8011 
 1.14-8 
 

THE WORLD'S 
 WAR DEBT 
 
 Erepared and Issued^ 
 
 THE MECHANICS 6ME1AIS MTIONALBANK 
 of the City of New York 
 
THE WORLD'S 
 WAR DEBT 
 
 A Record and Analysis of the Financial 
 Obligations Left by the War, in Their 
 Relation to the World at Large. 
 
 The Mechanics & Metals National Bank 
 20 Nassau Street, New York City '' ■ , 
 Capital, Surplus and Profits, $17,000,000 
 
Copyright 1919 
 
 The Mechanics & Metals National Bank 
 
 of the caty of New York 
 
FOREWORD 
 
 TTTE have finished the Great War. At the threshold of 
 ' " a new era in the career of mankind, we are scanning 
 the balance sheet of the nations and footing up their gains 
 and losses. 
 
 There have been immense gains, but these cannot be 
 written in statements of figures. Only the losses can be 
 expressed thus — losses in lives, in property value, in ma- 
 terial progress. We are most conscious of the losses at the 
 present time, both because it is possible for them to be 
 reckoned, and because we are immediately faced with the 
 duty of making them up. 
 
 For the present, therefore, the balance sheet of the war 
 is an obscure one, with the losses tangible and the gains 
 yet to be fully determined. In this volume we have sought 
 to deal with a single item on the tangible side of the war's 
 balance sheet — ^that item which is made up of the indebted- 
 ness of the nations. The reader will find in the following 
 pages material that has been brought together for the pur- 
 pose of information. The need for a statistical summary 
 of the finances of the recent struggle was the sole incentive 
 in carrying out the work. It is hoped that what we have 
 done will prove to be of real and lasting value. 
 
 The Mechanics & Metals National Bank 
 January, 1919. 
 
CONTENTS 
 
 The World's War Debt 5 
 
 What Debts Amount To 13 
 
 Wealth and War Debts 19 
 
 Cost of Bearing the Burden 23 
 
 The Meaning of Default 28 
 
 Inflation and War Debts 32 
 
 Conscription of Wealth 35 
 
 The Obligation of Taxes 40 
 
 Offsetting Tax Burdens 45 
 
 What the Future Promises 49 
 
 The Goal of the Nations 53 
 
The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924010635187 
 
THE WORLD'S WAR DEBT 
 
 "IT^ROM the middle of 1914 until November, 1918, the world 
 -■- financed the greatest and costliest war of all history. 
 The belligerents spent more than 200 billion dollars. They 
 borrowed on an unparalleled scale and enormously in- 
 creased their taxation. 
 
 The figures of the finances of the Great War are so big 
 that they are utterly incomprehensible. Men from the first 
 were amazed by the ease with which the money to pay the 
 cost was raised. Nearly everyone thought in 1914 that a 
 world war was economically impossible. It came. Nearly 
 everyone thought then that ruin would speedily overtake 
 all the nations involved. It did not do so. For more than 
 four years, upward of fifty million men expended a large 
 portion of the world's accumulated wealth in destructive 
 effort, yet through all that time there was given no sign of 
 a bankruptcy of the world, or of an overwhelming exhaus- 
 tion of the world's accumulated wealth. 
 
 That is because the world concentrated its whole effort 
 on a supreme necessity, and found both its ability and its 
 resources to be greater than it ever knew. Like the man 
 who in a crisis employed specialists and nurses when disease 
 threatened the life of someone dear to him, counting no 
 cost or effort too much in face of the emergency, the world 
 rushed into the expenditure of money and effort in a man- 
 ner unthought of before. By a complete mobilization of 
 finance and industry, and by an almost complete diversion 
 to the making of guns and war supplies of those raw 
 materials which were formerly used in making things non- 
 essential to life, the world carried on the war. 
 
 5 
 
6 THE WORLD'S WAR DEBT 
 
 Men did not think at the start that this could be done, 
 because they did not recognize the enormous productive 
 capacity of the world's wealth when put to the test. They 
 recognize that now. But while recognizing it, they recog- 
 nize, also, the prodigious efforts that were called forth in 
 the test, and they know how impossible it was that what 
 went on between August 1, 1914, and November 11, 1918, 
 could be continued indefinitely. Like the ability of nations 
 and men, the world's supply of wealth and capital during 
 the war proved greater than anyone had ever supposed. 
 Yet the lavish process by which the world used its assets 
 in organized destruction — and at the same time mortgaged 
 those assets at a prodigious rate — was one that could never 
 have been designed to go on in perpetuity. 
 
 The war was the supreme effort of mankind, and the 
 figures of its cost in money and treasure indicate that its 
 financial legacy will be a heavy one for the people of the 
 future to inherit. No man can say how heavy it will be. 
 None can say how the past gains and accumulations of 
 civilization will be affected. To what degree the world's 
 material wealth has been impaired is debatable. No one 
 has yet been able in a satisfactory manner to determine 
 that, and its determination lies pretty well with the future. 
 Statements have been made that the destruction of wealth 
 through the war was equal to the full sum expended by all 
 the nations, and that the war loans were an indication of 
 the depletion which the war wrought in the world's stock 
 of goods. Inasmuch as the total wealth of all the nations 
 engaged in the war was computed at 750 billion dollars in 
 1914, and war costs beyond 200 billion dollars, it would 
 follow, on such a reckoning, that the equivalent of more 
 than a quarter of the wealth of the nations at war has been 
 completely wiped out. 
 
 A condition justified by any such a reckoning would 
 
THE WORLD'S WAR DEBT 7 
 
 mean the ruin of the nations engaged in the war. The 
 grand total of their wealth, as measured by the aggregate 
 of 750 billion dollars, was at the beginning of the war in a 
 form only partially available for the purposes of war, or of 
 negotiable value. Much of it consisted of land, buildings, 
 mines and transportation facilities in daily use ; it included 
 public and private improvements which had been effected 
 during the past century on an enormous scale. Wealth of 
 such a type could not be used in furthering warfare; only 
 that wealth which was "free," was available. It would 
 follow, then, on any reasoning that the war's money cost of 
 200 billion dollars had measured the war's destruction, that 
 in the elapsed period of the war the world's fixed wealth 
 was only indirectly touched, while the greater part of its 
 free wealth had been swallowed up. 
 
 Should this have been so, only fixed wealth would be 
 left in the world and, inasmuch as this type of wealth would 
 not help to pay interest on debt, mankind, which during the 
 war mortgaged itself beyond all precedent, to-day would 
 be insolvent, exactly as an individual would be insolvent 
 who mortgaged himself to the utmost to fill his warehouse 
 with goods, and then burned up those goods. The ware- 
 house, fire-proof, would not prodace the income necessary 
 to meet the interest required by the loan on the destroyed 
 goods. Heavily mortgaged, and without income, the indi- 
 vidual would be bankrupt. 
 
 However, it is evident from all that goes on about us 
 that productive wealth was not completely wiped out in the 
 war. Sacrifice of life and property reduced the world's 
 capacity in many directions; it is tragically true that the 
 spiritual and material progress which were the pride of the 
 world at the beginning of the 20th century have been 
 checked, while much of what mankind saved has been swept 
 away. But it must occur to every intelligent observer that 
 
8 THE WORLD'S WAR DEBT 
 
 it was in the loss of human lives more than an3rthing else, 
 and in the arrested development of the world along peaceful 
 lines, that the greatest losses coming out of the war have 
 occurred. 
 
 In a material sense the destruction was very great, but 
 it is wholly incorrect to say, that it was equal to the full sum 
 expended by the nations in prosecuting the war. There was 
 outright loss, speaking in terms of tangible wealth, of cities, 
 ships, railroads and the machinery of trade an^ agriculture 
 that existed before the war. There was outright loss in the 
 property which 50,000,000 soldiers and many other millions 
 of people would have created had they not been enlisted to 
 fight or otherwise to contribute their skill and energy to the 
 pursuit of war. There was outright loss represented in the 
 diversion of the people's savings to the buying of guns, 
 shells, and the vast supplies of war's equipment; savings 
 that otherwise would have found a way to the construction 
 of permanent things like railroads, traction lines, schools, 
 libraries and churches, and would have gone to the general 
 betterment of mankind. 
 
 Still, the wealth devoted to the purposes of war came far 
 from being a total loss, for only a part of it was burned, 
 sunk and blown up. Not a little, indeed, went into factories, 
 shops and yards that will turn out goods which are wanted 
 when the business of peace is fully resumed. Not a little 
 went into the construction of steamships, road material, 
 bridges, railway equipment, engineering tools, etc., all of 
 which will find a place in the business of peace. A good deal 
 of it did, of course, directly support the fighting and the 
 fighters, being thus used up. There were cannon, rifles, 
 shells and army equipment; there were food and supplies. 
 But these did not all represent fixed wealth ; they were prop- 
 erty that did not so much as exist in 1914. As with war 
 equipment, so with a great deal else; it is safe to say that 
 
THE WORLD'S WAR DEBT 9 
 
 the greater part of the enormous loss and destruction of 
 the war, save in the period when the German armies were 
 demolishing cities and ruining other permanent property, 
 consisted of equipment and supplies produced in the war 
 period itself. There was no loss of permanent wealth in 
 this, and so far as the world currently consumed what it cur- 
 rently produced, there was no lasting impairment and the 
 world was made no worse off, in a material sense, than 
 before. 
 
 Even though not destroying its accumulated wealth as 
 rapidly as many people supposed, the world throughout the 
 war day by day mortgaged that wealth at a rapid rate. 
 For some nations the pace was too great to be maintained. 
 Thus, the Bolsheviki Government of Russia early in 1918 
 brought about what had previously been regarded in our 
 modern way of looking at things as an utterly impossible 
 thing — national repudiation on a large scale. Russia, for 
 the time being, relieved itself of war loan obligations by 
 default. Russia, Germany and Austria-Hungary from the 
 beginning of the war contrived to pile up debts more rapidly 
 than the other countries of Europe. For Russia there was 
 no alternative. For the others, what was done was in con- 
 siderable measure a matter of deliberate choice, for the 
 Central Empires desired to placate their people both with 
 light financial burdens and with promises of enormous 
 indemnities from conquered nations. From the time the 
 Bolsheviki Government of Russia announced a repudiation 
 of that nation's war debts, therefore, the word "default" 
 came to be very frequently heard in connection with the 
 debts of Germany and Austria-Hungary. The prospect of 
 supporting large indemnities in addition to internal obliga- 
 tions had a great deal to do with stimulating the thought; 
 Germany, when she temporarily had an upper hand, ex- 
 
10 THE WORLD'S WAR DEBT 
 
 torted heavy payments from the unfortunate Belgian peo- 
 ple, while after the treaty of Brest-Litovsk she compelled 
 Russia to pay a large gold indemnity for property damage 
 that occurred during the invasion of East Prussia. From 
 such example, we can very well picture the indemnities that 
 Germany would have levied elsewhere, had it been given the 
 opportunity. 
 
