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Home -> Merlin Harold Hunter -> Outlines of public finance -> Chapter 20 continue

Outlines of public finance - Chapter 20 continue

1. Preface

2. Chapter 1

3. Chapter 1 continue

4. Chapter 2

5. Chapter 2 continue

6. Chapter 3

7. Chapter 3 continue

8. Chapter 3 continue

9. Chapter 4

10. Chapter 4 continue

11. Chapter 4 continue

12. Chapter 5

13. Chapter 5 continue

14. Chapter 5 continue

15. Chapter 6

16. Chapter 6 continue

17. Chapter 7

18. Chapter 7 continue

19. Chapter 7

20. Chapter 7 continue

21. Chapter 9

22. Chapter 9 continue

23. Chapter 10

24. Chapter 10 continue

25. Chapter 10 continue

26. Chapter 11

27. Chapter 11 continue

28. Chapter 11 continue

29. Chapter 12

30. Chapter 12 continue

31. Chapter 13

32. Chapter 13 continue

33. Chapter 13 continue

34. Chapter 14

35. Chapter 14 continue

36. Chapter 14 continue

37. Chapter 15

38. Chapter 15 continue

39. Chapter 15 continue

40. Chapter 16

41. Chapter 16 continue

42. Chapter 17

43. Chapter 17 continue

44. Chapter 17 continue

45. Chapter 18

46. Chapter 18 continue

47. Chapter 18 continue

48. Chapter 19

49. Chapter 19 continue

50. Chapter 19 continue

51. Chapter 19 continue

52. Chapter 20

53. Chapter 20 continue

54. Chapter 20 continue

55. Chapter 20 continue

The reader will be able to find many interesting com-
parisons from this table and the preceding one. The
rapid increase in the expenditures and the enormity which
they reached is almost startling. The highest daily ex-
penditure of Great Britain was about $33,000,000, while
that of the United States was nearly double that sum.
Another interesting feature is that the greatest expendi-
ture came after the armistice was signed, and that it was
still large months thereafter.

Source of Revenue. The item of interest which next
commands attention is what was the source to which the
administrators of these various countries could contin-
ually turn and always find a supply of funds ready to be
used? The two sources upon which greatest reliance was
placed were, of course, loans and taxes. In the light of
the discussion of these methods as factors in war finance
in the preceding chapter, a comparison of the amounts
secured from each source by the principal nations will be
interesting. The following table presents these facts in
tabulated form, and also shows the extent to which each
country relied upon taxes. The total receipts and dis-
bursements of the United States for the war years, and
for preceding years, as well as some ratios, are given hi
another table. 1

These tables present a number of interesting aspects.
The United States and England, it will be noticed, raised
a much larger percentage of their revenue from taxes
than did the other countries, in that from 25 to 30 per cent
came from taxes. The others were much lower. The fact
is clearly demonstrated that, in spite of the great increase
in taxes, the majority of the revenues came from loans.
Then, too, it is interesting to notice the comparative use
that was made of direct and indirect taxes. In the table
of revenues and expenditures for the United States, the
growing importance of the direct system for securing
revenue is illustrated. The change from a less than 10
per cent to over 65 per cent reliance upon this form
goes to establish its efficacy.

A similar study of the use of direct and indirect taxes
hi the other countries will reveal a wide variation in the
extent to which each was used. In England the percent-
age of direct taxes rose to nearly 75. In Italy slightly
more reliance was placed upon direct taxes than before
the war, but their use was not extended. France is the
exception, for the percentage of the revenue which was
raised from direct taxes continued to fall until it reached
about 25 per cent, when it began to rise again. In Ger-
many the habit of the government had been to rely
mainly upon indirect taxes. This policy was followed
rather closely until near the end of the war, when some
direct taxes were used. In studying the relative merits of
these two forms as suitable for emergency financiering, much
consideration should be given to the incidence of the tax, so
that one class of citizens would not be unduly burdened.

244. The Expansion of Money and Credit Greatly Af-
fected the War Cost. During the Great War, owing to
the advanced systems of banking found in most countries,
the issue of fiat money was used much less extensively
than during our Civil War. Much the same results were
effected, however, by the rapid expansion of bank notes,
and these results were, of course, magnified in the coun-
tries where specie payments were stopped. The rapid in-,
crease in prices, in the terms of which the governments
had to buy goods, made the money expenditures appear
much greater, as the war progressed, than was the actual
consumption of goods. It has been estimated that the
value of goods demanded by the war at the pre-war price
level would be about one half of the total monetary out-
lay. Since such a large part of the finances came from
loans, however, which must be paid from taxes during a
presumably lower price level, the demand upon goods will
be greater than the figures represent at present.



Expansion in Different Countries. A comparison of the
amount of notes in circulation in the various nations just
before the war and about the middle of 1919 shows the
increase to be about twentyfold. With this must be
considered, also, the state of industry, in which production
fell off so that there were fewer goods to be exchanged for
the money. Russia took the lead in the amount of per
capita note expansion, which was carried to such a degree
as to make the gold reserve practicably negligible. France
came second hi the amount of per capita inflation, yet her
reserve was maintained to a much better degree than that
of either Austria-Hungary or Turkey, where inflation was
not so marked. In the total circulation of notes, Russia
increased her amount about forty-five times; Germany
and Austria-Hungary about eighteen times; Great Brit-
ain a little less than ten times; while the increase in the
United States, Italy, and France was about four times.
The following table will portray at a glance the changes
in the note circulation during the war period, for the im-
portant countries. In addition to the increase hi note
issues, some of the countries made large issues of treasury
notes, as in England, for example, which of course in-
creased the inflation.
Effects of Price Changes. There is no question but that
this greatly inflated currency was one of the principal
causes of the rapidly rising prices. In some countries the
above table does not show the entire increase in circulating
medium. In the United States, for example, the amount
of gold com almost doubled between 1913 and 1919.
While this did not actively circulate to any extent, yet it
formed the basis for extending a much larger volume of
credit and, consequently, purchasing power.

The burden which resulted from this inflation was re-
flected hi the nation-wide and world-wide expression, "the
high cost of living. " Various index numbers have been
compiled to show the general price changes during the
war period, and from the results it appears that wholesale
prices in the United States were about 100 per cent higher
in 1919 than in 1913. In some of the other countries the
increase was much greater. Some classes were benefited
by this situation, especially those industries whose ex-
penses of production did not rise as rapidly as prices.
This was particularly true of extractive industries, and a
large number of industrial concerns. It could not help
being a benefit to plants producing for the government on
the basis of cost plus contracts. The higher the level of
prices the greater their expenses, and the larger their
percentage of return.

These gains from inflated prices were more than offset
by the burdens imposed upon other classes. While no


accurate index of general wage changes has been compiled,
it is well known that wages did not rise as rapidly as prices,
and it is to these classes, that must buy at the inflated
prices, but with incomes that have not risen proportion-
ately, that the high cost of living has its real significance.
The situation represents an unjust distribution of the war
burdens in fact, it is a tax upon one class of the popula-
tion in favor of the class that gains from rising prices.
Inflated prices, also, may work a long-run injustice as
well. The increased prices have added to the costs, and
hence to the amount borrowed by the government. The
loans come to a large extent from those who have gained
from the increased prices. The levy of taxes in the future
to repay the loans will, without doubt, fall with an unjust
proportion upon the classes which have been injured by
the inflated prices during the war.

245. The Indirect Costs of the War Must Not Be Over-
looked. Thus far, in considering the effects of the Great
War, attention has been directed almost entirely to the
money outlays. While these were difficult to measure,
yet some approximation could be reached. In addition
to these direct costs, moreover, are many indirect costs,
which are no less burdensome to individual citizens and
the nation as a whole. Upon some of these costs a rough
money estimate can be placed, while many others are of
such an intangible nature that little more can be done at
arriving at a measure of their burden than to point them

Loss of Life. One of the first drains upon the resources
of the nation which immediately occurs to everyone was
the overwhelming destruction of productive energy
through the loss of human life. This has always been a
wasteful feature of war, but the number of casualties due
to the Great War makes all wars of the past appear as
mere pygmy occurrences. It is too soon to have accurate
figures, but the estimates are near enough to the truth for
purposes of comparison.

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