Chapter IV: Introduction: By PROFESSOR IRVING FISHER (2)

The passing of the war tax bill was not altogether easy sailing; there was plenty of criticism from the press throughout the country. Republican editors and congressmen wondered why the bill did not contain a tax on cotton, and one Pennsylvania congressman thought that the tax levy should be at the rate of three dollars a bale. Senator Smoot of Utah attacked the bill as a bunglesome measure.

The New York _Journal of Commerce_ called attention to the discrimination between those whose income is in the form of services or property and those who get it in cash:

"Take the case, for instance, of the salaried employee of a
bank or factory who receives $5,000 a year, out of which he
pays his house rent and his usual costs of living; contrast him
with the case of a farmer who owns his land and obtains the
bulk of what he needs, both in food, fuel, and other
essentials, for himself and family in produce or in goods
obtained by trade at the neighboring village; the situation
becomes clear and shows why it is that the farming class pays
only a microscopic proportion of the income tax at the present
time."

And the Democratic New York _World_ agreed that the farmer "is not carrying his share of the load of war taxation," and observes:

"An analysis of income tax returns for the fiscal year 1916,
recently published, shows that, although farmers are the most
numerous class of Americans engaged in gainful occupations,
they were at the foot of the list proportionately among income
tax payers. Outside of the notorious war profiteers, no element
of our population has advantaged so greatly by war as
agriculturists; yet in the year of which we speak only one
farmer in four hundred paid a farthing's tax upon income. In
this respect preachers and teachers showed a higher
percentage."

There was some demand for extending the income tax downwards to cover smaller incomes, for example, we find the Council Bluffs' _Nonpareil_ contending:

"The men of more moderate income should be required to pay at
least a nominal income tax. This is a common country. It
belongs to common people. And common people will esteem it a
privilege to contribute their mites. One dollar per hundred on
a thousand-dollar income would be both reasonable and just."

CRITICISM OF THE TAX

The attitude of the New York press is indicated by the _Evening Sun_ and the _Times_. The New York _Evening Sun_ (Rep.) said the committee "left so many rough edges upon their work." In the opinion of this newspaper, Mr. Kitchin "has given us a measure of class-taxation highly accentuated, and yet has failed to suit the McAdoo group, the most clear-minded adherents of the conscription-of-wealth idea. He has produced a confused series of taxes beyond the practical power of the ordinary busy citizen to master or comprehend, but has not combined these into a harmonious system." The morning _Sun_ even went so far as to remark that "nothing that the Senate could do could make the Kitchin measure worse than it is." Yet it by no means criticized all the features of the bill. It objected to the proposed taxes on oil producers as discouraging the production of oil, and styled the plan to tax distributed corporation earnings at twelve percent. and undistributed earnings at eighteen percent. "simply a fool tax," which "will help to lock the wheels of every great industry in this country."

The foundation mistake of the bill, in the opinion of the New York _Times_ (Ind. Dem.) was the "attempt to assess taxes upon the smallest possible number of persons and businesses, leaving a great majority of the people free from a levy direct or indirect." The _Times_ thought that this policy was dictated by the desire "to leave the mass of voters free from grounds of complaint against the party in power." It insisted that there should be a consumption tax levying "upon the breakfast table and upon the purchases of a great mass of people." Such necessities as tea, coffee, cocoa, sugar, should bear a tax, in the opinion of this and other newspapers. The number of those taxed was also kept comparatively small by the retention of the old income exemption limits, namely, $1,000 for bachelors and $2,000 for married men, with the normal tax rate placed at only six percent. on incomes up to $5,000.

WILSON'S TAX PROGRAM

An outline of what was expected from the people of the country as a financial contribution was given by Mr. Wilson in his May (1918) address to Congress, when he decided to ask its members to remain in Washington and prepare a new revenue bill. Mr. Wilson's call for immediate action in behalf of both the public and the Treasury Department was a summons to a universal duty in language which, it is remarked, "was never before used in a tax speech." He said in part:

"We can not in fairness wait until the end of the fiscal year
is at hand to apprize our people of the taxes they must pay on
their earnings of the present calendar year, whose accountings
and expenditures will then be closed.

"We can not get increased taxes unless the country knows what
they are to be and practices the necessary economy to make them
available. Definiteness, early definiteness, as to what its
tasks are to be is absolutely necessary for the successful
administration of the treasury....

"The present tax laws are marred, moreover, by inequities which
ought to be remedied....

"Only fair, equitably distributed taxation of the widest
incidence, drawing chiefly from the sources which would be
likely to demoralize credit by their very abundance, can
prevent inflation and keep our industrial system free of
speculation and waste.

"We shall naturally turn, therefore, I suppose, to war profits
and incomes and luxuries for the additional taxes. But the war
profits and incomes upon which the increased taxes will be
levied will be the profits and incomes of the calendar year
1918. It would be manifestly unfair to wait until the early
months of 1919 to say what they are to be....

"Moreover, taxes of that sort will not be paid until the June
of next year, and the treasury must anticipate them....

"In the autumn a much larger sale of long-time bonds must be
effected than has yet been attempted....

"And how are investors to approach the purchase of bonds with
any sort of confidence or knowledge of their own affairs if
they do not know what taxes they are to pay and what economies
and adjustments of their business they must effect? I can not
assure the country of a successful administration of the
treasury in 1918 if the question of further taxation is to be
left undecided until 1919."