 "Restitution, reparation and effectual guarantees" hav- 
 ing been set down by Premier Lloyd George of Great 
 Britain, on December 19, 1916, as conditions of an Allied 
 peace, it became the definite purpose of the Allied nations 
 thereafter to see that these conditions should be imposed. 
 For itself, the United States announced that it would 
 require no payment at the peace table. To use President 
 Wilson's words, spoken on April 2, 1917, at the time of our 
 entrance into the war, "we seek no indemnities for our- 
 selves, no material compensation for the sacrifices we shall 
 freely make." But all along it had been different with Bel- 
 gium, France, Italy, Serbia, Rumania, and Russia. Their 
 territories were not only invaded, the inhabitants being 
 brutally treated and robbed, and in many cases murdered 
 and led into slavery, but systematic destruction of industrial 
 and agricultural property was indulged in, with apparently 
 the definite purpose of paralyzing those nations which might 
 compete with Germany after the war in the trade of the 
 world. These things will be atoned. For the small nations 
 which were overrun and devastated, and upon which the 
 war imposed terrific burdens, indemnities are assured. 
 For them the outlook is, therefore, governed by special 
 circumstances. 
 
 For a number of the countries the outlook is also gov- 
 erned by special circumstances, although in another direc- 
 tion. Because they were not able immediately to finance 
 their needs, many of the countries of Continental Europe, 
 
THE WORLD'S WAR DEBT 11 
 
 the weaker belligerents among them, collectively drew more 
 than 20 billion dollars from the United States, Great 
 Britain, and Germany, from the middle of 1914 forward. 
 The loans made to the governments of France, Belgium, 
 Serbia, Italy, Russia and Rumania of one group, and 
 Austria-Hungary, Turkey and Bulgaria of the other group, 
 suggest that upward of a billion dollars in annual taxes 
 will be collected of their people to make interest payments 
 elsewhere for years to come. 
 
 Here is a particular and very difficult problem for the 
 future to solve. From the outbreak of the war the smaller 
 nations were looked upon and treated as the "little brothers 
 of the rich." They were outfitted and supplied, and 
 enormous loans were made to them. These loans were not 
 in any sense in the nature of gifts, as though made by the 
 rich to the poor. Charity had no part in the matter. Loans 
 were honorably made and honorably accepted. 
 
 But the resultant debt contracts bulk very large against 
 the wealth of the nations obligated by them, and some of 
 the nations, we may be sure, will not be able to meet them, 
 in whole or part, at the stipulated date and in accordance 
 with the contracts that have been entered into. What, then, 
 are we to look for? A wiping out of debts, that will make 
 objects of charity out of the small nations? An outright 
 repudiation that will invite destruction of credit? Or an 
 adjustment, mutually satisfactory and honorable? 
 
 Small nations, like Belgium and Serbia, have gone 
 through fire, and the sympathy of the world is theirs. We 
 may expect that they will not be pressed speedily to pay 
 their debts. Cuba still owes the United States for the 
 policing of the island a dozen years ago by our troops, but 
 the obligation is not being pressed. In many instances 
 adjustments may in the end be found necessary. England 
 has already taken account of that possibility with regard to 
 
12 THE WORLD'S WAR DEBT 
 
 Russia, even though it is recognized that a conservative 
 Russian government is likely to come into power eventually, 
 one that will recognize the war debts that were lately 
 repudiated. 
 
 An ultimate and permanent repudiation by the small and 
 weak States is, of course, spoken of. However, if among 
 these States there was ever at all any danger of repudiation, 
 it lay in this; that one or more of them would have their 
 identity utterly extinguished. Default of the Southern 
 Confederacy after 1865 followed the disappearance of the 
 Confederacy as a nation. But one purpose for which the 
 Allies waged the war, namely, the rights and liberties of 
 nations, indicated all along how remote was the likelihood 
 of the extinguishment of national identities after this war, 
 while the war's outcome itself removed that likelihood 
 wholly from the thought of mankind. 
 
WHAT DEBTS AMOUNT TO 
 
 A T the outbreak of the war, the gross indebtedness of the 
 ■^"^ seven nations chiefly engaged in the hostilities was 
 27 billion dollars. The indebtedness of these countries 
 is now close to 200 billion dollars. The indebtedness of 
 27 billions required more than a hundred years to accumu- 
 late. The additional indebtedness six times 27 billions 
 required a little more than four years to accumulate. 
 
 Great Britain and Germany, when hostilities ceased, had 
 the largest debts of any of the belligerents. France was 
 third after these countries, while next in turn were Austria- 
 Hungary, Russia, the United States and Italy. The United 
 States came into the war after the other nations, and that 
 fact set it apart from the common trend, notwithstanding 
 that war expenditures here from 1917 forward were more 
 than those of any other single belligerent. 
 
 The securities now outstanding against the seven nations 
 which chiefly financed the war represent a sum greater than 
 the developed wealth of any single nation of the world, other 
 than the United States. They represent a sum six times 
 as large as the deposits of all the banks of the United States, 
 twelve times as large as all the gold and silver mined since 
 the beginning of the world, twenty times as large as the 
 value of our annual foreign trade. The war placed a debt 
 upon Europe and the United States that, incurred for other 
 purposes than warfare, would have extended the railway 
 mileage of the United States to several times its present 
 length, and that, besides, would have carried steamship 
 lines to every comer of the earth, rebuilt the world's cities 
 on rational, sanitary lines, provided schools and teachers 
 for every child living, eliminated savagery, and endowed 
 
 13 
 
14 THE WORLD'S WAR DEBT 
 
 science to the devotion of its efforts to improve the living 
 conditions of all mankind. 
 
 Instead of this, the indebtedness incurred was for organ- 
 ized destruction, and for every one of the fifty-two months 
 over which hostilities progressed 3,000 million dollars were 
 added to the burden of the world's debt, entirely vs^ith a 
 view to destructive effort. No other war in history, or 
 combination of wars, ever offered a parallel to the strain 
 thus imposed. Indeed, for single nations, that part of the 
 Great War's cost which was translated into indebtedness 
 was more than the combined money expenditure for all 
 other wars that occurred since the Middle Ages. A single 
 one of the Liberty Loans, offered in the United States in 
 October, 1918, was for a greater sum than all the loans of 
 the four years of the Civil War. The maximum debt of the 
 United States at the end of the Civil War was $2,750,- 
 000,000, an amount equal to only one-third the sum raised 
 in the Fourth Liberty Loan. 
 
 It is highly significant to apply comparisons like the 
 above to the different countries. Thus, Great Britain's two 
 loans offered to the British public in the first year of the 
 Great War were more than the Empire's loans of the 
 twenty-two years of the Napoleonic wars. Germany's eight 
 loans of the four years past produced subscriptions that 
 were at least ten times greater than its largest total invest- 
 ment in all loans for any corresponding earlier period. 
 There is no possible comparison between the recent French 
 loans and the financing of the French wars of a century ago. 
 Napoleon and his ministers believed in making war pay its 
 way, and preferred a policy which involved heavy taxation 
 and also heavy annual requisitions on conquered countries. 
 Records show little addition to the debt of France during 
 the period of Napoleon's campaigns. 
 
 Following the Franco-Prussian War the payment of the 
 
THE WORLD'S WAK DEBT 15 
 
 indemnity to Germany, and the funding of other costs of 
 war, imposed upon France a strain theretofore unexampled 
 in European history on any single occasion, but no loans 
 approaching in amount those of the recent epoch were seen 
 at that time. For both Great Britain and Germany the 
 output of debt obligations was so large between the middle 
 of 1914 and November, 1918, that the increase in the 
 amount of indebtedness was in the neighborhood of 35 bil- 
 lion dollars for each of them. For each, therefore, the 
 increase in indebtedness was more than the combined direct 
 cost of the world's six greatest military struggles in the 125 
 years preceding the Great War. That direct cost was 
 $21,000,000,000. One of the wars which was financed out 
 of that amount raged through a period of twenty-one years. 
 Another lasted four years. The twenty greatest wars in 
 the century and a quarter preceding 1914 cost, directly, 
 $25,000,000,000. that sum equalled the addition to Great 
 Britain's indebtedness in three years of the Great War. 
 
 Figures of the gross indebtedness of the nations must 
 necessarily be modified by their obligations to one another. 
 Thus the gross indebtedness of the United States will 
 eventually be reduced by repayment of nine billion dollars 
 that have been advanced to different states of the entente 
 allies, while Great Britain's gross indebtedness will be 
 reduced by the payment of nearly an equal amount that 
 has been similarly advanced. Rearrangement of the vari- 
 ous totals of individual nations will affect the gross total of 
 debt to some extent. But concerning the amount named as 
 the gross indebtedness of the seven nations chiefly engaged 
 in the war, that will be reduced by only a part of the 20- 
 billion sum which represents advances made and received, 
 inasmuch as a considerable part of the advances has been 
 made to the smaller belligerent nations, whose obligations 
 do not figure at all in the calculations of the gross total. 
 
16 THE WORLD'S WAR DEBT 
 
 Taking the gross figures as we find them, we can prepare 
 a highly suggestive table. Estimating very roughly the 
 indebtedness of the nations on January 1, 1919, the figures 
 are as follows, in comparison with the national debt figures 
 as they stood at the outbreak of the war, on August 1, 1914 : 
 
 Gross debt of: August 1, 1914 January 1, 1919 
 
 United States $1,000,000,000 $21,000,000,000 
 
 Great Britain 3,500,000,000 40,000,000,000 
 
 France 6,500,000,000 30,000,000,000 
 
 Russia 4,600,000,000 27,000,000,000 
 
 Italy 2,800,000,000 12,000,000,000 
 
 Entente Nations $18,400,000,000 $130,000,000,000 
 
 German Empire & States $5,200,000,000 $40,000,000,000 
 Austria-Hungary 3,700,000,000 24,000,000,000 
 
 Teutonic Nations $8,900,000,000 $64,000,000,000 
 
 Gross debt, all $27,300,000,000 $194,000,000,000 
 
 Net debt, all $25,000,000,000 $182,000,000,000 
 
 These figures are so vast as to be utterly incomprehen- 
 sible. Yet, vast as they are, the debt obligations of the 
 nations will not end even there. A gross total of 194 billion 
 dollars for the countries given, acknowledges only the 
 war indebtedness, as added to the indebtedness of 1914. It 
 makes no allowance for obligations to be incurred for fur- 
 ther military purposes, for the demobilizing of armies, and 
 for pensioning them. Nor does it allow for the restoration 
 and replenishment expenditures that will impose upon the 
 nations the duty to incur further loans. 
 
 When peace is fully restored, it must be remembered, the 
 task will be confronted of a continent's reconstruction. That 
 task will be of such magnitude, and of such an imperative 
 
THE WORLD'S WAR DEBT 17 
 
 nature that it will bear heavily on the world's finances. A 
 sum of 20 billion dollars is not an excessive amount to name 
 as the proportion of the cost of reestablishing peace that 
 will be met out of additions to state debts. There will be, 
 beside the expense of demobilizing the armies, the work of 
 rebuilding and restoring, of housing on an unparalleled scale 
 and of roadmaking. There will be the imperative need of 
 agricultural development, shipbuilding and improvement of 
 transportation, to say nothing of schemes of economic and 
 social reform that are regarded as absolutely essential to 
 future national efficiency. A large part of the cost of re- 
 constructing Europe will come out of the current income of 
 the people of the different nations. But impoverished as 
 many of them are, reliance on loans offers the only hope of 
 effective and speedy financing of the reconstruction period 
 that is before us. 
 
 So, then, in addition to the debts of the nations that 
 existed prior to the war and that have been incurred since 
 the war began, we must make allowance in all our calcula- 
 tions for post-bellum loans by the various nations, particu- 
 larly Germany, which must contribute to restore invaded 
 territory. All together, the indication, so far as we may 
 calculate to-day, is for an ultimate aggregate of much more 
 than 200 billion dollars as the gross indebtedness of seven 
 of the world's greatest nations. 
 
 Following is a table showing the account in rough, on 
 the basis outlined. For convenience, figures make no con- 
 cession for the dismemberment of Russia and Austria- 
 Hungary, nor do they make any adjustments for indemni- 
 ties to be paid or received. Figures of the peace-time 
 increase of indebtedness, for reconstruction, assume for 
 sake of convenience that the increase will be brought about 
 before the opening of 1920 : 
 
18 THE WORLD'S WAR DEBT 
 
 Gross debt of: January 1, 1919 January 1, 1920 
 
 United States $21,000,000,000 $26,000,000,000 
 
 Great Britain 40,000,000,000 42,000,000,000 
 
 France 30,000,000,000 33,000,000,000 
 
 Russia 27,000,000,000 30,000,000,000 
 
 Italy 12,000,000,000 13,000,000,000 
 
 Entente Nations ...$130,000,000,000 $144,000,000,000 
 
 German Empire & States $40,000,000,000 $45,000,000,000 
 Austria-Hungary 24,000,000,000 26,000,000,000 
 
 Teutonic Nations $64,000,000,000 $71,000,000,000 
 
 Gross debt, all $194,000,000,000 $215,000,000,000 
 
 Net debt, all $182,000,000,000 $200,000,000,000 
 
 How far these figures will be affected in the final reck- 
 oning by indemnities, repajonents, or other considerations, 
 we have no present way of saying. Adjustments will rest 
 with the future to determine. Whatever adjustments may 
 occur, they will affect the ultimate result only a little, leav- 
 ing as the net financial legacy of the war for seven nations 
 an aggregate indebtedness of hardly less than 200 billion 
 dollars. 
 
WEALTH AND WAR DEBTS 
 
 rpHE ability to support the debts imposed upon the na- 
 -*- tions which carried on the war will be judged in large 
 degree by the total wealth of those nations. The world's 
 experience from 1914 forward demonstrated in what man- 
 ner success in a large way rests upon the economic as well 
 as the vital force of nations. Making demands on the very 
 sum total of wealth, and straining resources to the utmost, 
 the war from the start was a contest of endurance in which 
 the purely tangible elements assumed an important char- 
 acter. 
 
 The peace era, from the start, will develop in exactly 
 the same way, and those nations which have the purely 
 tangible elements of wealth in abundance — and at the same 
 time have those elements least heavily burdened with debt 
 — will have an enviable advantage over the other nations. 
 There will be, in truth, few such nations. All of them, in 
 a greater or less degree, suffered outright property loss in 
 the war. All of them increased their debt obligations. 
 Thus the indebtedness of Great Britain, which in the middle 
 of 1914 represented a mortgage equal to 4 per cent, of the 
 nation's wealth, as that wealth was then figured, now rep- 
 resents a mortgage equal to more than 44 per cent, of that 
 wealth. The indebtedness of Germany, which in 1914 rep- 
 resented a mortgage of 6 per cent, of Germany's national 
 wealth, now represents a mortgage of approximately 47 
 per cent, of that wealth. For Austria-Hungary the increase 
 has been from a proportion of 9 per cent, at the outbreak of 
 the war to 60 per cent. For Russia it has been from 8 per 
 cent, to 45 per cent. For France it has been from 10 per 
 cent, to 46 per cent. For the United States it has been from 
 a fraction of one per cent, to ratio of more than 8 per cent. 
 
 19 
 
20 THE WORLD'S WAB DEBT 
 
 The following table sums up the situation concisely. It 
 presents in one column the aggregate wealth of the seven 
 nations that were chiefly engaged in the war, as that wealth 
 was calculated before the war. In another column it 
 presents the gross indebtedness of these nations, about as 
 it stood on January 1, 1919 : 
 
 Gross Debt P. 0. Debt 
 Total Wealth Jan., 1919 to Wealtli 
 
 United States $250,000,000,000 $21,000,000,000 8.4 
 
 Great Britain 90,000,000,000 40,000,000,000 44.4 
 
 France 65,000,000,000 30,000,000,000 46.1 
 
 Russia 60,000,000,000 27,000,000,000 45.0 
 
 Italy 30,000,000,000 12,000,000,000 40.0 
 
 Entente Nations. .$495,000,000,000 $130,000,000,000 26.2 
 
 Germany $85,000,000,000 $40,000,000,000 47.0 
 
 Austria-Hungary .. 40,000,000,000 24,000,000,000 60.0 
 
 Teutonic Nations. $125,000,000,000 $64,000,000,000 51.2 
 Total, all $620,000,000,000 $194,000,000,000 31.1 
 
 Compelled collectively to support a mortgage equal to 
 more than a quarter of their wealth, as that wealth was 
 calculated in 1914, these nations have now to determine 
 exactly the degree to which that wealth has been impaired. 
 In determining this there is, of course, no room for debate 
 in cases where there has been outright property loss. Ships 
 blown up, cities burned, machinery left in ruin and allowed 
 to deteriorate ; these things represented undisputed destruc- 
 tion of wealth. But in countries like the United States, 
 England and Germany, which were not invaded, and within 
 whose borders there was little or no destruction from gun- 
 fire, the direct loss has counted only a little. Despite all the 
 damage of the war, the wealth-producing capacities of these 
 countries remain, and in notable instances are greater than 
 •ever before. 
 
 By reason of an emergency, these countries were made 
 ■during the war to stimulate their productivity, and at the 
 
THE WORLD'S WAK DEBT 21 
 
 same time to wonderfully kindle the energies of their people. 
 So then, while we gaze upon the tremendous loss in the 
 war, we are entitled also to look upon the offsets to that 
 loss. The sinking of millions of tons of ocean tonnage was 
 an outright loss to the wealth of the world. But the yards 
 in which the destroyed steamships were built remain and 
 have been increased, while the men who know how to build 
 ships are to-day far greater in number than at any time 
 before. Even with respect to the countries which were 
 invaded and where losses have been very great, we know 
 that much of the wealth consumed would have been con- 
 sumed anyway, in the normal subsistence of those engaged 
 in the war. Much would have gone into non-essentials. 
 And of the property actually destroyed, much of that would 
 have been destroyed in the course of time. Machinery and 
 various implements of industry and trade would have worn 
 out or become obsolete, necessitating replacement. 
 
 While, therefore, we discuss the loss to the industrial 
 plant of the world through outright destruction, and 
 through enforced idleness, it is plain that within a com- 
 paratively short time this industrial plant would all have 
 been scrapped, either because of obsolesence or wear. We 
 are bound to take this factor into all our reckonings when 
 we strive to calculate the financial legacy that has been left 
 us by the war, even though we recognize that machines per- 
 mitted to operate under the conditions of peace until worn 
 out, and railways permitted to serve their allotted years 
 would, under normal conditions, have replaced themselves, 
 earning enough in the course of time to pay for their 
 replacement. 
 
 However, considered collectively, and after making all 
 possible allowance for offsets, it is impossible that the 
 rations have been enriched since 1914. Wealth that in 
 peace would have created new wealth was destroyed by the 
 
22 THE WORLD'S WAR DEBT 
 
 war, and that, with the application of all available energy 
 to war-making, effectually checked the world's capacity for 
 productive effort. Until the war, the permanent wealth 
 created by productive effort in the United States for a num- 
 ber of years was calculated to be more than $5,000,000,000 
 yearly. In Great Britain it was calculated to be $2,000,- 
 000,000, and in Germany $1,500,000,000. France showed 
 $1,000,000,000, and all the other belligerent nations — ^more 
 than twenty in number — collectively advanced at the annual 
 rate of more than $5,000,000,000. During the war, there- 
 fore, wealth that otherwise would have accumulated in 
 various parts of the world at a rate of $15,000,000,000 
 yearly was either checked in its increase, or made to suffer 
 actual loss. 
 
 Herein, next after the death and maiming of men, lay 
 the war's greatest economic offense. The world expended 
 its substance, and then pledged itself by bond issues in such 
 a way that the war's deepest mark hereafter will be in a 
 huge mortgage on wealth. The war truly cut the world's 
 economic and financial structure with a mighty, two-edged 
 sword. It made inroads upon it, and it mortgaged it. 
 
COST OF BEARING THE BURDEN 
 
 TF we assume that figures previously given measure ap- 
 ■*■ proximately the State obligations as they will stand after 
 the conclusion of peace, we can prepare a table of the inter- 
 est burden these obligations will impose. The various 
 nations have each borrowed at advancing rates of interest, 
 and applying these increases broadly to each of them, we 
 have the following approximate figures for 1920 interest 
 payments, based on the estimate of 1920 indebtedness. 
 Comparison is made with the actual figures of 1913, the last 
 year of world peace : 
 
 Interest paid by: 1913 1920 
 
 United States $23,000,000 $1,100,000,000 
 
 Great Britain 122,500,000 2,300,000,000 
 
 France 257,300,000 2,000,000,000 
 
 Russia 212,200,000 1,600,000,000 
 
 Italy 93,300,000 600,000,000 
 
 Entente Nations $708,300,000 $7,600,000,000 
 
 Germany $200,000,000 $2,500,000,000 
 
 Austria-Hungary 161,700,000 1,500,000,000 
 
 Teutonic Nations $361,700,000 $4,000,000,000 
 
 Gross payments, all $1,070,000,000 $11,600,000,000 
 
 Net payments, all 975,000,000 11,000,000,000 
 
 Average interest rate 3.9% 5.5% 
 
 Here is more than a ten-fold increase. For each nation 
 listed, the annual interest charge on indebtedness hereafter 
 will equal or exceed the total yearly public revenue of that 
 nation in the year before the war, and impose correspond- 
 ingly heavy responsibilities on the taxpayers. 
 
 Now, beside the interest on their indebtedness, the 
 
 23 
 
24 THE WORLD'S WAR DEBT 
 
 nations will have to provide, after the war, for sinking 
 funds and "running expenses." In the last year of peace, 
 1913, the nations we are considering required seven billion 
 dollars of their citizens' money for maintenance of govern- 
 ment. With that money salaries of government employees 
 were paid, national institutions were supported, and armies 
 and navies were sustained. 
 
 It is impossible to foretell what final adjustments will 
 be made after the signing of peace, such as might affect 
 government maintenance charges. But we will assume for 
 the sake of argument that ordinary running expenses of 
 the various nations will return to the peace basis of 1913. 
 Annual sinking fund appropriations will, of course, have to 
 be figured, but these may for the present be calculated as 
 offsetting all savings that may come through reduction of 
 military and naval expenditures through disarmament. 
 
 Thus, with ordinary government expenses reaching 
 seven billion dollars, and interest obligations at ten billions, 
 we can estimate as follows the full amount that taxpayers 
 will be called upon to supply, comparing our results with 
 the actual 1913 returns: 
 
 Actual Estimated 
 
 Peace Basis Peace Basis 
 
 Expenditures, 1913 Expenditures, 1920 
 
 United States $1,000,000,000 $2,100,000,000 
 
 Great Britain 1,150,000,000 3,400,000,000 
 
 France 1,350,000,000 3,000,000,000 
 
 Russia 1,800,000,000 3,200,000,000 
 
 Italy 600,000,000 1,100,000,000 
 
 Entente Nations $5,900,000,000 $12,800,000,000 
 
 Germany $1,100,000,000 $3,400,000,000 
 
 Austria-Hungary 1,000,000,000 2,400,000,000 
 
 Teutonic Nations $2,100,000,000 $5,800,000,000 
 
 Gross expenditures, all $8,000,000,000 $18,600,000,000 
 
 Net expenditures, all 8,000,000,000 18,000,000,000 
 
THE WORLD'S WAK DEBT 25 
 
 The second column of this table signifies the net finan- 
 cial burden of the war — more than a doubling of the tax- 
 burden of the people of the earth. A tax bill of roughly 18 
 billion dollars, chiefly devoted to meeting the carrying 
 charges of debt obligations, will be imposed, if these figures 
 are fulfilled, upon the people of seven nations. The popula- 
 tion of these seven nations is 525,000,000 ; if we allow that 
 two of every five of these people are wage-earners, we can 
 calculate that the collective income of 210,000,000 people 
 will be taxed to provide the funds necessary for the various 
 states. 
 
 The average income of each wage-earner of the 210,- 
 000,000, on the basis of the period preceding the war, was 
 $413. Therefore, on the basis of that income, the post-war 
 taxation will require the payment of an average of nearly 
 20 per cent, of the earnings of these workingmen, for the 
 upkeep of government, or $80. Before the war the average 
 was 9 per cent., or $38. 
 
 It is by thus reducing the proposition that we gain a 
 full measure of the financial problem that confronts us in 
 the future. For some people, plainly, the problem is more 
 serious than for others. In the United States we are hap- 
 pily placed ; a sinking fund calculated to cancel the net pub- 
 lic debt, added to all interest requirements, would impose 
 direct and indirect taxes upon the American people of a 
 relatively small part of their incomes. 
 
 The European nations are not so fortunate. France, if 
 we make no allowance for indemnities to be received, 
 apparently will require upward of 40 per cent, of her peo- 
 ple's peace-time income, as that income was formerly 
 figured, to meet the interest obligations and upkeep ex 
 penses of the nation in 1920. Great Britain will require 
 28 per cent. Russia, when its obligations ultimately are 
 honored, will apparently require more than 45 per cent, of 
 
26 THE WORLD'S WAR DEBT 
 
 her people's income, as that income was figured prior to the 
 war. Before meeting any indemnity obligations, Austria- 
 Hungary will require 48 per cent, and Germany 31 per cent. 
 On the basis of annual peace-time income as it was figured 
 in 1913 (when inflation and other war conditions had not 
 come to confound the national currencies) the following 
 table is presented, setting the people's total income against 
 their prospective taxation in 1920 : 
 
 Annual Income Taxes, 1920 Percent. 
 
 United States $40,000,000,000 $2,100,000,000 5.2 
 
 Great Britain 12,000,000,000 3,400,000,000 28.3 
 
 Prance 7,500,000,000 3,000,000,000 40.0 
 
 Russia 7,000,000,000 3,200,000,000 45.5 
 
 Italy 4,250,000,000 1,100,000,000 26.0 
 
 Entente Allies .. $70,750,000,000 $12,800,000,000 18.1 
 
 Germany $11,000,000,000 $3,400,000,000 30.9 
 
 Austria-Hungary.. 5,000,000,000 2,400,000,000 48.0 
 
 Teutonic Nations $16,000,000,000 $5,800,000,000 36.3 
 
 Total, all $86,750,000,000 $18,600,000,000 21.4 
 
 It means a great deal to say that, following the conclu- 
 sion of peace, from one-fourth to nearly one-half the in- 
 comes of the different peoples of Europe will belong to the 
 governments. Yet that is plainly the indication of this 
 table. Of course, the income of the people of the nations 
 that were actively engaged in the war, through the pressure 
 of war production and the forces of inflation which oper- 
 ated during the war, has been in excess of the figures given 
 in the above table. We know, for example, that because of 
 extraordinary conditions the income of the American people 
 in 1918 was far greater than at an annual rate of forty 
 billion dollars, while that of the English people was above 
 twelve billion dollars and that of the German people above 
 eleven billion dollars. We know, moreover, that currency 
 inflation will for a long time to come influence the figures of 
 incomes in a radical way, and will serve to affect commerce 
 
THE WORLD'S WAR DEBT 27 
 
 and trade, and consequently the income of the different 
 nations, after the war. 
 
 But for the purpose of a statistical record, we would 
 lose our bearings if we sought to figure the incomes of the 
 future on the basis of war conditions, and of extraordinary 
 production and inflated valuations. It is only reasonable 
 for the present to base calculations of post-war conditions 
 on what we know were the pre-war conditions. Hence we 
 have the table indicating one-twentieth of the income of the 
 American people, and from one-fourth to one-half the 
 income of the people of Europe, in 1920, as belonging to the 
 governments. 
 
 A way to appreciate the significance of the various 
 figures given is to translate them from money into the time 
 and effort necessary to earn that money. Thus, if 5 per 
 cent, of the American individual's income were to be turned 
 over for his government's expenses in 1920, it is clear that 
 an equivalent percentage of his employed time would have 
 to be devoted to producing earnings to meet the necessary 
 taxes. So the income earned by the productive effort of 
 the average American in 15 out of the year's 300 working 
 days would be necessary to support his government. 
 
 By the same measurement, the income of 84 days of the 
 Englishman's 300 working days would be necessary for 
 government upkeep, while 90 of the German worker's 300 
 would thus be required. The French workingman would 
 have to work 120 days in the year to maintain his govern- 
 ment and pay interest on the national debt. Which is to 
 say that, because he could not deprive himself in the 
 period of the war to meet the full expense that was incurred, 
 the Frenchman, according to the figures given, would have 
 to turn over his earnings for 2 days every week to meet 
 his government's obligations. The Austrian and the Rus- 
 sian would have to do even more. 
 
THE MEANING OF DEFAULT 
 
 /^FFENSIVE to American ears, signifying much that we 
 ^^ have been taught to abhor, and when heard in connec- 
 tion with even the most onerous obligations repulsive in 
 extreme, the subject of any irregular wiping out of war 
 indebtedness by the world's most powerful nations is not a 
 savory one for discussion. 
 
 Nor would discussion be opportune were it not for what 
 occurred in Russia, early in 1918 and, further, were it not 
 that the matter has been given prominence by the enor- 
 mously increased financial requirements of the nations, and 
 by the conflicting views expressed more and more fre- 
 quently in high quarters. Mr. Asquith, the former British 
 Premier, long before the end of the war took occasion to 
 register his views on the subject of Great Britain's national 
 debt in unmistakably clear terms. "Speaking on behalf of 
 those whom I represent," he said bluntly, "we regard the 
 obligation the State has undertaken as a sacred obligation. 
 It is not capable of any kind of qualification, diminution, or 
 withdrawal." 
 
 Every possible assurance of the integrity of State debts 
 has a place in the discussion of the present day, for when 
 considering the matter of debt burdens and after-the-war 
 taxation, the magnitude of war cost figures has made the 
 argument for national default, from the point of view of 
 the masses, subtly and dangerously alluring. The argument 
 is not new, nor is it at all peculiar to the present situation. 
 It has been heard time after time from radical lips, all 
 through the history of the nations. Non-payment of na- 
 tional obligations, runs the argument, is a matter of simple 
 justice to the poor. As applied after warfare, it simply 
 relieves those who fought in the battles and made the 
 
 28 
 
THE WORLD'S WAR DEBT 29 
 
 supreme sacrifices of the war from the compulsion of turn- 
 ing over a large part of their earnings to those who stayed 
 at home and grew rich, buying bonds with their riches. 
 
 As the argument runs, the non-payment of a national 
 obligation involves no destruction of real wealth. It is 
 shown, in fact, how the stock of things within the borders 
 of a nation is not diminished one bit if that nation fails to 
 meet its obligations. It is shown that what happens is 
 simply that the wealthy, who otherwise might come to live 
 without effort as leisure charges upon the productive powers 
 of others, are compelled to work, and thus increase the 
 aggregate wealth of the nation and society. 
 
 Default, looked at this way, can be made to appear as a 
 boon to the working classes and a relief from supporting 
 the rich. Involving no destruction of accumulated wealth, 
 removing a yoke from the necks of the poor, and being 
 conducive to making idle people work, the idea has sociologi- 
 cal points. 
 
 But if, sociologically, the idea can be made to appear at 
 all attractive, it is only as any vice, by subtle reasoning, 
 can be made to appear attractive. Fundamentally, the idea 
 is thoroughly dishonest. Deliberate avoidance of any obli- 
 gation is theft. The debt of each of the nations is a definite 
 obligation ; the word of each nation is pledged on its bonds. 
 Hence, any scheme that confiscated the money of those who 
 subscribed for war bonds, distributing it for the benefit of 
 others, would inject dishonor and fraud into national 
 finance. 
 
 In whatever way one chooses to regard it, any national 
 bankruptcy of convenience would be deliberate theft by a 
 whole people, and as a moral principle the dishonesty of 
 deliberate default is clear. But moral principles aside, 
 there are certain business principles also to be considered. 
 It must be kept in mind that the whole financial structure 
 
30 THE WORLD'S WAR DEBT 
 
 of the world, when peace is fully established, will be built 
 about the war loans. There will be 200 billions or more of 
 government bonds. Peace now finds the banks heavy inves- 
 tors in them. It will ultimately find millions of people who 
 have them in their homes. 
 
 We may well ask whether such elastic conditions could 
 ever be afforded, even in the direst extremity, as would cer- 
 tainly follow a deliberate renouncing of the obligation of 
 war bonds. Repudiation would bring business chaos. It 
 would, it is true, at a stroke relieve a nation of the pressure 
 of its debt. But at the same stroke it would cripple the 
 finance and industry of that nation, and visit upon its credit, 
 its banking organization and its business structure a more 
 deadly paralysis than any catastrophe outside of war itself. 
 Any nation that deliberately cancelled debts would find its 
 credit gone and its whole national development blocked. 
 That would mean economic suicide. For, following the 
 example of any national repudiation, debt obligations gen- 
 erally would be cast off by individuals and institutions alike. 
 Investors whose whole fortunes were in government bonds 
 and other bonds would find their burdens greater than they 
 could bear, and the world's whole banking and credit struc- 
 ture, as we now understand it, would receive a blow from 
 which it would with difficulty recover. 
 
 Once chilled, confidence does not readily grow warm. 
 If the confidence of capital were to be severely frozen by 
 a compulsory wiping out or scaling-down of its contract 
 with nations, it would not grow warm again for many years. 
 The nations involved would be unable to hold the confidence 
 of lenders, and would raise fresh sums only by special 
 pledges and by offering exorbitant interest rates. As the 
 greater includes the less, government securities, which 
 comprise all others, must in the very nature of things be 
 
THE WORLD'S WAR DEBT 31 
 
 safer than all other securities. So that, if government securi- 
 ties were to be defaulted, the credit of other securities would 
 be overwhelmed and capital, which is essential to the carry- 
 ing on of all industries, for calling into life new enterprises, 
 and for providing better conditions and a higher standard 
 of living, would no longer find encouragement for seeking 
 investment. 
 
 The moral obloquy and financial chaos attending deliber- 
 ate repudiation of war debts would be greater than any of 
 the great nations could bear. During the reconstruction 
 period the nations will be zealous to restore their prestige 
 and return to normal business pursuits with their reputa- 
 tion and national financial standing firmly established 
 among the people of the world. To insure this, first and 
 foremost will be the need that their credit shall remain 
 unquestioned. There have been occasions in the world's 
 history when nations — France, Spain, Portugal, Greece, and 
 some of the South American republics among them — pre- 
 ferred to suspend payment of interest to their creditors 
 rather than honorably meet and discharge their obligations. 
 But the credit of those nations, following the avoidance of 
 debt, measured their reward. Russia offers a present-day 
 example of a nation that has lost position and confidence 
 through the endeavor of a de facto government to avoid 
 meeting its just obligations. Governments in the past have 
 gone out of existence, yet history shows how often the peo- 
 ple of those nations nevertheless acknowledged and met the 
 debts contracted in their name, rather than have the sacred- 
 ness of their word dishonored and their credit destroyed. 
 
INFLATION AND WAR DEBTS 
 
 /^UTRIGHT default is not the only method that has been 
 ^^ suggested of avoiding the obligation of war debts since 
 they began to be burdensome. It was suggested quite some 
 time ago that reduction of debts might very readily be 
 brought about by the method used at the time of the French 
 Revolution, when currency, called assignats, issued in enor- 
 mous quantities by authority of Constituent Assembly, 
 became legal tender for the payment of public and private 
 debts in France. 
 
 The plan of "redeeming" debt by issuing paper money 
 to creditors is an engagingly simple one. It has been tried 
 frequently in the past, and the result has been invariably a 
 general debasement of the currency, leading, when carried 
 far enough, to such destruction of public faith in the means 
 of exchange that there followed a general refusal to accept 
 money in ordinary commercial transactions. Nations 
 receiving taxes in their own depreciated and debased cur- 
 rency were unable to pay their way, and prices of goods 
 increased automatically as the currency was debased. The 
 French assignats of 150 years ago, issued in such quantities 
 that at last they became valueless, brought untold ruin in 
 their wake. 
 
 Currency inflation, like war itself, is a great illusion. 
 That a nation should grow rich directly out of waging a 
 war is, of course, impossible. Yet there are a great many 
 people who think that, somehow, nations do grow rich out 
 of war itself. They visualize the coincident paper-money 
 inflation, with its rise in prices and wages, and think that 
 because there are more dollars circulating they are richer 
 than before. But they fail to comprehend that the process 
 
 32 
 
THE WORLD'S WAK DEBT 33 
 
 of printing paper money, seemingly so effective, creates only 
 a semblance of increasing wealth and of great profits. 
 
 The idea of cancelling the war debts by currency infla- 
 tion, like the idea of cancelling them by repudiation 
 itself, is attractive to the unthinking. Put into execution, 
 the idea would prove disastrous. It must be remembered 
 that upward of fifty billion dollars of paper money are now 
 in circulation in the countries which were engaged in the 
 war, as compared with less than five billions in the middle 
 of 1914. Currency inflation in some of these countries some 
 time ago reached a critical point, and people with their 
 minds directed to the future have been compelled to ask, in 
 bewilderment, how far any process of further note infla- 
 tion in some of the countries might go without bringing 
 about an utterly impossible situation. When a country like 
 Austria-Hungary sought to pay war expenses not out of 
 savings but by printing currency, so deluging itself with 
 paper money that every hundred dollars of the note and 
 deposit obligations of the Bank of Austria-Hungary came 
 to have as reserve less than $1.00 gold, instead of $63.40 as 
 before the war, and when the money put in circulation in a 
 country like Russia long ago became so vast that it could 
 not be kept track of, one was left to wonder, even before the 
 war came to an end, how far any process might go in 
 Europe whereby national loans were cancelled in the recon- 
 struction period by issuing paper currency for the purpose. 
 
 Inasmuch as Europe's paper money has been issued in 
 such large quantities that gold redemption of these notes on 
 demand will be out of the question for some time, a trying 
 period would seem to confront the whole world. The 
 world's gold monetary stock is less than ten billion dollars ; 
 the banknote circulation of seven nations is something like 
 fifty billion dollars. The mass of current international lia- 
 bilities is stupendous, and it is certain that because of this 
 
34 THE WORLD'S WAR DEBT 
 
 alone the process of financial readjustment will be long 
 drawn out, with' "emergency expedients" repeatedly 
 extended. 
 
 Those nations of the earth which are handicapped the 
 most by depreciated currency will henceforward have the 
 most difficult time in establishing their financial integrity 
 and in making their business structure secure. Inter- 
 national trade is on a definite basis of exchange value, and 
 not subject in the long run to such artificial conditions as 
 those imposed during the war. Hence the prosperity of a 
 nation, and, in turn, its financial strength, are affected by 
 the discount or premium on its exchange, and if the trade 
 of any single nation is handicapped more than another by 
 depreciated currency, it follows that the government bonds 
 of that nation will be less desirable than that of the other. 
 
 It does not follow, of course, that any of the belligerent 
 nations will be brought to insolvency because of their 
 paper money. For a number of them that money is in such 
 abundant supply that, besides their currency, the bills of 
 exchange drawn against them are at a heavy discount. 
 Still, that might continue for some time without seriously 
 impairing the financial stability of the nations affected. 
 Our own national currency was below par for thirteen years 
 after the Civil War, though the country's credit through 
 that period progressively improved. We can gain en- 
 couragement from this precedent, but at the same time we 
 have no reason to expect that, when business is reorganized, 
 depreciated money will not play a serious part in the affairs 
 of the nations. It will count strongly in the race for finan- 
 cial and commercial supremacy, and every nation that is 
 wisely governed will be cautious to refrain from confusing 
 the situation by large issues of additional amounts of circu- 
 lation paper. 
 
CONSCRIPTION OF WEALTH 
 
 T3EYOND repudiation and the redemption of debts by 
 J-' issuing paper money, there still is a third method sug- 
 gested for reducing the war debts. That is the method of 
 the much discussed "conscription of wealth." 
 
 Government expenses have behind them the entire tax- 
 able power of the people, and any government has the first 
 call on the income and property of its citizens. This is an 
 accepted principle of taxation. On the basis of this prin- 
 ciple, conscription — or "confiscation," if that word is more 
 expressive — of a portion of a people's wealth was one of the 
 policies openly advocated by representatives of the English 
 Trades Unions not long ago, when informal plans were dis- 
 cussed of making a direct levy amounting to 20 per cent, 
 upon capital, with which forthwith to wipe out at a single 
 stroke an important part of the British national debt. Mr. 
 Bonar Law, Chancellor of the Exchequer, openly before the 
 House of Commons discussed the feasibility of a capital levy 
 after the war, for the purpose of reducing the British debt, 
 and he frankly raised the question whether such a scheme 
 would not in the end be advantageous to industry and there- 
 fore to all classes. 
 
 The principle of the draft having been justified so uni- 
 versally during the war, as applied to man power, it is not 
 at all strange — indeed, it would be strange had it been 
 otherwise — that the idea as applied to wealth is widely 
 current. "When compulsory military training was intro- 
 duced," wrote an Englishman not long ago in justifying 
 certain radical suggestions for reducing Great Britain's war 
 debt, "the State put forward and enforced a claim which 
 logically involved other demands also. If it may require the 
 
 35 
 
36 THE WORLD'S WAR DEBT 
 
 citizen to risk and sacrifice his life for the welfare of the 
 nation, where is the line to be drawn? The conscription of 
 wealth could easily be justified, in principle, by the prece- 
 dent of the conscription of human life." 
 
 However, in principle, there is a sharp line to be drawn 
 between the conscription of a nation's man-power and the 
 conscription of its wealth. When men are conscripted they 
 are taken for the length of the war and released when the 
 war is ended. When capital is conscripted, it is taken per- 
 manently and not returned. When men are conscripted, 
 they are supported and maintained. When capital is con- 
 scripted, it is used up. When men are conscripted, those 
 remaining behind are stimulated to increased efforts, and 
 given larger opportunities for individual employment and 
 profit. When capital is conscripted it preempts a preferred 
 position to the detriment of the capital remaining and, 
 moreover, discourages the capital remaining, inasmuch as 
 it involves a seizure of private property that makes a citizen 
 a poorer man. 
 
 Repudiation of national loans would compel every owner 
 of Grovernment bonds permanently to sacrifice his property. 
 Conscription of wealth would act in precisely the same way, 
 and the consequences would be the same. The only distinc- 
 tion would be that a greater number of people would be 
 involved. Were any government to levy upon its people in 
 excess of their income — ^for that is what conscription really 
 implies — the consequences would be faced of taking from 
 the owners their property, and their incentive as well to 
 develop and make what property remained to them more 
 productive and valuable. Thus the vastly ramified proc- 
 esses of industry and commerce by which new wealth is 
 created would be impaired, and the consequent pressure 
 would break down the financial and business structure of 
 the nations affected, bringing ruin in its wake. 
 
THE WORLD'S WAK DEBT 37 
 
 It is interesting to contemplate the recent suggestion 
 that was made in London, that to reduce war debt and 
 lighten the burdens of the future, an outright levy should 
 be made on 20 per cent, of the entire wealth of the United 
 Kingdom. That wealth being placed at 90 billion dollars, 
 a 20 per cent, assessment would mean 18 billions appro- 
 priated to writing of the debt, reducing the amount of the 
 debt greatly and correspondingly enhancing the credit of 
 Great Britain. 
 
 A suggestion like that can be stated simply enough. But 
 entirely apart from the principle at stake, what of the 
 practical task of putting the suggestion into execution? If 
 wealth were all in money, or all capitalized in stocks and 
 bonds, the process would be comparatively simple ; a portion 
 of each individual's banknotes or securities could be taken 
 from him. But wealth is not all thus cut and measured. 
 A little of it is represented by money; most of it is repre- 
 sented in natural riches, in current production, and in man's 
 intellect and brawn. In short, it is so varied in its nature 
 that much of it is not available for outright purchase and 
 sale, while most of it would be of no service to a govern- 
 ment if conscripted. Put to a practical test, every property 
 holder, acting simultaneously, could never sell a part of his 
 property to pay a conscription tax of any given amount. 
 If everybody sold, there would be nobody to buy. The State 
 itself could not take property in lieu of money; it has no 
 use for farm lands, factory products and a miscellaneous 
 lot of other property, while if it sought to liquidate its 
 obligations to any given bondholder by turning over 20 per 
 cent, of a farm or a mine, or 20 per cent, of a machine shop, 
 or 20 per cent, of a professional man's ability, it would soon 
 find itself in a wholly impossible position. 
 
 Looking at the proposition from a practical standpoint, 
 no nation could successfully call upon its people to turn over 
 
38 THE WORLD'S WAR DEBT 
 
 their movable and immovable assets, their natural riches, 
 their farms, their cattle, their buildings and machinery of 
 production, up to 20 per cent., or any other per cent,, for 
 reduction of national debt. Nor could it induce its bond- 
 holders to take any of these things in lieu of a satisfactory 
 payment of debt. It is true that a value might be set upon 
 all the property within a nation, each owner being assessed 
 in exactly the same proportion. There arises, however, a 
 question regarding the ability of all property holders to 
 meet a conscription assessment. There arises also a ques- 
 tion regarding the method to be followed of appraising aU 
 the property of a nation. 
 
 No nation, by seeking to capitalize its property values 
 with the purpose of levying a uniform conscription assess- 
 ment, would succeed in equitably carrying out the conscrip- 
 tion. However honestly and carefully capital was assessed, 
 the levy would not fall on all owners alike. Property is 
 varied in kind, and true values are in innumerable cases 
 impossible to determine. Land in the process of develop- 
 ment, securities whose prospect is undetermined, commodi- 
 ties whose markets are variable; these offer no easy ap- 
 praisement. A building in New York having the same 
 nominal value as a herd of cattle in Texas might, if pressed 
 upon the market, find that it had a much greater or a smaller 
 value, depending upon circumstances. In many cases prop- 
 erty values fluctuate so freely that any conscription levy, 
 however conscientiously imposed, would fall with different 
 weight upon people of the same nominal wealth. 
 
 If a conscription levy could be made to reach everybody, 
 in exact justice and according to the correct wealth of 
 everybody, the plan of wealth conscription, from a social 
 standpoint, would be feasible. But any levy based on exact 
 justice would be impossible, for not only cannot the exact 
 value of all wealth be reconciled, but all people without 
 
THE WORLD'S WAR DEBT 39 
 
 assessable wealth would be totally exempt from the con- 
 scription. Thus the entire burden would be placed on the 
 saving class of every community, the State thereby penaliz- 
 ing the virtue of thrift and placing a stamp of merit on all 
 those who fail to save. 
 
THE OBLIGATION OF TAXES 
 
 T T is not to be inferred from what has gone before that no 
 
 steps whatever will be taken by the nations to "write 
 oflf" the war debts. Efforts in that direction will be made. 
 Nor is it to be infenred that all national bonds will be 
 equally safe and soimd. All bonds wiU not be equally so. 
 
 When peace is fully established the value of the securi- 
 ties issued by the various belligerents will rest upon their 
 ability to pay interest and provide a sinking fund for there 
 extinction. But in every case, whatever the financial 
 strength or weakness of separate nations, steps to not only 
 meet but to reduce war loans can be counted on confidently, 
 for it is dear that only in the concurrent use of all possible 
 plans for offsetting societ3r*s debt burden will the political 
 and social problems immediately before us be solved in a 
 fashion to make life tolerable for the masses. 
 
 K, then, debts are not to be repudiated or scaled down 
 by currency issues or by conscription of wealth — ^if, rather, 
 they are to be honored, and not only honored but paid off — 
 it will ultimately have to be out of the people's income and 
 savings that the necessary funds are provided. Taxes, in 
 the last analysis, will have to wipe the slate clean, if it is 
 to be wiped clean at all, for while public securities are a 
 mortgage on the wealth of a nation, their security is really 
 the right to share in the earning power of that nation, and 
 be redeemed out of that earning power. 
 
 As shown during the period of the war, there is a large 
 field in which taxation can be made to operate, and the 
 practice of the war imposts will unquestionably be contin- 
 ued for a long time to come, in such form as conditions 
 demand. Taxes on the rents of natural resources, like land ; 
 rapidly graduated income taxes, such as those in effect 
 
 40 
 
THE WOELD'S WAK DEBT 41 
 
 under war conditions; unearned increment taxes of large 
 dimensions; severe inheritance taxes; these are all poten- 
 tial means for cancelling a part of the volume of obliga- 
 tions growing out of the war. 
 
 Plainly, taxes which are levied upon income in the 
 future will be severe, and will impose stem duties on the 
 people of the nations which have suffered the most in the 
 past few years. The question was often asked during the 
 war, What will be the attitude of the tax-ridden people 
 toward the institutions of the day, when the fervor of war- 
 time patriotism is gone? The question is now one of vital 
 significance, for we recognize that whereas the war itself 
 broke out at a time when people in Europe were protesting 
 against political and social institutions which had become 
 oppressively expensive, these institutions, although con- 
 ducted in the interest of people and not kings, will be even 
 more expensive than before. 
 
 In the case of all the European nations we know them 
 to be confronted with the future necessity of raising so 
 much for government purposes, without any "writing off" 
 of debt, that their people will be called upon to give up an 
 extraordinary part of their earnings to the State. We 
 know, also, that a difficult period for Europe's economic 
 structure is ahead, one that will manifest itself most 
 forcibly when armies are dissolved and when mankind goes 
 back to paying current expenses out of current income 
 instead of loans. 
 
 The difficulty will be very great of adjusting the tax 
 levies properly, for it is plain that there is a maximum of 
 taxation beyond which any nation will not find it safe to 
 go. To make a tax too extreme would be to kill initiative 
 and incentive, and thus diminish industrial and commercial 
 prosperity. If tax bills in any country were hereafter to 
 exceed the annual excess of the people's production over 
 
42 THE WORLD'S WAR DEBT 
 
 consumption, the progress of that nation would be endan- 
 gered. It is impossible for people to create new wealth if 
 they do not save. It is impossible for them to save if their 
 surplus income is taxed away from them. Were the people 
 of any nation to fail to save, or fail with their savings to 
 create new wealth, that nation would go into decay. 
 
 Tax-gatherers in the future will therefore have to leave 
 taxpayers enough to live on — at least a "subsistence mini- 
 mum." Society is described as a going concern, which must 
 earn its bread daily, and above all things the organization 
 by which it earns its bread must not be impaired in its 
 motion. Still, in studying the significance of war bonds 
 and tax obligations on the prosperity of the future, we can 
 offset that significance to a very large extent — and offsets, 
 it will be admitted, are of great importance in this connec- 
 tion. It will be recognized by those who give the matter 
 a moment's thought that, in so far as national obligations 
 are held hereafter by the people of the several nations which 
 sold the bonds, the people of those nations will be their own 
 mortgagees, and therefore in debt to themselves, paying bond 
 interest to themselves out of their own wealth. Taxes to 
 meet the interest on internal government bonds will go back 
 to the people, and not be deducted outright from their in- 
 comes and lost to them, as though paid to another planet or 
 sunk in the sea. 
 
 Thus, in all cases where debts are internal, the money 
 that is hereafter collected from people to pay bond interest 
 will balance the money paid to them on their coupons. It 
 will not extinguish any part of the people's wealth, nor 
 will it set a barrier against an accumulation of wealth in 
 the future. On the contrary, the money will be available 
 for expenditure or investment, serving just as much to per- 
 manently increase wealth as if the government indebtedness 
 did not exist. 
 
THE WORLD'S WAK DEBT 43 
 
 It is most interesting to study this phase of the situa- 
 tion from different angles. By purchasing bonds during 
 the course of the war, every individual capitalized that part 
 of his own labor which produced the savings out of which 
 the bond was purchased. Let us see what this meant. An 
 individual, we will call him Jones, was of a rather shiftless, 
 spendthrift nature. He never worked hard, and always 
 spent what he earned. As a consequence of the war he was 
 made to work regularly, and had economy forced upon him. 
 Coincident with an increase in his wages, he was forced to 
 restrict his expenditures. 
 
 His income began to exceed his outgo, he was saving 
 money. Soon he had $1,000. He bought a war bond. What 
 had happened? Instead of $1,000 being wastefuUy spent 
 that amount had been saved. Jones was richer by $1,000. 
 His country was richer, too. For Jones had been made a 
 better producer. His country having incurred a heavy 
 interest-bearing debt, making necessary an increase in taxes 
 to meet the interest requirements, Jones was called upon to 
 pay more to his government than before. Hence his obliga- 
 tion to continue a better producer than before. 
 
 The war ended, his government now plans to levy taxes 
 that are more than necessary for administrative purposes 
 and bond interest, for it desires to reduce its debt. Jones 
 is therefore called upon to pay in taxes sufficient to enable 
 his government to establish a sinking fund. The war bond 
 which Jones holds is due for pajnnent in 20 years ; after the 
 elapsed time, out of its sinking fund his government will 
 turn over to Jones $1,000. 
 
 Jones will be better off than before he subscribed for 
 the loan and his country will be better off, too, for Jones has 
 been made a more respectable and hard-working citizen 
 than he was before the war, producing more and wasting 
 less, so that he might furnish the government with money 
 
44 THE WORLD'S WAE DEBT 
 
 to pay off his loan. By being forced to save in the first 
 place, by investing in a bond in the second place, and by 
 striving to rid his government of the burden of that bond 
 in the third place, Jones has made himself richer, and also 
 has made his country richer by making himself productive. 
 It must not be thought that because bond interest is a 
 source of income to bondholders, an internal debt is a bless- 
 ing altogether. It is not, except in instances like that illus- 
 trated above. It might become a detriment and a burden, 
 for taxes to meet interest payments on government debt 
 might involve from the start a drain on industry and 
 place a premium on idleness. Had the war not come, funds 
 that are now invested in government loans would have 
 been put to other use, and productively employed. The 
 investor who now has war bonds would then have had other 
 securities, would have received an income each year, and 
 would not have had to pay taxes to provide that income. 
 
 From a purely financial standpoint, however, a country 
 that has stimulated the labor and production of its inhabi- 
 tants and has marketed all its war loans at home, will, if it 
 pays off the loans out of the compulsory savings of the 
 people, have made its people richer than before, and will, 
 further, have made itself richer to the extent that it in- 
 creased the industrial efficiency and the frugality of that 
 people. 
 
OFFSETTING TAX BURDENS 
 
 TTTE have the comforting assurance that the huge loans 
 ' ' assumed by the nations in the past four years 
 will not weigh against the future as the bare figures of war 
 loans and taxation suggest they will do. Years hence people 
 will be toiling to pay interest on war loans. But the interest 
 will be paid back to the people toiling, and so will not 
 extinguish capital or involve any fresh economic loss. The 
 capital raised by taxation in the future will flow from the 
 people into the public treasuries, thence back to the people. 
 Many observers still fail to carry this thought to its logical 
 conclusion. It is heard frequently that war debts will bear 
 down civilized people for centuries to come. They will not 
 do so, unless they impose upon a given group of people 
 a drain that cannot be offset. Tax payments of the future 
 will be paid and received back again by the people then 
 living, being turned over to them for services and bond 
 interest, and being available for their benefit and enjoyment. 
 
 Every nation's debt, it is true, will not be entirely 
 internal; the loans that have been made by the powerful 
 nations to their weaker allies indicate that the taxes of their 
 people will be collected to make interest pajrment to other 
 people for years to come. That is a problem for the future 
 to take care of. But in the meantime, the significance of 
 turning taxes back within the borders of the large countries, 
 however it is done and by whatever method, is an element 
 the future influence of which cannot be underestimated. 
 Certainly the method will not destroy any nation flnancially, 
 nor strip it of its wealth. 
 
 The fact that internal loans are really a lien given 
 by a people to themselves has still another significance. It 
 
 45 
 
46 THE WORLD'S WAR DEBT 
 
 "socializes" the obligation and minimizes the danger of 
 whatever unrest might occur. It lessens the drift of a 
 popular movement toward repudiation, for the forcing of 
 any contract of such a debt would simply operate against 
 the people forcing the action. Being debtors to them- 
 selves, no people would be inclined to call for a declaration 
 of insolvency by their government. If it should transpire 
 that the bonds of a nation were absorbed by a few rich men, 
 so that this few received the entire benefit of the bond 
 interest and the majority bore the burden of excessive 
 taxes, the case might be different. But so enormous have 
 been the bond issues, and so wide has been the distribution 
 of the debts in all the nations, that any one-sided condition 
 is out of the question. 
 
 It is plain that the socializing effect of huge internal 
 loan obligations will not go all the way ; nor will it reconcile 
 all the people of the nations to whatever taxation schemes 
 are determined. Still, radical suggestions notwithstanding, 
 it will be recognized that, whatever occurs, taxation must 
 be equitable if the several nations imposing taxation on 
 their citizens are to move forward in prosperity and posi- 
 tion. Any other than honestly conceived systems will be 
 stubbornly opposed, and even if not opposed will lead to 
 failure. Taxes can never be successful for any long time 
 that press unequally on different classes of people. There 
 is a wealth of experience to demonstrate that. It is per- 
 fectly true that the loans of the nations have pledged a 
 large proportion of the people's earnings of the future to 
 the lenders of the past few years. It is true that not all 
 taxpayers of the various nations to-day hold government 
 bonds, and that of those who do hold them, only a certain 
 number have a sufficient amount to have their interest fully 
 offset tax payments. 
 
THE WORLD'S WAR DEBT 47 
 
 Nevertheless, taxation systems cannot seek deliberately 
 to penalize those who hold bonds to the advantage of those 
 who do not. If bond interest were to go hereafter to only 
 a few and not to many, it might be different, for then a few 
 would grow very rich and many would grow very poor. A 
 leisure class, a class of non-producers, would be built up to 
 be carried on the backs of the workers after the war. 
 Drawn away in taxes from the manufacturer, the farmer, 
 the merchant and the wage-earner, money passing through 
 government treasuries would be paid in many instances to 
 single bondholders who, if they had enough bonds, would 
 be enabled to live as leisure charges on the community. 
 
 But the very wide distribution of the war loans insures 
 against the securities becoming an excessive drag on 
 industry and a premium on idleness. In the United States 
 alone, there are upward of twenty million separate govern- 
 ment bondholders. The situation abroad will be governed 
 by special circumstances, and upon each state there will 
 rest the responsibility to so levy taxes that they will not fall 
 with crushing weight upon any portion of the community 
 and at the same time not sustain indefinitely a class of non- 
 producers. There is bound to be discontent in some of the 
 European countries which have mortgaged themselves most 
 heavily, no matter what schemes of taxation are resorted to. 
 But so long as taxation is adjusted to reach all the people, 
 and not fall too heavily on the workmen on one side or the 
 capital classes on the other side — ^the classes, that is, which 
 are thought of when ordinarily the term "conscription of 
 wealth" is used — it will not cause the social unrest so 
 greatly dreaded by all large states. 
 
 The progress of all the nations which were engaged in 
 the war will, in the years to come, depend not only upon 
 the prosperity of the working classes but also upon the 
 incentive that is given capital. Hence, capital as well as 
 
48 THE WORLD'S WAR DEBT 
 
 labor will have to be justly treated. Were capital to be 
 penalized to an undue extent, so that fortunes became 
 impaired, recovery from the war would come slowly, and 
 the condition would bear heavily on national prosperity. 
 Nations grow rich as the individuals who go to make up 
 those nations grow rich. Conversely, nations decline as 
 the individuals within the borders of those nations are 
 impoverished. People in peril from an enemy have shown 
 since 1914 how willingly they submit to almost any hard- 
 ship at the hands of their nation in order to insure their 
 defense. But people cannot submit thus forever; relieved 
 from peril they are bound to call for relief. If instead of 
 relief their welfare is threatened by government measures, 
 they will lose their zeal, particularly if not only the fruit 
 of their labor but their capital and means of production and 
 livelihood as well are menaced. 
 
WHAT THE FUTURE PROMISES 
 
 T TNPARALLELED as the various national debts have 
 ^ grown to be, there are good and substantial reasons 
 why one may look out upon the future with hope, having 
 confidence that increasing wealth and productivity will 
 make the burdens of taxation less onerous as time goes on. 
 Objection may be made to counting on this ; it is frequently 
 insisted that the prospective earning power of future 
 generations is something upon which we dare not speculate, 
 and it is held that we have no assurance whatever that the 
 future earning power of the people will increase in a way 
 to offset the enlargement of national debt. 
 
 That has been said all through the history of mankind. 
 One generation, fearful regarding the generation that was 
 to come, looked out with fear and trembling on the pros- 
 pect. Yet that generation was speedily surpassed in accom- 
 plishments and riches. Nations are like men ; great respon- 
 sibilities develop great capacities. No man is ever so great 
 as when the demand is greatest on his manhood and his 
 courage. No nation is ever so great as when it faces a 
 great need, and we have precedent to show how nations 
 have grown and flourished, which after war, might well 
 have been said to face ruin. France has repeatedly given 
 example to the world of a superb ability to overcome 
 the weight of war burdens ; Great Britain, Holland and even 
 the Balkan States have done likewise. 
 
 Macauley spoke of the prompt payment of the interest 
 on 800 millions sterling of British debt, in 1815, as a thing 
 that in 1792 would have been as hard of belief as Alladin's 
 Lamp or the Purse of Fortunatus. That interest at 5 per 
 cent, meant to the Empire of Great Britain a yearly interest 
 obligation of £40,000,000, or roughly $200,000,000. "It was 
 
 49 
 
50 THE WOELD'S WAR DEBT 
 
 in truth a gigantic debt," wrote Macauley, "and we can 
 hardly wonder that the cry of despair should have been 
 louder than ever." 
 
 Looking back on the day when the people of a whole 
 Empire were in despair over the need to meet an annual 
 interest obligation of $200,000,000 shows us, in perspective, 
 the fallacy of human judgment. In 1918 the net earnings 
 of a single American industrial corporation, with a few 
 thousand shareholders, were at a rate suflSciently large to 
 meet very comfortably the interest requirements which were 
 so appalling to the whole British Empire with its 30,000,000 
 inhabitants, a century ago. In a single fortnight of Novem- 
 ber, 1918, the American people made a gift of money to 
 conduct welfare work among its soldiers that would have 
 taken care of the interest on the British Empire's "gigantic" 
 debt of 1815 for more than a whole year. 
 
 If a single industrial corporation can now earn more 
 than enough to support the debt of the world's greatest 
 €!mpire, as that debt stood in 1815, and if in a few days the 
 people of America can make a gift of an amount suffi- 
 cient to support that debt, what is to be said of the support 
 that will be afforded in the future, of the debt that is now 
 being incurred? A significant thing about all the proposals 
 that look to overcoming the future burdens of war debts is 
 that they are essentially economic rather than financial. 
 The ability of nations to pay interest on war bonds and 
 gradually wipe them out will depend, everyone will admit, 
 on the ability of the people to pay taxes. But that ability, 
 in the final analysis, will depend upon economic factors; 
 namely, the profits that are derived from production, indus- 
 try and trade. 
 
 For each nation, then, the ability to ease the financial 
 
THE WORLD'S WAR DEBT 51 
 
 legacy left by the war will depend upon the answers to these 
 questions : 
 
 Will that nation he impoverished because of the war? 
 Will it recoup by developing its economic resources of 
 
 all kinds ? 
 Will it compete actively in the markets of the world? 
 Will it hold its own in any competition for capital? 
 Will it retain its labor? 
 
 If the answers to these questions are satisfactory, each 
 nation for which the answers are made will be able to 
 support its debt, and prosper withal. The welfare of every 
 nation rests upon its capacity for production. In consider- 
 ing the whole matter of national bankruptcy, then, and of 
 ruin, we must recognize the fundamental principle that 
 bankruptcy after all depends on other things besides debt, 
 and that ruin is a relative term. No matter how much a 
 nation may borrow or how high its debt is piled, if its 
 wealth and income increase proportionately it is solvent. 
 If its wealth and income increase more rapidly than debt, 
 it is more prosperous than before. 
 
 The wealth of the United Kingdom was carefully 
 computed at $12,500,000,000 a century ago ; it is computed 
 as high as $90,000,000,000 now. The wealth of France has 
 increased six-fold, from less than $10,000,000,000 in 1816 
 to something like $60,000,000,000. A hundred years ago 
 there was no German Empire, and the wealth of the German 
 States was in the aggregate less than $10,000,000,000. 
 United Germany's wealth at the present time is stated at 
 $80,000,000,000. 
 
 In the century following the Battle of Waterloo the 
 British nation gained vastly in prosperity, although its debt 
 was larger than ever before. That was because wealth 
 increased very rapidly. From 1714 to 1814 the population 
 
52 THE WORLD'S WAR DEBT 
 
 of the United Kingdom doubled, while wealth increased 
 
 scarcely four-fold. From 1814 to 1914 the population 
 
 increased 2% times, while wealth increased seven times. 
 
 A table will show this : 
 
 Wealth 
 Year Population Wealth per capita 
 
 1914 47,000,000 $90,000,000,000 $1,915 
 
 1814 19,000,000 12,500,000,000 660 
 
 1714 8,000,000 3,000,000,000 375 
 
 In similar fashion France has shown how wealth could 
 increase in face of war. Notwithstanding the blows to her 
 prosperity dealt by the revolution of 1789, the Napoleonic 
 period, the revolution of 1848, and the Prussian war of 
 1870, industry and accumulation went on in France, so 
 much so that compared with 1789 the wealth of France up 
 to the opening of the Great War had increased more than 
 eightfold. Reckoning 5 francs to the dollar, this is the way 
 the figures may be compared : 
 
 Wealth 
 Year Population Wealth per capita 
 
 1914 40,000,000 $65,000,000,000 $1,625 
 
 1814 29,000,000 10,000,000,000 345 
 
 1789 25,000,000 7,500,000,000 300 
 
 The determining factor of the whole matter in the future 
 will after all, then, lie not so much in the bulk of indebted- 
 ness as in the productive power of the people who support 
 that indebtedness. Depending upon the wealth production 
 of the people, the support of war debts will be governed 
 accordingly, and debts will be wiped out not by any repudia- 
 tion or conscription, but by encouraging industry, trade, 
 commerce and economic activity of every kind. 
 
THE GOAL OF THE NATIONS 
 
 TTERE is the goal all the nations have in view — an in- 
 -'--*- crease in the amount of the people's wealth and income 
 in sufficient ratio to enable them to live decently and save, 
 and at the same time meet the taxes that are required for 
 interest and sinking fund of war debts, and for the current 
 public expenditure. It is only fair to point out that in 
 seeking this goal the nations will have to contend with more 
 than financial and economic problems. Social, political and 
 territorial problems of the first importance, that will have 
 a distinct bearing on the material welfare of the world, will 
 have to be solved. Readjustments among the nations will 
 have to be effected. It used to be said that the countries 
 of the world had become dependent upon each other for 
 food, raw materials and other supplies to such an extent 
 that international trade and credit had become common 
 terms and would not permit any such rupture of public faith 
 as a world war would involve. "The day of national self- 
 sufficiency is gone," was a favorite expression. But the 
 war came, in the form of a cataclysm interrupting all peace- 
 ful relations, abrogating all commercial treaties, cutting oflf 
 all sources of supply, and forming new trade relations. 
 
 New social, political and territorial problems will thus 
 have to be studied and settled in days to come, just as 
 new commercial treaties will have to be made presently, 
 new sources of supply developed, and new trade relations 
 entered into. On the outcome of these will rest the future 
 prosperity of the world. The United States is fortu- 
 nately placed in its relation to all the other nations. We 
 were the last to draw the sword, and have suffered the least. 
 Moreover, as the chief source whence things needed are 
 
 53 
 
54 THE WORLD'S WAR DEBT 
 
 supplied, we are destined to be an important factor in Euro- 
 pean reconstruction, in a way that will gain fresh income to 
 offset our war losses. But England, France, Italy, Belgium 
 and Russia on one side, and Germany, Austria-Hungary, 
 Bulgaria and Turkey on the other, will not recover their 
 losses so easily. Whether they compete with one another 
 as never before for commercial supremacy, or by under- 
 standing and cooperation seek means that will be for the 
 advantage of all, the problems they face are too great to 
 be readily brushed away. 
 
 How all the nations will compete for trade after the 
 war has no place in this discussion. But in the recognition 
 that here is a vital consideration in the matter of over- 
 coming the war debts, the subject must occupy a large place 
 in people's thoughts as time goes on. International trade 
 in the past was the source of great wealth for England and 
 Germany, and, in lesser degree, for France. It secured 
 advantages from their natural resources and from the skill 
 of their inhabitants which never could have been obtained 
 if they had been shut up within themselves. An island, her 
 shipping trade was England's greatest treasure. It was on 
 the efforts of her merchant sailors that the British Empire 
 was built, making the sea forever a partner in her national 
 fortunes. For Germany, as well, manufacturing and trade 
 were vital ; a considerable proportion of her people in normal 
 times, like those of England, subsisted entirely on oversea 
 trade, and her whole economic and financial systems were 
 welded into an organization which had for its basic purpose 
 the exploitation of trade and manufacturing. 
 
 Of the greatest importance to their future, therefore, 
 are the plans which these countries follow to regain trade 
 advantages, and to resume productive effort that will bring 
 new wealth within their borders. Broadly speaking, every- 
 thing will rest upon the manner and comspleteness of the 
 
THE WORLD'S WAR DEBT 55 
 
 reopening of the ports of those nations which reached their 
 recent full development through trade with other lands. 
 Their ability to go on developing markets beyond their 
 frontiers, in cases where markets are not adequate at home, 
 will answer every question that relates to their prosperitj' 
 and their solvency. 
 
 Is it to be wondered, then, that it is seriously asserted 
 that the war changes will affect the countries of the world 
 far more through readjustments in trade relationships than 
 through any indemnities, or public debts, or appropriations 
 of land and property? Leading statesmen for months 
 before Germany's defeat issued many warnings against the 
 talk of a "war after the war" ; trade policies, they said, that 
 were founded on the economic oppression or commercial 
 isolation of any people, would never succeed. On a more 
 or less even footing the nations will seek to place the fruits 
 of their industry in ever-increasing volume on the world's 
 markets, in order to gain an income out of which to pay 
 taxes. Whatever comes, we may expect that nations will 
 seek to weave themselves into closer economic relationships. 
 The war has brought home the interdependence of the 
 world's people, even though at the same time it has so dis- 
 located all manner of connections that new connections, 
 when formed, must be substantially different. 
 
 The necessity for restoring the world to former condi- 
 tions will henceforward impel individuals to work hard and 
 nations to operate in harmony with other nations, just as 
 the necessity to carry on the war stimulated every individual 
 to extraordinary efforts and every nation to harmony with 
 its allied nations. Hundreds of thousands of capable pro- 
 ducers have been killed; hundreds of thousands of others 
 have been so far incapacitated that their usefulness is ended 
 for all time. Property value of enormous amount has been 
 
56 THE WORLD'S WAR DEBT 
 
 destroyed. An important percentage of the knowledge and 
 facility by which mankind had command over the resources 
 of nature has been lost, while the organization that had been 
 developed for carrying on the work of the world has been 
 torn apart, not to be put together again for a long time. 
 
 It is because of all this that hard work and cooperation 
 will be required. Rightly conducted, mankind's efforts to 
 regain its old position will be rewarded eventually, for the 
 «arth and all its wonderful resources are still ours, and 
 will support and reward any extraordinary efforts we shall 
 make to overcome the legacy of the war. We have, to work 
 with, the broad acres, the forests, mines, water powers and 
 other productive sources of nature, practically as we had 
 "them when the war began. We have the steam, electricity 
 and other products of discovery and invention which 
 hitherto quickened and increased the production of wealth. 
 We have the manifold tools made by human hands to develop 
 natural wealth. Outside the territory where the warfare 
 was conducted, we have the railways, factories, warehouses 
 and equipment, evolved for the working of the earth's 
 resources, just as we had them before the summer of 1914. 
 The whole intricate machinery remains by which natural 
 wealth is first acquired, then converted into the commodities 
 of trade and distributed. In many cases that machinery 
 lias been greatly developed and improved. 
 
 It was during the course of the war that the full might 
 and strength of the nations, applied by means of their 
 "tangible wealth, were marshalled in a manner to show just 
 what the world was capable of doing for war. Hencefor- 
 ward the resourcefulness and energy of the nations will 
 be marshalled in a manner to show just what the world is 
 capable of doing for reconstruction. In recent years, prior 
 to the fateful summer of 1914, the annual increment of 
 -wealth in the nations engaged in the war was something 
 
THE WORLD'S WAK DEBT 57 
 
 like 15 billion dollars. It would be useless to estimate what 
 the increase will be in the years to come. But there will 
 be an increase ; of that we may be sure. People will go on 
 living, energy will be stirred by the need therefor, invention 
 will given new forms of machinery and instruments of pro- 
 duction. Scientific organization, and all the improvements 
 in methods and facilities that distinguish the business world 
 of to-day from that of a century ago, will be brought into 
 play, so that as soon as industrial progress is resumed, debts 
 will grow less oppressive in the ratio that the productive 
 power of the countries increases. 
 
 The war revealed many things to us, but more than 
 any other it revealed the amazing resourcefulness of the 
 human mind. During the progress of the war no great 
 sums of hidden wealth were unearthed within the bounds 
 of any nation, out of which the war might be carried on. 
 Yet the war grew and spread until it embraced the world, 
 proceeding at a pace that confounded all prophesies of ruin 
 and disaster. 
 
 It is from the examples of the past that we gain our 
 ability to judge the future. Man, in the conduct of his af- 
 fairs, is a resourceful creature, capable of supreme and pro- 
 longed effort, and when properly organized, of notable ac- 
 complishments. It was of Abraham Lincoln that Ingersoll 
 said, "He always rose to the level of events," while of Oliver 
 Cromwell another writer said, "Fate dug down and tapped in 
 his nature great reservoirs of unguessed strength." Beneath 
 all humanity there is a lake of power, as yet untapped, and 
 it is in our assurance of this, as well as in man's wonderful 
 energy and resourcefulness, as we now find them disclosed, 
 that we secure our hope in the future. Devoted to the cause 
 of reconstruction with the same spirit that they were other- 
 wise devoted for more than four years, the elements of 
 
58 THE WORLD'S WAR DEBT 
 
 man's energy, resourcefulness and power will surely avail, 
 now that peace has returned. They will lift living standards 
 to a higher plane than they were in the past, overcome the 
 debt burdens, and wipe out the blight of the war. 
 
^ In presenting such figures and thoughts on the 
 Indebtedness of the World as the compass of this 
 volume would permit, the Mechanics and Metals 
 National Bank of the City* of New York trusts that 
 it has provided a serviceable reference book for those 
 whose interest in the financial significance of the 
 war is more than cursory. 
 
 ^ Tremendous changes were wrought by the war, 
 not least among them being the change in the 
 economic position of our own United States, in its 
 relation to the rest of the world. Banking operations 
 are being conducted on a scale that is larger and 
 wider than ever seen here before. 
 
 fl Keeping pace with the growing demands upon 
 the banking resources of the nation, the Mechanics 
 & Metals National Bank has consistently increased 
 its facilities and broadened its scope of operations, 
 and invites correspondence from all those who re- 
 quire new or additional banking service in domestic 
 and foreign fields. 
 
The Mechanics & metals national bank 
 
 OF THE CITY OF NEW YORK 
 ESTABLISHED 1810 
 
 OFFICERS 
 
 President 
 GATES W. McGARRAH 
 
 Vice-Presidents 
 JOHN McHUGH WALTER F. ALBERTSEN 
 
 FRANK O. ROE HARRY H. POND 
 
 SAMUEL S. CAMPBELL 
 
 Cashier 
 JOSEPH S. HOUSE 
 
 Assistant Cashiers 
 JOHN ROBINSON ARTHUR M. AIKEN 
 
 ERNEST W. DAVENPORT WILUAM E. LAKE 
 
 ALEXANDER F. BRYAN, Auditor 
 
 NORTH McLEAN, Manager. Foreign Department 
 
Cornell University Library 
 HJ8011.M48 
 
 The world's war debt; a record and analys 
 
 3 1924 010 635 187 
 
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