22] Not including the debts of the separate states.

[23] Obtained by considering the debt of the new Austria as representing 70 per cent of the debt of all the states which constituted the old empire.

VI--AMERICAN BUSINESS IN THE WAR

Voluntary Coöperation of Experts and Loyal Support of Labor Put Our Industries on a War Basis

By GROSVENOR B. CLARKSON

Director of the U. S. Council of National Defense and of Its Advisory Commission

Modern wars are not won by mere numbers. They are not won by
mere enthusiasm. They are not won by mere national spirit. They
are won by the scientific conduct of war, the scientific
application of irresistible force.

--WOODROW WILSON.

War today means that for every man on the fighting line there must be approximately ten men--and women--behind him in the factories, mills, and mines of the nation that enters the conflict. It is an enterprise to which military men alone have ceased to be called, for it enlists the specialists of every industry and every science from the fighting line clear back to the last line of defense.

When the American Marines were thrown into the battle line at the Marne, a French general officer rode up to headquarters.

"How deep is your front?" he asked.

"From here to San Francisco," was the reply; and in that statement lay the story of America's industrial and economic mobilization for war.

For America the actual arena of the war was 3,000 miles oversea, and into this arena the Government of the United States threw 2,000,000 of the most superb troops that the drama of warfare has known; and, what is more, got them there on time to make possible the final smashing blow. The organization, transportation, and clocklike delivery at the eleventh hour of these irresistible citizen armies of the great Republic of the western world is an epic in itself.

But here at home there were armies too. They were created without mandates; they were welded into cohesive form by suggestion rather than by order; they were galvanized from beginning to end by the mighty force of voluntary coöperation; and they went into the home stretch with a power which nothing could have stopped. These were the armies of production--production mainly, it is true, of guns and steel plates and soldiers' shoes; but production as well of energy, of thought that made the sword a flaming thing, of optimism to offset the stupid pessimism of people who criticized but had nothing tangible to contribute, of the immortal spirit of "carry on," of, above all, unification.

In all of this endeavor, in all of this uprooting of the static national life of peace time, the business man of America reached his apotheosis and surprised even himself in his ability to merge his heart and nerves and brain into the national interest in the most emergent hour of the country's history.

In effect, America went into the war unprepared. The will to war was a dormant thing throughout the nation. The country was swollen with material success almost to the point expressed in Lincoln's phrase: "A fat hound won't hunt." The evolution of the Government of the United States, enjoying profound peace for more than half a century, except for the minor military operations of the Spanish-American conflict, into a great war-making machine in mercilessly short time was a task to challenge the ability of even the most resourceful nation of the earth.

There, broadly stated, was the national picture in the spring of 1917. War came, and almost with every day grew the need for increased participation on America's part.

COUNCIL OF NATIONAL DEFENSE