Mr. Wilson's appeal for the practice of personal economy met with widespread approval in England, as it did in the United States. The _Economist_ considered that his manifesto to the American people on this subject was among the greatest documents that the war has produced. National self-sacrifice had gone far, but not far enough. To attain Mr. Wilson's standard of individual patriotism much was still needed, the _Economist_ says:

"We still have a very long way to go before we can attain to
President Wilson's standard of individual patriotism. From the
outbreak of war to the end of last year the small investor in
this country has lent £118,179,000 to the government. Moreover,
in the first two months of 1917 as much as £40,000,000 was
contributed to war loans in one form or another in the shape of
small savings. That result represents a great deal of patriotic
saving, and reflects the highest credit on the committee, as
well as upon the Montagu committee, which devised so suitable a
form of investment as the 15s 6d certificate. But far more is
required. During the war loan campaign, war savings
certificates brought in £3,000,000 in a single week. That
effort was, perhaps, too great to be kept up; but it is hardly
satisfactory that, in spite of the hard work of the committee,
and an enormous growth in the number of active war savings
associations all over the country, the weekly receipts from the
15s 6d certificates have fallen back to the £800,000 to
£900,000 level which was reached last December. This relapse
may be partially accounted for by the late increase in the cost
of living, but there can be no doubt that much more might yet
be done by the masses of people of moderate means to whom the
small certificates appeal. Nor is there any evidence that the
wealthier classes, generally speaking, have done nearly as
much, in the matter of war self denial, as they might have
done."

LUXURY TAXES

When it came to a question of taxing luxuries, the difficulty was to decide what was a luxury. The situation perplexed Congress, for we find one congressman in Pennsylvania who held that collar buttons and cuff buttons were a necessity, while a representative from Texas asserted that Texas could get along without either collar buttons and cuff buttons and still be patriotic. A congressman from Oklahoma thought that all kinds of buttons could be done away with, adding, "Before I came to Congress I could use nails for my suspenders." Congressman from agricultural states considered that automobiles and gasoline were not luxuries but were really necessities, especially for farmers.

Many newspapers opposed anything like a luxury tax. We find the New York _Times_ advising the imposition of taxes on tea, sugar, coffee and cocoa. These are good revenue producers but few politicians care to interfere with the free breakfast table. The _Wall Street Journal_ approved of luxury taxes because they would be a means of enforcing thrift. The Treasury's plan for imposing these taxes may be gathered from the following condensed summary:

"Fifty percent. on the retail price of jewelry, including
watches and clocks, except those sold to army officers.

"Twenty percent. on automobiles, trailers and truck units,
motor cycles, bicycles automobile, motor cycle, and bicycle
tires, and musical instruments.

"A tax on all men's suits selling for more than $30, hats over
$4, shirts over $2, pajamas over $2, hosiery over 35 cents,
shoes over $5, gloves over $2, underwear over $3, and all
neckwear and canes.

"On women's suits over $40, coats over $30, ready-made dresses
over $35, skirts over $15, hats over $10, shoes over $6,
lingerie over $5, corsets over $5. Dress goods--silk over $1.50
a square yard; cotton over 50 cents a square yard, and wool
over $2 per square yard. All furs, boas and fans.

"On children's clothing--on children's suits over $15, cotton
dresses over $3, linen dresses over $5, silk and wool dresses
over $8, hats $5, shoes $4, and gloves $2.

"On house furnishings, all ornamental lamps and fixtures, all
table linen, cutlery and silverware, china and cut glass; all
furniture in sets for which $5 or more is paid for each piece;
on curtains over $2 per yard, and on tapestries, rugs, and
carpets over $5 per square yard.

"On all purses, pocketbooks, handbags, brushes, combs and
toilet articles, and all mirrors over $2.

"Ten percent. on the collections from the sales of vending
machines.

"Ten percent. on all hotel bills amounting to more than $2.50
per person per day. Also the present 10 percent. tax on cabaret
bills is made to apply to the entire restaurant or café bill.

TAXES OF MANUFACTURER OR PRODUCER

"Ten cents a gallon on all gasoline to be paid by the wholesale
dealers.

"Ten percent. tax on wire leases.

"Graduated taxes on soft drinks. Mineral now taxed 1 cent a
gallon to pay 16 cents. Chewing gum now taxed 2 percent. of
the selling price, to pay 1 cent on each 5-cent package.

"Motion-picture shows and films: abolish the foot tax of ¼ and
½-cent a foot and substitute a tax of 5 percent. on the rentals
received by the producer, and double the tax rate on
admissions.

"Double the present taxes on alcoholic beverages, tobacco and
cigarettes.

"Automobiles--a license tax on passenger automobiles graduated
according to horsepower.

"Double club membership dues.

"Household servants, made 25 percent. of the wages of one
servant up to 100 percent. of the combined wages of four or
more. Female servants, each family exempted from tax on one
servant. All additional servants (female) from 10 to 100
percent. on all over four."

LUXURIES IMPORTED

Heavy taxes on luxuries were anticipated but until these taxes were considered it was hardly realized how much of the consumption in America was concerned with articles that could be considered luxuries; for example, the country imported $6,000,000 worth of foreign cigarette papers. Pictures, statuary and other works of art were brought into the country to the extent of $17,000,000. Over $2,000,000 worth of ivory was imported every year; over $2,000,000 worth of mother-of-pearl and more than $2,500,000 worth of bulbs and roots. Higher taxes were urged by the financial experts, so we see a writer in _Financial America_ emphasizing the connection between the importation of luxuries and the need of shipping:

"America can not spare ships to bring costly garments and
furnishings thousands of miles across the sea. For the war
period these articles can be replaced at home with materials
that cost less labor and less money. The money spent for
domestic goods remains in America and maintains our working
population and our business and banking resources.

"We lack a sufficient market for our cotton crop, owing to the
lack of ships. Americans should wear more cotton. The money
spent upon it maintains the Southern planter and his family.
Modern processes give it the appearance of silk. It serves very
well as carpets, curtains, hangings, and furniture coverings.
It should answer present needs for such fabrics. A heavier tax
on imports of these goods is indicated as a means of revenue
and war economy.

