Chapter 9
One objection to the average internal bond is that with the exception of England the native money has greatly depreciated in international value. Of course, if all these countries finally get back to their old standards of wealth, these investments will yield a very large profit. To reap this benefit, however, it will be necessary to hold the securities for a considerable period because it will take the warring countries a long time to "come back." Another fact in connection with internal bonds well worth remembering is that while belligerent countries will scrupulously respect their obligations held by a great neutral like the United States whose good will and resources will be very necessary after the close of hostilities, there is the possibility, remote though it may be, that repudiation of home issues may come in the shock of readjustment.
In a word, in purchasing a foreign war bond be sure to get a stable national name, accumulated wealth, habits of thrift, an ample taxing power, and a good conversion basis behind the security.
Amid all our war lending lurks a menace to future and necessary American financing. In flush times like these it is comparatively easy for us to spare large sums of money, because such capital is available and not missed at home. If there was the absolute certainty that all the foreign short term loans would be paid on maturity there would be no reason to show the red light.
But any man who knows anything about the European financial situation also knows that it will be extremely difficult, almost impossible, for the fighting nations to meet their obligations within the time specified. This does not mean that they will be unable to pay. It does mean, however, that the inroads of the war will have been so terrific that pressing needs will so continue to pile up that renewals must be sought. Thus our money will still be tied up.
What will happen at home? Simply this. American enterprise which will need capital for expansion may have to wait. In discussing this matter one of the best known American bankers said this to me the other day:
"If America had a benevolent despot I believe that he ought to set aside an arbitrary sum which would represent the limit that we as a nation could lend each year to foreign countries."
There is still another hardship in this outward flow of our capital. It lies in the fact that the very attractive terms of the war loans have made it very difficult for American railroads and corporations to finance their needs. They must pay more for their requirements than ever before.
Yet this war financing has done more for us than merely provide an opportunity for the profitable employment of hundreds of millions of dollars. It has brought back home about $1,500,000,000 of our securities, mostly in railroad, that were held abroad. This has not only meant a considerable cutting down in the sum that we formerly had to send to Europe in interest and dividends, but it has helped to make us more economically independent. There is still $1,780,000,000 of our securities held abroad, and if the war keeps on much longer a great portion of it is likely to come back.
There were two good reasons for this liquidation. One was that the holder of the American security in England is subject to a very high tax in addition to the normal income tax on large fortunes. Another was the necessity for the mobilisation of American securities to become part of the collateral offered by the British Government for the loans made in this country. In many instances the English owner of American securities has simply loaned them to his country as a patriotic act. In numerous other cases, however, he has sold them outright and put the proceeds into home war issues.
You have seen how our millions have joined that greater stream of European billions to meet the rising tide of war cost. How is this vast debt to be paid and what is the paying capacity of the nations involved?
In analysing the war debt and its costly hangover for posterity, you must remember that not all of it is in actual money. The nations at war have not only taxed their economic reserve through the destruction of productive capacity in the loss of men and material--as I have already pointed out--but have made a costly and well-nigh permanent drain upon what might be called their nervous systems.
Look for a moment at the American Civil War whose cost was a mere flea bite as compared with the stupendous price of the European Conflagration. At the end of that war only half of its reckoning was represented in the country's bonded debt. After fifty years we are still paying in some way for the other and larger outlay, the invisible strain on the country.
Strange as it may seem in the light of the present frightful ravage in Europe, no country has ever been completely ravaged by war. When I returned from Europe more than a year ago, I was convinced that economic exhaustion would be the determining factor: that victory would perch on the side of the biggest bank roll. After a second trip to the warring lands I am convinced that I was wrong in my first impression. Observation again in England and France leads me to believe that man power--beef, not gold--will win. The extents to which financial credit can be extended in the countries at war seem to be almost without limit.
This leads to the final but all essential detail: How will the European nations pay?
Since the Allies practically have a monopoly on the American money sent abroad for war purposes, let us briefly look at the equity behind the Thing known as National Honour. Its first and foremost bulwark is Wealth. Take England first. The wealth of the United Kingdom is $90,000,000,000: the annual income of the people $12,000,000,000. To this you can add the wealth, resource and income of all her far-flung colonies and the immense amount of money due to her from foreign countries. Unlike France and save for a few Zeppelin raids, the Empire is absolutely free from the ravage of war. The principal assault has been upon her income, for her great Principal is still intact.
In examining the methods adopted by England and France to meet the cost of the war, you find a sharp difference of procedure which is characteristic of the countries. Following the British tradition, England is trying to make the war "pay its way" with taxation. Out of a total expenditure of $9,500,000,000 for the current year, no less than $2,500,000,000 was raised by taxation. The rest was obtained by loans at home and abroad.
The income tax alone will serve to show the enormous increase in tribute. From .04 per cent on small incomes to 13 per cent on large ones before the war it has risen to 1 per cent on small incomes to over 41½ per cent on big ones. Again, 60 per cent of all excess profits earned since the war are surrendered to the State.
I can give no better evidence of the result of this taxation than to repeat what Reginald McKenna, Chancellor of the British Exchequer, said to me in London last August:
"The English position is so sound," he declared, "that if the war ended at the end of the current financial year, that is, on March the 31st, 1917, our present scale of taxation would provide not only for the whole of our peace expenditures and the interest on the entire National Debt but also for a sinking fund calculated to redeem that debt in less than forty years. There would still remain a surplus sufficient to allow me to wipe out the excess profit tax and to reduce other taxes considerably."
When I asked him to make this more specific, he continued:
"The total revenue for the current year is $2,545,000,000. Our last Peace Budget was $1,000,000,000. Assuming that the war would end by next March 1st, you must add another $590,000,000 for interest and sinking fund on the war debt together with a further $100,000,000 for pensions which would make the total yearly expenditure for the first year of peace $1,690,000,000. Deducting this from the existing taxation you get a surplus of $855,000,000. Thus after withdrawing the $430,000,000 received from the excess profits tax there still remains a margin of $425,000,000."
Indeed, to analyze British war finance to-day is to find something besides debits and credits and balances. It is a great moral force that does not reckon in terms of pounds or pence. There is no thought of indemnity to soothe the scars of waste: no dream of conquest to atone for friendly land despoiled.
Money grubbing has gone, if only for the moment, along with the other baser things that have evaporated in the giant melting pot of the war. In England to-day there are only two things, Work and Fight. They are giving the nation an economic rebirth: a new idea of the dignity of toil: they have begot a spirit of denial that is rearing an impregnable rampart of resource.
Even more marvellous is the financial devotion of the French who present a spectacle of unselfish sacrifice that merely to touch, as alien, is to have a thrilling and unforgettable experience.
When you look into the French method of paying for the war you get the really picturesque and human interest details. In place of taxation you find that the war is being paid, in the main, out of the savings of the people. Instead of mortgaging the future, the Gaul is utilising his thrifty past.
Never in all history is there a more impressive or inspiring demonstration of the value of thrift as a national asset. It has reared the bulwark that will enable France to withstand whatever economic attack the war will make.
The difference between the English and French system of war financing is psychological as well as material. The average Frenchman has a great deal of the peasant in him. He is willing to give his life and his honour to the nation but he absolutely draws the line at paying taxes. This is why the French have made it a war of loans.
Go up and down the battle line in France and you get startling evidence of the French devotion to savings. More than one English officer has told me of tearful requests from French peasants for permission to go back to their steel-swept and war-torn little farms to dig up the few hundreds of francs buried in some corner of field or garden. Equally impressive is the sight of farmers--usually old men and women--working in the fields while shells shriek overhead and the artillery rumbles along dusty highways.
Thus the French war debt will be met because of the almost incredible saving power of the French people. It is at once their pride and their prosperity. When all is said and done, you discover that with nations as with individuals it is not what they make but what they save that makes them strong and enduring.
One afternoon last summer I talked in Paris with M. Alexandre Ribot, the French Minister of Finance: a stately white-bearded figure of a man who looked as if he had just stepped out of a Rembrandt etching. He sat in a richly tapestried room in the old Louvre Palace where more than one King had danced to merry tune. Now this stately apartment was the nerve centre of a marvellous and close-knit structure that represented a real financial democracy.
"How long can France stand the financial strain of war?" I asked the Minister.
Light flashed in his eyes as he replied:
"So long as the French people know how to save, and this means indefinitely."
Although the invader has crossed her threshold, France continues to save. Every wife in the Republic who is earning her livelihood while her husband is at the front (and nearly every man who can carry a gun is fighting or in training), is putting something by. It means the building up of a future financial reserve against which the nation can draw for war or peace.
One rock of French economic solidity lies in her immense gold supply. The per capita amount of gold is $30.02 and is larger than any other country in the world. The United States is next with $19.39, after which come the United Kingdom with $18.28, and Germany $14.08. Let me add, in this connection, that a good deal of the French gold is still in stocking and cupboard.
By the end of 1916 the war had cost France $11,000,000,000, which means an annual fixed charge of $600,000,000, to which must be added $200,000,000 for pensions, making the total fixed burden of $800,000,000.
All this cannot be paid out of savings, although in normal times France saves exactly $1,000,000,000 a year. But the Government has one big trump card up its sleeve. It is the large fortunes of her citizens. They have been untouched by the war because practically no income tax has been levied.
While the average Frenchman will sacrifice his life rather than submit to taxation, the upper and wealthy class will do both. The annual income of the people of France is $6,000,000,000. Therefore a 12 per cent tax on this income would very nearly produce the entire fixed charge on the war debt. France looks into the financial future unafraid.
Financially, Russia ambles along like the Big Bear she typifies. In one respect her method of financing the war cost differs distinctly from her Allies in the fact that she has received heavy advances from England and France. From England alone she borrowed $1,250,000,000 which was expended for arms and ammunition and field equipment. The Czar's Empire has put out five internal loans while the rest of the money needed has been raised out of the sale of short term Treasury Bills, paper money issues and tax levies.
Except for the few millions of dollars obtained in the United States, Germany's financing--like her whole conduct of the war--is self-contained. Through five Imperial 5 per cent loans ranging from one to three billion dollars each, she has established a war credit of $12,500,000,000. This money--to a smaller degree than in France--has come from the great mass of the German people.
Other sources of revenue that are enabling the Kaiser to pay for the war are Treasury Bills sold at home and a taxation that is moderate compared with the colossal pre-war taxation which spelled Germany's Preparedness. At the time I write this chapter her war expenditure had passed the $14,000,000,000 mark. Tack on to this Germany's peace debt of $5,000,000,000 more and you begin to see--with all the uncertainty of the war's duration--the immense burden that the Fatherland will have to carry. The war's drain on the German future is perhaps greater than that of any other country because all her war loans are long term. She has also loaned nearly $1,000,000,000 to Austria, Turkey and Bulgaria.
The Teutonic war cost has one distinct advantage over all others in that it is confined within the German borders. Hence Germany can do as she pleases with regard to its settlement. If the Mailed Fist obtains after the war she can clamp it down on her loans, wipe them out as she chooses and no one can offer a protest.
Now let us dump all these statistics that represent so much blood, agony and sacrifice into the middle of the table and strike a final balance sheet.
On one hand you have the assets of the warring countries as represented by their national wealth. For the Allies, including Roumania, they show a total of $273,000,000,000: for the Central Powers they register $134,000,000,000. If wealth is the winning factor then the Allies have the advantage in weight of buying metal.
Take the other side of the ledger and you see that up to November 1, 1916, the four principal allied countries, England, France, Russia and Italy, had spent on direct war cost approximately $34,000,000,000, while the total Teutonic war expenditures have been $21,000,000,000. To this actual war cost must be added the peace debts of the belligerent nations which would supplement the allied expense account by $17,465,000,000 and that of the enemy nations by $9,808,000,000.
Striking a grand total of liabilities, you find that if the war mercifully ends by August 1, 1917 (as Kitchener predicted it might), the fighting peoples would face a debt burden of all kinds that had reached $105,773,000,000.
After this colossal scale of expenditures you may well ask: Will it ever be possible for European finance to see straight or count normally again?
Be that as it may, no one can doubt that the battling nations, individually or with the marvellous team-work that kinship in their respective causes has begot, are able to pay their way while the struggle lasts. Grim To-day will take care of itself under the stress of passion born of desire to win. It is the Reckoning of that Uncertain To-morrow that will prove to be the problem.
You cannot bankrupt a nation any more than you can ruin an individual so long as brains and energy are available. Peace therefore will not find a ruined Europe but it will dawn on a group of depleted countries facing enormous responsibilities. War ends but the cost of it endures. Just as present millions are paying with their lives so will unborn hosts pay with the sweat of their brows.
Meanwhile our Financial Stake in the Great Struggle is secure. How much more we will have to put into Europe's Red Pay Envelope remains to be seen. In any event, we have learned how to do it.
VII--_The Man Lloyd George_
The door opened and almost before I had crossed the threshold the little grey-haired man down at the end of the long stately room began to speak. Lloyd George was in action.
I had last seen him a year ago in the murk of a London railway station when I bade him farewell after a memorable day. With him I had gone to Bristol where he had made an impassioned plea for harmony to the Trade Union Congress. Then he was Minister of Munitions, Shell-Master of the Nation in its critical hour of Ammunition Need.
Now he had succeeded the lamented Kitchener as Minister of War; sat in the Seat of Strategy, head of the far-flung khakied hosts that even at this moment were breasting death on half a dozen fronts. Just as twelve months before he had unflinchingly met the Great Emergency that threatened his country's existence, so did he again fill the National Breach.
England's Man of Destiny whose long career is one continuous and spectacular public performance was on the job.
But it was not the same Lloyd George who had sounded the call for Military and Industrial Conscription from the Peaks of Empire. Another year of war had etched the travail of its long agony upon his features, saddened the eyes that had always beheld the Vision of the Greater Things. The little man was fresh from the front and full of all that its mighty sacrifice betokened not only to the embattled nations but to the world as well.
Though we spoke of Politics, Presidents and the Great Social Forces that so far as England was concerned acknowledged him as leader, the current of speech always swept back to war and its significance for us.
"Since the war means so much to us," I said, "have you no message for America?"
Throughout our talk he had sat in a low chair sometimes tilting it backward as he swayed with the vehemency of his words. Suddenly he became still. He turned his head and looked dreamily out the window at his left where he could see the throng of Whitehall as it swept back and forth along London's Great Military Way.
Then rising slowly and with eloquent gesture and trembling voice (he might have been speaking to thousands instead of one person), he said:
"The hope of the world is that America will realise the call that Destiny is making to her in tones that are getting louder and more insistent as the terrible months go by. That Destiny lies in the enforcement of respect for International Law and International Rights."
It was a pregnant and unforgettable moment. From the Throne Room of a Mighty Conflict England's War Lord was sounding the note of a distant process of peace.
If you had probed behind this kindling utterance you would have seen with Lloyd George himself that beyond the flaming battle-lines and past the tumult of a World at War was the hope of some far-away Tribunal that would judge nations and keep them, just as individuals are kept, in the path of Right and Humanity.
But before any such bloodless antidote can be applied to International Dispute, to quote Lloyd George again: "This war must be fought to a finish."
These final words, snapped like a whip-lash and emphasised with a fist-beat on the table, meant that England would see her Titan Task through and if for no other reason because the man who drives the war gods wills it so. What sort of man is this who goes from post to post with inspired faith and unfailing execution? What are the qualities that have lifted him from obscure provincial solicitor to be the Prop of a People?
"Let George do it," has become the chronic plea of all Britain in her time of trial. How does he do it?
To understand any man you must get at his beginnings. Thus to appreciate Lloyd George you must first know that he is Welsh and this means that he was cradled in revolt. He must have come into the world crying protest. He was reared in a land of frowning crags and lovely dales, of mingled snow and sunshine, of poetry and passion. About him love of liberty clashed with vested tyranny. These conflicting things shaped his character, entered into his very being and made him temperamentally a creature of magnificent ironies.
But this conflict did not end with emotion. All his life Contrast, sometimes grotesque but always dramatic, has marked him for its own. You behold the Apostle of Peace who once espoused the Boer, translated into the flaming Disciple and Maker of War through the Rape of Belgium. You see the fiery Radical, jeered and despised by the Aristocracy, become the Protector of Peers. No wonder he stands to-day as the most picturesque, compelling and challenging figure of the English speaking race. Only one other man--Theodore Roosevelt--vies with him for this many-sided distinction.
The son of a village schoolmaster who died when he was scarcely three: the ward of a shoe-maker who was also inspired lay-preacher: the political protege of a Militant Nationalist whose heart bled at the oppression of the Welsh, Lloyd George early looked out upon a life smarting with grievance and clamouring to be free. Knowing this, you can understand that the dominant characteristic of this man is to rebel against established order. Swaddled in Democracy, he became its Embodiment and its Voice.
The world knows about the Lloyd George childhood spent amidst poverty in a Welsh village. The big-eyed boy ate, thought and dreamed in Welsh, "the language that meant a daily fare of barley bread." When he learned English it was like acquiring a foreign tongue. He grew up amid a great revival of Welsh art, letters and religion that stirred his soul. He missed the pulpit by a narrow margin, yet he has never lost the evangelistic fervour which is one of the secrets of his control and command of people.
With the alphabet Lloyd George absorbed the wrongs of his people and they were many. The Welsh had a double bondage: the grasp of the Landlord and the Thrall of the Church. All about him quivered the aspiration for a free land, a free people and a free religion. In those days Wales was like another Ireland with all the hardship that Eviction imposes.
The call to leadership came early. As a boy in school he led his mates in rebellion against the drastic dictates of a Church which prescribed liberty of religious thoughts and speech. He became the Apostle of Nonconformity and for it waged some of his fiercest battles.
Always the gift of oratory was his. He preached temperance almost with his advent into his teens: he was a convincing speaker before most boys talked straight.