War-Time Financial Problems

mber

n August, 1914-No Sche

Short Struggle expe

Labour's Example-The

Direct Taxation-The

tance-The Effect of

are continually accused of not having been ready for the war; but, in fact, we were quite ready to do everything that we had promised to do with regard to military and naval operations. Our Navy was ready in its place in the fighting line, and the dispatch with which our Expeditionary Force was collected from all parts of the kingdom, and shipped across to France, was a miracle of efficiency and practical organisation. It is true that we had not got an Army on a Continental scale, but it was no part of

cept by giving dangerous evidence of the ease by which financial problems can be apparently surmounted by the simple method of creating banking credits. That crisis merely arose from the fact that we were so strong financially, and had so great a hold upon the finance of other countries in the world, that when we decided, owing t

rs had long before pointed out to the Treasury that if ever a banking crisis arose there would, or might be, this demand for a paper currency of smaller denominations than ￡5; this suggestion got into a pigeon-hole at the Treasury and was deep under the dust of Whitehall by the time experience proved how big a gap in our financial armour had been mad

ems of governmental finance which war on such a scale brought with it. There is, of course, the excuse that nobody expected the war to be on this scale, or to last so long. The general view was that the struggle would be over in a few months, and must certainly be so if for no other reason because the economic strain would be so great that the nations of Europe could not stand it for a long time. On the other hand, we must remember that Lord Kitchener, whom most men then regarded as representing all that was most trustworthy in military opinion, made arrangements from the beginning on the assumption that the war might last for three years. So, while some excuse may be made for our lack of financial foresight, it doe

inning of the war, and their total failure to produce one as the war went on. We have financed the war by haphazard methods, limping along the line of least resistance. We are continuing to do so, and we may do so

the reform of our system of war finance, it is possible that they may in time have the effect of shaking even the confidence of our politicians and officials

is so small an item in the total national income that it counts for much less than in war, when the power that the Government can wield by its policy in taxation and borrowing might have been all-powerfu

nd fortune of the individual did not count, but that the war and victory were the only interests that any one had a right to consider-when one remembers all these things, and the use that a wise financial policy might have made of them, it is impossible to avoid the conclusion that the history of the war in this country and its social and political effects might have been something much finer, much cleaner and more noble if only the weapons of finance had been more boldly and wisely used. It is not a good thing to indulge in high-falutin' on this subject. It is absurd to suppose that the war suddenly turned us all into

tries was at last going to be fought out. Or, again, we were just commonplace people who did not much believe in idealistic Radicalism or anti-German bitterness, but saw that the whole future of our country was at stake, and were prepared to do anything for it. A fine example was set us in those days by the Trade Union leaders. The industrial world was seething with discontent. The Suffragette

ly been questioned. At the top the financial and property-owning classes, having been saved by Mr Lloyd George's able adroitness from a bad crisis in the Cit

anteeing that their proprietors should receive the same dividends as they had had before the war. Such was the view in financial and property-owning circles of results of war that, so far from an

quacy? If the problem had been really thought out beforehand the Government must have seen clearly that the real economic problem in war-time is not merely a question of raising money, since that can at any time be done easily by means of a printing-press, but of diverting the industrial energy of the nation from peace to war purposes, that is to say, transferring from the enjoyment of the individual citizen the goods and services that used to contribute to his comfort and amusement, and turning them over to the provision of the things n

can only be done if the warring country is able to ship goods to the foreigner in payment for what it buys, or if it is able to obtain a loan from the foreigner, or some other foreign country, in order to pay for its purchases abroad, or again, if, as in our case, it holds a large accumulation of securities which foreign countries are prepared to take in exchange for goods that they send for the purposes of the war. By these two last-named processes, raising money abroad, and selling securities to foreign nations, the warring country impoverish

t possible cost to the national finances. We arrive at the true aspect of this problem more easily if we leave out the question of money altogether and think of it in units of energy. When a nation goes to war it means to say that it has to apply so many units of energy to the business of fighting, and to provide the fighters with all that they need. If at the beginning of the war its utmost capacity of output was, to mention merely a fanciful

izen which has been shown to be necessary for the purposes of war finance? Clearly the best way of doing it is by taxation equitably imposed. When the State taxes, it says in effect to the citizens, "Your country needs certain goods and services, you therefore will have to go without those goods and services, and the simplest way to make you do this

ual citizens. There would have been no multiplication of currency owing to enormous credits raised by the Government; there would have been merely a transfer of buying power from individuals to the State. The process would have been gradual, there need have been no acute dislocation, but as the cost of the war increased, that is to say, as the Government needed more and more goods and services for its prosecution, the community would gradually have shed one after another the ex

of paying for war costs out of taxation, with the determination to do at least as well as they did, and perhaps rather better, owing to the overwhelming scale of modern financial problems. If they had done so they would have found that both in the Napoleonic and the Crimean wars we paid for nearly half the cost of the war out of revenue as they went on, whereas in the present war the proportion that we are paying by taxation, instead of being 47 per cent., as it was when our sturdy ancestors fought against Napoleon, is less t

Economist, August

ir treatment. A tax on bread or salt obviously hits the wage-earner at 30s. a week infinitely harder than it hits the millionaire, and so the country would not tolerate taxes on bread or salt. Direct taxes, such as Income Tax and Death Duties, have this enormous advantage, that they can really be regulated so as to press with continually increasing severity upon those who are best able to bear them. Unfortunately our Income Tax is still so unjustly imposed that it was clearly impossible to make full use of it without its being first refor

es everything that is needed for the solution of the immediate war problem, and the only objection to it is that it leaves later on the difficulties involved by raising taxes when the war is over, and economic problems are much more complicated in times of peace than in war, for meeting the interest and redemption of debt. But, in fact, it is well known that by no means all that the Government has borrowed for war purposes has been provided in thi

that they are being exploited by profiteers, that the rich classes are growing richer at their expense out of the war, and that they and the country are being bled by a set of unpatriotic capitalist blood-suckers. It is also natural that the property-owning classes, who find themselves paying an Income Tax which they regard as extortionate, should consider that the working classes by their continuous demands for higher wages to meet higher cost of living, are trying to exploi

put things in order, then we certainly shall do so. But we should surely recognise that there is at least a chance that the war may go on for years, that if so our present financial methods will leave us with a burden of debt which i