"Imported wearing apparel of silk pays 60 percent. duty and of
wool 44 cents a pound and 60 percent. _ad valorem_. There is a
graduated rate on dress goods of these materials. Despite the
tax, America spent more on imported manufactures of silk in
1917 than ever, the total being nearly $40,000,000. The same
was true of woolen goods, amounting to $23,000,000.

"Our imports of woolen carpets and rugs, most of them brought
half way round the world from oriental lands, were also larger.
They cost us $3,740,000, though America is a large producer of
carpets and rugs, fine as well as coarse. These imports paid
ten cents a square foot and 40 percent. _ad valorem._
Evidently, it was not enough.

"We also spent $53,000,000 for imported cotton manufactures,
including cloth, laces, curtains, handkerchiefs, veils, and
wearing apparel, though America is the world's chief producer
of cotton. A higher tariff is indicated as a tax on those who
insist on the foreign product.

TAXES ON TOBACCO

"America has a large tobacco industry at home. We import
tobacco in vast quantities from every producing land to satisfy
the whimsical and varying tastes of connoisseurs. Our own
tobacco is discouraged by those who smoke it under the name of
Turkish, Egyptian, Cuban, Dutch, Spanish, and other foreign
products, and pay a heavy price for the critical taste which
their vanity causes them to imagine they possess. Last year
these imports of leaf tobacco alone were valued at $26,000,000,
or $10,000,000 more than in 1915. The war tax is five cents a
pound added to eight cents paid under the internal revenue act,
or thirteen cents altogether. There is also a duty of $1.85 to
$2.50 a pound. To increase the tax would encourage the industry
in Kentucky, Virginia, Pennsylvania, Connecticut, and other
states, while saving our resources in ships and keeping our
money at home.

"In addition, America spent $7,000,000 for foreign-made cigars
and cigarettes last year. These purchases support foreign
factories, although our own factories use the same raw material
which they import. They have jumped nearly $3,000,000 in two
years. Until the war is ended, Americans should be satisfied
with cigars 'made in America.' The present war tax ranges from
one tenth of a cent to one cent on each cigar, according to
value, in addition to a duty of $4.50 a pound and 25 percent.
_ad valorem_. A higher tax would deprive the smoker of nothing
but a craving for the foreign label on his cigar box, unless he
chose to pay well for it. He can even get a Spanish name on his
American-made cigar.

DIAMONDS, LEATHER AND MILLINERY

"America spent $41,000,000 in 1917 to import diamonds, pearls,
and other precious stones and imitations, not set. They paid a
war tax of only 3 percent. when made into jewelry. America
could be content with beauty less adorned to keep this
$40,000,000 at home, or those who insist on sending their money
to African mine owners and Dutch cutters should pay a larger
tax.

"America last year had a tremendous bill for hides and skins of
$209,000,000, nearly two and a half times that of 1915. Much of
it was for the great necessities of the army. A good proportion
of the rest was unnecessary. These imports of raw material are
free of duty and there is no war tax on leather goods.
Substitutes have been devised for many of them. These should be
encouraged by a tax on the unnecessary use of leather in
furnishings, decorations, toilet articles, hand bags, trunks,
high shoes, belts, hatbands, and many small articles.
Substitutes for these will be provided quickly enough if
leather is lacking. A heavy tax would help the movement. The
tremendous military and other legitimate demands for leather
goods will keep the industry in thriving condition without so
much waste.

"For imported millinery materials America spent nearly
$13,000,000 last year, and we also spent $3,000,000 for mere
feathers, tributes to feminine vanity that filled up many ships
needed for war use. The greater part of this stuff came 10,000
miles from China and Japan. There are plenty of substitutes
that a high war tax would encourage, including those provided
by the American hen.

"Our imported glassware, on which there is no war tax, cost
nearly $2,000,000. It occupies large space aboard ship, owing
to voluminous packing that is necessary. Imported china,
porcelain, earthenware, and crockery cost America nearly
$6,500,000."

BEARING THE BURDEN

In spite of the enormous cost of war operations, roseate views were taken of the ability of the country to surmount the unusual difficulties. Unprecedented taxes were being paid, heavy subscriptions to the Liberty Loans were being collected and yet the business of the country seemed to show a high degree of prosperity. This optimistic outlook marks the following comment found in a circular published by the First National Bank in Boston, after it had called attention to the small number of failures reported throughout the country for August, 1918. No such low record had been reached since July, 1901:

"The steps that have been taken to curtail credits have
resulted in greater conservatism, and have had a beneficent
effect, which is likely to continue for some time after the
present necessity disappears. The business foundation is
extremely sound. Figures of resources of savings banks show
that the subscriptions to the Liberty Loans have brought only
a trifling decrease in savings deposits. Evidently subscribers
are buying bonds with their current income rather than with
their savings. In other words, the Liberty Loans represent
additions to the savings of the country, and not merely
transfers of investments."

It was prophesied that in spite of the enormous financial obligations assumed by the United States normal conditions would soon be restored. History shows, the circular goes on to say, that financial recovery from devastation has been prompt and complete. Even the railway conditions at this time were viewed optimistically. Such a competent authority as the _Wall Street Journal_ did not anticipate the financial troubles that soon overtook railway administration under government control. It thought that, by the end of the year, the existing debits on current operations would probably be wiped out:

"Aggregate railroad earnings and expenses for July of all the
important roads in the country are in line with the individual
statements of the different roads already published in showing
large increases in both gross and net revenues. They also
indicate, so far as one month's operating results may be used
to generalize from, that the railroads are now on a
self-supporting basis, if they are not actually returning a
profit to the government on current operation.

"Net operating income of these roads for the month of July
(1918) was $137,845,425 as compared with $92,599,620 in the
same month of 1917. In a recent statement from the
Director-General's office the compensation payable to the
railroad companies for the use of their property by the
government was estimated at $650,000,000 for the first eight
months of the year, or at the rate of $81,250,000 a month. The
net operating income of the Class 1 roads as mentioned above
exceeds this monthly rental figure by $56,595,000."

THE FIRST GOVERNMENT LOAN, 1789

Although called by other names, the United States has had issues of Liberty Bonds on several occasions during a period of one hundred and twenty-nine years, notably in the first years of the Republic and in the Civil War. The first was floated in 1789, the year when the Federal Government was established. Alexander Hamilton was Secretary of the Treasury and on him devolved the duty of raising funds for the government.

"Conditions being pressing, Hamilton, in raising the necessary
money, at first did not wait even for the approval of Congress,
but went to the Bank of New York, which he had helped to found
in 1784--the second bank in the United States and the first in
New York City--to raise the first necessary money. At a meeting
of the board of directors the new secretary of the treasury
asked for a loan of $200,000. It was promptly and unanimously
granted, the money to be advanced in five installments of
$20,000 each and ten of $10,000 each, at 6 percent. On the
following day Hamilton sent to the bank the first bond ever
issued by the United States Treasury--a bond of $20,000--on
receipt of which the money was paid over, so that the United
States Treasury could show $20,000 cash on hand. In _The
Investor's Magazine_, where these facts were recently brought
to light, we are further told that the bond then issued is
still carefully preserved by the bank which bought it. Quite
unlike the now familiar Liberty Bonds of 1917 and 1918, it was
executed with an ordinary quill pen, such as was in use in
those times, and signed in ink by the secretary. With its seal
somewhat yellow with age, the bond is still in an excellent
state of preservation."

Dropping the First Bomb]

POPULARITY OF THE LIBERTY LOANS

America's financial reputation stood at a fairly high level after the close of the Civil War. An era of unexampled production ensued for more than five decades, yet there were many timorous souls who were frightened at the thought of the United States being called upon to bear the burden of the colossal loans. The surprising feature of the Liberty Loans was the elasticity of the subscriptions. The subscribers for the first three loans numbered respectively 4,500,000, 10,020,000, 17,000,000; in every case the records show over subscription. A graphic statement of the nation's riches was presented by S. L. Frazier in the _Northwestern Banker_, Des Moines, October, 1918:

"Our resources are well up toward $300,000,000,000, or about
equal to the combined resources of France, England, and
Germany. Our annual production is close to $50,000,000,00,
amounts that stagger the imagination. Why it would take ten
thousand years to count the dollars representing out country's
resources counting one each second, and working day and night
and Sundays."

The New York _Tribune_ remarked, "If any learned professor of economics had predicted that on top of ten billions of government loans in one year a fourth Liberty Loan would reach nearly seven billions we know what we all would have thought."

HOW EUROPE WILL PAY US BACK

An official in the National City Bank of New York, Mr. G. E. Roberts, is quoted by the New York _Times_ as saying that the wealth-producing equipment of the country had become greater than ever during the war. He did not believe either that there would be any difficulty of the United States being paid back for the money it had loaned foreign governments.

"We are going to be peculiarly situated in our foreign
relations after the war. We have paid off the greater part of
what we owe abroad, and we have lent to foreign governments
some $7,000,000,000 or $8,000,000,000. Including all loans by
the time the war is over, probably there will be annual
interest payments coming to us amounting to $400,000,000 or
$500,000,000. How are we going to receive our pay? I am not
questioning the ability of our debtors to raise this amount
from their people. I have no doubt they can do it, but in what
manner are they going to make payment to us? They can't pay it
in gold; they haven't the gold to do it, and the total
production of gold in the world outside of the United States
wouldn't be enough to do it. We won't want them to pay it in
goods, for that would interfere seriously with our home
industries....

"There is only one way out, and that is by extending more
credit to them. We will have to capitalize the interest
payments and reinvest them abroad. And if we want to sell goods
to them we will have to take their bonds and stocks. In short,
we will have to play the part that England has played in the
past, of steadily increasing our foreign investments."

While the great sums subscribed for the Fourth Loan by banks, corporations, and individuals had a spectacular interest, observed the New York _World_, it was the plain people who made the loan a conspicuous success, and the twenty-one million subscribers mean in effect the purchase of a new Liberty Bond by "every American family."

THE LOAN PERIODS

There were very good reasons on the part of the government for selecting the definite periods at which the Liberty Loans were to be issued. There were also very good reasons derived from experience by which the government was guided in preparing for the loans. Prior to the fourth loan Secretary McAdoo believed that it could be made to reach fully one-fourth of the population of the country. Preparation for it was made through publicity on a scale hitherto unprecedented. The Washington correspondent of the New York _Journal of Commerce_, writing on July 31, 1918, said:

"The country will be appealed to, with new and striking film
arguments, with a great variety of poster slogans, and with a
use of the press and the platform such as has never been
witnessed before in this country.

"There are to be nineteen days of actual campaign work. The
great task of organization and preparation is now going on.
Artists have been making posters, writers have been preparing
arguments, and printing presses in all parts of the country
have been turning out many millions of mottoes, cartoons, and
slogans."

He added interesting data as to outstanding treasury certificates and war expenses. The time chosen for the loan was probably as good, it thought, as could have been selected, inasmuch as it would fall just after the bulk of the crops had been harvested and when much of them had been sold at good figures.

"War expenses for July were somewhat less than for June and
May, amounting to about $1,482,000,000 as compared with
$1,512,000,000, the record for June, and $1,508,000,000 for
May, the Treasury Department announced. The outlay for July,
however, was approximately the amount estimated in advance by
the treasury, and expenses for August probably will be higher,
it was said.

"During July the government's daily outlay was about
$48,000,000, an average of $38,000,000 daily was for ordinary
expenses of the army, navy, shipping board, and other agencies,
and $10,000,000 daily in loans to the Allies. Total ordinary
expenditures for the month were about $1,157,000,000 and loans
to the Allies $325,000,000.

"Receipts from sale of War Savings Stamps July 3rd passed the
half-billion dollar mark, of which $200,000,000 came in this
month as a result of the campaign on Thrift Day, June 28th.

"The government now is financing itself mainly through the sale
of certificates of indebtedness, in anticipation of the Fourth
Liberty Loan. More than $1,600,000,000 came in from this source
in July. In addition, the government received $491,000,000 from
belated income and excess profits taxes, and $97,000,000 from
miscellaneous internal revenue. Customs duties yielded only
$14,000,000.

"Payments on the Third Liberty Loan now amount to
$3,652,000,000, leaving $524,000,000 to come in from the next
installment payment."

------------------------------------------------------------------------ THE LIBERTY LOANS--BY FEDERAL RESERVE DISTRICTS ------------------------------------------------------------------------ FIRST LOAN SECOND LOAN THIRD LOAN FOURTH LOAN (June, 1917-- (Oct., 1917-- (1918-- (1918-- 3½ 4 4¼ 4¼ Per Cent.) Per Cent.) Per Cent.) Per Cent.) ------------------------------------------------------------------------ Boston $332,447,600 $476,950,050 $354,537,250 $632,221,850 New York 1,186,788,400 1,550,453,450 1,115,243,650 2,044,778,000 Philadelphia 232,309,250 380,350,250 361,963,500 598,763,650 Cleveland 286,148,700 486,106,800 405,051,150 702,059,800 Richmond 109,737,100 201,212,500 186,259,050 352,688,200 Atlanta 57,878,550 90,695,750 137,649,450 213,885,200 Chicago 357,195,950 585,853,350 608,878,600 969,209,000 St. Louis 86,134,700 184,280,750 199,835,900 296,388,550 Minneapolis 70,255,500 140,932,650 180,892,100 241,028,300 Kansas City 91,758,850 150,125,750 204,092,800 294,646,450 Dallas 48,948,350 77,899,850 116,220,650 145,944,450 San Francisco 175,623,900 292,671,150 287,975,000 459,000,000 ------------------------------------------------------------------------ Total $3,035,226,850 $4,617,532,300 $4,176,516,850 $6,989,047,000 subscriptions ------------------------------------------------------------------------ Total quotas $2,000,000,000 $3,000,000,000 $3,000,000,000 $6,000,000,000 Total 2,000,000,000 3,808,766,150 4,176,516,850 6,989,047,000 allotments Total number of 4,500,000 10,020,000 17,000,000 21,000,000 subscribers ------------------------------------------------------------------------

NEW YORK CITY SUBSCRIPTIONS ------------------------------------------------------------------------ Manhattan $960,417,050 $1,095,189,000 $702,577,750 $1,353,449,550 Bronx 404,700 1,015,500 5,112,350 5,751,800 Brooklyn 30,312,000 44,424,200 52,427,600 100,469,650 Queens 2,202,600 4,136,150 10,137,350 17,331,900 Richmond 679,600 1,373,700 3,386,800 5,075,750 ------------------------------------------------------------------------ Total city $994,015,950 $1,146,139,150 $773,641,859 $1,482,078,650 subscriptions ------------------------------------------------------------------------ Included in the Third Loan subscription total is $17,917,750 subscribed by the United States Treasury. War Savings Stamps subscriptions totalled $879,330,000 up to November 20, 1918.

THE INDIVIDUAL INVESTOR

Some curious facts were brought out in the effort of the Liberty Campaign propaganda to reach the individual investor. In the large cities the organization was remarkably successful. In the smaller communities it was a greater difficulty. In a suburb or a small town everybody knows everybody else and the Liberty Loan Committee had hard work in getting subscribers. Mr. A. W. Atwood of Princeton thinks that the occupational and vocational classification of possible investors was not tried. Widows and maiden ladies who had inherited $50,000 or $75,000 were not reached. Some of them who were patriotic came forward of their own accord. The little town of Kircunkson in New York State exceeded its quota many times and there was an item in the papers about it. The success of the Liberty Loan in that town was due to the fact that it contained a large sanitarium patronized by millionaires. Yet there were no banks in the town and if their banking resources were used as a basis their quota would have been very small indeed.

As to the assignment of quotas Mr. Atwood makes the point that it was sometimes based on population, sometimes based on the amount of bank resources. He thought that in small places it would be better to post up a list of those who had subscribed and he even thought that if the country made the effort it could ultimately raise a loan of $100,000,000,000, his reason being the following:

"This country is approaching, as England has long ago, the
position of being a possessor of great accumulated wealth. One
broker after another is really nothing but a family investment
agent. That is what it amounts to. There are railroad magnates,
bankers, steel kings, copper kings and so on indefinitely.
Hundreds of firms in the New York Stock Exchange are nothing
but channels for the investment of accumulated wealth and I do
not think we realize how much there is of that in this
country."

LIBERTY LOANS AND THRIFT

One of the best methods of testing the influence of Liberty Loan activities on the thrift of the country is used by _Bradstreet's_ in its examination of the annual report of the United States League of Building and Loan Associations. These Associations, be it remembered, are not patronized by capitalists but almost wholly by wage earners. During the past fifteen years the membership of building and loan associations has increased 150 percent. and since the war broke in 1914, the number of members has extended 52 percent. The latest report shows a gain in assets of 30 percent. over the amount indicated in 1914. The following tables taken from _Bradstreet's_ give detailed items of the financial situation of these important organizations:

The following table gives membership and total assets of building and loan associations for a fifteen-year period:

Membership Assets
1902--03 1,530,707 $577,228,014
1903--04 1,566,700 579,556,112
1904--05 1,631,046 600,342,586
1905--06 1,642,127 629,344,257
1906--07 1,699,714 673,129,198
1907--08 1,839,119 731,508,446
1908--09 1,920,257 784,175,753
1909--10 2,016,651 856,332,719
1910--11 2,169,893 931,867,175
1911--12 2,332,829 1,030,687,031
1912--13 2,518,442 1,136,949,465
1914--15 3,103,935 1,357,707,900
1915--16 3,334,899 1,484,205,875
1916--17 3,568,342 1,696,707,041
1917--18 3,838,612 1,769,142,175

The following table shows total membership and total assets for States in which accurate statistics are compiled by state supervisors. The data for other States are consolidated under the heading, "Other States," and the figures given are estimated:

--------------1917--18---------------
Members Assets Increase
Pennsylvania 677,911 $324,265,393 $25,438,326
Ohio 767,100 321,741,529 51,188,940
New Jersey 329,063 168,215,913 13,088,951
Massachusetts 247,725 126,695,037 13,389,130
Illinois 246,800 113,528,525 8,050,122
New York 199,571 86,072,829 6,442,948
Indiana 202,409 78,112,917 5,818,661
Nebraska 101,929 54,545,630 6,627,783
California 42,227 35,928,447 3,134,429
Michigan 69,041 35,659,360 4,279,888
Kentucky 62,846 27,085,282 1,272,372
Missouri 56,116 26,770,144 3,226,311
Kansas 66,442 26,000,167 2,446,058
Louisiana 47,793 25,911,928 1,362,683
Dist. Columbia 37,075 22,399,995 255,115
Wisconsin 50,612 19,887,368 3,013,526
North Carolina 37,400 17,608,000 1,703,230
Washington 46,318 14,444,177 2,366,450
Arkansas 21,053 10,583,447 409,439
Iowa[3] 33,035 9,638,852 ........
Minnesota 22,020 8,979,642 626,537
West Virginia 21,500 8,119,131 369,564
Colorado[3] 10,200 6,688,983 ........
Maine 14,959 6,671,239 233,961
Oklahoma 18,142 6,554,175 2,354,175
Rhode Island 11,499 5,938,436 577,906
Connecticut 14,900 4,869,748 610,423
South Dakota 5,857 3,603,836 89,286
N. Hampshire 8,554 3,336,072 322,812
Tennessee 5,166 3,207,754 [4]112,865
North Dakota 5,785 2,837,118 90,308
Texas 7,156 2,314,927 372,489
Montana 4,239 1,849,935 209,906
New Mexico 3,545 1,469,276 72,660
Vermont 749 287,791 52,079
Other States 341,875 157,319,172 10,975,756
--------- -------------- ------------
Total 3,838,612 $1,769,142,175 $170,514,039

[3] Reports issued biennially; figures of 1916 used.

[4] Decrease.

THE THRIFT HABIT

Such was the success of the Liberty Loan campaign in appealing to all classes of private investors, that it became an interesting speculation whether the popular thrift habit would survive war conditions. It was the general belief in financial centers that the habit of saving had been promoted. Perhaps no better illustration of the thrift habit could be presented than returns made by the savings banks of Boston in October, 1918. At that date these banks had $321,000,000 against $319,000,000 at the same date in 1917, the previous banner total for the end of a banking year. It was estimated by Mr. Ingalls Kimball, the New York _Times_ annalist, that twenty million separate individuals were saving by the method of subscribing to the Liberty Loans, and, as more than $800,000,000 worth of War Saving stamps had been sold, it was probable that nearly half the population of the country was saving money in one of these new ways. As to the method of continuing to encourage thrift, Mr. Kimball pointed out the value of the experience derived from the Liberty Bond Campaign:

"The thrift machine set up by the Treasury was as follows: 1.
small unit government bonds; 2. non-interest-bearing Thrift
Stamps; 3. War Savings Stamps--a short-term obligation paying
interest at maturity.

"This was the mechanism. What was the power that actuated the
machine to such wonderful effect? 1. salesmanship, including
every modern device of advertising; 2. distribution: (a)
through retail stores; (b) through employers, by partial
payments (usually pay-roll deduction).

"From these simple elements was built up a campaign that
induced the people to save in a new and unaccustomed way at
least twenty times as much as they had ever before saved in the
same time. None of the elements was unimportant, but
salesmanship, probably, contributed most. The selling campaigns
of the Liberty Loans and War Savings Stamps were carried on by
the largest and most effective selling organization ever put
together, under the direction of the ablest men in the United
States, and with an energy and devotion that were unimaginable.
This selling force was irresistible. Everybody bought because
everybody was asked, or begged, or told, to buy. Under the same
stimulus almost anything would have sold.

"SAVING AT THE SOURCE"

"Next in importance to the direct selling effort came
distribution. For the first time in the history of finance it
has been made easy to save; for the first time the great retail
channels of distribution have been thrown open to saving; for
the first time millions of wage-earners have learned the value
and ease of 'Saving at the Source' by pay-envelope deduction of
a dollar or so a week toward a Liberty Bond."

Mr. Kimball questioned whether or not we are to lose the benefit of the great lesson of thrift and whether some plan could be devised to make us keep on saving. No problem of reconstruction seemed to him more important than this, "yet in no one of the announced conferences on reconstruction do I find mention of it." He then goes on to say:

"The greatest thrift lesson in the world is thrift, no matter
what its motive. A great many hundred thousand persons in this
country have found themselves this year possessed of $100 or
more in one piece for the first time in their lives; often
without realization of how they got it. Will that lesson last?
Will the wage-earner, now that loan drives are over, keep on
saving, going weekly to the bank to put in his dollar. The
answer to these questions is, unfortunately, 'no.'

"It would be perfectly possible to continue the issue of War
Savings Stamps, and there are many advocates of this plan, but
it is doubtful if distribution could be permanently maintained
on anything like its present scale. Merchants and banks, with
rare exceptions, would scarcely continue to handle them, for
the cost is not inconsiderable, and there is no compensating
commercial gain. In the postoffices alone their continued sale
would set up competition with the present postal savings
system, which would serve no good purpose and would be highly
confusing.

"Can the savings banks successfully undertake this great task?
I believe they could. I believe a national savings bank,
operating through commercial banks, stores, and employers all
over the United States, making its investments through a small
compact, very highly paid and very efficient and very
stringently supervised board of executives in one city,
supporting a vigorous, numerous, and far-flung selling
organization, similar in many respects to the industrial life
insurance organizations, could undertake this work and, were it
possible to act quickly enough, could keep the thrift movement
going without losing the amazing momentum which it has now
acquired."

SPENDING THE MONEY

For a period of twenty-five months, from April, 1917, through April, 1919, the United States spent for war purposes more than $1,000,000 an hour. All sorts of comparisons are used to make this figure seizable by the imagination. For example, the whole sum, nearly $22,000,000,000, was twenty times the whole of the pre-war debt. Indeed, it was nearly large enough to pay the entire cost of our Government from 1791 up to the outbreak of the European War. In addition to the actual war cost of our own Government Congress paid to various associated governments the sum of $8,850,000,000. As to how this enormous sum of money was spent, two-thirds of the amount practically was spent upon the Army, and the rate of expenditure for the Army was constantly advancing period by period. Even after the termination of hostilities there was a very high daily average owing to the building of ships for the Emergency Fleet Corporation, the construction and operation of naval vessels, food, clothing, pay and transportation of the Army. The Quartermaster's Department had the largest proportion of expenditure.

The amount spent about equals the value of all the gold produced in the whole world from the discovery of America up to the outbreak of the European War. The pay for the Army during the period of warfare was larger than the combined salaries of all of the public school principals and teachers in the United States for five years, from 1912 to 1916. Some of the money spent represents permanent assets. At the end of the war there were large stocks of clothing on hand and large supplies of standardized trucks. There were thousands of Liberty motors and service planes that were available for other uses. Engineer, signal and medical equipment still continued to have a value, but if the race for militarism is maintained it is hard to see how the quantities of war munitions can fail to escape the scrap heap in a few years' time.

Comparing the individual estimates of war expenditure, it is noteworthy that the Austro-Hungarian Empire spent almost as much as the United States. Of all the powers Germany spent the largest sum, $39,000,000,000--one billion more than England.

MONEY LOANED TO ASSOCIATE NATIONS

The following is quoted from the _Annalist_ for December, 1918:

"Money owed to a government by the nations of the world, with
whom it is in active commercial competition, is another line of
fortifications in defense of the frontier. Let us, then
consider our debts and our debtors, and how we both propose to
pay. Our long-time loans may be scheduled as follows:

First Loan $2,000,000,000
Second Loan 3,808,766,000
Third Loan 4,170,019,650
Fourth Loan 6,989,047,000
---------------
$16,967,832,650

"The totals of each of the above loans have changed substantially since allotment, through conversions with a correspondingly increasing charge on the service. However, the gross amount is substantially unchanged. Of the old loans the Treasury statement of March 31 showed the following totals:

Consol. 2's of 1930 $599,724,050
4's of 1925 118,489,900
Panama Canal 2's, 1906 48,954,180
Panama Canal 2's, 1908 5,947,400
Panama Canal 3's, 1911 50,000,000
Conversion 3's, 1946--7 28,894,500
Postal Savings 2½'s, 1931--7 10,758,560
Postal Savings 2½'s, 1938 302,140,000
--------------
$1,184,908,590

"The short-term loans in the shape of certificates of indebtedness and War Savings Stamps at the present writing are as follows:

4½% certificates, Series E $639,493,000
4½% certificates, Series 4F 625,216,500
4½% certificates, Series 4G 614,069,000
-------------
$1,878,778,500

"In addition to the above a series of certificates of
indebtedness, designated as TA, bearing interest at four per
cent. and maturing July 15, 1919, was issued to a small amount
in anticipation of next year's income taxes. The sale proved to
be slow, and further issuance was discontinued and a new issue
for the same purpose and of a similar maturity bearing interest
at 4½% per cent. was substituted. The sale of these securities
through the agency of the Federal Reserve Banks is in the
nature of a continuous operation, and no totals so far have
been announced.

Many thousands of standardized trucks were made in Detroit during the war rush, the automobile having proved to be indispensable to the fighting forces overseas.]

"The sale of War Savings Stamps and certificates has increased
the national debt by $1,257,000,000, or within 400 million of
the maximum under the first authorization. A second series,
however, amounting to two billion dollars, has been authorized,
so that the operation will probably continue into the coming
year. The Treasury for the fiscal year 1917--18 estimated
receipts of $663,200,000 from this source and about a billion
for 1918--19. The first estimate was out of line, owing to the
difficulty in getting the plan into smooth operation.
Subsequent results have, however, justified the average of
expectations.

"The pre-war debt, in the light of recent figures, is almost
negligible, and the outstanding certificates in anticipation of
taxes and the Fourth Liberty Loan will be redeemed in due
course by the flow of funds owing to the Government in taxes
and subscription payments. The problem of how to deal with the
eighteen-billion-dollar war debt is the vital question. How
much of this sum represents a charge on the coming generation
and how much an invaluable national asset?

WHAT IS OWED THE AMERICAN PEOPLE.

"We have loaned abroad the following items:

Great Britain $3,745,000,000
France 2,445,000,000
Italy 1,160,000,000
Russia 325,000,000
Belgium 183,520,000
Greece 15,790,000
Cuba 15,000,000
Serbia 12,000,000
Rumania 6,666,666
Liberia 5,000,000
Czechoslovak Republic 7,000,000
-------------
[5]$7,919,976,666

[5] Increased to $9,646,419,494 by October, 1919.

"Here, then, are figures totaling nearly half of our war debts
that are not only self-supporting but also a double-edged
weapon in the international market. In the first place, they
represent money spent at home on American goods, from which the
American manufacturer has taken his toll of profit; and in the
second place, they have put the world in our debt to an extent
that will be difficult to pay in the exchange of goods.

"Imports of foreign commodities or even gold will take a decade
to halve the debt, for the gold can not be spared, nor do we
wish it, and our creditors will find it difficult to increase
their exports to a point capable of bringing about a balance in
their favor. The imports from Europe are bound to be offset by
our own exports, some able economists predicting a balance of a
billion dollars in our favor for the next five years.
Regardless of the demands to be made upon us from this source,
it is probable that the peak-load of expenditure has been
reached and the period of readjustment and redemption set in.

"Charging off, then, our loans to the Allies as an asset, let
us then consider how we may best meet the bill due the American
people. Vague discussions of the creation of a huge sinking
fund have been heard, although for some reason or other, in
history these operations have not been entirely successful.
Fortunately the bulk of our debt has an early callable date,
and the Treasury has recently come in for much applause by
advocating no more loans unless they be in the nature of a
one-to five-year currency. Experience teaches that the full
benefit and effect of war taxes are rarely felt until after the
war. England, after the Napoleonic wars, came back with a
rapidity that astonished the Exchequer itself. Taxes rolled up
in such a volume and expenses dropped with demobilization to
such an extent that the Government found itself anticipating
the callable date in national debts by market purchases, and
even then it was found convenient gradually to reduce the scale
of taxation.

"Our experience after the Civil War was very similar to
England's, and the Treasury's surplus annually accumulated to a
point that forced the Government to buy back at high premiums
the bonds it was not privileged to call. This was true, though
to a lesser degree, with the Spanish war loan.

"It seems as though the two operations of liquidating our own
debts and the debt of Europe to the United States dovetailed
perfectly into one gradual and stupendous task. While Europe is
paying her indebtedness to us without interfering with the
development of international trade by the sale of foreign
securities in our home market our buyers here must receive the
tools to operate with through the redemption and repurchase of
their Liberty Bonds. In this half of the deal safety, as usual,
lies in the middle course. It is hoped that taxes will be
maintained at a level that will infallibly provide funds for
fixed redemptions with a sufficient surplus to get a flying
start by purchase around the present low levels."

FINANCIAL STATUS OF ENGLAND IN 1914

One year before the war England's position in regard to the balance of trade was most favorable. Her imports were valued at $3,210,000,000 and her exports at $2,560,000,000. But it was usually estimated that foreign countries owed England about $1,610,000,000 annually for interest on capital lent for shipping freights and for banking insurance and other commissions. The total amount owed her, therefore was $4,170,000,000 as against $3,210,000,000 which she owed for her imports. She had therefore a favorable balance of about $960,000,000 which was lent abroad. The war brought an enormous decrease in tonnage, and the excess of imports over exports attained the figure of $1,950,000,000 a year.

Exceptional measures had to be taken to maintain the exchange rates with the United States from whom the chief purchases were made. Large amounts of gold were exported, but by June, 1915, there was a collapse in American exchange. Drastic measures were used to induce the holders of American securities in England to sell or lend those securities to the Government. In this way exchange was kept up practically to the gold point. This question of exchange and the position of England as the director of the financial campaign of the Allies is illustrated from an address given by Mr. R. H. Brand to the American Bankers Association, in September, 1917:

"Of course no nation could permanently tolerate such
unfavorable trade balances as those from which the Allies in
Europe are now suffering. They can only do so now and keep
their exchanges with the United States steady by borrowing
immense sums here. But the war itself is not permanent, and the
question is merely whether the present state of affairs can be
continued long enough to enable all the enemies of the Central
Powers to exert their full strength and win a final victory.

"You will no doubt all have noticed that the credits granted
Great Britain have been greater than those granted to any other
Ally. The reasons are simple, though they are not, I think,
generally understood. We have, in the first place, the largest
war and munition program of any Ally; in the second place, as I
have shown above, we are, with the exception of the United
States, the greatest industrial arsenal among the Allies; that
necessarily involves large imports. We send a great deal of
steel from England to our Allies; we have to replace it by
steel from here. We make rifles for Russia; we have to import
the steel to make them. We send boots to Russia; we have to
import the leather needed. These examples might be multiplied
many times. Thirdly, we extend large credits in England to our
Allies, some part of which they may use anywhere in the world,
and this part may ultimately come back on the sterling exchange
in New York. Lastly, it is well known that neutrals who are
owed money by England unfortunately find it convenient to
utilize the sterling exchange in New York in order to recoup
themselves in dollars. But so also do neutrals who are owed
money by the other Allies. So long as we maintain the sterling
exchange this appears to be inevitable, and the burden of
financing both our own and our Allies' trade tends to fall on
that exchange. It is by our maintenance of this sterling
exchange that the continuance of our Allies' trade is rendered
possible. The maintenance of the sterling exchange means the
maintenance of the allied exchanges. All these factors together
exert an immense influence. If England had had only herself to
finance since the beginning of the war, and indeed even if she
had only herself to finance now, it is quite possible she would
not have needed to borrow at all abroad."

LOSS IN PRODUCTIVE POWER

The extent of the withdrawal of productive power can only be judged by figures. Of the 7,500,000 men serving in the British Army, 4,530,000 were contributed by Great Britain, 900,000 by the British dominions and colonies; and the remaining 1,000,000 by India and the various British African dependencies. Production went on to a remarkable degree, but this production was largely for war purposes. It was secured by recruiting female labor to an unheard of extent in the munition factories. According to the London _Economist_, the financial side of the British administration was anything but satisfactory. It speaks of waste and faulty methods: