part of the war expense goes to furnish the people engaged in it with such products as food, clothing, and gasoline, which they would ordinarily consume anyway, and that of the rest-the metals, materials for explosives, and so onvery little is wasted which would not also be used up in times of peace in other ways of no more permanent benefit. It is safe to say that only a small part of the expense of war is truly an economic loss, and that what does constitute the economic loss is not expended at all, but is a part of the cost that is never paid for. The economic losses from war may be divided roughly into four classes. There is the loss of the articles of permanent value which would have been produced in the same length of time under normal conditions. With a nation's whole surplus energy devoted to fighting, no time is left for the accumulation of new property and improvements. This is a setback or failure to progress naturally. If the war is not won, then the whole economic energy devoted to it must be charged off as a bad investment. But this is a wholly intangible and conditional loss. If the war is won and its objects are of real value, then all this energy may be regarded as having been quite as well expended as if it had been used in producing the ephemeral satisfactions of peace-time wants. In the process of suddenly improvising a great industrial transformation such as is required in the transition from a peace basis to a war basis, there is necessarily a great waste of material, a loss of efficiency through the maladjustment of labor; and many mistakes are made. The same holds true upon the return to a peace basis. Then men are without work, property values decline, and the nation does not accommodate itself to the change for several years. This is a real though transitory economic loss. Finally, there is the tangible loss represented by the destruction of buildings and ships, the ruin of agricultural land and of other forms of valuable, permanent property. Then, too, a nation always consumes a large part of its floating supply of useful commodities during a war. At the end it has a smaller stock of food, clothing, and most other goods than it had at the beginning. Some raw materials, such as lumber and nickel, of which the supply is limited, must be charged up to profit and loss because they cannot be replaced. When narrowed down to its real limits, this economic loss is really much smaller than it seems on superficial first thought. The loss of property in France and Belgium is estimated to be between five and six billions of dollars, while the total expense of the war to date is about one hundred billions. Moreover, it must be remembered that while at the end of the war the people are collectively poorer than they might have been with continued peace to the amount of the first three kinds of economic losses mentioned, they are actually poorer than they were at the beginning only by the total value of the tangible losses in property, goods, and materials. These tangible losses could hardly be great enough to cause national bankruptcy except in the case of a country entirely laid waste and depopulated. Even then the default would apply only to foreign creditors, for as long as the citizen creditors held in their hands the bonds of their government they would also hold the means of paying off those bonds. In any case, these economic losses are no part of the expense of war that has to be paid, and therefore they have no bearing upon the ability of the people to pay the expense. They are merely bookkeeping entries, or reductions in the appraised value of the nation's wealth. After the war it will be essential to accumulate sufficiently to restore such property as is again required; but this will be largely a private expense, and no obligation has been incurred to cover it. Such replacements as are necessary during the war are valuable, permanent investments. In brief, foreign debt may be disregarded as a compara tively minor factor in war finance, and economic losses do not enter into war finance at all. Neither can affect seriously the premises that I have endeavored to establish, that the expense of war is cared for at the time, and therefore that it cannot be too great for the people to pay. A survey of the theory of war finance is by no means mere idle speculation. In matters of this kind men act on their theories, though the ideas are often so ingrained and subconscious that the action seems almost involuntary. Certainly both the people and the Congress of the United States have exhibited by their misguided actions a considerable misunderstanding of the true theory. On the other hand, the Administration has shown keen insight into the fundamentals of the problem. If we accept the foregoing as an accurate statement of the fundamentals of our financial situation, we may pass on to its application. War finance is resolved into two practical problems. The primary problem of war finance is to induce and organize the people to divert their efforts from every phase of business that can be dispensed with and then devote that and a great deal of additional effort to the business of winning the war. Too much emphasis cannot be placed on this. The talk of "business as usual" in war time is a grim joke. War means more work and more of every essential that anyone has to offer than he produced before, and it means a change of work for many. It also means less personal return to everyone. The question of the nation's ability to pay for this devotion is beside the mark. The attention of the whole citizenship must be centred single-mindedly upon increased production and upon a decrease in consumption. The man whose contribution is labor must give his share of war labor free. The man who owns useful property must give a proper share of the use of that property and, in effect, give it without return. The secondary problem is the redistribution of the expense of the war; and this is most amazingly misunderstood. The true aim, simply stated, is to assess against each citizen an amount equal to what his share in the increased production and the decreased consumption ought to have been. If a worker was paid for all he did during the war, and if he continued to eat and drink and spend as much as he did in peace time while others had to go without, he must be compelled to refund on both counts. What he refunds must be distributed indirectly among those who did more or who sacrificed more than their share. This problem is solely a matter of justice, and its working out involves the equalization of the war burden over the whole people proportionately. But into its working out another issue enters. If this redistribution is made while the war is going on, then at every step we must study its effect upon the solution of the big primary problem of production. It becomes not only a question of justice but one of expediency as well. The redistribution of the expense must be so handled that it will not interfere with providing the greatest stimulus and the greatest facility to war production. Great taxes during the war may be the monkeywrench in the machinery. In seeing justice done, we may readily see victory lost. Expediency, therefore, introduces the element of time. While eventually it will be necessary to effect most of this redistribution of the war cost by tax levies, the evil day can be postponed by borrowing money temporarily. This raises the issue of war taxes versus war bonds. The crux of the whole question is this: What can you raise in taxes during the war and still keep all classes of the people up to the top notch of exertion and sacrifice? There is no other objection to bond issues than that they embody the sin of procrastination. They do not alter the amount of the war expense, for that is all paid for during the war and ends when the war ends. It makes no difference whether the people's contribution to the war under taking has been given free or whether it has been charged for at inflated prices. At the end of the war all bills are paid bills, no matter how great the bonded debt. The bonded debt represents the bills that have been paid by one citizen and which he and others will eventually have to redistribute among them. As the bonds are paid off, the holders receive as principal and interest what they and others have just paid in taxes. The community is no richer and no poorer by this transaction. What has been one man's loss has been another's gain. The interest has cost the nation nothing because the nation has paid it to itself. Thus posterity gains exactly as much as it loses if we decide to unload a part of this redistributing process upon the future. People delude themselves into thinking that their holdings of government bonds are wealth. As a matter of fact, they are only a lien upon the property of the citizens, and the owner of the bonds shares in the liability. Moreover, this liability corresponds fairly accurately to the bond holdings of each citizen. In the Liberty Bond campaigns we are assessed for our share of each issue of bonds according to our means and, with the ideas of taxation now in vogue, we will pay off these bonds with taxes assessed in much the same proportion. Government bonds correspond to bonds of a corporation held by a stockholder. But in war times the proceeds of the bonds are expended, not invested. Therefore, while the liability is increased, there is no increase in the material value of the mortgaged property. From the standpoint of the individual, however, Liberty Bonds are the best possible purchase, because the purchase in no wise increases his personal liability, while it contributes towards spreading out the period over which he and his fellows must pay this liability. The citizen is funding his own floating indebtedness. Expediency also introduces the question as to which of the two sources of funds-consumption or production-it |