THE ECONOMIC TRIANGLE OF
OF THE
THE WAR

THE WAR'S LENGTH-THE WAR LOAN-THE WAR TAXES
BY THEODORE H. PRICE

OW that we have entered the war, three questions are
uppermost in the mind of every business man.

They cannot be answered conclusively, but it may be helpful to formulate and discuss them.

Seriatim they are:

First, will the war continue through another winter? An answer to this question presupposes a knowledge of the German mind and the information or ignorance that no one except the Kaiser and his Ministers can have. There are many reports which indicate that the soldiers and the people of Germany have been deliberately misinformed in regard to the progress of the war.

It is related that moving pictures showing the complete destruction of London by Zeppelins are being exhibited throughout the Empire. A despatch from Rotterdam, in the New York Times" of April 16, states that "German papers devote columns to descriptions of the starvation which they say is facing England through the unimagined success of the submarines. The people are officially told that only six submarines have been lost in two months.

Other reports say that the people have been encouraged to believe that Paris is in the possession of German troops and that a rebellion in Ireland has made it necessary for Great Britain to send a large army there. It is very doubtful whether many Germans know that the Empire has lost all or any of its colonies, and it is almost certain that but few of them are aware that nearly all of civilization is in arms against them.

The New York "World" is attempting to arrange that the airmen of the French and English armies shall distribute a German translation of President Wilson's address to Congress in the German cities near the western front, and it is hoped that the effect may be to induce a revolt against the Hohenzollern Government.

From the American point of view, the duration of the war would seem to be largely dependent upon the attitude of the German people themselves toward it. They have shown themselves wonderfully resourceful, and to beat them into submission will probably take a long time. That it can be done is now certain; but is it unreasonable to hope that a way to end the struggle this summer could be found if the real facts were known throughout Germany?

Brazil will probably have declared war against Germany before this is printed.

Upon that assumption the subjoined tabulation has been pared. It shows that over eighty per cent of the world's population, controlling seventy-eight per cent of its wealth and occupying seventy-six per cent of its territory, is now arrayed against autocracy. There can be no doubt of the issue, and but little doubt that it could be materially hastened if some way to get the truth before the masses of the German people could be found. The "World" admits that the airplanes cannot go very far across the border, and that messages dropped from them are rigorously “verboten" and speedily gathered in by the omnipresent police. Are any of The Outlook's readers able to suggest a better method? If so, I shall be very glad to hear from them. Human ingenuity has never yet been able to devise an obstacle that human ingenuity could not surmount, and I am optimistic enough to believe that the war might be materially shortened if the German people could be made conscious of America's real feeling toward them as expressed in the President's address, and the overwhelming alignment of the world against them as shown by the tabulation in the next column.

The second question relates to the flotation of the war loan and its effect upon business and the money market.

There is but little doubt expressed as to the willingness and ability of the American people to supply the Government with

all the money it may need, but there is a lot of loose and thoughtless talk about this war loan and its immensity. In one newspaper it was stated that the loan meant a per capita burden of $700 on every man, woman, and child in the United States.

This is a mistake. The total issue authorized is $7,000,000,000. Distributed among 100,000,000 people, this is only $70 per capita. Our present debt is only $1,000,000,000, or $10 per capita, and the proposed increase, if it is all issued, will bring the total debt burden on each person up to $80.

In Great Britain the present per capita debt is about $370, in France $360, and in Germany $300. The United States would have to increase its debt to $36,000,000,000 before the burden per person would equal that of Great Britain.

When we come to compare our wealth and the debt we propose presently to create with the wealth and outstanding debt of

the European belligerents, the showing is even more favorable to us. Here are the figures:

Present
National Debt.

Per cent.
22.3

$19,000,000,000

9,500,000,000

19.0

10,000,000,000

25.0

2,600.000,000

13.0

19,000,000,000

23.7

8,000,000,000

3.2

The foregoing assumes that our debt will shortly be increased by the entire amount of obligations provided for in the legislation now under discussion at Washington. As a matter of fact, however, two billions out of the proposed seven are short-time obligations which, if issued, will be redeemed out of current taxation within a year, and for three billions of the remaining five we shall receive the obligations of the Allied Powers paying an equal rate of interest. The net addition to our National debt at the end of the year will therefore be only two billions, equal to $20 per capita, or less than one per cent of our wealth. The interest on it plus a sinking fund that will retire it in thirty years will hardly exceed $10 per capita, or $100,000,000 a year, which is really negligible when considered in relation to the National income, now estimated at $50,000,000,000 a year, or $500 per capita.

It is just as well, therefore, that we should disabuse ourselves of the idea that our Government is attempting such a stupendous piece of financing.

It is big, but in proportion to our means it is trifling as compared with what England and France have done while fighting an exhausting war.

What the Secretary of the Treasury really proposes is:

1. An issue of $5,000,000,000 3 per cent thirty-year bonds. 2. An increase of the Federal revenue by taxation that will yield $1,750,000,000.

3. An authorization of the sale of $2,000,000,000 one-year notes or certificates that will provide for any deficiency pending the collection of the increased taxes.

The issuance of the short-time obligations is therefore a rather remote contingency and aside from the additional taxation proposed, which amounts to but $17.50 per capita. The question to be chiefly considered is: How can we borrow five billions without bringing about an inflation that is to be dreaded, or a contraction in the money market that will be disturbing?

In round figures, our "banking power," exclusive of the Federal Reserve banks, is about as follows:

Deposits.
$13,000,000,000

and it is highly desirable that the new loan shall be placed so that it will not increase bank loans and deposits.

This, of course, presupposes its absorption by investors who can pay for it without borrowing, rather than by banks or bankers who may have to resort to rediscounts on loans.

It is doubtful whether there is five billions of disengaged capital available for the instant purchase of the loan. To get so much money all at once would involve the sale of other securities and a serious dislocation of the money market. It is improbable that the Government will attempt it. The money will be but gradually needed, and if it is paid in gradually there will be no disturbance. A non-taxable investment paying 31⁄2 per cent compares very favorably with taxable securities that yield but 5 per cent.

It seems, therefore, entirely safe to assume that the loan will be largely over-subscribed if the subscribers are allowed to pay for it in small installments. So placed it will absorb their future savings rather than their past accumulations which are already invested.

Under such conditions a subscription would be an incitement to thrift as well as an evidence of patriotism. If the people can be brought to understand this, there need be no doubt of their response.

The third question has to do with the proposed war taxation. The prevailing impression is that the suggested policy is novel in that it implies that a large portion of the war cost shall be paid out of current revenue to be raised by increased taxation.

There is no novelty in this policy. Professor T. K. Urdahl, of the University of Wisconsin, is my authority for the statement that "the Napoleonic wars were financed by England to the extent of fifty-three per cent by bonds and forty-seven per cent by taxes; the Crimean War, fifty-seven per cent by bonds and forty-three per cent by taxes; and the Boer War, sixty-nine per cent by bonds and thirty-one per cent by taxes.' "America has made large profits by the present war thus far, and it seems only equitable that she should now use some of these profits to hasten its ending.

Moreover, the proposed increase in taxation will add to the tax burden of the people by an aggregate of only $1,750,000,000. This is equal to but $17.50 per capita, which will not be onerous. The objections chiefly urged against the taxation suggested (which is not yet agreed to) are not as to its amount, but its distribution. It is feared that it will be for the most part levied upon swollen incomes or past profits, and that it will mean a distinct advance in the application of the Socialistic theory to the financial problems of the Government.

This question is too big for discussion in the present article. It must be reserved for consideration after the war. Under cover of military necessity and law, the governments of Europe have been socialized in every direction to a degree that seemed impossible three years ago. All property and almost every activity of life is now controlled in the public interest, and it is $3,044,309,292 hardly to be hoped that America can escape the influence of such an example.

18,000,000,000 *14,730,000,000 $35,000,000,000 $27,730,000,000 *These figures included $7,000,000,000 of savings bank deposits. On the 2d of April our stock of gold was... To which should be added Treasury notes (legal tender) about

340,000,000

$3,384,309,292

The rest of our currency consists of Federal Reserve notes, National bank notes, and silver certificates, which are not legal tender and cannot be counted as reserve money.

It is now unlikely that we shall get any more gold from abroad,

If the conscription of men is to be resorted to, the conscrip tion of wealth is at least plausible, and those who think that it is inequitable will be wise to delay their opposition until the public is willing to give them a dispassionate hearing. The present feeling is that as between dying for one's country and paying its bills, the former is by far the greater sacrifice.

WEEKLY OUTLINE STUDY OF

CURRENT HISTORY

BY J. MADISON GATHANY, A.M.

HOPE STREET HIGH SCHOOL, PROVIDENCE, R. I.

Based on The Outlook of April 25, 1917

Each week an Outline Study of Current History based on the preceding number of The Outlook will be printed for the benefit of current events classes, debating clubs, teachers of history and of English, and the like, and for use in the home and by such individual readers as may desire suggestions in the serious study of current history.-THE EDITORS.