War-Time Financial Problems

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contradictory theories: one considers that owing to the destruction of capital during the war, capital will be for many years at a famine price; the other, that owing to the exhaustion of all the warring powers, that is, of the greater part of the civilised world, the spirit of enterprise will be almost dead

all goods which have value, that is, can be exchanged into other goods. From this point of view, the schoolboy who invests sixpence in marbles is a capitalist, because he has bought an asset which is not immediately consumed, but can, later on, if his fancy urges him, be e

, and an American economist, Dr Anderson, who has just published a book on the Value of Money, goes so far therein as to state that a "dollar is capital." The language of the City generally uses the word in the narrow sense adopted by Mill, and there is very much to be said for this view of the real meaning of capital. Marbles to play with, houses to live in, motor-cars

on on the battlefield and on the sea, the tools and equipment of industry over the greater part of the earth remain untouched. It is true that, owing to the preoccupations of the war, not so much work as usual is being put into the upkeep and repair of our railways, factories and other industrial tools. But at the same time an enormous amount of new machinery is being created for the manufacture of munitions and other stuff needed for the war, and a large part of this new machinery ought to be available as industrial capital when the war is over. Those people who talk so glibly of the enormous destruction of capital by the war are surely making a mistake common to minds which look at economic questions through a financial telescope, mistaking money for capital. They see that an enormous amount of money

how is it going to affect the supply of capital in the future? To answer this question we have to see how capital is c

ill be so exhausted by this great struggle that it will have no enterprise and no energy left, and that capital will go begging. If this be so, we need not trouble to inquire as to whether the supply of capital can be made plentiful. But I venture to think that this view is very probably wrong, though it is very dangerous to prophesy concerning the purely psychological question of the state of mind in which the citizens of the warring P

When it is put into industry it builds a factory or a ship or a railway or a canal, or clears a wilderness for cultivation, or does one of the innumerable other things which are necessary for the production and transport of the goods which ma

edit is given. It does not set free any labour or goods to be put into industry. That is only done by the man who abstains from consumption and saves money by restraining his desire to spend it on himself, and puts it at the disposal of industry. The man who saves money, who has always hitherto been rather despised by his companions and resente

ild is running, is induced to do so, as a rule, by the purely selfish motive of providing for his old age or for those who come after him by earning the ra

-1/2 per cent. for the buyer; now the investor can get 5-1/4 per cent. and more from the British Government. And yet the power that this 5-1/4 gives him over the goods and services that he wants for his comfort Is probably not greater, and very likely rather less, than the power which he got in 1896 from his 2-1/2 per cent. One of the few facts which seem to stand out clearly from a study of the movement of the prices of securities, and consequently of the rate of interest to be derived from them, is that the rate of interest is high when the price of commodities is high, and vice versa. So that the answer to the question: What is the rate of interest likely to be after the war? may be given, in Quaker fashion, by another question: What will happen to the index number of the prices of commodities? It seems fairly probable that both these questions may be answered, very tentatively and diffidently, by the expression of a hope that aft

saving, how far will the war have helpe

ount of saving in relation to the total output may produce a larger amount of capital than was made available in days before the war. There is a further point, that the war has taught a great many people who never saved at all to save a good deal. It was estimated before the war that we in this country were saving about four hundred millions a year. This figure was necessarily a guess, and must be taken for what it is worth. There can be no doubt that the amount of real saving now in progress, voluntary, owing to the patriotic effort of people who think they ought to restrict their own consumption so that the needs of our fighters may be provided, and enforced through the action of the Government in taking taxes and inflating the currency, is very much greater than it was before the war; probably at least twice as much when all allowance has been made for depreciation of the currency. Some people think that this saving lesson will

saving in time of war for the equipment of the Army. It may be that the benefit conferred by those who save, in increasing the output of mankind, will be more generally recognised, and that the su

preventing it coming into existence. If we remember that capital can only be created by being saved, it becomes evident that if those who save are threatened with too deep an inroad into their reward for so doing, on the part of labour, they will hesitate to save

is the output, that is to say, the annual income of the people. In other words, a tax on capital is simply a form of income tax assessed, not according to a man's income, but according to the assets of which he is possessed. The effect of such a tax would be that he who has spent everything that he has earned on his own enjoyment would go scot free in the matter of the capital tax, and would be rewarded for his improvidence by being asked to make no sacrifice; while his thrifty brother who, out of a smaller income, has set aside a certain proportion during the last twenty or thirty years, would have to hand over a porti

but it is one to which those who are responsible for the management of our financial affairs cannot give too much attention. Every time the real investor is swindled out of his money there is more than a chance that he will look upon all forms of saving as a folly to be left to the credulous. It is easy to say that it was his own

ought to be a great increase in the amount of capital available to supply the great increase which may be expected in the amount of capital demanded. The fact that the chief nations of the world will have enormous debts on which to pay interest is not one that need necessarily terrify us from this point of view. The arranging and imposition of the taxation necessary for meeting the interest on these debts will involve very serious political and social questions; but the payment of this interest need not necessarily diminish produ