Rejection of the Peace Treaty 264
The Reservations Which Failed 269
Peace by Congressional Enactment Fails 271
The Map of Europe Remade 279
Our Part in Winning the War 280
Index
Text 291
Illustrations
I. Portraits 363
II. General 368
Maps 383
ILLUSTRATION IN COLOR
A Soldier of the Soil _Frontispiece_
Illustrations in this volume
Price Movements of the United States and England from the Earliest
Index Numbers Through the First Years of the World War
Trend of Prices Before and After the Great Wars of History
William McAdoo
Money and the Price Level
John Pierpont Morgan
President Wilson and Rear Admiral Grayson Passing the Palace of the
King in Brussels
Women Munition Workers in the International Fuse and Arms Works
Poster for Boy Scouts Who Worked for the Victory Loan
Dropping the First Bomb
A Poster Used During the Fourth Liberty Loan Campaign
Detroit--City of Automobiles
A Woman Doing Road Construction Work
A Woman Operating a Multiple Spindle Drill in an English Shell
Factory
Launching the Quistconck at Hog Island
Ship-building at Camden, N. J.
Diagram Showing the Effect of the War on the Prices of Stocks
Centres of Live Stock Production Throughout the World
Members of "The Women's Land Army" in England
A Map Issued by the Food Administration to Show Food Conditions in
Europe After the Signing of the Armistice
A Food Riot in Sweden
Harry A. Garfield
Drying Fruit and Vegetables to Save Tin and Glass
"Back on the Farm"
The Nations and Their Wheat Supply
A Municipal Canning Station
In the Heart of the Bethlehem Steel Plant
Forging Armor Plate
Building Howitzers
Guns and Armaments for United States and Her Allies
Plowing by Night
A War Time Warning
Women Workers in America
Samuel P. Gompers
Walker D. Hines
Building a Steel Ship in Seattle, Washington
Hog Island Ship-building Yards
Launching the City of Portland on the Columbia River, near Portland,
Oregon
Examining Cargoes for Contraband
An Antidote for the Submarine Pest
The Awkward Squad
The Economic Conference in Paris
Lord Reading
While the Men Fought, Those Left Behind Bought Bonds
French School Children Waiting to Welcome General Pétain
United States Council of National Defense and Its Advisory
Commission
Bernard M. Baruch
Daniel Willard
John D. Ryan
A Poster Used During the Fourth Liberty Loan Campaign
A Poster for the Third Liberty Loan Campaign
Victory Way at Night
The Battle Scene at Home
A Community Conference on Food-Saving
Will There Be Enough to Go Around?
Women Doing Night Farming
The Ore Market--Cleveland
David Lloyd George
President Poincaré With the Swiss President, M. Gustave Ador,
Driving to the Peace Conference in Paris
Where the Peace Treaty Was Signed
Awaiting the Decision of the German Peace Delegates.
The George Washington
Paris Crowds Greeting President Wilson
Henry White
Count von Brockdorff-Rantzau
Victoria Hall at Geneva
William Howard Taft
Woodrow Wilson, President of the United States
President and Mrs. Wilson Waving Good Bye
President Wilson's Welcome in Paris
Sir Eric Drummond
Lord Robert Cecil
Berlin Demonstrations Against The Peace Treaty
German Press Representatives in Versailles
Dreadnoughts Welcoming President Wilson Home
M. Stephen Pichon
Henry Cabot Lodge
America's Peace Capitol in Paris
The White Flags That Meant Defeat for the German Cause and Marked
the Beginning of the End of the War
Paris in War Time
Senator Philander C. Knox of Pennsylvania
Male Population Registered and Not Registered
Comparative Losses of Merchant Shipping During the War
Production of Training Planes and Engines to the End of Each Month
Number of Battle Aeroplanes in Each Army at the Date of the
Armistice
Secretary of War Baker Drawing Registration Numbers
Our Flag in Alsace
INTRODUCTION
By PROFESSOR IRVING FISHER
Department of Political Economy, Yale University
In various ways, as this volume shows, the war has profoundly affected
our economic and political life. War has ever been a disturber and
innovator, always leaving after it a different world from that which
existed previous to it. On account of our tremendously complex economic
organization--the specialization of industry among nations, and the
network of commerce--war today causes more profound changes than ever
before. There can not be a human being in the world today whose life is
not altered by the war through which we have just passed.
In trying, now that the war is over, to _stop drifting_, and to think
our way out of the bent (or broken) remains of the _ante bellum_ life,
the world is confronted by a maze of problems and a still greater maze
of proffered solutions.
Many of these proposals are, unfortunately, of the nature of treatment
directed not at fundamental conditions, but merely at _symptoms_. We
should be past the stage, in our social science, as we are in medicine,
where we treat symptoms without a thorough diagnosis of the fundamental
causes.
And yet it is just this thorough diagnosis that we lack.
What, then, are the changes brought about by the war which most deeply
affect "the body politic," and by meeting which the most far reaching
improvements can be made?
HIGH COST OF LIVING A VITAL QUESTION
I can not take up, or even touch on, all of them; but to one of them I
wish to call especial attention--the High Cost of Living or, more
generally, the high level of prices, which is the most striking economic
effect of the war throughout the world. It is, as I see it, hard to
over-emphasize the need for attacking this problem of the price level as
a preliminary to attacking the other economic problems which the war has
left us.
We need only glance at a newspaper today, or step into a corner grocery,
or fall into conversation with our neighbor in the train to have this
topic come out as foremost in interest. It is, I believe, responsible
for much more of our present uncertainty and confusion than is usually
realized. In its ramifications it is chiefly this phase of the war's
effects which, as I suggested above, touches every one of us at every
point of our lives. A member of the Federal Reserve Board has called the
price level problem _the_ central economic problem of reconstruction.
Professor William Graham Sumner, who has inspired so many to the
scientific study of social conditions, used to say: "In taking up the
study of any social situation, divide your study into four
questions--(1) What is it? (2) Why is it? (3) What of it? (4) What are
you going to do about it?"
Let us follow this outline, and look first at the facts of the case;
secondly at their causes; thirdly at the evils involved; and lastly at
the remedies.
MEASURING CHANGES IN PRICES
We now possess a device for measuring the average change in prices. This
is what is known as an "index number."
Thus, if one commodity has risen 4 per cent. since last month and
another, 10 per cent., the average rise of the two is midway between the
sum of 4 per cent., and 10 per cent., or 7 per cent. It is
4 + 10
------ = 7
2
If we call the price level of the two articles last month 100 per cent.,
then 107 per cent. is the "index number" for the prices of the two
articles this month. The same principle, of course, applies to any
number of commodities.
The index number of the United States Bureau of Labor Statistics, the
best index number we have, shows an average price level in 1918 of 196
for wholesale prices and 168 for retail prices of food on the basis of
100 per cent. for 1913, the year before the war; showing that wholesale
prices, on the average, almost exactly doubled. The latest index number
for wholesale prices (May, 1919) is 206, and for retail (July, 1919),
190.
A look at the history of prices shows the interesting fact that, while
prices have sometimes fallen, they have generally risen. The high cost
of living has been for centuries a source of complaint. In the 16th
century, people objected to the price of wheat, which was three to ten
times what it cost during the preceding 300 years.
WORTHLESS PAPER MONEY
Where, through ignorance of monetary science, irredeemable paper money
was used, prices have sometimes gone up quite "out of sight." This was
the case with the famous assignats of the French Revolution, and the
"Continental" paper money of our own Revolution. After the Revolution a
barber in Philadelphia is said to have covered the walls of his shop
with continental paper money, calling it the cheapest wallpaper he could
get! Jokes were also heard of a housewife taking a market-basket full of
this "money" to the butcher's shop and bringing home the meat in her
purse! This money became a hissing and a byword; and, even to this day,
one of the favorite expressions for worthlessness is "not worth a
Continental." We see the same situation repeated again today with
Russian paper money.
But our first scientific measurement of price movements began with 1782,
the beginning of Jevons' index number of wholesale prices in England.
COMMENTS ON FIGURE 1
Figure 1 shows the course of prices in England from that date, and also,
for comparison, that in the U.S.
[Illustration: Figure 1
Price Movements of the United States and England from the Earliest Index
Numbers Through the First Years of the World War
Showing, in general, a close similarity. England was on a paper basis,
1801--1820; and the United States, 1862--78. The dotted lines for these
periods show the prices as translated back into gold.]
The conspicuous feature of these curves is their great irregularity.
Practically never are they for any length of time at all horizontal.
Sometimes, even in time of peace, a variation of over 10 per cent. is
shown in one year. The curve for the U. S. shows, at the time of the
Civil War, a very considerable rise (especially as measured in terms of
paper), followed by a decline beginning in 1873 and continuing to 1896.
The fall in the first part of this period was accentuated by the return
from a paper to a gold standard. From an index number of 100 in 1873,
the index number dropped to 51 in 1896. This decline resulted
politically in the famous Bryan "Free Silver" campaign.
[Illustration: Figure 2
Trend of Prices Before and After the Great Wars of History]
Since that time, however, the course of prices has been steadily upward.
Between 1896 and the outbreak of the war, the index number of the U. S.
rose about 50 per cent. Substantially the same increase took place in
Canada, while in the United Kingdom there was a rise of 35 per cent.
This rise before the war amounted, in the United States, to about
one-fifth of one per cent. per month. During the war, however, the rise
amounted in this country to 1½ per cent. per month, and abroad to much
more--in Germany and Austria to 3 per cent. per month, and in Russia,
apparently, to 4 or 5 per cent. per month. In the light of the
excitement caused up to 1914 by the comparatively moderate increase in
this country, we can better understand the Russian economic unrest when
a far steeper ascent of prices got under way.
The total effect can be summed up as follows: between 1914, before the
war, and November, 1918, the price level in this country (as indicated
by the United States Bureau of Labor Statistics retail food index
number) rose 79 per cent.; that in England (according to the _Statist_
index number), 133 per cent.; that in France, approximately 140 per
cent.; that in western Europe probably at least three-fold; and in
Russia perhaps ten or twenty-fold.
The price level of the United States today is over three-fold that of
1896. Expressing the same fact in terms of the purchasing power of
money, our dollar of today is worth only 30 cents of the money in 1896,
so that as contrasted with the dollar of 1896 our dollar literally
"looks like thirty cents."
COMMENTS ON FIGURE 2
Now it is a common belief, and one which seems to be borne out by the
present situation, that war raises prices whereas peace lowers them. The
matter is, however, not so simple. Each case must be considered on its
own merits. Figure 2 shows price curves for the various wars.
In general prices have risen during wars. But there has not been any
such uniformity of movement after wars. Moreover in most cases the price
disturbances both during and after the wars had scarcely anything to do
with the coming and going of the war. In only four of the cases on the
chart is the rise of prices during the war really and clearly due to the
war. In the Napoleonic Wars, the war of 1812, the Civil War, and the
World War the rise of prices during the war was largely due to war
inflation.
As to the after effects on prices there are likewise only four clear
cases. The fall of paper prices relatively to gold after the Napoleonic
Wars, and the Civil War was, in each case, clearly due to resumption of
specie payments. The fall of prices in the United States after the War
of 1812 was doubtless due in large measure to the resumption of foreign
trade. In one case there was a rise of prices as an aftermath; the war
of 1871, which gave Germany a billion dollars of indemnity, created
inflation in Germany and prices rose there between 1871 and 1873 faster
than in any other country. This doubtless accentuated the crash in the
crisis of 1873.
In the other cases in the diagram the many instances of rise of prices
after the wars were due primarily at least, to other causes, although
the cessation of war and the undue optimism and spirit of speculation
which often follow may, in several instances, have contributed to the
boom period and the crisis which so often came a few years later, viz.,
that of 1857 after the Crimean War, that of 1866 after the Civil War, as
well as that of 1873 just mentioned.
The only safe generalizations seem to be the following two: The first is
that in so far as a war has been costly, _i. e._, has strained the
economic resources of the belligerents, there has been recourse to
inflation in some form and prices have risen. Besides the examples in
the chart are those of the French Revolution, the American Colonial
wars, the American Revolution and many others. The second generalization
is that after a costly war the price level is affected up or down by the
fiscal policy of the governments concerned.
HIGH PRICES NOT DUE TO SCARCITY
Most cherish the belief that high war prices today represent war
scarcity. In the case of some countries like Belgium and some
commodities like paper this is true and in such cases scarcity serves as
a partial explanation of high prices. But in the case of most countries
and most commodities there has been no general scarcity. The almost
universal rise of prices cannot be ascribed to scarcity. Prices have
risen of many goods not affected by the war or in countries remotest
from the war.
[Illustration: Copyright by Underwood & Underwood
William McAdoo
Secretary of the Treasury during the World War, and Director-General of
the Railroads.]
As Mr. O. P. Austin, statistician of the National City Bank, has said:
"Raw silk, for example, for which the war made no special
demand and which was produced on the side of the globe opposite
that in which the hostilities were occurring, advanced from
$3.00 per pound in the country of production in 1913 to $4.50
per pound in 1917, and over $6.00 per pound in the closing
months of the war. Manila hemp, also produced on the opposite
side of the globe and not a war requirement, advanced in the
country of production from $180 per ton in 1915 to $437 per ton
in 1918. Goat skins, from China, India, Mexico and South
America, advanced from 25 cents per pound in 1914 to over 50
cents per pound in 1918; and yet goat skins were in no sense a
special requirement of the war. Sisal grass produced in Yucatan
advanced from $100 per ton in 1914 at the place of production
to nearly $400 per ton in 1918; and Egyptian cotton, a
high-priced product and thus not used for war purposes, jumped
from 14 cents per pound in Egypt in 1914 to 35 cents per pound
in 1918. Even the product of the diamond mines of South Africa
advanced from 60 to 100 per cent. in price per karat when
compared with prices existing in the opening months of the war.
"The prices are in all cases those _in the markets of the
country in which the articles were produced_ and in most cases
at points on the globe far distant from that in which the war
was being waged. They are the product of countries having
plentiful supply of cheap labor and upon which there has been
no demand for men for service in the war. The advance in the
prices quoted is in no sense due to the high cost of ocean
transportation since they are those demanded and obtained in
the markets of the country of production.
"Why is it that the product of the labor of women and children
who care for silk worms in China and Japan, of the Filipino
laborer who produces the Manila hemp, the Egyptian fellah who
grows the high grade cotton, the native workman in the diamond
mines of South Africa, the Mexican peon in the sisal field of
Yucatan, the Chinese coolie in the tin mines of Malay, or the
goatherd on the plains of China, India, Mexico or South America
has doubled in price during the war period?"
Mr. Austin goes on to show that the scarcity or "increased demand" for
war goods has been greatly exaggerated. It is true that some 40 million
men were at one time fighting in the war. But this is less than 2½ per
cent. of the world's population and it must not be forgotten that these
40 million were also consumers before the war. Their withdrawal from
industry did not really create a vacuum of even 1 per cent. of the
world's productive power; as women, boys and old men took their places
and others worked harder than in peace time.
In addition to the 40 million soldiers, some 150 million people have
been required to work on "war work" at home but they have simply been
"switched" from other forms of production which have been
correspondingly reduced. War supplies were demanded but these also
largely "switched" the demand from former and industrial uses. Lord
D'Abernon found that in England those objects of luxury "which would
seem to be influenced not at all or only very remotely and to a very
small degree by increased cost of labor and materials," such as old
books, prints and coins, had, nevertheless, advanced, roughly speaking
50 per cent., during the war. Thus "scarcity" and especial "war demands"
do not go far toward explaining the high price level even in Europe and
not at all, I believe, in this country.
In the United States while certain things have become scarce, including
certain foods, the general mass of goods has been actually increased as
a consequence of war.
The raw materials used in the United States in 1918 were 16 per cent.
more than in 1913 and 2 per cent. more than in 1917. The physical volume
of trade is estimated variously to be in 1918 from 22 per cent. to 41
per cent. above that in 1913 and 8 per cent. above that in 1917.
President Wilson, in his address to Congress, August 8, 1919, on the
high cost of living, gave other impressive examples as to foods,
especially eggs, frozen fowls, creamery butter, salt beef, and canned
corn, showing that scarcity is not the cause of high prices.
HIGH PRICES DUE TO MONETARY CAUSES
The truth is that the chief causes of the rise of prices in war time are
monetary causes.
It is almost invariably true that the great price movements of history
are chiefly monetary. This is shown, in the first place by the fact that
countries of like monetary standards have like price movements. Thus--to
consider gold-standard countries--there has usually been a remarkable
family resemblance between the curves representing the rise and fall of
the index numbers of the United States, Canada, England, France,
Belgium, Holland, Scandinavia, Germany, Austria and Italy. Again, the
price movements in silver countries show a strong likeness, as in India
and China between 1873 and 1893.
On the other hand, we find a great contrast between gold and silver
countries or between any countries which have different monetary
standards. In the World War the data are still too meager to enable us
to express all the relations in exact figures, but we may arrange the
different countries in the approximate order in which their prices have
risen. The order of the nations corresponds, in general, with the order
in which the currency in those nations has been inflated by paper as
well as with the order in which their monetary units have depreciated
in the foreign exchange markets.
This order--of ascending prices and of inflated currency--is as follows,
beginning with the least rise and inflation: India, Australia, New
Zealand, United States, Canada, Japan, Sweden, Switzerland, Denmark,
Italy, Holland, England, Norway, France, Germany, Austria and Russia.
[Illustration: Figure 3.
Money and the Price Level
Showing a correspondence between the quantity of money and the level of
prices. Since the middle of 1915, when the quantity of money in the
United States began to be greatly affected by the war, the
correspondence has been close, changes in the price level seeming
usually to follow changes in the quantity of money one to three months
later.]
The ups and downs of prices correspond with the ups and downs of the
money supply. Throughout all history this has been so. For this general
statement there is sufficient evidence even where we lack the index
numbers by which to make accurate measurements. Whenever there have
been new discoveries of gold and rapid outpourings from mines, prices
have gone up with corresponding rapidity. This was observed in the 16th
century, after great quantities of the precious metals had been brought
to Europe from the Americas; and again in the 19th century, after the
Californian and Australian gold finds of the fifties; and still again,
in the same century after the South African, Alaskan and Cripple Creek
mining of the nineties.
Likewise when other causes than mining, such as paper money issues,
produce violent changes in the quantity or quality of money, violent
changes in the price level usually follow.
COMMENTS ON FIGURE 3
The World War furnishes important examples of this. In the United States
the curve for the quantity of money in circulation and the curve for the
index number of prices run continuously parallel, the price curve
following the money curve after a lag of one to three months. It was in
August, 1915, that the quantity of money in the United States began its
rapid increase. One month later prices began to shoot upward, keeping
almost exact pace with the quantity of money. In February, 1916, money
suddenly stopped increasing, and two or three months later prices
stopped likewise. As figure 3 shows, similar striking correspondences
have continued to occur with an average lag between the money cause and
the price effect of apparently about one and three-quarters months.
On the whole, the money in circulation in the United States rose from
three and one-third billions in 1913 to five and a half billions in
1918, and bank deposits from thirteen to twenty-five billions, both
approximately corresponding to the rise in prices.
Taking a world-wide view, the money in circulation in the world outside
of Russia has increased during the war from fifteen billions to
forty-five billions and the bank deposits in fifteen principal countries
from twenty-seven billions to seventy-five billions. That is both money
and deposits have trebled; and prices, on the average have perhaps
trebled also.
The Bolsheviki are a law unto themselves. They have issued eighty
billion dollars of paper money, or more than in all the rest of the
world put together. Consequently prices in Russia have doubtless reached
the sky, though no exact measure of them, since the Bolshevist régime,
is at hand.
The increase of over thirty billions in the money of the world (outside
of Russia) is as Austin says "more, _in its face value_, than all the
gold and all the silver turned out by all the mines of all the world in
427 years since the discovery of America."
The conclusion toward which the foregoing and other arguments lead is
that, in this war as in general in the past, the great outstanding
disturber of the price level has always been money. If this is the case,
how fruitless, except as treatments of symptoms, are price-fixing, or
campaigns aimed at profiteers! The cry of profiteering may hinder a real
solution of the difficulty by diverting attention from the real issue
and fanning and giving up an object to the spirit of revolt. Money is so
much an accepted convenience in practice that it has become a great
stumbling block in theory. Since we talk always in terms of money and
live in a money atmosphere, as it were, we become as unconscious of it
as we do of the air we breathe.
ASSOCIATE EVILS OF HIGH PRICES
We have now considered the cost of living situation under the two
questions "What is it?" and "Why is it?"
The third question, "What of it?"--_i. e._, what are the evils connected
with it--is more easily answered today, when it comes home to all of us,
that it might have been 10 years ago.
If, for each one of us, the rise of income were to keep up exactly with
the rise in cost of living, then the high cost of living would have no
terrors; it would be merely on paper. But no such perfect adjustment
ever occurs or can occur. Outstanding contracts and understandings in
terms of money make this out of the question. The salaried men and the
wage earners suffer--that is, the cost is borne by those with relatively
"fixed" incomes.
The truth is, the war was largely paid for, not by taxes or loans but by
the High Cost of Living. The result is that the effort to avoid
discontent of tax payers has created or rather aggravated the discontent
over high prices. Every rise in the cost of living brings new recruits
to the labor malcontents who feel victimized by society and have come to
hate society. They cite, in their indictment, the high price of
necessities and the high profits of certain great corporations both of
which they attribute, not to the aberrations of our monetary yardstick
but to deliberate plundering by "profiteers" or a social system of
"exploitation." They grow continually more suspicious and nurse an
imaginary grudge against the world. We are being threatened by more
quack remedies--revolutionary socialism, syndicalism, and Bolshevism.
Radicalism rides on the wave of high prices.
As a matter of fact, the real wages in 1918, that is, their purchasing
power, were only 80 per cent. of the real wages of 1913. That is, while
the retail prices of food advanced 68 per cent., wages in money advanced
only 30 per cent. The real wages of 1913 were in turn less than in
earlier years.
Lord D'Abernon, in a recent speech in the House of Lords said: "I am
convinced and cannot state too strongly my belief that 80 per cent. of
our present industrial troubles and our Bolshevism which is so great a
menace to Europe are due to this enormous displacement in the value of
money." In fact, before the war, rising costs of living were
manufacturing socialists all over the world, including Germany, and the
German Government may have weighed, as one of the expected dynastic
advantages of war, the suppression of the growing internal class
struggle which this high cost of living was bringing on apace.
MANY SUGGESTED REMEDIES INADEQUATE
We are now ready for the question, "What can be done about it?" So far
as the past is concerned, comparatively little. Bygones must largely be
bygones. So far as wages and salaries are concerned, the remedy must be
to raise them rather than to lower the high cost of living. While some
kinds of work have had excessive wages during the war, this has not been
true in general, public opinion to the contrary notwithstanding. I quite
agree with Mr. Gompers that the wage level should not be lowered even
if it could be. On the contrary it should be raised to catch up with
prices, just as was done after the Civil War. But in regard to contracts
little relief for past injuries can be expected. We would best use the
past as a lesson for the future. That is what I understand by
"reconstruction."
[Illustration: John Pierpont Morgan
The banking house of Morgan was closely identified with international
finance throughout the World War.]
Many impracticable plans have been proposed. Secretary Redfield
undertook to stabilize prices by arbitrarily fixing them. He failed,
necessarily. We might as well try to fix the sea level by pressing on
the ocean. The same, as I stated above, is true of a campaign against
profiteers though proposed by so high an authority as President Wilson.
PROPOSED REMEDY
The plan I shall here outline has received the approval of a large
number of leading economists, business men, and organizations,
including President Hadley of Yale; a committee of economists appointed
to consider the purchasing power of money in relation to the war; Frank
A. Vanderlip, president of the National City Bank of New York; George
Foster Peabody, Federal Reserve banker of New York; John Perrin, Federal
Reserve Agent of San Francisco; Henry L. Higginson, the veteran banker
of Boston; Roger W. Babson, statistician; John Hays Hammond, mining
engineer; John V. Farwell, of Chicago; Leo S. Rowe, Assistant Secretary
of the Treasury: United States Senator, Robert L. Owen, one of the
authors of the Federal Reserve Act; Ex-Senator Shafroth; the late
Senator Newlands; Sir David Barbour, one of the originators of the
Indian gold exchange standard; the Society of Polish Engineers; the New
England Purchasing Agents' Association; and a few Chambers of Commerce.
WANTED--A STANDARDIZED DOLLAR
Our dollar is now simply a fixed weight of gold--a unit of weight,
masquerading as a unit of value. It is almost as absurd to define a unit
of value, or general purchasing power, in terms of weight as to define a
unit of length in terms of weight. What good does it do us to be assured
that our dollar weighs just as much as ever? We want a dollar which will
always buy the same aggregate quantity of bread, butter, beef, bacon,
beans, sugar, clothing, fuel, and the other essential things that we
spend it for. What is needed is to stabilize or standardize the dollar
just as we have already standardized the yardstick, the pound weight,
the bushel basket, the pint cup, the horsepower, the volt, and, indeed,
all the units of commerce except the dollar.
Money today has two great functions. It is a medium of exchange and it
is a standard of value. Gold was chosen because it was a good medium,
not because it was a good standard. And so, because our ancestors found
a good medium of exchange, we now find ourselves saddled with a bad
standard of value!
The problem before us is to retain gold as a good medium and yet to make
it into a good standard; not to abandon the gold standard but to rectify
it; not to rid ourselves of the gold dollar but to make it conform in
purchasing power to the composite or goods-dollar. The method of
rectifying the gold standard consists in suitably varying the weight of
the gold dollar. The gold dollar is now fixed in weight and therefore
variable in purchasing power. What we need is a gold dollar fixed in
purchasing power and therefore variable in weight. I do not think that
any sane man, whether or not he accepts the theory of money which I
accept, will deny that the weight of gold in a dollar has a great deal
to do with its purchasing power. More gold will buy more goods.
Therefore more gold than 25.8 grains will, barring counteracting causes,
buy more goods than 25.8 grains itself will buy. If today the dollar,
instead of being 25.8 grains or about one-twentieth of an ounce of gold,
were an ounce or a pound or a ton of gold it would surely buy more than
it does now, which is the same thing as saying that the price level
would be lower than it is now.
A Mexican gold dollar weighs about half as much as ours and has less
purchasing power. If Mexico should adopt the same dollar that we have
and that Canada has, no one could doubt that its purchasing power would
rise--that is, the price level in Mexico would fall. Since, then, the
heavier or the lighter the gold dollar is the more or the less is its
purchasing power, it follows that, if we add new grains of gold to the
dollar just fast enough to compensate for the loss in the purchasing
power of each grain, or vice versa take away gold to compensate for a
gain, we shall have a fully "compensated dollar," a stationary instead
of fluctuating dollar, when judged by its purchasing power.
But how, it will be asked, is it possible, in practice, to change the
weight of the gold dollar? The feat is certainly not impossible, for it
has often been accomplished. We ourselves have changed the weight of our
gold dollar twice--once in 1834, when the gold in the dollar was reduced
7 per cent., and again in 1837, when it was increased one-tenth of 1 per
cent. If we can change it once or twice a century, we can change it once
or twice a month!
HOW GOLD CIRCULATES
In actual fact, gold now circulates almost entirely through
"yellowbacks," or gold certificates. The gold itself, often not in the
form of coins at all but of "bar gold," lies in the government vaults.
The abolition of gold coin would make no material change in the present
situation.
If gold thus circulated only in the form of paper representatives it
would evidently be possible to vary at will the weight of the gold
dollar without any such annoyance or complication as would arise from
the existence of coins. The government would simply vary the quantity of
gold bullion which it would exchange for a paper dollar--the quantity it
would give or take at a given time. As readily as a grocer can vary the
amount of sugar he will give for a dollar, the government could vary the
amount of gold it would give for a dollar.
CRITERION OF STANDARDIZATION
But, it will now be asked, what criterion is to guide the government in
making these changes in the dollar's weight? Am I proposing that some
government official should be authorized to mark the dollar up or down
according to his own caprice? Most certainly not. A definite and simple
criterion for the required adjustments is at hand--the now familiar
"index number" of prices.
If, for instance, the index number is found to be 1 per cent. above the
ideal par, this fact will indicate that the purchasing power of the
dollar has gone down; and this fact will be the signal and authorization
for an increase of 1 per cent. in the weight of the gold dollar. What is
thereby added to the purchasing power of the gold dollar will be
automatically registered in the purchasing power of its circulating
certificate. If the correction is not enough, or if it is too much, the
index number next month will tell the story.
Absolutely perfect correction is impossible, but any imperfection will
continue to reappear and so cannot escape ultimate correction. Suppose,
for instance, that next month the index number is found to remain
unchanged at 101. Then the dollar is at once loaded an additional 1 per
cent. And if, next month, the index number is, let us say, 100½ (that
is, one half of 1 per cent above par) this one-half of 1 per cent. will
call for a third addition to the dollar's weight, this time of one-half
of one per cent. And so, as long as the index number persists in
staying even a little above par, the dollar will continue to be loaded
each month, until, if necessary, it weighs an ounce--or a ton, for that
matter. But, of course, long before it can become so heavy, the
additional weight will become sufficient; so that the index number will
be pushed back to par--that is, the circulating certificate will have
its purchasing power restored. Or suppose the index number falls below
par, say 1 per cent. below. This fact will indicate that the purchasing
power of the dollar has gone up. Accordingly, the gold dollar will be
reduced in weight 1 per cent., and each month that the index number
remains below par the now too heavy dollar will be unloaded and the
purchasing power of the certificate brought down to par.
Thus by ballast thrown overboard or taken on, our dollar is kept from
drifting far from the proper level. The result is that the price level
would oscillate only slightly. Instead of there being any great price
convulsions, such as we find throughout history, the index number would
run, say 101, 100½, 101, 100, 102, 101½, 100, 98, 99, 99, 99½, 100,
etc., seldom getting off the line more than 1 or 2 per cent.
A PROBLEM CALLING FOR URGENT ACTION
With the question now before us, it is evident that the problem of our
monetary standards has much more than theoretical significance. It is a
practical problem, and, I submit, the most pressing which the war has
left us. I do not offer the solution described above as the only answer
to the problem. It is, however, a working basis, a starting point, from
which we may be able to work out a better plan. _Some_ scientifically
sound plan is essential, or we shall be the victims of quack remedies.
Finally, _now_ is the time to take up the matter. Public interest is now
focused on the cost of living and is very largely educated to the fact
that the high prices have a monetary basis. Furthermore, the world is
looking to us, as never before, for leadership. It is our golden
opportunity to set _world_ standards. If we adopt a stable standard of
value, it seems certain that other nations, as fast as they can
straighten out their affairs, resume specie payments, and secure again
stable pars of exchange, will follow our example.
Let us, then, who realize the situation, act upon our knowledge; and
secure a boon for all future generations, a true standard for contracts,
a stabilized dollar.
[Illustration: Copyright by Underwood & Underwood
President Wilson and Rear Admiral Grayson Passing the Palace of the King
in Brussels]
The Great Results of the War
The Great Results of the War
_PART I_
I--ECONOMIC RESULTS OF THE WAR
Striking Changes Made by the European Conflict Upon the Economic Life of
the Great Nations
The paramount position of War Finance was brought vividly and
continuously before the whole people of the United States by the Liberty
Loan campaigns. This lesson was an old one though it was enforced by all
the improved methods of modern publicity. To Napoleon Bonaparte is
attributed the statement that three things are necessary to wage a
successful war: money, more money, and still more money.
FINDING THE MONEY FOR WAR
It has been well said that:
"Perhaps the greatest surprise of the war to most people, even
to those who had studied political economy, has been the
enormous expenditure of money which a nation can incur, and the
length of time which it can go on fighting without complete
exhaustion. This should not have been in reality a surprise to
anyone who had studied past history, for all experience shows
that lack of money itself has never prevented a nation from
continuing to fight, if it were determined to fight. The
financial condition of Revolutionary France at the commencement
of Napoleon's career was wretched in the extreme, yet France
went on fighting for nearly twenty years after that. The Balkan
States can hardly be said ever to have had great financial
resources, and yet they fought, one after the other, two severe
wars, and are now fighting a third still more severe and
prolonged. The Boers in South Africa found no difficulty in
fighting the British Empire for three years with practically no
financial resources. The Mexicans recently managed to fight one
another for a good many years in the same way. Lastly, the
Southern states in our own Civil War fought for years a
desperate and losing fight and were ultimately beaten to the
ground, not so much by a lack of money, as by an actual lack of
things to live on and fight with. In fact, all history proves,
and this war proves over again, that if what the Germans call
'the will to fight' exists lack of money will never stop a
nation's fighting, provided it possesses or can obtain its
absolutely minimum requirements of food, clothing, and
munitions of war. It was Bismarck who said: 'If you will give
me a printing press, I will find you the money.' In finding the
money required for an exhausting war a nation is driven to all
sorts of desperate financial expedients which may very
seriously affect its economic life, but if a nation wants to
continue fighting and can produce, or be induced to produce,
the things that are absolutely necessary for life and warfare,
the government will get hold of those things somehow. If it
cannot get them in any other way, ultimately it will take
them."
STRONG POSITION OF UNITED STATES
When the war opened England was in the strongest position of any of the
Allies. She was the greatest creditor nation in the world. That is, she
was able to purchase goods from foreign countries on easier terms than
her associates. Russia and Italy were debtor nations and had to borrow
even before the war in order to balance their foreign accounts. So these
members of the Entente had to be assisted in making purchases abroad.
England was able for a long time to keep up her exchange rate in New
York. This was done by the shipment of gold and by inducing the holders
of American securities in England to sell or lend such securities to
their government.
England was forced to act as the agent of other Powers who were fighting
with her. Until the United States came in, it was the greatest
industrial arsenal among the Allies. Large imports were naturally a
feature of this policy. The United States soon began to feel the result
of the changes in international credit. Exports almost doubled between
1912 and 1917, the figures being in millions, $2,399,000,000 and
$6,231,000,000, respectively.
Another side of the United States trade account to the world is
indicated by the following classified list of loans to January, 1917:
"Between August 1, 1914, and December 31, 1916, the loans
raised in the United States by foreign countries were estimated
to reach $2,325,900,000, of which $175,000,000 had been repaid.
The net indebtedness on January 1, 1917, was therefore
$2,150,900,000. The loans may be classified geographically as
follows:
Europe $1,893,400,000
Canada 270,500,000
Latin America 157,000,000
China 5,000,000
--------------
Total foreign loans $2,325,900,000
Less amount paid, estimated 175,000,000
--------------
Net foreign indebtedness $2,150,900,000
"The loans of the belligerent countries which were floated in
the United States up to the close of 1916 are divided as
follows:
Great Britain $908,400,000
France 695,000,000
Russia 160,000,000
Germany 45,000,000[1]
Canada 270,500,000
--------------
Total $2,078,900,000[2]
[1] Estimated.
[2] Nearly $1,900,000,000 of this constituted war loans.
NEW PACE IN WAR FINANCE
A new pace in war finance was set by the United States when it became a
belligerent. It had to provide for an increase of taxation ascending
from the point of $3,000,000,000 in 1917 to over $8,000,000,000 in 1918.
The largest source of estimated revenue was from taxes on excess
profits, including war profits of $3,100,000,000, and the next was from
taxes on incomes, $1,482,186,000 from individuals, and $828,000,000 from
corporations. The New York _Journal of Commerce_ shows by the following
table the difference between the old and the new system of taxation.
Exemptions under the new law were the same as under the old: $1,000 for
single persons and $2,000 for married, $200 additional allowed for each
dependent child under eighteen years of age:
Incomes Tax Under
Old New
Law Law
$2,500 $10 $30
3,000 20 60
3,500 30 90
4,000 40 120
4,500 60 150
5,000 80 180
5,500 105 220
6,000 130 260
6,500 155 330
7,000 180 400
7,500 205 470
8,000 235 545
8,500 265 620
9,000 295 695
9,500 325 770
10,000 355 845
12,500 530 1,320
15,000 730 1,795
20,000 1,180 2,895
25,000 1,780 4,240
30,000 2,380 5,595
35,000 2,980 7,195
40,000 3,580 8,795
45,000 4,380 10,645
50,000 5,180 12,495
55,000 5,980 14,695
60,000 6,780 16,895
70,000 8,880 21,895
80,000 10,980 27,295
100,000 16,180 39,095
150,000 31,680 70,095
200,000 49,180 101,095
300,000 92,680 165,095
500,000 192,680 207,095
1,000,000 475,180 647,095
5,000,000 3,140,180 3,527,095
The following estimated yield from other sources is given by the same
authority:
"Transportation--Freight, $75,000,000; express, $20,000,000;
passenger fares, $60,000,000; seats and berths, $5,000,000; oil
by pipe lines, $4,550,000.
"Beverages (liquors and soft drinks), $1,137,600,000; stamp
taxes, $32,000,000; tobacco cigars, $61,364,000; cigarettes,
$165,240,000; tobacco, 104,000,000; snuff, $9,100,000; papers
and tubes, $1,500,000.
"Special Taxes.--Capital stock, $70,000,000; brokers,
$1,765,000; theaters, etc., $2,143,000; mail order sales,
$5,000,000; bowling alleys, billiard and pool tables,
$2,200,000; shooting galleries, $400,000; riding academies,
$50,000; business license tax, $10,000,000; manufacturers of
tobacco, $69,000; manufacturers of cigars, $850,000;
manufacturers of cigarettes, $240,000; use of automobiles and
motor cycles, $72,920,000.
"Telegraph and telephone messages, $15,000,000; insurance,
$12,000,000; admissions (theaters, circuses, etc.),
$100,000,000; club dues, $9,000,000.
"Excise Taxes.--Automobiles, etc., $123,750,000; jewelry,
sporting goods, etc., $80,000,000; other taxes on luxuries at
10 percent., $88,760,000; other taxes on luxuries (apparel,
etc., above certain prescribed prices), at 20 percent.,
$181,095,000.
"Gasoline, $40,000,000; yachts and pleasure boats, $1,000,000."
"The income tax law levies on all citizens or residents of the
United States a normal tax of 12 percent. upon the amount of
income in excess of exemptions, except that on the first $4,000
of the taxable amount the rate shall be 6 percent. The law also
increases the surtaxes all along the line. The advances by
grades compared with the percentage under the old law are:
$5,000 to $7,500 incomes, increased from 1 to 2 percent.;
$7,500 to $10,000, from 2 to 3 percent.; $10,000 to $12,500,
from 3 to 7 percent.; $12,500 to $15,000, from 4 to 7 percent.;
$15,000 to $20,000, from 5 to 10 percent.; $20,000 to $30,000,
from 8 to 15 percent.; $30,000 to $40,000, from 8 to 20
percent.; $40,000 to $50,000, from 12 to 25 percent.; $50,000
to $60,000, from 12 to 32 percent.; $60,000 to $70,000, from 17
to 38 percent.; $70,000 to $80,000, from 17 to 42 percent.;
$80,000 to $90,000, from 22 to 46 percent.; $90,000 to
$100,000, from 22 to 46 percent.; $100,000 to $150,000, from
27 to 50 percent.; $150,000 to $200,000, from 31 to 50
percent.; $200,000 to $250,000, from 37 to 52 percent.;
$250,000 to $300,000, from 42 to 55 percent. The rate continues
to increase, but on incomes of over $5,000,000 the increase is
only from 63 percent., under former law to 65 percent."
[Illustration: Copyright by International Film Service
Women Munition Workers in the International Fuse and Arms Works
Before entering the war, the United States was the great arsenal of the
Allies. After our entry, production of munitions increased, while the
man power in the industry diminished through enlistments and the draft.
Women took up the work and showed surprising ability.]
MEANING OF NEW TAXATION
According to a calculation published in the New York _World_ the war
revenue bill imposed a war tax of $80 on every man, woman and child in
the United States, or approximately $400 for each family. The amount
expected to be derived from each item is given in the following table:
Individual income tax $1,482,186,000
Corporation income tax 894,000,000
Excess and war profits 3,200,000,000
Estate tax 110,000,000
Transportation 164,550,000
Telegraph and telephone 16,000,000
Insurance 12,000,000
Admissions 100,000,000
Club dues 9,000,000
Excise, luxury, and semi-luxury 518,305,000
Beverages 1,137,600,000
Stamp taxes--chiefly documentary 32,000,000
Tobacco and products 341,204,000
Special business and
automobile-user's Taxes 165,607,000
--------------
Total $8,182,452,000
With the operation of this tax the people of the United States found it
no longer possible to speak in terms of opprobrium of the tax-ridden
people of Europe. The American income tax has a higher rate on large
incomes than that provided for under the English system. A man in the
United States with an income of $5,000,000 is taxed nearly 50 percent.,
more than in England. The New York _Tribune_ published tables printed
below comparing the income tax rates of the United States with those
existing in France and in Great Britain.
INCOME TAX COMPARISON
A compilation made for the _Wall Street Journal_ shows that the United
States income tax even with the increases made in 1918 was still far
lower than the English income tax:
"The great bulk, numerically, of incomes taxed in 1917 was in
the field reached by the lowering of the exemption in the 1917
law.... It is a fact, however, that no one of these new
taxpayers was called on to contribute more than $40 to the
government, as the rate was only 2 percent., while all other
incomes paid a basic normal tax of 4 percent. The lowest rate
for normal tax in Great Britain is 2 shillings and 3 pence on
the pound, or 11¼ percent., and the exemption is only $600. The
basic normal tax under the new English law is 6 shillings on
the pound, or 30 percent., on all incomes over $25,000.
_United States
Old Law New Law United Kingdom France
Income Rate Rate Rate (%) Rate
Am't (%) Am't (%) Unearned Earned (%)_
$ 2,500 $10 .40 $30 1.20 11.25 8.44 1.25
3,000 20 .67 60 2.00 14.84 11.87 1.67
3,500 30 .86 90 2.57 16.24 12.96 2.07
4,000 46 1.00 120 3.00 18.16 14.53 2.44
4,500 60 1.33 150 3.33 18.75 15.00 2.86
5,000 80 1.60 180 3.60 18.75 15.00 3.20
5,500 105 1.91 220 4.00 22.50 18.75 3.48
6,000 130 2.16 260 4.33 22.50 18.75 3.71
6,500 155 2.38 330 5.08 22.50 18.75 3.90
7,000 180 2.57 400 5.71 22.50 18.75 4.07
7,500 205 2.73 470 6.27 22.50 18.75 4.21
8,000 235 2.93 545 6.81 26.25 22.50 4.34
8,500 265 3.12 620 7.29 26.25 22.50 4.53
9,000 295 3.28 695 7.72 26.25 22.50 4.69
9,500 325 3.42 770 8.11 26.25 22.50 4.84
10,000 355 3.55 845 8.45 26.25 22.50 4.98
12,500 530 4.24 1,320 10.56 30.00 26.25 5.53
15,000 730 4.87 1,795 11.97 32.08 32.08 6.07
20,000 1,180 5.90 2,895 14.48 34.06 34.06 6.99
25,000 1,780 7.12 4,245 16.98 35.75 35.75 7.84
30,000 2,380 7.93 5,595 18.65 37.29 37.29 8.41
35,000 2,980 8.51 7,195 20.56 38.75 38.75 8.99
40,000 3,580 8.95 8,795 21.99 39.84 39.84 9.43
45,000 4,380 9.73 10,645 23.66 40.97 40.97 9.77
50,000 5,180 10.36 12,495 24.99 41.88 41.88 10.05
55,000 5,980 10.87 14,695 26.72 42.84 42.84 10.27
60,000 6,780 11.30 16,895 28.16 43.65 43.65 10.45
70,000 8,880 12.69 21,895 31.26 44.91 44.91 10.75
80,000 10,980 13.72 27,295 34.12 45.86 45.86 10.96
100,000 16,180 16.18 39,095 39.10 47.19 47.19 11.27
150,000 31,680 21.12 70,095 46.73 48.96 48.96 11.68
200,000 49,180 24.59 101,095 50.55 49.84 49.84 11.89
300,000 92,680 30.89 165,095 55.03 50.73 50.73 12.09
500,000 192,680 38.54 297,095 59.42 51.44 51.44 12.25
1,000,000 475,180 47.52 647,095 64.71 51.97 51.97 12.38
5,000,000 3,140,000 62.80 3,527,095 70.54 52.39 52.39 12.48
"Actual rate, allowing for deductions, normal tax, and surtaxes, based
on taxes on incomes of heads of families. Persons with no dependents pay
more; those with more than one pay less. $2,000 is exempted for heads of
families, $1,000 for bachelors. Below $4,000, 6 per cent. is the normal
tax; above, 12 per cent. Surtaxes begin at $5,000."
"If the new normal tax in the United States were made uniformly
12 percent.--wiping out the 2 percent. discrimination of the
1917 law--a single man in this country with a salary of $1,500
a year would be called on to pay $60 in income tax, as against
an English tax of $101.25. Assuming that the normal tax were
raised to 12 percent. and the surtax and excess tax were left
as at present, an unmarried American with a salary of $10,000
would pay $1,430.20, while the unmarried Englishman would pay
$2,250. If the Englishman derived his $10,000 income from
rentals, his tax would be increased to $2,625, while the
American tax would be reduced to $1,165--an Irish dividend on
effort.
"According to a level where the British surtax becomes
effective, take a salary of $20,000. The English normal tax on
this would be $6,000 and the surtax $812.50 (figuring $5 to the
pound), a total of $6,812.50. At the suggested rate of 12
percent., the American's normal tax would be $2,145.60 (rate
applying to $20,000, less $1,000 exemption and $1,120 excess
tax); the surtax would be $444 and the excess tax $1,120; a
total of $3,709.60. If the American cut non-tax-free coupons
for his income instead of working for it, his tax would be
reduced to $2,780, making it more than $600, less than one-half
the English tax. This, be it remembered, is figuring the
American normal tax at the supposititious rate of 12 percent.
"Going abruptly to an income of $1,000,000, the American normal
tax at 12 percent., would be $119,880, against an English normal
tax of $300,000. The increase in the American normal tax would
be $79,960 over present rates. The American surtax at present
rates would be $435,300, as against a British surtax of
$217,915; total American, $555,180, English, $519,687.50. No
account is taken in this computation of any excess tax on the
American income. With an income of $3,000,000. the American
normal tax at 12 percent. would be $359,880, an increase of
$239,960 over present rates. The surtax at present rates would
be $1,680,300, a total of $2,040,180, or nearly 70 percent.,
the rate on the last $1,000,000 being at 75 percent. The
corresponding British tax is, normal, $900,000, and surtax
$669,685; total, $1,569,685, or nearly 52 percent., the actual
maximum rate being 52½ percent. on all excess over $50,000.
"Expressed in tabular form, comparative results from a normal
tax of 12 percent., combined with present surtax rates and
assuming all income up to $50,000 to be earned income for a
single man, would be as follows:
U.S. Per British Per
Income Tax Cent. Tax Cent.
$1,500 $60.00 4.00 $101.25 6.75
3,000 240.00 8.00 375.00 12.50
5,000 480.00 9.60 750.00 15.00
7,500 789.40 10.52 1,406.25 18.75
10,000 1,430.20 14.30 2,250.00 22.50
15,000 2,534.80 16.90 4,812.50 32.08
20,000 3,709.60 18.55 6,812.50 34.06
30,000 6,336.00 21.12 11,187.50 37.29
40,000 8,956.00 22.39 15,937.50 39.84
50,000 11,855.20 23.71 20,937.50 40.18
75,000 18,605.20 24.81 34,062.50 45.42
100,000 26,855.20 26.80 47,187.50 47.19
150,000 46,355.20 30.90 73,437.50 48.96
250,000 92,355.20 36.94 125,937.50 50.37
500,000 235,355.20 47.07 257,187.50 51.44
700,000 359,355.20 51.33 362,187.50 51.74
750,000 390,355.20 52.05 388,437.50 51.79
1,000,000 557,855.20 55.78 519,687.50 51.97
3,000,000 2,042,855.20 68.09 1,569,687.50 52.32
10,000,000 7,292,855.20 72.93 5,244,687.50 52.45
"With additional exemption of $1,000 for heads of families and
$200 each for dependent children, the United States figures in
the table would be reduced by $120 for the $1,000 exemption and
$24 for each child. There are similar deductions to be made in
the English figures. Furthermore, for incomes above $50,000,
deduction for the excess tax has not been figured exactly in
order to avoid long computations. This would slightly reduce
the figure on the large incomes. But for demonstrative
purposes, the table gives a fairly accurate general comparison
of the range of taxes under the proposed English law and a
tentative 12 percent. normal rate under our law.
"It will be noticed that the rates would come together just
below $750,000. It is in the range between $5,000 and $500,000
incomes that greatest divergence in rates occurs. The British
tax takes its largest jump between $10,000 and $15,000, where
the surtax begins to operate. The United States gradations are
erratic and irregular, showing the haphazard manner in which
the steps of the surtax were applied."
ATTITUDE TOWARD WAR TAX BILL
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.
[Illustration: Poster for Boy Scouts Who Worked for the Victory Loan]
"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."
[Illustration: Richards in the Phila. _North American_
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.
[Illustration: A Poster Used During the Fourth Liberty Loan Campaign]
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.
[Illustration: Detroit--City of Automobiles
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:
"On the financial side our record is by no means so
satisfactory. We have, it is true, poured out money like water,
but much of it has been raised by faulty methods, and the
amount of it that has been wasted is appalling to consider. In
the matter of borrowing, our methods have lately been greatly
improved; and the recommendation of the Committee on National
Expenditure, that the system of raising money by bank credits
should be checked as far as possible, is being brought within
the bounds of practical politics by the great success of the
War Savings Committee's energetic and ingenious campaign for
prompting the sale of National War Bonds. Perhaps also we may
claim some small share in that success through the adoption of
the principle so long advocated in these columns of a lower
rate for money at home combined with special terms for money
left here by foreigners. But successful borrowing, direct from
the investor, instead of in the shape of money manufactured by
banks, is a welcome, but not sufficient, improvement. We have
to raise much more money by taxation. We have also to do much
more than has yet been done to reduce the wicked waste of
public money and support the efforts of the Committee on
National Expenditure to husband the resources of the nation. A
correspondent in a provincial town in which a Tank has lately
been busy asks: 'Is it not pathetic to see widows and children
scraping together their shillings and pennies to help the
Government, while we have tens of thousands of pounds being
squandered by a profligate Ministry of Munitions!'"
[Illustration: Copyright Underwood & Underwood
A Woman Doing Road Construction Work
Of the 7,500,000 men serving in the British Army, 4,530,000 were
contributed by Great Britain. Yet production was speeded up by
recruiting and training the labor of women.]
EQUALIZING LOANS AND TAXATION
A thorny problem of all war finance is how to equalize as far as
possible the amount of money furnished by taxation with the amounts
borrowed. The proportion indicated in the last English war budget of
1918 was that between £842,000,000 raised by taxes and 2,000,000,000
sterling by fresh borrowing. Besides, war experience shows that the
parliamentary estimates in each year were always far below the amount
spent. In 1917 in Great Britain the shortage was upwards of
£400,000,000. According to the London _Economist_, no effective steps
were taken to stop the profligate extravagance by which public money was
poured out through the sieves of the war spending departments into the
pockets of innumerable manufacturers, middlemen and traders, not to
mention the ever growing sums allocated to the privy purses of countless
new bodies of officials. Each year, it says, there is a new debt charge
of some £120,000,000 and each year there is a constant rise of prices in
wages that enhances the cost of governmental goods and services.
The amount raised by taxation, £842,000,000, seems enormously large, but
as the London _Nation_ states:
"The enormous rise of prices only makes it represent half that
amount in actual purchasing power. Before the war our
expenditure was 200 millions. If money had kept the same value,
the taxation and other public income for this year would only
have been 420 millions, a little more than twice the pre-war
level. Would that have seemed so heroic an effort for a
patriotic nation? No. It can never be repeated too often that a
really rigorous taxation, begun in 1914 and carried on till
now, would have left us in a far sounder condition both for
conducting the war and for facing the peace finance. The money
and the goods are there. We get them. But we get them by
crooked and expensive methods of borrowing which inflate
prices, oppress the poorer purchasers, put huge war loot into
the pockets of contractors and financiers, and fail to restrain
expenditure in luxuries."
GERMANY'S ECONOMIC PREPARATION FOR WAR
There is much evidence to show that long before the war began financial
preparations were made in Germany for the great struggle. For a
considerable period prior to 1914, Germany and Russia had been engaged
in a contest to accumulate a gold supply. Russia, it is known, had begun
to withdraw the large balances which she kept in German, French and
English banks. In Germany the story was circulated that in 1913 the
Kaiser inquired of the governor of the Imperial Bank if the German banks
were equipped for war. Being told that they were not ready he is said to
have replied: "When I ask that question again I want a different
answer." The Imperial Bank of Germany became an active bidder at the
London gold auctions for the gold which arrived weekly from South
Africa, and its activity along these lines was shown by the increasing
of the German gold reserve in the bank vaults from $184,000,000 on
December 31, 1912, to $336,000,000, the amount it stood at a month
before the war began. In addition, the Imperial Bank collected for the
Government a sum of about thirty million dollars to be added to the same
amount said to be stored in the vaults of the Julius Thurm at Spandau,
and to be used as a war chest. Other European countries were increasing
their gold supplies, so it was not surprising that the New York markets
were called upon to export eighty-four million dollars of gold for six
months before the outbreak of the war. The entire gold production of the
world during the eighteen months ending on June 30, 1914, was
approximately $705,000,000. Of this amount, about two million dollars
was required for the arts, and one hundred and fifty million dollars
went to British India. This left about $350,000,000 to be applied to
monetary uses and the whole of this amount was absorbed by the four
great central banks of Germany, France, Russia and Austria-Hungary.
In order to resist raids on the German gold reserve a policy of note
issuing was adopted. The situation, as forecast by Mr. C. A. Conant in
September, 1914, in the New York _Times_, can be gathered from the
following extract:
"With the general suspension of gold payments at the central
banks of Europe, except at the Bank of England, the banks are
in a position to resist raids upon their gold and to lend their
resources, as far as sound banking policy permits, to the
struggle of their Governments to maintain national
independence. In England, while the bank is still paying gold
for notes, the policy of keeping gold in circulation has been
abandoned, and the old limit of note issue, which was £5
($24.40), has been lowered to 10 shillings ($2.44) and £1
($4.88).
"It is not the purpose of any of the European Powers, however,
to carry on the war by issues of paper money. The suspension of
gold payments at the banks and the issue of notes for small
denominations, which are legal tender in domestic transactions,
is for the purpose of husbanding the gold stock against
needless runs and keeping it as a guaranty fund of national
solvency. It is the course which was adopted by France at the
time of the Franco-German War in 1870, but so prudently were
the affairs of the Bank of France conducted that the paper
never fell more than 2½ per cent. below its value in gold.
"A similar policy of reserve will probably be pursued by the
banks of France, Germany, and Russia in the present contest.
The Government of France has raised the maximum limit of the
note circulation of the bank by nearly $1,000,000,000, but the
increase will not be used except as additional currency may be
required, owing to the restriction in other forms of credit and
the special demand for notes in the districts where the armies
are gathered.
"The suspension of specie payments does not convey to the
banking community quite the same doleful warning of the
unlimited issue of paper and its steady depreciation in gold
which were conveyed by specie suspension in the United States
in 1861 or by Austria-Hungary and Russia in the desperate
contest of the Napoleonic wars. Monetary science is better
understood at the present time than in those days."
GERMAN WAR FINANCE
Among all the belligerent powers Germany occupied the unique position of
using the war as an excuse for not publishing national accounts. The
sole guide to her expenditure must be looked for in the credit votes
passed by the Reichstag. Using this method, it is estimated that Germany
spent about $30,000,000 a day. To cover this expenditure there was a
regular plan of national loan--in March and September. This was the
method followed in all the four years of the war. During the intervening
six months there was an issue of Treasury bills. The German people
were, apparently, schooled to these regular demands with commendable
promptness, but the Imperial Government adopted a policy of inflation in
the hope that a speedy victory would bring fruits in the shape of an
indemnity, and so the German people would avoid being called upon to
bear war burdens. Taxation was introduced only reluctantly and at a
later period, and merely for the purpose of meeting so-called normal
civil expenditure and interest on war debt. The plan followed was to
spare the middle classes as far as possible from additional taxation
charges.
THE LOAN BUREAU SCHEME
The war loans have been, on paper, most successful. For example, the
seventh loan of September, 1917, yielded $3,000,000,000; the eighth loan
nearly $4,000,000,000. There was a large amount of ready money in the
country and besides this all stocks of raw material have been realized.
Large as the loans have been they have not been able to keep pace with
the increase of expenditure. Out of the total amount of $30,000,000,000
about $20,000,000,000 have been covered by long-term loans. Of course,
owing to the peculiar situation of Germany in relation to her allies,
which were dependent upon her financial support, these loans have been
raised by the German people themselves. The German Loan Bureaus were
criticized at the beginning of the war, and German figures show that
only about ten percent. of the national loans were involved in the Loan
Bureau scheme. These Loan Bureaus, it was announced, would continue
after the declaration of peace. According to the London _Economist_,
Germany followed an easy and sure policy of war finance, although the
same authority does not hesitate to use the terms "complete financial
ruin" in connection with German post-war finance.
The whole subject of German inflation is difficult to analyze. The
_Economist_ works out a post-war expenditure of $5,000,000,000 a year
against a revenue of a billion and a half. Its estimate of German
inflation is contained in the following passage:
"To take note circulation alone is obviously misleading,
particularly in view of the violent efforts that have been
made, especially during the last year, to extend the use of the
check, and in other ways to limit as far as possible the use
of notes. For what these figures are worth, it may be said that
the total note circulation of the country at the end of June
(1918), including Reichsbank notes, State Bank notes, Treasury
notes, and loan notes, stood at £1,030,000,000, as compared
with £109,300,000 on July 23, 1914. Reichsbank deposits, again,
stood on June 30, at £459,100,000, as compared with £47,600,000
on July 23, 1914, while the deposits of the eight 'great'
banks, even at the end of 1917, stood at £800,000,000, as
compared with £250,000,000 at the end of 1914, £362,000,000 at
the end of 1915, and £500,000,000 at the end of 1916."
In this connection it is interesting to give a summary of Germany's war
expenses as reported in the London _Economist_:
"In his comparison of German war finance with ours, the
Chancellor, in his Budget speech, made the following points:
First, that German war expenditure is now £6,250,000--almost
the same as ours--though our expenditure includes items (such
as separation allowances) which are not included in the German
figures. Second, that the whole amount of the German Votes of
Credit (£6,200 millions) has been added to their war debt,
'because their taxation has not covered their peace expenditure
in addition to their debt charge.' Third, the total amount of
new taxation levied by them since the beginning of the war
comes to £365 millions, against our £1,044 millions. Fourth, in
a year's time they will have a deficit, comparing the revenue
with the expenditure, of £385 millions at least. 'If that were
our position,' the Chancellor added, 'I should certainly think
that bankruptcy was not far from the British Government.'
Fifth, with the exception of the war increment tax, 'scarcely
any of the additional revenue has been obtained from the
wealthier classes in Germany'."
GERMAN WAR PROFITS
An extraordinary list of the gigantic war profits collected by Germany
was drawn up by A. Cheraband, the well known French critic. He estimated
that in three years Germany had spent $322.50 per head, France $444.00,
Great Britain $559.75. He presents a list of war profits made by
Germany. The "booty" he divided into movable and immovable property. In
the former category he includes the 212,000 square miles of territory
that had fallen into German clutches, and this he values at
$32,000,000,000, which, he says, is a conservative estimate. Turning to
the movable booty, he classifies it as follows:
"_(a) Capture of 'Human Material.'_--This consists of the
46,000,000 Allied subjects from whom the Germans obtain free
labor.
"_(b) Capture of War Material._--Guns, rifles, munitions,
vehicles, locomotives, railway trucks, and thousands of miles
of railway. The Belgian railway system alone is worth nearly
$600,000,000.
"_(c) Capture of Foodstuffs._--Everywhere the Germans have
stolen horses, cattle, corn, potatoes, sugar, alcohol,
foodstuffs of every kind, and crops grown by the forced labor
drawn from the 46,000,000 Allied subjects whom they have
enslaved.
"_(d) Theft of Raw Materials._--Throughout the occupied
territories the Germans have appropriated coal, petroleum,
iron, copper, bronze, zinc, lead, etc., either in the mines or
from private individuals; textile materials, such as woolen and
cotton. In the towns of northern France alone the Germans stole
$110,000,000 worth of wool.
"_(e) Theft of Industrial Plant._--On a methodical plan
throughout the occupied territories, the motors, engines,
machine-tools, steam and electric hammers, steel-rolling mills,
looms, models, and industrial plant of all kinds have been
carried off to Germany.
"_(f) Thefts of Furniture._--The way in which furniture and
household goods were stolen and carried off is confessed by
implication in the following advertisement published in the
_Kölnische Zeitung_ at the beginning of April, 1917:
"'Furniture moved from the zones of military operations in all
directions by Rettenmayer at Wiesbaden.'
"It is impossible to estimate the money value of the goods thus
removed.
"_(g) Seizure of Works of Art._--The works of art collected for
centuries in museums, churches, and by private individuals in
Poland, Italy, Belgium, and France have been carried off by the
Germans.
"_(h) War Levies._--Scores of millions in money have been
secured by the Germans in the form of requisitions, fines, war
levies, war taxes, and forced loans.
"_(i) Thefts of Coin, Jewels, and Securities._--In the occupied
regions, and especially wherever they have been obliged to
evacuate those regions, as, for instance, at Noyon, the Germans
have emptied, by order, the safes and strong boxes of private
persons and of banks and have carried off securities, jewels,
and silver. In September and October, 1917, they seized at one
stroke the deposits of Allied subjects in the Belgian banks
amounting to $120,000,000.
"In view of the high prices of foodstuffs, coal, metals,
petroleum, war materials and machines, it is clear that the
booty thus secured by the Germans during the last three years
in the occupied territories is certainly worth several billion
dollars."
[Illustration: A Woman Operating a Multiple Spindle Drill in an English
Shell Factory
Photo by James M. Beck
"Since the war broke out," said M. Barriol, a French celebrated actuary,
"no less than 1,500,000 women have been added to the ranks of wage
earners in England, an increase of fully 25 per cent."]
GERMAN MONEY INDEMNITY
It became commonplace after Germany's defeat was evident that her war
cost must include the cost of the destruction she had caused her
enemies. To estimate this was no easy matter. The attitude of the
Germans on the subject was indicated by their constantly expressed hope
that trade would recommence as usual and that they would be able to
start economic relations in a favorable position. So we find the Cologne
Chamber of Commerce beginning to prepare for peace by adopting a
resolution expressing the hope that the destruction of French and
Belgian industries would allow the rapid recovery of German power.
The _Wall Street Journal_ used this statement as a guide to the Allied
Powers for measuring the kind of indemnity that would be imposed upon
Germany.
"One of the departments of the Government at Washington has in
its files a report of a German commission on industry after the
war. Reading this, one can understand the motive for what at
one time looked like pure vandalism. Vandalism it was, by
descendants of the Vandals, but it was a deliberate destruction
of international competitors, killing the workmen--and
workwomen--and destroying plants and machinery for the one
purpose of removing competition. A physical injury to a child
helped to weaken future competition in the world's trade; and
it was upon the power gained thereby that Germany hoped to
launch another war for world domination....
"A peace that gives the cold-blooded perpetrators of these
crimes an advantage over their victims would not be equitable.
If any must suffer, let it be those who are guilty, but don't
give them a start ahead of their victims.
"In substance, that point should declare that Germany shall not
profit through the wrecking of any Allied industry. Except to
admit necessary foodstuffs, the blockade should not be lifted
until every Allied country from England to Serbia has been
industrially rebuilt. One object of the wholesale murder of
civilians was to weaken industrially the enemy countries. The
greater proportionate loss of man-power in the Allied countries
should be met by restrictions on the entry of raw materials
into Germany. Every piece of stolen machinery should be
returned before her own industries are allowed to resume."
The soft plan of dealing with Germany's war cost was championed by
Secretary Daniels. The Springfield _Republican_ and the _New Republic_
seemed to agree with the Manchester _Guardian_ that Germany ought to
be helped rather than punished, that the main thing was to set her on
her feet again.
"Representative papers like the New York _Times_, Syracuse
_Post-Standard_, Buffalo _Express_, and Sacramento _Bee_ all
insist that while we might or perhaps should claim no
war-expenses from Germany, 'we must exact payment,' in the
words of the Syracuse daily, 'to the last penny for losses
suffered through illegal warfare.' Germany's submarine campaign
cost us, according to this paper's figures, 375,000 tons of
shipping and 775 civilian lives. If we take the burden of
payment for this property and these lives from the guilty
shoulders of Germany it would only be to 'pass it on to the
innocent shoulders of the American taxpayer,' which, the New
York _Times_ declares, would be 'rank injustice'."
FORECASTING THE TOTAL COST OF WAR
It is interesting also to note an attempt made by one of the expert
statisticians attached to the Guaranty Trust Company of New York to
estimate the total cost of the war at the close of the four-year period.
The five main Allies possessed, before the war, $406,000,000,000 for
national work, a sum nearly four times as great as the national wealth
of the two Central Powers. In four years the seven leading belligerents
had spent $134,000,000,000. The only way to grasp the meaning of this
enormous sum is to contrast the cost of the World War with all former
wars. The total cost of wars that had taken place since the American
Revolution was $23,000,000,000; the World War costs therefore, are six
times greater. In these figures, staggering as they are, it was
comparatively easy to figure out the costs, debts and interests of
actual war expenditures. Much more complicated is the problem of
estimating the property value destroyed through military operations on
land and sea:
LOSS FROM DESTRUCTION OF PROPERTY
"The total area of the war zone is 174,000 square miles, of
which the Western theater of the war, in France and Belgium,
stretches over an area of 19,500 square miles, and it contains
over 3,000 cities, villages, and hamlets, great manufacturing
and agricultural districts, of which some have been totally
annihilated and some heavily affected. The estimate by the
National Foreign Trade Council of the war losses, which
unfortunately does not go beyond 1916, is as follows: