Transcriber's Note:

Words marked with a dotted underline are changes made by the transcriber. To view the published words, mouse-over the underlined words. There is a table of all words changed by the transcriber at the end of the book. The cover image was created by the transcriber and is placed in the public domain.

HARPER'S PICTORIAL LIBRARY OF THE WORLD WAR

In Twelve Volumes
Profusely Illustrated

VOLUME XII

THE GREAT RESULTS OF THE WAR

Economics and Finance, The Peace Treaty, The League of Nations. Index

Painting by Frank Stick

A Soldier of the Soil

[Click for a larger image.]

HARPER'S PICTORIAL LIBRARY OF THE WORLD WAR

In Twelve Volumes
Profusely Illustrated

FOREWORD BY CHARLES W. ELIOT, PhD.
President Emeritus, Harvard University

VOLUME XII

The Great Results of the War

Economics and Finance, The Treaty of Versailles and League of Nations——Index

WITH INTRODUCTION BY PROFESSOR IRVING FISHER, YALE UNIVERSITY

Edited by

DR. W. L. BEVAN, KENYON COLLEGE

and

DR. HUGO C. M. WENDEL, NEW YORK UNIVERSITY

GENERAL EDITORIAL BOARD

Prof. Albert Bushnell Hart,
Harvard University

Gen. Douglas MacArthur, U.S.A.,
Chief of Staff, 42nd Division

Admiral Albert Gleaves,
U.S. Navy

Prof. W. O. Stevens,
U.S. Naval Academy, Annapolis

Gen. Ulysses G. McAlexander,
U.S. Army

John Grier Hibben,
President of Princeton University

J. B. W. Gardiner,
Military Expert, New York Times

Commander C. C. Gill, U.S.N.,
Lecturer at Annapolis and aide to Admiral Gleaves

Henry Noble MacCracken,
President of Vassar College

Prof. E. R. A. Seligman,
Columbia University

Dr. Theodore F. Jones,
Professor of History, New York University

Carl Snyder

Prof. John Spencer Bassett,
Professor of History, Smith College

Major C. A. King, Jr.,
History Department, West Point

Harper & Brothers Publishers

NEW YORK AND LONDON

Established 1817

Vol. 12—Harper's Pictorial Library of the World War

Copyright, 1920, by Harper & Brothers
Printed in the United States of America
M-U

INTRODUCTION
By PROFESSOR IRVING FISHER

Department of Political Economy, Yale University

In various ways, as this volume shows, the war has profoundly affected our economic and political life. War has ever been a disturber and innovator, always leaving after it a different world from that which existed previous to it. On account of our tremendously complex economic organization—the specialization of industry among nations, and the network of commerce—war today causes more profound changes than ever before. There can not be a human being in the world today whose life is not altered by the war through which we have just passed.

In trying, now that the war is over, to stop drifting, and to think our way out of the bent (or broken) remains of the ante bellum life, the world is confronted by a maze of problems and a still greater maze of proffered solutions.

Many of these proposals are, unfortunately, of the nature of treatment directed not at fundamental conditions, but merely at symptoms. We should be past the stage, in our social science, as we are in medicine, where we treat symptoms without a thorough diagnosis of the fundamental causes.

And yet it is just this thorough diagnosis that we lack.

What, then, are the changes brought about by the war which most deeply affect "the body politic," and by meeting which the most far reaching improvements can be made?

HIGH COST OF LIVING A VITAL QUESTION

I can not take up, or even touch on, all of them; but to one of them I wish to call especial attention—the High Cost of Living or, more generally, the high level of prices, which is the most striking economic effect of the war throughout the world. It is, as I see it, hard to over-emphasize the need for attacking this problem of the price level as a preliminary to attacking the other economic problems which the war has left us.

We need only glance at a newspaper today, or step into a corner grocery, or fall into conversation with our neighbor in the train to have this topic come out as foremost in interest. It is, I believe, responsible for much more of our present uncertainty and confusion than is usually realized. In its ramifications it is chiefly this phase of the war's effects which, as I suggested above, touches every one of us at every point of our lives. A member of the Federal Reserve Board has called the price level problem the central economic problem of reconstruction.

Professor William Graham Sumner, who has inspired so many to the scientific study of social conditions, used to say: "In taking up the study of any social situation, divide your study into four questions—(1) What is it? (2) Why is it? (3) What of it? (4) What are you going to do about it?"

Let us follow this outline, and look first at the facts of the case; secondly at their causes; thirdly at the evils involved; and lastly at the remedies.

MEASURING CHANGES IN PRICES

We now possess a device for measuring the average change in prices. This is what is known as an "index number."

Thus, if one commodity has risen 4 per cent. since last month and another, 10 per cent., the average rise of the two is midway between the sum of 4 per cent., and 10 per cent., or 7 per cent. It is

4 + 10
———— = 7
2

If we call the price level of the two articles last month 100 per cent., then 107 per cent. is the "index number" for the prices of the two articles this month. The same principle, of course, applies to any number of commodities.

The index number of the United States Bureau of Labor Statistics, the best index number we have, shows an average price level in 1918 of 196 for wholesale prices and 168 for retail prices of food on the basis of 100 per cent. for 1913, the year before the war; showing that wholesale prices, on the average, almost exactly doubled. The latest index number for wholesale prices (May, 1919) is 206, and for retail (July, 1919), 190.

A look at the history of prices shows the interesting fact that, while prices have sometimes fallen, they have generally risen. The high cost of living has been for centuries a source of complaint. In the 16th century, people objected to the price of wheat, which was three to ten times what it cost during the preceding 300 years.

WORTHLESS PAPER MONEY

Where, through ignorance of monetary science, irredeemable paper money was used, prices have sometimes gone up quite "out of sight." This was the case with the famous assignats of the French Revolution, and the "Continental" paper money of our own Revolution. After the Revolution a barber in Philadelphia is said to have covered the walls of his shop with continental paper money, calling it the cheapest wallpaper he could get! Jokes were also heard of a housewife taking a market-basket full of this "money" to the butcher's shop and bringing home the meat in her purse! This money became a hissing and a byword; and, even to this day, one of the favorite expressions for worthlessness is "not worth a Continental." We see the same situation repeated again today with Russian paper money.

But our first scientific measurement of price movements began with 1782, the beginning of Jevons' index number of wholesale prices in England.

COMMENTS ON FIGURE 1

Figure 1 shows the course of prices in England from that date, and also, for comparison, that in the U.S.

Figure 1 - Price Movements of the United States and England from the Earliest Index Numbers Through the First Years of the World War

Showing, in general, a close similarity. England was on a paper basis, 1801—1820; and the United States, 1862—78. The dotted lines for these periods show the prices as translated back into gold.

The conspicuous feature of these curves is their great irregularity. Practically never are they for any length of time at all horizontal. Sometimes, even in time of peace, a variation of over 10 per cent. is shown in one year. The curve for the U. S. shows, at the time of the Civil War, a very considerable rise (especially as measured in terms of paper), followed by a decline beginning in 1873 and continuing to 1896. The fall in the first part of this period was accentuated by the return from a paper to a gold standard. From an index number of 100 in 1873, the index number dropped to 51 in 1896. This decline resulted politically in the famous Bryan "Free Silver" campaign.

Figure 2 - Trend of Prices Before and After the Great Wars of History

Since that time, however, the course of prices has been steadily upward. Between 1896 and the outbreak of the war, the index number of the U. S. rose about 50 per cent. Substantially the same increase took place in Canada, while in the United Kingdom there was a rise of 35 per cent. This rise before the war amounted, in the United States, to about one-fifth of one per cent. per month. During the war, however, the rise amounted in this country to 1½ per cent. per month, and abroad to much more—in Germany and Austria to 3 per cent. per month, and in Russia, apparently, to 4 or 5 per cent. per month. In the light of the excitement caused up to 1914 by the comparatively moderate increase in this country, we can better understand the Russian economic unrest when a far steeper ascent of prices got under way.

The total effect can be summed up as follows: between 1914, before the war, and November, 1918, the price level in this country (as indicated by the United States Bureau of Labor Statistics retail food index number) rose 79 per cent.; that in England (according to the Statist index number), 133 per cent.; that in France, approximately 140 per cent.; that in western Europe probably at least three-fold; and in Russia perhaps ten or twenty-fold.

The price level of the United States today is over three-fold that of 1896. Expressing the same fact in terms of the purchasing power of money, our dollar of today is worth only 30 cents of the money in 1896, so that as contrasted with the dollar of 1896 our dollar literally "looks like thirty cents."

COMMENTS ON FIGURE 2

Now it is a common belief, and one which seems to be borne out by the present situation, that war raises prices whereas peace lowers them. The matter is, however, not so simple. Each case must be considered on its own merits. Figure 2 shows price curves for the various wars.

In general prices have risen during wars. But there has not been any such uniformity of movement after wars. Moreover in most cases the price disturbances both during and after the wars had scarcely anything to do with the coming and going of the war. In only four of the cases on the chart is the rise of prices during the war really and clearly due to the war. In the Napoleonic Wars, the war of 1812, the Civil War, and the World War the rise of prices during the war was largely due to war inflation.

As to the after effects on prices there are likewise only four clear cases. The fall of paper prices relatively to gold after the Napoleonic Wars, and the Civil War was, in each case, clearly due to resumption of specie payments. The fall of prices in the United States after the War of 1812 was doubtless due in large measure to the resumption of foreign trade. In one case there was a rise of prices as an aftermath; the war of 1871, which gave Germany a billion dollars of indemnity, created inflation in Germany and prices rose there between 1871 and 1873 faster than in any other country. This doubtless accentuated the crash in the crisis of 1873.

In the other cases in the diagram the many instances of rise of prices after the wars were due primarily at least, to other causes, although the cessation of war and the undue optimism and spirit of speculation which often follow may, in several instances, have contributed to the boom period and the crisis which so often came a few years later, viz., that of 1857 after the Crimean War, that of 1866 after the Civil War, as well as that of 1873 just mentioned.

The only safe generalizations seem to be the following two: The first is that in so far as a war has been costly, i. e., has strained the economic resources of the belligerents, there has been recourse to inflation in some form and prices have risen. Besides the examples in the chart are those of the French Revolution, the American Colonial wars, the American Revolution and many others. The second generalization is that after a costly war the price level is affected up or down by the fiscal policy of the governments concerned.

HIGH PRICES NOT DUE TO SCARCITY

Most cherish the belief that high war prices today represent war scarcity. In the case of some countries like Belgium and some commodities like paper this is true and in such cases scarcity serves as a partial explanation of high prices. But in the case of most countries and most commodities there has been no general scarcity. The almost universal rise of prices cannot be ascribed to scarcity. Prices have risen of many goods not affected by the war or in countries remotest from the war.

Copyright by Underwood & Underwood

William McAdoo

Secretary of the Treasury during the World War and Director-General of the Railroads.

As Mr. O. P. Austin, statistician of the National City Bank, has said:

"Raw silk, for example, for which the war made no special demand and which was produced on the side of the globe opposite that in which the hostilities were occurring, advanced from $3.00 per pound in the country of production in 1913 to $4.50 per pound in 1917, and over $6.00 per pound in the closing months of the war. Manila hemp, also produced on the opposite side of the globe and not a war requirement, advanced in the country of production from $180 per ton in 1915 to $437 per ton in 1918. Goat skins, from China, India, Mexico and South America, advanced from 25 cents per pound in 1914 to over 50 cents per pound in 1918; and yet goat skins were in no sense a special requirement of the war. Sisal grass produced in Yucatan advanced from $100 per ton in 1914 at the place of production to nearly $400 per ton in 1918; and Egyptian cotton, a high-priced product and thus not used for war purposes, jumped from 14 cents per pound in Egypt in 1914 to 35 cents per pound in 1918. Even the product of the diamond mines of South Africa advanced from 60 to 100 per cent. in price per karat when compared with prices existing in the opening months of the war.

"The prices are in all cases those in the markets of the country in which the articles were produced and in most cases at points on the globe far distant from that in which the war was being waged. They are the product of countries having plentiful supply of cheap labor and upon which there has been no demand for men for service in the war. The advance in the prices quoted is in no sense due to the high cost of ocean transportation since they are those demanded and obtained in the markets of the country of production.

"Why is it that the product of the labor of women and children who care for silk worms in China and Japan, of the Filipino laborer who produces the Manila hemp, the Egyptian fellah who grows the high grade cotton, the native workman in the diamond mines of South Africa, the Mexican peon in the sisal field of Yucatan, the Chinese coolie in the tin mines of Malay, or the goatherd on the plains of China, India, Mexico or South America has doubled in price during the war period?"

Mr. Austin goes on to show that the scarcity or "increased demand" for war goods has been greatly exaggerated. It is true that some 40 million men were at one time fighting in the war. But this is less than 2½ per cent. of the world's population and it must not be forgotten that these 40 million were also consumers before the war. Their withdrawal from industry did not really create a vacuum of even 1 per cent. of the world's productive power; as women, boys and old men took their places and others worked harder than in peace time.

In addition to the 40 million soldiers, some 150 million people have been required to work on "war work" at home but they have simply been "switched" from other forms of production which have been correspondingly reduced. War supplies were demanded but these also largely "switched" the demand from former and industrial uses. Lord D'Abernon found that in England those objects of luxury "which would seem to be influenced not at all or only very remotely and to a very small degree by increased cost of labor and materials," such as old books, prints and coins, had, nevertheless, advanced, roughly speaking 50 per cent., during the war. Thus "scarcity" and especial "war demands" do not go far toward explaining the high price level even in Europe and not at all, I believe, in this country.

In the United States while certain things have become scarce, including certain foods, the general mass of goods has been actually increased as a consequence of war.

The raw materials used in the United States in 1918 were 16 per cent. more than in 1913 and 2 per cent. more than in 1917. The physical volume of trade is estimated variously to be in 1918 from 22 per cent. to 41 per cent. above that in 1913 and 8 per cent. above that in 1917.

President Wilson, in his address to Congress, August 8, 1919, on the high cost of living, gave other impressive examples as to foods, especially eggs, frozen fowls, creamery butter, salt beef, and canned corn, showing that scarcity is not the cause of high prices.

HIGH PRICES DUE TO MONETARY CAUSES

The truth is that the chief causes of the rise of prices in war time are monetary causes.

It is almost invariably true that the great price movements of history are chiefly monetary. This is shown, in the first place by the fact that countries of like monetary standards have like price movements. Thus—to consider gold-standard countries—there has usually been a remarkable family resemblance between the curves representing the rise and fall of the index numbers of the United States, Canada, England, France, Belgium, Holland, Scandinavia, Germany, Austria and Italy. Again, the price movements in silver countries show a strong likeness, as in India and China between 1873 and 1893.

On the other hand, we find a great contrast between gold and silver countries or between any countries which have different monetary standards. In the World War the data are still too meager to enable us to express all the relations in exact figures, but we may arrange the different countries in the approximate order in which their prices have risen. The order of the nations corresponds, in general, with the order in which the currency in those nations has been inflated by paper as well as with the order in which their monetary units have depreciated in the foreign exchange markets.

This order—of ascending prices and of inflated currency—is as follows, beginning with the least rise and inflation: India, Australia, New Zealand, United States, Canada, Japan, Sweden, Switzerland, Denmark, Italy, Holland, England, Norway, France, Germany, Austria and Russia.

Figure 3. - Money and the Price Level

Showing a correspondence between the quantity of money and the level of prices. Since the middle of 1915, when the quantity of money in the United States began to be greatly affected by the war, the correspondence has been close, changes in the price level seeming usually to follow changes in the quantity of money one to three months later.

The ups and downs of prices correspond with the ups and downs of the money supply. Throughout all history this has been so. For this general statement there is sufficient evidence even where we lack the index numbers by which to make accurate measurements. Whenever there have been new discoveries of gold and rapid outpourings from mines, prices have gone up with corresponding rapidity. This was observed in the 16th century, after great quantities of the precious metals had been brought to Europe from the Americas; and again in the 19th century, after the Californian and Australian gold finds of the fifties; and still again, in the same century after the South African, Alaskan and Cripple Creek mining of the nineties.

Likewise when other causes than mining, such as paper money issues, produce violent changes in the quantity or quality of money, violent changes in the price level usually follow.

COMMENTS ON FIGURE 3

The World War furnishes important examples of this. In the United States the curve for the quantity of money in circulation and the curve for the index number of prices run continuously parallel, the price curve following the money curve after a lag of one to three months. It was in August, 1915, that the quantity of money in the United States began its rapid increase. One month later prices began to shoot upward, keeping almost exact pace with the quantity of money. In February, 1916, money suddenly stopped increasing, and two or three months later prices stopped likewise. As figure 3 shows, similar striking correspondences have continued to occur with an average lag between the money cause and the price effect of apparently about one and three-quarters months.

On the whole, the money in circulation in the United States rose from three and one-third billions in 1913 to five and a half billions in 1918, and bank deposits from thirteen to twenty-five billions, both approximately corresponding to the rise in prices.

Taking a world-wide view, the money in circulation in the world outside of Russia has increased during the war from fifteen billions to forty-five billions and the bank deposits in fifteen principal countries from twenty-seven billions to seventy-five billions. That is both money and deposits have trebled; and prices, on the average have perhaps trebled also.

The Bolsheviki are a law unto themselves. They have issued eighty billion dollars of paper money, or more than in all the rest of the world put together. Consequently prices in Russia have doubtless reached the sky, though no exact measure of them, since the Bolshevist régime, is at hand.

The increase of over thirty billions in the money of the world (outside of Russia) is as Austin says "more, in its face value, than all the gold and all the silver turned out by all the mines of all the world in 427 years since the discovery of America."

The conclusion toward which the foregoing and other arguments lead is that, in this war as in general in the past, the great outstanding disturber of the price level has always been money. If this is the case, how fruitless, except as treatments of symptoms, are price-fixing, or campaigns aimed at profiteers! The cry of profiteering may hinder a real solution of the difficulty by diverting attention from the real issue and fanning and giving up an object to the spirit of revolt. Money is so much an accepted convenience in practice that it has become a great stumbling block in theory. Since we talk always in terms of money and live in a money atmosphere, as it were, we become as unconscious of it as we do of the air we breathe.

ASSOCIATE EVILS OF HIGH PRICES

We have now considered the cost of living situation under the two questions "What is it?" and "Why is it?"

The third question, "What of it?"—i. e., what are the evils connected with it—is more easily answered today, when it comes home to all of us, that it might have been 10 years ago.

If, for each one of us, the rise of income were to keep up exactly with the rise in cost of living, then the high cost of living would have no terrors; it would be merely on paper. But no such perfect adjustment ever occurs or can occur. Outstanding contracts and understandings in terms of money make this out of the question. The salaried men and the wage earners suffer—that is, the cost is borne by those with relatively "fixed" incomes.

The truth is, the war was largely paid for, not by taxes or loans but by the High Cost of Living. The result is that the effort to avoid discontent of tax payers has created or rather aggravated the discontent over high prices. Every rise in the cost of living brings new recruits to the labor malcontents who feel victimized by society and have come to hate society. They cite, in their indictment, the high price of necessities and the high profits of certain great corporations both of which they attribute, not to the aberrations of our monetary yardstick but to deliberate plundering by "profiteers" or a social system of "exploitation." They grow continually more suspicious and nurse an imaginary grudge against the world. We are being threatened by more quack remedies—revolutionary socialism, syndicalism, and Bolshevism. Radicalism rides on the wave of high prices.

As a matter of fact, the real wages in 1918, that is, their purchasing power, were only 80 per cent. of the real wages of 1913. That is, while the retail prices of food advanced 68 per cent., wages in money advanced only 30 per cent. The real wages of 1913 were in turn less than in earlier years.

Lord D'Abernon, in a recent speech in the House of Lords said: "I am convinced and cannot state too strongly my belief that 80 per cent. of our present industrial troubles and our Bolshevism which is so great a menace to Europe are due to this enormous displacement in the value of money." In fact, before the war, rising costs of living were manufacturing socialists all over the world, including Germany, and the German Government may have weighed, as one of the expected dynastic advantages of war, the suppression of the growing internal class struggle which this high cost of living was bringing on apace.

MANY SUGGESTED REMEDIES INADEQUATE

We are now ready for the question, "What can be done about it?" So far as the past is concerned, comparatively little. Bygones must largely be bygones. So far as wages and salaries are concerned, the remedy must be to raise them rather than to lower the high cost of living. While some kinds of work have had excessive wages during the war, this has not been true in general, public opinion to the contrary notwithstanding. I quite agree with Mr. Gompers that the wage level should not be lowered even if it could be. On the contrary it should be raised to catch up with prices, just as was done after the Civil War. But in regard to contracts little relief for past injuries can be expected. We would best use the past as a lesson for the future. That is what I understand by "reconstruction."

John Pierpont Morgan

The banking house of Morgan was closely identified with international finance throughout the World War.

Many impracticable plans have been proposed. Secretary Redfield undertook to stabilize prices by arbitrarily fixing them. He failed, necessarily. We might as well try to fix the sea level by pressing on the ocean. The same, as I stated above, is true of a campaign against profiteers though proposed by so high an authority as President Wilson.

PROPOSED REMEDY

The plan I shall here outline has received the approval of a large number of leading economists, business men, and organizations, including President Hadley of Yale; a committee of economists appointed to consider the purchasing power of money in relation to the war; Frank A. Vanderlip, president of the National City Bank of New York; George Foster Peabody, Federal Reserve banker of New York; John Perrin, Federal Reserve Agent of San Francisco; Henry L. Higginson, the veteran banker of Boston; Roger W. Babson, statistician; John Hays Hammond, mining engineer; John V. Farwell, of Chicago; Leo S. Rowe, Assistant Secretary of the Treasury: United States Senator, Robert L. Owen, one of the authors of the Federal Reserve Act; Ex-Senator Shafroth; the late Senator Newlands; Sir David Barbour, one of the originators of the Indian gold exchange standard; the Society of Polish Engineers; the New England Purchasing Agents' Association; and a few Chambers of Commerce.

WANTED—A STANDARDIZED DOLLAR

Our dollar is now simply a fixed weight of gold—a unit of weight, masquerading as a unit of value. It is almost as absurd to define a unit of value, or general purchasing power, in terms of weight as to define a unit of length in terms of weight. What good does it do us to be assured that our dollar weighs just as much as ever? We want a dollar which will always buy the same aggregate quantity of bread, butter, beef, bacon, beans, sugar, clothing, fuel, and the other essential things that we spend it for. What is needed is to stabilize or standardize the dollar just as we have already standardized the yardstick, the pound weight, the bushel basket, the pint cup, the horsepower, the volt, and, indeed, all the units of commerce except the dollar.

Money today has two great functions. It is a medium of exchange and it is a standard of value. Gold was chosen because it was a good medium, not because it was a good standard. And so, because our ancestors found a good medium of exchange, we now find ourselves saddled with a bad standard of value!

The problem before us is to retain gold as a good medium and yet to make it into a good standard; not to abandon the gold standard but to rectify it; not to rid ourselves of the gold dollar but to make it conform in purchasing power to the composite or goods-dollar. The method of rectifying the gold standard consists in suitably varying the weight of the gold dollar. The gold dollar is now fixed in weight and therefore variable in purchasing power. What we need is a gold dollar fixed in purchasing power and therefore variable in weight. I do not think that any sane man, whether or not he accepts the theory of money which I accept, will deny that the weight of gold in a dollar has a great deal to do with its purchasing power. More gold will buy more goods. Therefore more gold than 25.8 grains will, barring counteracting causes, buy more goods than 25.8 grains itself will buy. If today the dollar, instead of being 25.8 grains or about one-twentieth of an ounce of gold, were an ounce or a pound or a ton of gold it would surely buy more than it does now, which is the same thing as saying that the price level would be lower than it is now.

A Mexican gold dollar weighs about half as much as ours and has less purchasing power. If Mexico should adopt the same dollar that we have and that Canada has, no one could doubt that its purchasing power would rise—that is, the price level in Mexico would fall. Since, then, the heavier or the lighter the gold dollar is the more or the less is its purchasing power, it follows that, if we add new grains of gold to the dollar just fast enough to compensate for the loss in the purchasing power of each grain, or vice versa take away gold to compensate for a gain, we shall have a fully "compensated dollar," a stationary instead of fluctuating dollar, when judged by its purchasing power.

But how, it will be asked, is it possible, in practice, to change the weight of the gold dollar? The feat is certainly not impossible, for it has often been accomplished. We ourselves have changed the weight of our gold dollar twice—once in 1834, when the gold in the dollar was reduced 7 per cent., and again in 1837, when it was increased one-tenth of 1 per cent. If we can change it once or twice a century, we can change it once or twice a month!

HOW GOLD CIRCULATES

In actual fact, gold now circulates almost entirely through "yellowbacks," or gold certificates. The gold itself, often not in the form of coins at all but of "bar gold," lies in the government vaults. The abolition of gold coin would make no material change in the present situation.

If gold thus circulated only in the form of paper representatives it would evidently be possible to vary at will the weight of the gold dollar without any such annoyance or complication as would arise from the existence of coins. The government would simply vary the quantity of gold bullion which it would exchange for a paper dollar—the quantity it would give or take at a given time. As readily as a grocer can vary the amount of sugar he will give for a dollar, the government could vary the amount of gold it would give for a dollar.

CRITERION OF STANDARDIZATION

But, it will now be asked, what criterion is to guide the government in making these changes in the dollar's weight? Am I proposing that some government official should be authorized to mark the dollar up or down according to his own caprice? Most certainly not. A definite and simple criterion for the required adjustments is at hand—the now familiar "index number" of prices.

If, for instance, the index number is found to be 1 per cent. above the ideal par, this fact will indicate that the purchasing power of the dollar has gone down; and this fact will be the signal and authorization for an increase of 1 per cent. in the weight of the gold dollar. What is thereby added to the purchasing power of the gold dollar will be automatically registered in the purchasing power of its circulating certificate. If the correction is not enough, or if it is too much, the index number next month will tell the story.

Absolutely perfect correction is impossible, but any imperfection will continue to reappear and so cannot escape ultimate correction. Suppose, for instance, that next month the index number is found to remain unchanged at 101. Then the dollar is at once loaded an additional 1 per cent. And if, next month, the index number is, let us say, 100½ (that is, one half of 1 per cent above par) this one-half of 1 per cent. will call for a third addition to the dollar's weight, this time of one-half of one per cent. And so, as long as the index number persists in staying even a little above par, the dollar will continue to be loaded each month, until, if necessary, it weighs an ounce—or a ton, for that matter. But, of course, long before it can become so heavy, the additional weight will become sufficient; so that the index number will be pushed back to par—that is, the circulating certificate will have its purchasing power restored. Or suppose the index number falls below par, say 1 per cent. below. This fact will indicate that the purchasing power of the dollar has gone up. Accordingly, the gold dollar will be reduced in weight 1 per cent., and each month that the index number remains below par the now too heavy dollar will be unloaded and the purchasing power of the certificate brought down to par.

Thus by ballast thrown overboard or taken on, our dollar is kept from drifting far from the proper level. The result is that the price level would oscillate only slightly. Instead of there being any great price convulsions, such as we find throughout history, the index number would run, say 101, 100½, 101, 100, 102, 101½, 100, 98, 99, 99, 99½, 100, etc., seldom getting off the line more than 1 or 2 per cent.

A PROBLEM CALLING FOR URGENT ACTION

With the question now before us, it is evident that the problem of our monetary standards has much more than theoretical significance. It is a practical problem, and, I submit, the most pressing which the war has left us. I do not offer the solution described above as the only answer to the problem. It is, however, a working basis, a starting point, from which we may be able to work out a better plan. Some scientifically sound plan is essential, or we shall be the victims of quack remedies.

Finally, now is the time to take up the matter. Public interest is now focused on the cost of living and is very largely educated to the fact that the high prices have a monetary basis. Furthermore, the world is looking to us, as never before, for leadership. It is our golden opportunity to set world standards. If we adopt a stable standard of value, it seems certain that other nations, as fast as they can straighten out their affairs, resume specie payments, and secure again stable pars of exchange, will follow our example.

Let us, then, who realize the situation, act upon our knowledge; and secure a boon for all future generations, a true standard for contracts, a stabilized dollar.

Copyright by Underwood & Underwood

President Wilson and Rear Admiral Grayson Passing the Palace of the King in Brussels

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The Great Results of the War

The Great Results of the War
PART I
I—ECONOMIC RESULTS OF THE WAR

Striking Changes Made by the European Conflict Upon the Economic Life of the Great Nations

The paramount position of War Finance was brought vividly and continuously before the whole people of the United States by the Liberty Loan campaigns. This lesson was an old one though it was enforced by all the improved methods of modern publicity. To Napoleon Bonaparte is attributed the statement that three things are necessary to wage a successful war: money, more money, and still more money.

FINDING THE MONEY FOR WAR

It has been well said that:

"Perhaps the greatest surprise of the war to most people, even to those who had studied political economy, has been the enormous expenditure of money which a nation can incur, and the length of time which it can go on fighting without complete exhaustion. This should not have been in reality a surprise to anyone who had studied past history, for all experience shows that lack of money itself has never prevented a nation from continuing to fight, if it were determined to fight. The financial condition of Revolutionary France at the commencement of Napoleon's career was wretched in the extreme, yet France went on fighting for nearly twenty years after that. The Balkan States can hardly be said ever to have had great financial resources, and yet they fought, one after the other, two severe wars, and are now fighting a third still more severe and prolonged. The Boers in South Africa found no difficulty in fighting the British Empire for three years with practically no financial resources. The Mexicans recently managed to fight one another for a good many years in the same way. Lastly, the Southern states in our own Civil War fought for years a desperate and losing fight and were ultimately beaten to the ground, not so much by a lack of money, as by an actual lack of things to live on and fight with. In fact, all history proves, and this war proves over again, that if what the Germans call 'the will to fight' exists lack of money will never stop a nation's fighting, provided it possesses or can obtain its absolutely minimum requirements of food, clothing, and munitions of war. It was Bismarck who said: 'If you will give me a printing press, I will find you the money.' In finding the money required for an exhausting war a nation is driven to all sorts of desperate financial expedients which may very seriously affect its economic life, but if a nation wants to continue fighting and can produce, or be induced to produce, the things that are absolutely necessary for life and warfare, the government will get hold of those things somehow. If it cannot get them in any other way, ultimately it will take them."

STRONG POSITION OF UNITED STATES

When the war opened England was in the strongest position of any of the Allies. She was the greatest creditor nation in the world. That is, she was able to purchase goods from foreign countries on easier terms than her associates. Russia and Italy were debtor nations and had to borrow even before the war in order to balance their foreign accounts. So these members of the Entente had to be assisted in making purchases abroad. England was able for a long time to keep up her exchange rate in New York. This was done by the shipment of gold and by inducing the holders of American securities in England to sell or lend such securities to their government.

England was forced to act as the agent of other Powers who were fighting with her. Until the United States came in, it was the greatest industrial arsenal among the Allies. Large imports were naturally a feature of this policy. The United States soon began to feel the result of the changes in international credit. Exports almost doubled between 1912 and 1917, the figures being in millions, $2,399,000,000 and $6,231,000,000, respectively.

Another side of the United States trade account to the world is indicated by the following classified list of loans to January, 1917:

"Between August 1, 1914, and December 31, 1916, the loans raised in the United States by foreign countries were estimated to reach $2,325,900,000, of which $175,000,000 had been repaid. The net indebtedness on January 1, 1917, was therefore $2,150,900,000. The loans may be classified geographically as follows:

"The loans of the belligerent countries which were floated in the United States up to the close of 1916 are divided as follows:

[1]Estimated.

[2] Nearly $1,900,000,000 of this constituted war loans.

NEW PACE IN WAR FINANCE

A new pace in war finance was set by the United States when it became a belligerent. It had to provide for an increase of taxation ascending from the point of $3,000,000,000 in 1917 to over $8,000,000,000 in 1918. The largest source of estimated revenue was from taxes on excess profits, including war profits of $3,100,000,000, and the next was from taxes on incomes, $1,482,186,000 from individuals, and $828,000,000 from corporations. The New York Journal of Commerce shows by the following table the difference between the old and the new system of taxation. Exemptions under the new law were the same as under the old: $1,000 for single persons and $2,000 for married, $200 additional allowed for each dependent child under eighteen years of age:

The following estimated yield from other sources is given by the same authority:

"Transportation—Freight, $75,000,000; express, $20,000,000; passenger fares, $60,000,000; seats and berths, $5,000,000; oil by pipe lines, $4,550,000.

"Beverages (liquors and soft drinks), $1,137,600,000; stamp taxes, $32,000,000; tobacco cigars, $61,364,000; cigarettes, $165,240,000; tobacco, 104,000,000; snuff, $9,100,000; papers and tubes, $1,500,000.

"Special Taxes.—Capital stock, $70,000,000; brokers, $1,765,000; theaters, etc., $2,143,000; mail order sales, $5,000,000; bowling alleys, billiard and pool tables, $2,200,000; shooting galleries, $400,000; riding academies, $50,000; business license tax, $10,000,000; manufacturers of tobacco, $69,000; manufacturers of cigars, $850,000; manufacturers of cigarettes, $240,000; use of automobiles and motor cycles, $72,920,000.

"Telegraph and telephone messages, $15,000,000; insurance, $12,000,000; admissions (theaters, circuses, etc.), $100,000,000; club dues, $9,000,000.

"Excise Taxes.—Automobiles, etc., $123,750,000; jewelry, sporting goods, etc., $80,000,000; other taxes on luxuries at 10 percent., $88,760,000; other taxes on luxuries (apparel, etc., above certain prescribed prices), at 20 percent., $181,095,000.

"Gasoline, $40,000,000; yachts and pleasure boats, $1,000,000."

"The income tax law levies on all citizens or residents of the United States a normal tax of 12 percent. upon the amount of income in excess of exemptions, except that on the first $4,000 of the taxable amount the rate shall be 6 percent. The law also increases the surtaxes all along the line. The advances by grades compared with the percentage under the old law are: $5,000 to $7,500 incomes, increased from 1 to 2 percent.; $7,500 to $10,000, from 2 to 3 percent.; $10,000 to $12,500, from 3 to 7 percent.; $12,500 to $15,000, from 4 to 7 percent.; $15,000 to $20,000, from 5 to 10 percent.; $20,000 to $30,000, from 8 to 15 percent.; $30,000 to $40,000, from 8 to 20 percent.; $40,000 to $50,000, from 12 to 25 percent.; $50,000 to $60,000, from 12 to 32 percent.; $60,000 to $70,000, from 17 to 38 percent.; $70,000 to $80,000, from 17 to 42 percent.; $80,000 to $90,000, from 22 to 46 percent.; $90,000 to $100,000, from 22 to 46 percent.; $100,000 to $150,000, from 27 to 50 percent.; $150,000 to $200,000, from 31 to 50 percent.; $200,000 to $250,000, from 37 to 52 percent.; $250,000 to $300,000, from 42 to 55 percent. The rate continues to increase, but on incomes of over $5,000,000 the increase is only from 63 percent., under former law to 65 percent."

Copyright by International Film Service

Women Munition Workers in the International Fuse and Arms Works

Before entering the war, the United States was the great arsenal of the Allies. After our entry, production of munitions increased, while the man power in the industry diminished through enlistments and the draft. Women took up the work and showed surprising ability.

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MEANING OF NEW TAXATION

According to a calculation published in the New York World the war revenue bill imposed a war tax of $80 on every man, woman and child in the United States, or approximately $400 for each family. The amount expected to be derived from each item is given in the following table:

With the operation of this tax the people of the United States found it no longer possible to speak in terms of opprobrium of the tax-ridden people of Europe. The American income tax has a higher rate on large incomes than that provided for under the English system. A man in the United States with an income of $5,000,000 is taxed nearly 50 percent., more than in England. The New York Tribune published tables printed below comparing the income tax rates of the United States with those existing in France and in Great Britain.

INCOME TAX COMPARISON

A compilation made for the Wall Street Journal shows that the United States income tax even with the increases made in 1918 was still far lower than the English income tax:

"The great bulk, numerically, of incomes taxed in 1917 was in the field reached by the lowering of the exemption in the 1917 law.... It is a fact, however, that no one of these new taxpayers was called on to contribute more than $40 to the government, as the rate was only 2 percent., while all other incomes paid a basic normal tax of 4 percent. The lowest rate for normal tax in Great Britain is 2 shillings and 3 pence on the pound, or 11¼ percent., and the exemption is only $600. The basic normal tax under the new English law is 6 shillings on the pound, or 30 percent., on all incomes over $25,000.

"If the new normal tax in the United States were made uniformly 12 percent.—wiping out the 2 percent. discrimination of the 1917 law—a single man in this country with a salary of $1,500 a year would be called on to pay $60 in income tax, as against an English tax of $101.25. Assuming that the normal tax were raised to 12 percent. and the surtax and excess tax were left as at present, an unmarried American with a salary of $10,000 would pay $1,430.20, while the unmarried Englishman would pay $2,250. If the Englishman derived his $10,000 income from rentals, his tax would be increased to $2,625, while the American tax would be reduced to $1,165—an Irish dividend on effort.

"According to a level where the British surtax becomes effective, take a salary of $20,000. The English normal tax on this would be $6,000 and the surtax $812.50 (figuring $5 to the pound), a total of $6,812.50. At the suggested rate of 12 percent., the American's normal tax would be $2,145.60 (rate applying to $20,000, less $1,000 exemption and $1,120 excess tax); the surtax would be $444 and the excess tax $1,120; a total of $3,709.60. If the American cut non-tax-free coupons for his income instead of working for it, his tax would be reduced to $2,780, making it more than $600, less than one-half the English tax. This, be it remembered, is figuring the American normal tax at the supposititious rate of 12 percent.

"Going abruptly to an income of $1,000,000, the American normal tax at 12 percent., would be $119,880, against an English normal tax of $300,000. The increase in the American normal tax would be $79,960 over present rates. The American surtax at present rates would be $435,300, as against a British surtax of $217,915; total American, $555,180, English, $519,687.50. No account is taken in this computation of any excess tax on the American income. With an income of $3,000,000. the American normal tax at 12 percent. would be $359,880, an increase of $239,960 over present rates. The surtax at present rates would be $1,680,300, a total of $2,040,180, or nearly 70 percent., the rate on the last $1,000,000 being at 75 percent. The corresponding British tax is, normal, $900,000, and surtax $669,685; total, $1,569,685, or nearly 52 percent., the actual maximum rate being 52½ percent. on all excess over $50,000.

"Expressed in tabular form, comparative results from a normal tax of 12 percent., combined with present surtax rates and assuming all income up to $50,000 to be earned income for a single man, would be as follows:

"With additional exemption of $1,000 for heads of families and $200 each for dependent children, the United States figures in the table would be reduced by $120 for the $1,000 exemption and $24 for each child. There are similar deductions to be made in the English figures. Furthermore, for incomes above $50,000, deduction for the excess tax has not been figured exactly in order to avoid long computations. This would slightly reduce the figure on the large incomes. But for demonstrative purposes, the table gives a fairly accurate general comparison of the range of taxes under the proposed English law and a tentative 12 percent. normal rate under our law.

"It will be noticed that the rates would come together just below $750,000. It is in the range between $5,000 and $500,000 incomes that greatest divergence in rates occurs. The British tax takes its largest jump between $10,000 and $15,000, where the surtax begins to operate. The United States gradations are erratic and irregular, showing the haphazard manner in which the steps of the surtax were applied."

ATTITUDE TOWARD WAR TAX BILL

The passing of the war tax bill was not altogether easy sailing; there was plenty of criticism from the press throughout the country. Republican editors and congressmen wondered why the bill did not contain a tax on cotton, and one Pennsylvania congressman thought that the tax levy should be at the rate of three dollars a bale. Senator Smoot of Utah attacked the bill as a bunglesome measure.

The New York Jourial Journal of Commerce called attention to the discrimination between those whose income is in the form of services or property and those who get it in cash:

"Take the case, for instance, of the salaried employee of a bank or factory who receives $5,000 a year, out of which he pays his house rent and his usual costs of living; contrast him with the case of a farmer who owns his land and obtains the bulk of what he needs, both in food, fuel, and other essentials, for himself and family in produce or in goods obtained by trade at the neighboring village; the situation becomes clear and shows why it is that the farming class pays only a microscopic proportion of the income tax at the present time."

And the Democratic New York World agreed that the farmer "is not carrying his share of the load of war taxation," and observes:

"An analysis of income tax returns for the fiscal year 1916, recently published, shows that, although farmers are the most numerous class of Americans engaged in gainful occupations, they were at the foot of the list proportionately among income tax payers. Outside of the notorious war profiteers, no element of our population has advantaged so greatly by war as agriculturists; yet in the year of which we speak only one farmer in four hundred paid a farthing's tax upon income. In this respect preachers and teachers showed a higher percentage."

There was some demand for extending the income tax downwards to cover smaller incomes, for example, we find the Council Bluffs' Nonpareil contending:

"The men of more moderate income should be required to pay at least a nominal income tax. This is a common country. It belongs to common people. And common people will esteem it a privilege to contribute their mites. One dollar per hundred on a thousand-dollar income would be both reasonable and just."

CRITICISM OF THE TAX

The attitude of the New York press is indicated by the Evening Sun and the Times. The New York Evening Sun (Rep.) said the committee "left so many rough edges upon their work." In the opinion of this newspaper, Mr. Kitchin "has given us a measure of class-taxation highly accentuated, and yet has failed to suit the McAdoo group, the most clear-minded adherents of the conscription-of-wealth idea. He has produced a confused series of taxes beyond the practical power of the ordinary busy citizen to master or comprehend, but has not combined these into a harmonious system." The morning Sun even went so far as to remark that "nothing that the Senate could do could make the Kitchin measure worse than it is." Yet it by no means criticized all the features of the bill. It objected to the proposed taxes on oil producers as discouraging the production of oil, and styled the plan to tax distributed corporation earnings at twelve percent. and undistributed earnings at eighteen percent. "simply a fool tax," which "will help to lock the wheels of every great industry in this country."

The foundation mistake of the bill, in the opinion of the New York Times (Ind. Dem.) was the "attempt to assess taxes upon the smallest possible number of persons and businesses, leaving a great majority of the people free from a levy direct or indirect." The Times thought that this policy was dictated by the desire "to leave the mass of voters free from grounds of complaint against the party in power." It insisted that there should be a consumption tax levying "upon the breakfast table and upon the purchases of a great mass of people." Such necessities as tea, coffee, cocoa, sugar, should bear a tax, in the opinion of this and other newspapers. The number of those taxed was also kept comparatively small by the retention of the old income exemption limits, namely, $1,000 for bachelors and $2,000 for married men, with the normal tax rate placed at only six percent. on incomes up to $5,000.

WILSON'S TAX PROGRAM

An outline of what was expected from the people of the country as a financial contribution was given by Mr. Wilson in his May (1918) address to Congress, when he decided to ask its members to remain in Washington and prepare a new revenue bill. Mr. Wilson's call for immediate action in behalf of both the public and the Treasury Department was a summons to a universal duty in language which, it is remarked, "was never before used in a tax speech." He said in part:

"We can not in fairness wait until the end of the fiscal year is at hand to apprize our people of the taxes they must pay on their earnings of the present calendar year, whose accountings and expenditures will then be closed.

"We can not get increased taxes unless the country knows what they are to be and practices the necessary economy to make them available. Definiteness, early definiteness, as to what its tasks are to be is absolutely necessary for the successful administration of the treasury....

"The present tax laws are marred, moreover, by inequities which ought to be remedied....

"Only fair, equitably distributed taxation of the widest incidence, drawing chiefly from the sources which would be likely to demoralize credit by their very abundance, can prevent inflation and keep our industrial system free of speculation and waste.

Poster for Boy Scouts Who Worked for the Victory Loan

"We shall naturally turn, therefore, I suppose, to war profits and incomes and luxuries for the additional taxes. But the war profits and incomes upon which the increased taxes will be levied will be the profits and incomes of the calendar year 1918. It would be manifestly unfair to wait until the early months of 1919 to say what they are to be....

"Moreover, taxes of that sort will not be paid until the June of next year, and the treasury must anticipate them....

"In the autumn a much larger sale of long-time bonds must be effected than has yet been attempted....

"And how are investors to approach the purchase of bonds with any sort of confidence or knowledge of their own affairs if they do not know what taxes they are to pay and what economies and adjustments of their business they must effect? I can not assure the country of a successful administration of the treasury in 1918 if the question of further taxation is to be left undecided until 1919."

Mr. Wilson's appeal for the practice of personal economy met with widespread approval in England, as it did in the United States. The Economist considered that his manifesto to the American people on this subject was among the greatest documents that the war has produced. National self-sacrifice had gone far, but not far enough. To attain Mr. Wilson's standard of individual patriotism much was still needed, the Economist says:

"We still have a very long way to go before we can attain to President Wilson's standard of individual patriotism. From the outbreak of war to the end of last year the small investor in this country has lent £118,179,000 to the government. Moreover, in the first two months of 1917 as much as £40,000,000 was contributed to war loans in one form or another in the shape of small savings. That result represents a great deal of patriotic saving, and reflects the highest credit on the committee, as well as upon the Montagu committee, which devised so suitable a form of investment as the 15s 6d certificate. But far more is required. During the war loan campaign, war savings certificates brought in £3,000,000 in a single week. That effort was, perhaps, too great to be kept up; but it is hardly satisfactory that, in spite of the hard work of the committee, and an enormous growth in the number of active war savings associations all over the country, the weekly receipts from the 15s 6d certificates have fallen back to the £800,000 to £900,000 level which was reached last December. This relapse may be partially accounted for by the late increase in the cost of living, but there can be no doubt that much more might yet be done by the masses of people of moderate means to whom the small certificates appeal. Nor is there any evidence that the wealthier classes, generally speaking, have done nearly as much, in the matter of war self denial, as they might have done."

LUXURY TAXES

When it came to a question of taxing luxuries, the difficulty was to decide what was a luxury. The situation perplexed Congress, for we find one congressman in Pennsylvania who held that collar buttons and cuff buttons were a necessity, while a representative from Texas asserted that Texas could get along without either collar buttons and cuff buttons and still be patriotic. A congressman from Oklahoma thought that all kinds of buttons could be done away with, adding, "Before I came to Congress I could use nails for my suspenders." Congressman from agricultural states considered that automobiles and gasoline were not luxuries but were really necessities, especially for farmers.

Many newspapers opposed anything like a luxury tax. We find the New York Times advising the imposition of taxes on tea, sugar, coffee and cocoa. These are good revenue producers but few politicians care to interfere with the free breakfast table. The Wall Street Journal approved of luxury taxes because they would be a means of enforcing thrift. The Treasury's plan for imposing these taxes may be gathered from the following condensed summary:

"Fifty percent. on the retail price of jewelry, including watches and clocks, except those sold to army officers.

"Twenty percent. on automobiles, trailers and truck units, motor cycles, bicycles automobile, motor cycle, and bicycle tires, and musical instruments.

"A tax on all men's suits selling for more than $30, hats over $4, shirts over $2, pajamas over $2, hosiery over 35 cents, shoes over $5, gloves over $2, underwear over $3, and all neckwear and canes.

"On women's suits over $40, coats over $30, ready-made dresses over $35, skirts over $15, hats over $10, shoes over $6, lingerie over $5, corsets over $5. Dress goods—silk over $1.50 a square yard; cotton over 50 cents a square yard, and wool over $2 per square yard. All furs, boas and fans.

"On children's clothing—on children's suits over $15, cotton dresses over $3, linen dresses over $5, silk and wool dresses over $8, hats $5, shoes $4, and gloves $2.

"On house furnishings, all ornamental lamps and fixtures, all table linen, cutlery and silverware, china and cut glass; all furniture in sets for which $5 or more is paid for each piece; on curtains over $2 per yard, and on tapestries, rugs, and carpets over $5 per square yard.

"On all purses, pocketbooks, handbags, brushes, combs and toilet articles, and all mirrors over $2.

"Ten percent. on the collections from the sales of vending machines.

"Ten percent. on all hotel bills amounting to more than $2.50 per person per day. Also the present 10 percent. tax on cabaret bills is made to apply to the entire restaurant or café bill.

TAXES OF MANUFACTURER OR PRODUCER

"Ten cents a gallon on all gasoline to be paid by the wholesale dealers.

"Ten percent. tax on wire leases.

"Graduated taxes on soft drinks. Mineral now taxed 1 cent a gallon to pay 16 cents. Chewing gum now taxed 2 percent. of the selling price, to pay 1 cent on each 5-cent package.

"Motion-picture shows and films: abolish the foot tax of ¼ and ½-cent a foot and substitute a tax of 5 percent. on the rentals received by the producer, and double the tax rate on admissions.

"Double the present taxes on alcoholic beverages, tobacco and cigarettes.

"Automobiles—a license tax on passenger automobiles graduated according to horsepower.

"Double club membership dues.

"Household servants, made 25 percent. of the wages of one servant up to 100 percent. of the combined wages of four or more. Female servants, each family exempted from tax on one servant. All additional servants (female) from 10 to 100 percent. on all over four."

LUXURIES IMPORTED

Heavy taxes on luxuries were anticipated but until these taxes were considered it was hardly realized how much of the consumption in America was concerned with articles that could be considered luxuries; for example, the country imported $6,000,000 worth of foreign cigarette papers. Pictures, statuary and other works of art were brought into the country to the extent of $17,000,000. Over $2,000,000 worth of ivory was imported every year; over $2,000,000 worth of mother-of-pearl and more than $2,500,000 worth of bulbs and roots. Higher taxes were urged by the financial experts, so we see a writer in Financial America emphasizing the connection between the importation of luxuries and the need of shipping:

"America can not spare ships to bring costly garments and furnishings thousands of miles across the sea. For the war period these articles can be replaced at home with materials that cost less labor and less money. The money spent for domestic goods remains in America and maintains our working population and our business and banking resources.

"We lack a sufficient market for our cotton crop, owing to the lack of ships. Americans should wear more cotton. The money spent upon it maintains the Southern planter and his family. Modern processes give it the appearance of silk. It serves very well as carpets, curtains, hangings, and furniture coverings. It should answer present needs for such fabrics. A heavier tax on imports of these goods is indicated as a means of revenue and war economy.

"Imported wearing apparel of silk pays 60 percent. duty and of wool 44 cents a pound and 60 percent. ad valorem. There is a graduated rate on dress goods of these materials. Despite the tax, America spent more on imported manufactures of silk in 1917 than ever, the total being nearly $40,000,000. The same was true of woolen goods, amounting to $23,000,000.

"Our imports of woolen carpets and rugs, most of them brought half way round the world from oriental lands, were also larger. They cost us $3,740,000, though America is a large producer of carpets and rugs, fine as well as coarse. These imports paid ten cents a square foot and 40 percent. ad valorem. Evidently, it was not enough.

"We also spent $53,000,000 for imported cotton manufactures, including cloth, laces, curtains, handkerchiefs, veils, and wearing apparel, though America is the world's chief producer of cotton. A higher tariff is indicated as a tax on those who insist on the foreign product.

TAXES ON TOBACCO

"America has a large tobacco industry at home. We import tobacco in vast quantities from every producing land to satisfy the whimsical and varying tastes of connoisseurs. Our own tobacco is discouraged by those who smoke it under the name of Turkish, Egyptian, Cuban, Dutch, Spanish, and other foreign products, and pay a heavy price for the critical taste which their vanity causes them to imagine they possess. Last year these imports of leaf tobacco alone were valued at $26,000,000, or $10,000,000 more than in 1915. The war tax is five cents a pound added to eight cents paid under the internal revenue act, or thirteen cents altogether. There is also a duty of $1.85 to $2.50 a pound. To increase the tax would encourage the industry in Kentucky, Virginia, Pennsylvania, Connecticut, and other states, while saving our resources in ships and keeping our money at home.

"In addition, America spent $7,000,000 for foreign-made cigars and cigarettes last year. These purchases support foreign factories, although our own factories use the same raw material which they import. They have jumped nearly $3,000,000 in two years. Until the war is ended, Americans should be satisfied with cigars 'made in America.' The present war tax ranges from one tenth of a cent to one cent on each cigar, according to value, in addition to a duty of $4.50 a pound and 25 percent. ad valorem. A higher tax would deprive the smoker of nothing but a craving for the foreign label on his cigar box, unless he chose to pay well for it. He can even get a Spanish name on his American-made cigar.

DIAMONDS, LEATHER AND MILLINERY

"America spent $41,000,000 in 1917 to import diamonds, pearls, and other precious stones and imitations, not set. They paid a war tax of only 3 percent. when made into jewelry. America could be content with beauty less adorned to keep this $40,000,000 at home, or those who insist on sending their money to African mine owners and Dutch cutters should pay a larger tax.

"America last year had a tremendous bill for hides and skins of $209,000,000, nearly two and a half times that of 1915. Much of it was for the great necessities of the army. A good proportion of the rest was unnecessary. These imports of raw material are free of duty and there is no war tax on leather goods. Substitutes have been devised for many of them. These should be encouraged by a tax on the unnecessary use of leather in furnishings, decorations, toilet articles, hand bags, trunks, high shoes, belts, hatbands, and many small articles. Substitutes for these will be provided quickly enough if leather is lacking. A heavy tax would help the movement. The tremendous military and other legitimate demands for leather goods will keep the industry in thriving condition without so much waste.

"For imported millinery materials America spent nearly $13,000,000 last year, and we also spent $3,000,000 for mere feathers, tributes to feminine vanity that filled up many ships needed for war use. The greater part of this stuff came 10,000 miles from China and Japan. There are plenty of substitutes that a high war tax would encourage, including those provided by the American hen.

"Our imported glassware, on which there is no war tax, cost nearly $2,000,000. It occupies large space aboard ship, owing to voluminous packing that is necessary. Imported china, porcelain, earthenware, and crockery cost America nearly $6,500,000."

BEARING THE BURDEN

In spite of the enormous cost of war operations, roseate views were taken of the ability of the country to surmount the unusual difficulties. Unprecedented taxes were being paid, heavy subscriptions to the Liberty Loans were being collected and yet the business of the country seemed to show a high degree of prosperity. This optimistic outlook marks the following comment found in a circular published by the First National Bank in Boston, after it had called attention to the small number of failures reported throughout the country for August, 1918. No such low record had been reached since July, 1901:

"The steps that have been taken to curtail credits have resulted in greater conservatism, and have had a beneficent effect, which is likely to continue for some time after the present necessity disappears. The business foundation is extremely sound. Figures of resources of savings banks show that the subscriptions to the Liberty Loans have brought only a trifling decrease in savings deposits. Evidently subscribers are buying bonds with their current income rather than with their savings. In other words, the Liberty Loans represent additions to the savings of the country, and not merely transfers of investments."

It was prophesied that in spite of the enormous financial obligations assumed by the United States normal conditions would soon be restored. History shows, the circular goes on to say, that financial recovery from devastation has been prompt and complete. Even the railway conditions at this time were viewed optimistically. Such a competent authority as the Wall Street Journal did not anticipate the financial troubles that soon overtook railway administration under government control. It thought that, by the end of the year, the existing debits on current operations would probably be wiped out:

"Aggregate railroad earnings and expenses for July of all the important roads in the country are in line with the individual statements of the different roads already published in showing large increases in both gross and net revenues. They also indicate, so far as one month's operating results may be used to generalize from, that the railroads are now on a self-supporting basis, if they are not actually returning a profit to the government on current operation.

"Net operating income of these roads for the month of July (1918) was $137,845,425 as compared with $92,599,620 in the same month of 1917. In a recent statement from the Director-General's office the compensation payable to the railroad companies for the use of their property by the government was estimated at $650,000,000 for the first eight months of the year, or at the rate of $81,250,000 a month. The net operating income of the Class 1 roads as mentioned above exceeds this monthly rental figure by $56,595,000."

THE FIRST GOVERNMENT LOAN, 1789

Although called by other names, the United States has had issues of Liberty Bonds on several occasions during a period of one hundred and twenty-nine years, notably in the first years of the Republic and in the Civil War. The first was floated in 1789, the year when the Federal Government was established. Alexander Hamilton was Secretary of the Treasury and on him devolved the duty of raising funds for the government.

"Conditions being pressing, Hamilton, in raising the necessary money, at first did not wait even for the approval of Congress, but went to the Bank of New York, which he had helped to found in 1784—the second bank in the United States and the first in New York City—to raise the first necessary money. At a meeting of the board of directors the new secretary of the treasury asked for a loan of $200,000. It was promptly and unanimously granted, the money to be advanced in five installments of $20,000 each and ten of $10,000 each, at 6 percent. On the following day Hamilton sent to the bank the first bond ever issued by the United States Treasury—a bond of $20,000—on receipt of which the money was paid over, so that the United States Treasury could show $20,000 cash on hand. In The Investor's Magazine, where these facts were recently brought to light, we are further told that the bond then issued is still carefully preserved by the bank which bought it. Quite unlike the now familiar Liberty Bonds of 1917 and 1918, it was executed with an ordinary quill pen, such as was in use in those times, and signed in ink by the secretary. With its seal somewhat yellow with age, the bond is still in an excellent state of preservation."

Richards in the Phila. North American

Dropping the First Bomb

POPULARITY OF THE LIBERTY LOANS

America's financial reputation stood at a fairly high level after the close of the Civil War. An era of unexampled production ensued for more than five decades, yet there were many timorous souls who were frightened at the thought of the United States being called upon to bear the burden of the colossal loans. The surprising feature of the Liberty Loans was the elasticity of the subscriptions. The subscribers for the first three loans numbered respectively 4,500,000, 10,020,000, 17,000,000; in every case the records show over subscription. A graphic statement of the nation's riches was presented by S. L. Frazier in the Northwestern Banker, Des Moines, October, 1918:

"Our resources are well up toward $300,000,000,000, or about equal to the combined resources of France, England, and Germany. Our annual production is close to $50,000,000,00, amounts that stagger the imagination. Why it would take ten thousand years to count the dollars representing out our country's resources counting one each second, and working day and night and Sundays."

The New York Tribune remarked, "If any learned professor of economics had predicted that on top of ten billions of government loans in one year a fourth Liberty Loan would reach nearly seven billions we know what we all would have thought."

HOW EUROPE WILL PAY US BACK

An official in the National City Bank of New York, Mr. G. E. Roberts, is quoted by the New York Times as saying that the wealth-producing equipment of the country had become greater than ever during the war. He did not believe either that there would be any difficulty of the United States being paid back for the money it had loaned foreign governments.

"We are going to be peculiarly situated in our foreign relations after the war. We have paid off the greater part of what we owe abroad, and we have lent to foreign governments some $7,000,000,000 or $8,000,000,000. Including all loans by the time the war is over, probably there will be annual interest payments coming to us amounting to $400,000,000 or $500,000,000. How are we going to receive our pay? I am not questioning the ability of our debtors to raise this amount from their people. I have no doubt they can do it, but in what manner are they going to make payment to us? They can't pay it in gold; they haven't the gold to do it, and the total production of gold in the world outside of the United States wouldn't be enough to do it. We won't want them to pay it in goods, for that would interfere seriously with our home industries....

"There is only one way out, and that is by extending more credit to them. We will have to capitalize the interest payments and reinvest them abroad. And if we want to sell goods to them we will have to take their bonds and stocks. In short, we will have to play the part that England has played in the past, of steadily increasing our foreign investments."

While the great sums subscribed for the Fourth Loan by banks, corporations, and individuals had a spectacular interest, observed the New York World, it was the plain people who made the loan a conspicuous success, and the twenty-one million subscribers mean in effect the purchase of a new Liberty Bond by "every American family."

THE LOAN PERIODS

There were very good reasons on the part of the government for selecting the definite periods at which the Liberty Loans were to be issued. There were also very good reasons derived from experience by which the government was guided in preparing for the loans. Prior to the fourth loan Secretary McAdoo believed that it could be made to reach fully one-fourth of the population of the country. Preparation for it was made through publicity on a scale hitherto unprecedented. The Washington correspondent of the New York Journal of Commerce, writing on July 31, 1918, said:

"The country will be appealed to, with new and striking film arguments, with a great variety of poster slogans, and with a use of the press and the platform such as has never been witnessed before in this country.

"There are to be nineteen days of actual campaign work. The great task of organization and preparation is now going on. Artists have been making posters, writers have been preparing arguments, and printing presses in all parts of the country have been turning out many millions of mottoes, cartoons, and slogans."

He added interesting data as to outstanding treasury certificates and war expenses. The time chosen for the loan was probably as good, it thought, as could have been selected, inasmuch as it would fall just after the bulk of the crops had been harvested and when much of them had been sold at good figures.

"War expenses for July were somewhat less than for June and May, amounting to about $1,482,000,000 as compared with $1,512,000,000, the record for June, and $1,508,000,000 for May, the Treasury Department announced. The outlay for July, however, was approximately the amount estimated in advance by the treasury, and expenses for August probably will be higher, it was said.

"During July the government's daily outlay was about $48,000,000, an average of $38,000,000 daily was for ordinary expenses of the army, navy, shipping board, and other agencies, and $10,000,000 daily in loans to the Allies. Total ordinary expenditures for the month were about $1,157,000,000 and loans to the Allies $325,000,000.

"Receipts from sale of War Savings Stamps July 3rd passed the half-billion dollar mark, of which $200,000,000 came in this month as a result of the campaign on Thrift Day, June 28th.

"The government now is financing itself mainly through the sale of certificates of indebtedness, in anticipation of the Fourth Liberty Loan. More than $1,600,000,000 came in from this source in July. In addition, the government received $491,000,000 from belated income and excess profits taxes, and $97,000,000 from miscellaneous internal revenue. Customs duties yielded only $14,000,000.

"Payments on the Third Liberty Loan now amount to $3,652,000,000, leaving $524,000,000 to come in from the next installment payment."

THE INDIVIDUAL INVESTOR

Some curious facts were brought out in the effort of the Liberty Campaign propaganda to reach the individual investor. In the large cities the organization was remarkably successful. In the smaller communities it was a greater difficulty. In a suburb or a small town everybody knows everybody else and the Liberty Loan Committee had hard work in getting subscribers. Mr. A. W. Atwood of Princeton thinks that the occupational and vocational classification of possible investors was not tried. Widows and maiden ladies who had inherited $50,000 or $75,000 were not reached. Some of them who were patriotic came forward of their own accord. The little town of Kircunkson in New York State exceeded its quota many times and there was an item in the papers about it. The success of the Liberty Loan in that town was due to the fact that it contained a large sanitarium patronized by millionaires. Yet there were no banks in the town and if their banking resources were used as a basis their quota would have been very small indeed.

As to the assignment of quotas Mr. Atwood makes the point that it was sometimes based on population, sometimes based on the amount of bank resources. He thought that in small places it would be better to post up a list of those who had subscribed and he even thought that if the country made the effort it could ultimately raise a loan of $100,000,000,000, his reason being the following:

"This country is approaching, as England has long ago, the position of being a possessor of great accumulated wealth. One broker after another is really nothing but a family investment agent. That is what it amounts to. There are railroad magnates, bankers, steel kings, copper kings and so on indefinitely. Hundreds of firms in the New York Stock Exchange are nothing but channels for the investment of accumulated wealth and I do not think we realize how much there is of that in this country."

LIBERTY LOANS AND THRIFT

One of the best methods of testing the influence of Liberty Loan activities on the thrift of the country is used by Bradstreet's in its examination of the annual report of the United States League of Building and Loan Associations. These Associations, be it remembered, are not patronized by capitalists but almost wholly by wage earners. During the past fifteen years the membership of building and loan associations has increased 150 percent. and since the war broke in 1914, the number of members has extended 52 percent. The latest report shows a gain in assets of 30 percent. over the amount indicated in 1914. The following tables taken from Bradstreet's give detailed items of the financial situation of these important organizations:

The following table gives membership and total assets of building and loan associations for a fifteen-year period:

The following table shows total membership and total assets for States in which accurate statistics are compiled by state supervisors. The data for other States are consolidated under the heading, "Other States," and the figures given are estimated:

[3]Reports issued biennially; figures of 1916 used.

[4]Decrease.

A Poster Used During the Fourth Liberty Loan Campaign

[Click for a larger image.]

THE THRIFT HABIT

Such was the success of the Liberty Loan campaign in appealing to all classes of private investors, that it became an interesting speculation whether the popular thrift habit would survive war conditions. It was the general belief in finanical financial centers that the habit of saving had been promoted. Perhaps no better illustration of the thrift habit could be presented than returns made by the savings banks of Boston in October, 1918. At that date these banks had $321,000,000 against $319,000,000 at the same date in 1917, the previous banner total for the end of a banking year. It was estimated by Mr. Ingalls Kimball, the New York Times annalist, that twenty million separate individuals were saving by the method of subscribing to the Liberty Loans, and, as more than $800,000,000 worth of War Saving stamps had been sold, it was probable that nearly half the population of the country was saving money in one of these new ways. As to the method of continuing to encourage thrift, Mr. Kimball pointed out the value of the experience derived from the Liberty Bond Campaign:

"The thrift machine set up by the Treasury was as follows: 1. small unit government bonds; 2. non-interest-bearing Thrift Stamps; 3. War Savings Stamps—a short-term obligation paying interest at maturity.

"This was the mechanism. What was the power that actuated the machine to such wonderful effect? 1. salesmanship, including every modern device of advertising; 2. distribution: (a) through retail stores; (b) through employers, by partial payments (usually pay-roll deduction).

"From these simple elements was built up a campaign that induced the people to save in a new and unaccustomed way at least twenty times as much as they had ever before saved in the same time. None of the elements was unimportant, but salesmanship, probably, contributed most. The selling campaigns of the Liberty Loans and War Savings Stamps were carried on by the largest and most effective selling organization ever put together, under the direction of the ablest men in the United States, and with an energy and devotion that were unimaginable. This selling force was irresistible. Everybody bought because everybody was asked, or begged, or told, to buy. Under the same stimulus almost anything would have sold.

"SAVING AT THE SOURCE"

"Next in importance to the direct selling effort came distribution. For the first time in the history of finance it has been made easy to save; for the first time the great retail channels of distribution have been thrown open to saving; for the first time millions of wage-earners have learned the value and ease of 'Saving at the Source' by pay-envelope deduction of a dollar or so a week toward a Liberty Bond."

Mr. Kimball questioned whether or not we are to lose the benefit of the great lesson of thrift and whether some plan could be devised to make us keep on saving. No problem of reconstruction seemed to him more important than this, "yet in no one of the announced conferences on reconstruction do I find mention of it." He then goes on to say:

"The greatest thrift lesson in the world is thrift, no matter what its motive. A great many hundred thousand persons in this country have found themselves this year possessed of $100 or more in one piece for the first time in their lives; often without realization of how they got it. Will that lesson last? Will the wage-earner, now that loan drives are over, keep on saving, going weekly to the bank to put in his dollar. The answer to these questions is, unfortunately, 'no.'

"It would be perfectly possible to continue the issue of War Savings Stamps, and there are many advocates of this plan, but it is doubtful if distribution could be permanently maintained on anything like its present scale. Merchants and banks, with rare exceptions, would scarcely continue to handle them, for the cost is not inconsiderable, and there is no compensating commercial gain. In the postoffices alone their continued sale would set up competition with the present postal savings system, which would serve no good purpose and would be highly confusing.

"Can the savings banks successfully undertake this great task? I believe they could. I believe a national savings bank, operating through commercial banks, stores, and employers all over the United States, making its investments through a small compact, very highly paid and very efficient and very stringently supervised board of executives in one city, supporting a vigorous, numerous, and far-flung selling organization, similar in many respects to the industrial life insurance organizations, could undertake this work and, were it possible to act quickly enough, could keep the thrift movement going without losing the amazing momentum which it has now acquired."

SPENDING THE MONEY

For a period of twenty-five months, from April, 1917, through April, 1919, the United States spent for war purposes more than $1,000,000 an hour. All sorts of comparisons are used to make this figure seizable by the imagination. For example, the whole sum, nearly $22,000,000,000, was twenty times the whole of the pre-war debt. Indeed, it was nearly large enough to pay the entire cost of our Government from 1791 up to the outbreak of the European War. In addition to the actual war cost of our own Government Congress paid to various associated governments the sum of $8,850,000,000. As to how this enormous sum of money was spent, two-thirds of the amount practically was spent upon the Army, and the rate of expenditure for the Army was constantly advancing period by period. Even after the termination of hostilities there was a very high daily average owing to the building of ships for the Emergency Fleet Corporation, the construction and operation of naval vessels, food, clothing, pay and transportation of the Army. The Quartermaster's Department had the largest proportion of expenditure.

The amount spent about equals the value of all the gold produced in the whole world from the discovery of America up to the outbreak of the European War. The pay for the Army during the period of warfare was larger than the combined salaries of all of the public school principals and teachers in the United States for five years, from 1912 to 1916. Some of the money spent represents permanent assets. At the end of the war there were large stocks of clothing on hand and large supplies of standardized trucks. There were thousands of Liberty motors and service planes that were available for other uses. Engineer, signal and medical equipment still continued to have a value, but if the race for militarism is maintained it is hard to see how the quantities of war munitions can fail to escape the scrap heap in a few years' time.

Comparing the individual estimates of war expenditure, it is noteworthy that the Austro-Hungarian Empire spent almost as much as the United States. Of all the powers Germany spent the largest sum, $39,000,000,000—one billion more than England.

MONEY LOANED TO ASSOCIATE NATIONS

The following is quoted from the Annalist for December, 1918:

"Money owed to a government by the nations of the world, with whom it is in active commercial competition, is another line of fortifications in defense of the frontier. Let us, then consider our debts and our debtors, and how we both propose to pay. Our long-time loans may be scheduled as follows:

"The totals of each of the above loans have changed substantially since allotment, through conversions with a correspondingly increasing charge on the service. However, the gross amount is substantially unchanged. Of the old loans the Treasury statement of March 31 showed the following totals:

"The short-term loans in the shape of certificates of indebtedness and War Savings Stamps at the present writing are as follows:

"In addition to the above a series of certificates of indebtedness, designated as TA, bearing interest at four per cent. and maturing July 15, 1919, was issued to a small amount in anticipation of next year's income taxes. The sale proved to be slow, and further issuance was discontinued and a new issue for the same purpose and of a similar maturity bearing interest at 4½% per cent. was substituted. The sale of these securities through the agency of the Federal Reserve Banks is in the nature of a continuous operation, and no totals so far have been announced.

Detroit—City of Automobiles

Many thousands of standardized trucks were made in Detroit during the war rush, the automobile having proved to the be indispensable to be the fighting forces overseas.

[Click for a larger image.]

"The sale of War Savings Stamps and certificates has increased the national debt by $1,257,000,000, or within 400 million of the maximum under the first authorization. A second series, however, amounting to two billion dollars, has been authorized, so that the operation will probably continue into the coming year. The Treasury for the fiscal year 1917—18 estimated receipts of $663,200,000 from this source and about a billion for 1918—19. The first estimate was out of line, owing to the difficulty in getting the plan into smooth operation. Subsequent results have, however, justified the average of expectations.

"The pre-war debt, in the light of recent figures, is almost negligible, and the outstanding certificates in anticipation of taxes and the Fourth Liberty Loan will be redeemed in due course by the flow of funds owing to the Government in taxes and subscription payments. The problem of how to deal with the eighteen-billion-dollar war debt is the vital question. How much of this sum represents a charge on the coming generation and how much an invaluable national asset?

WHAT IS OWED THE AMERICAN PEOPLE.

"We have loaned abroad the following items:

[5]Increased to $9,646,419,494 by October, 1919.

"Here, then, are figures totaling nearly half of our war debts that are not only self-supporting but also a double-edged weapon in the international market. In the first place, they represent money spent at home on American goods, from which the American manufacturer has taken his toll of profit; and in the second place, they have put the world in our debt to an extent that will be difficult to pay in the exchange of goods.

"Imports of foreign commodities or even gold will take a decade to halve the debt, for the gold can not be spared, nor do we wish it, and our creditors will find it difficult to increase their exports to a point capable of bringing about a balance in their favor. The imports from Europe are bound to be offset by our own exports, some able economists predicting a balance of a billion dollars in our favor for the next five years. Regardless of the demands to be made upon us from this source, it is probable that the peak-load of expenditure has been reached and the period of readjustment and redemption set in.

"Charging off, then, our loans to the Allies as an asset, let us then consider how we may best meet the bill due the American people. Vague discussions of the creation of a huge sinking fund have been heard, although for some reason or other, in history these operations have not been entirely successful. Fortunately the bulk of our debt has an early callable date, and the Treasury has recently come in for much applause by advocating no more loans unless they be in the nature of a one-to five-year currency. Experience teaches that the full benefit and effect of war taxes are rarely felt until after the war. England, after the Napoleonic wars, came back with a rapidity that astonished the Exchequer itself. Taxes rolled up in such a volume and expenses dropped with demobilization to such an extent that the Government found itself anticipating the callable date in national debts by market purchases, and even then it was found convenient gradually to reduce the scale of taxation.

"Our experience after the Civil War was very similar to England's, and the Treasury's surplus annually accumulated to a point that forced the Government to buy back at high premiums the bonds it was not privileged to call. This was true, though to a lesser degree, with the Spanish war loan.

"It seems as though the two operations of liquidating our own debts and the debt of Europe to the United States dovetailed perfectly into one gradual and stupendous task. While Europe is paying her indebtedness to us without interfering with the development of international trade by the sale of foreign securities in our home market our buyers here must receive the tools to operate with through the redemption and repurchase of their Liberty Bonds. In this half of the deal safety, as usual, lies in the middle course. It is hoped that taxes will be maintained at a level that will infallibly provide funds for fixed redemptions with a sufficient surplus to get a flying start by purchase around the present low levels."

FINANCIAL STATUS OF ENGLAND IN 1914

One year before the war England's position in regard to the balance of trade was most favorable. Her imports were valued at $3,210,000,000 and her exports at $2,560,000,000. But it was usually estimated that foreign countries owed England about $1,610,000,000 annually for interest on capital lent for shipping freights and for banking insurance and other commissions. The total amount owed her, therefore was $4,170,000,000 as against $3,210,000,000 which she owed for her imports. She had therefore a favorable balance of about $960,000,000 which was lent abroad. The war brought an enormous decrease in tonnage, and the excess of imports over exports attained the figure of $1,950,000,000 a year.

Exceptional measures had to be taken to maintain the exchange rates with the United States from whom the chief purchases were made. Large amounts of gold were exported, but by June, 1915, there was a collapse in American exchange. Drastic measures were used to induce the holders of American securities in England to sell or lend those securities to the Government. In this way exchange was kept up practically to the gold point. This question of exchange and the position of England as the director of the financial campaign of the Allies is illustrated from an address given by Mr. R. H. Brand to the American Bankers Association, in September, 1917:

"Of course no nation could permanently tolerate such unfavorable trade balances as those from which the Allies in Europe are now suffering. They can only do so now and keep their exchanges with the United States steady by borrowing immense sums here. But the war itself is not permanent, and the question is merely whether the present state of affairs can be continued long enough to enable all the enemies of the Central Powers to exert their full strength and win a final victory.

"You will no doubt all have noticed that the credits granted Great Britain have been greater than those granted to any other Ally. The reasons are simple, though they are not, I think, generally understood. We have, in the first place, the largest war and munition program of any Ally; in the second place, as I have shown above, we are, with the exception of the United States, the greatest industrial arsenal among the Allies; that necessarily involves large imports. We send a great deal of steel from England to our Allies; we have to replace it by steel from here. We make rifles for Russia; we have to import the steel to make them. We send boots to Russia; we have to import the leather needed. These examples might be multiplied many times. Thirdly, we extend large credits in England to our Allies, some part of which they may use anywhere in the world, and this part may ultimately come back on the sterling exchange in New York. Lastly, it is well known that neutrals who are owed money by England unfortunately find it convenient to utilize the sterling exchange in New York in order to recoup themselves in dollars. But so also do neutrals who are owed money by the other Allies. So long as we maintain the sterling exchange this appears to be inevitable, and the burden of financing both our own and our Allies' trade tends to fall on that exchange. It is by our maintenance of this sterling exchange that the continuance of our Allies' trade is rendered possible. The maintenance of the sterling exchange means the maintenance of the allied exchanges. All these factors together exert an immense influence. If England had had only herself to finance since the beginning of the war, and indeed even if she had only herself to finance now, it is quite possible she would not have needed to borrow at all abroad."

LOSS IN PRODUCTIVE POWER

The extent of the withdrawal of productive power can only be judged by figures. Of the 7,500,000 men serving in the British Army, 4,530,000 were contributed by Great Britain, 900,000 by the British dominions and colonies; and the remaining 1,000,000 by India and the various British African dependencies. Production went on to a remarkable degree, but this production was largely for war purposes. It was secured by recruiting female labor to an unheard of extent in the munition factories. According to the London Economist, the financial side of the British administration was anything but satisfactory. It speaks of waste and faulty methods:

"On the financial side our record is by no means so satisfactory. We have, it is true, poured out money like water, but much of it has been raised by faulty methods, and the amount of it that has been wasted is appalling to consider. In the matter of borrowing, our methods have lately been greatly improved; and the recommendation of the Committee on National Expenditure, that the system of raising money by bank credits should be checked as far as possible, is being brought within the bounds of practical politics by the great success of the War Savings Committee's energetic and ingenious campaign for prompting the sale of National War Bonds. Perhaps also we may claim some small share in that success through the adoption of the principle so long advocated in these columns of a lower rate for money at home combined with special terms for money left here by foreigners. But successful borrowing, direct from the investor, instead of in the shape of money manufactured by banks, is a welcome, but not sufficient, improvement. We have to raise much more money by taxation. We have also to do much more than has yet been done to reduce the wicked waste of public money and support the efforts of the Committee on National Expenditure to husband the resources of the nation. A correspondent in a provincial town in which a Tank has lately been busy asks: 'Is it not pathetic to see widows and children scraping together their shillings and pennies to help the Government, while we have tens of thousands of pounds being squandered by a profligate Ministry of Munitions!'"

Copyright Underwood & Underwood

A Woman Doing Road Construction Work

Of the 7,500,000 men serving in the British Army, 4,530,000 were contributed by Great Britain. Yet production was speeded up by recruiting and training the labor of women.

[Click for a larger image.]

EQUALIZING LOANS AND TAXATION

A thorny problem of all war finance is how to equalize as far as possible the amount of money furnished by taxation with the amounts borrowed. The proportion indicated in the last English war budget of 1918 was that between £842,000,000 raised by taxes and 2,000,000,000 sterling by fresh borrowing. Besides, war experience shows that the parliamentary estimates in each year were always far below the amount spent. In 1917 in Great Britain the shortage was upwards of £400,000,000. According to the London Economist, no effective steps were taken to stop the profligate extravagance by which public money was poured out through the sieves of the war spending departments into the pockets of innumerable manufacturers, middlemen and traders, not to mention the ever growing sums allocated to the privy purses of countless new bodies of officials. Each year, it says, there is a new debt charge of some £120,000,000 and each year there is a constant rise of prices in wages that enhances the cost of governmental goods and services.

The amount raised by taxation, £842,000,000, seems enormously large, but as the London Nation states:

"The enormous rise of prices only makes it represent half that amount in actual purchasing power. Before the war our expenditure was 200 millions. If money had kept the same value, the taxation and other public income for this year would only have been 420 millions, a little more than twice the pre-war level. Would that have seemed so heroic an effort for a patriotic nation? No. It can never be repeated too often that a really rigorous taxation, begun in 1914 and carried on till now, would have left us in a far sounder condition both for conducting the war and for facing the peace finance. The money and the goods are there. We get them. But we get them by crooked and expensive methods of borrowing which inflate prices, oppress the poorer purchasers, put huge war loot into the pockets of contractors and financiers, and fail to restrain expenditure in luxuries."

GERMANY'S ECONOMIC PREPARATION FOR WAR

There is much evidence to show that long before the war began financial preparations were made in Germany for the great struggle. For a considerable period prior to 1914, Germany and Russia had been engaged in a contest to accumulate a gold supply. Russia, it is known, had begun to withdraw the large balances which she kept in German, French and English banks. In Germany the story was circulated that in 1913 the Kaiser inquired of the governor of the Imperial Bank if the German banks were equipped for war. Being told that they were not ready he is said to have replied: "When I ask that question again I want a different answer." The Imperial Bank of Germany became an active bidder at the London gold auctions for the gold which arrived weekly from South Africa, and its activity along these lines was shown by the increasing of the German gold reserve in the bank vaults from $184,000,000 on December 31, 1912, to $336,000,000, the amount it stood at a month before the war began. In addition, the Imperial Bank collected for the Government a sum of about thirty million dollars to be added to the same amount said to be stored in the vaults of the Julius Thurm at Spandau, and to be used as a war chest. Other European countries were increasing their gold supplies, so it was not surprising that the New York markets were called upon to export eighty-four million dollars of gold for six months before the outbreak of the war. The entire gold production of the world during the eighteen months ending on June 30, 1914, was approximately $705,000,000. Of this amount, about two million dollars was required for the arts, and one hundred and fifty million dollars went to British India. This left about $350,000,000 to be applied to monetary uses and the whole of this amount was absorbed by the four great central banks of Germany, France, Russia and Austria-Hungary.

In order to resist raids on the German gold reserve a policy of note issuing was adopted. The situation, as forecast by Mr. C. A. Conant in September, 1914, in the New York Times, can be gathered from the following extract:

"With the general suspension of gold payments at the central banks of Europe, except at the Bank of England, the banks are in a position to resist raids upon their gold and to lend their resources, as far as sound banking policy permits, to the struggle of their Governments to maintain national independence. In England, while the bank is still paying gold for notes, the policy of keeping gold in circulation has been abandoned, and the old limit of note issue, which was £5 ($24.40), has been lowered to 10 shillings ($2.44) and £1 ($4.88).

"It is not the purpose of any of the European Powers, however, to carry on the war by issues of paper money. The suspension of gold payments at the banks and the issue of notes for small denominations, which are legal tender in domestic transactions, is for the purpose of husbanding the gold stock against needless runs and keeping it as a guaranty fund of national solvency. It is the course which was adopted by France at the time of the Franco-German War in 1870, but so prudently were the affairs of the Bank of France conducted that the paper never fell more than 2½ per cent. below its value in gold.

"A similar policy of reserve will probably be pursued by the banks of France, Germany, and Russia in the present contest. The Government of France has raised the maximum limit of the note circulation of the bank by nearly $1,000,000,000, but the increase will not be used except as additional currency may be required, owing to the restriction in other forms of credit and the special demand for notes in the districts where the armies are gathered.

"The suspension of specie payments does not convey to the banking community quite the same doleful warning of the unlimited issue of paper and its steady depreciation in gold which were conveyed by specie suspension in the United States in 1861 or by Austria-Hungary and Russia in the desperate contest of the Napoleonic wars. Monetary science is better understood at the present time than in those days."

GERMAN WAR FINANCE

Among all the belligerent powers Germany occupied the unique position of using the war as an excuse for not publishing national accounts. The sole guide to her expenditure must be looked for in the credit votes passed by the Reichstag. Using this method, it is estimated that Germany spent about $30,000,000 a day. To cover this expenditure there was a regular plan of national loan—in March and September. This was the method followed in all the four years of the war. During the intervening six months there was an issue of Treasury bills. The German people were, apparently, schooled to these regular demands with commendable promptness, but the Imperial Government adopted a policy of inflation in the hope that a speedy victory would bring fruits in the shape of an indemnity, and so the German people would avoid being called upon to bear war burdens. Taxation was introduced only reluctantly and at a later period, and merely for the purpose of meeting so-called normal civil expenditure and interest on war debt. The plan followed was to spare the middle classes as far as possible from additional taxation charges.

THE LOAN BUREAU SCHEME

The war loans have been, on paper, most successful. For example, the seventh loan of September, 1917, yielded $3,000,000,000; the eighth loan nearly $4,000,000,000. There was a large amount of ready money in the country and besides this all stocks of raw material have been realized. Large as the loans have been they have not been able to keep pace with the increase of expenditure. Out of the total amount of $30,000,000,000 about $20,000,000,000 have been covered by long-term loans. Of course, owing to the peculiar situation of Germany in relation to her allies, which were dependent upon her financial support, these loans have been raised by the German people themselves. The German Loan Bureaus were criticized at the beginning of the war, and German figures show that only about ten percent. of the national loans were involved in the Loan Bureau scheme. These Loan Bureaus, it was announced, would continue after the declaration of peace. According to the London Economist, Germany followed an easy and sure policy of war finance, although the same authority does not hesitate to use the terms "complete financial ruin" in connection with German post-war finance.

The whole subject of German inflation is difficult to analyze. The Economist works out a post-war expenditure of $5,000,000,000 a year against a revenue of a billion and a half. Its estimate of German inflation is contained in the following passage:

"To take note circulation alone is obviously misleading, particularly in view of the violent efforts that have been made, especially during the last year, to extend the use of the check, and in other ways to limit as far as possible the use of notes. For what these figures are worth, it may be said that the total note circulation of the country at the end of June (1918), including Reichsbank notes, State Bank notes, Treasury notes, and loan notes, stood at £1,030,000,000, as compared with £109,300,000 on July 23, 1914. Reichbank Reichsbank deposits, again, stood on June 30, at £459,100,000, as compared with £47,600,000 on July 23, 1914, while the deposits of the eight 'great' banks, even at the end of 1917, stood at £800,000,000, as compared with £250,000,000 at the end of 1914, £362,000,000 at the end of 1915, and £500,000,000 at the end of 1916."

In this connection it is interesting to give a summary of Germany's war expenses as reported in the London Economist:

"In his comparison of German war finance with ours, the Chancellor, in his Budget speech, made the following points: First, that German war expenditure is now £6,250,000—almost the same as ours—though our expenditure includes items (such as separation allowances) which are not included in the German figures. Second, that the whole amount of the German Votes of Credit (£6,200 millions) has been added to their war debt, 'because their taxation has not covered their peace expenditure in addition to their debt charge.' Third, the total amount of new taxation levied by them since the beginning of the war comes to £365 millions, against our £1,044 millions. Fourth, in a year's time they will have a deficit, comparing the revenue with the expenditure, of £385 millions at least. 'If that were our position,' the Chancellor added, 'I should certainly think that bankruptcy was not far from the British Government.' Fifth, with the exception of the war increment tax, 'scarcely any of the additional revenue has been obtained from the wealthier classes in Germany'."

GERMAN WAR PROFITS

An extraordinary list of the gigantic war profits collected by Germany was drawn up by A. Cheraband, the well known French critic. He estimated that in three years Germany had spent $322.50 per head, France $444.00, Great Britain $559.75. He presents a list of war profits made by Germany. The "booty" he divided into movable and immovable property. In the former category he includes the 212,000 square miles of territory that had fallen into German clutches, and this he values at $32,000,000,000, which, he says, is a conservative estimate. Turning to the movable booty, he classifies it as follows:

1. "Capture of 'Human Material.'—This consists of the 46,000,000 Allied subjects from whom the Germans obtain free labor.
2. "Capture of War Material.—Guns, rifles, munitions, vehicles, locomotives, railway trucks, and thousands of miles of railway. The Belgian railway system alone is worth nearly $600,000,000.
3. "Capture of Foodstuffs.—Everywhere the Germans have stolen horses, cattle, corn, potatoes, sugar, alcohol, foodstuffs of every kind, and crops grown by the forced labor drawn from the 46,000,000 Allied subjects whom they have enslaved.
4. "Theft of Raw Materials.—Throughout the occupied territories the Germans have appropriated coal, petroleum, iron, copper, bronze, zinc, lead, etc., either in the mines or from private individuals; textile materials, such as woolen and cotton. In the towns of northern France alone the Germans stole $110,000,000 worth of wool.
5. "Theft of Industrial Plant.—On a methodical plan throughout the occupied territories, the motors, engines, machine-tools, steam and electric hammers, steel-rolling mills, looms, models, and industrial plant of all kinds have been carried off to Germany.
6. "Thefts of Furniture.—The way in which furniture and household goods were stolen and carried off is confessed by implication in the following advertisement published in the Kölnische Zeitung at the beginning of April, 1917:
   "'Furniture moved from the zones of military operations in all directions by Rettenmayer at Wiesbaden.'
   "It is impossible to estimate the money value of the goods thus removed.
   "Seizure of Works of Art.—The works of art collected for centuries in museums, churches, and by private individuals in Poland, Italy, Belgium, and France have been carried off by the Germans.
7. "War Levies.—Scores of millions in money have been secured by the Germans in the form of requisitions, fines, war levies, war taxes, and forced loans.
8. "Thefts of Coin, Jewels, and Securities.—In the occupied regions, and especially wherever they have been obliged to evacuate those regions, as, for instance, at Noyon, the Germans have emptied, by order, the safes and strong boxes of private persons and of banks and have carried off securities, jewels, and silver. In September and October, 1917, they seized at one stroke the deposits of Allied subjects in the Belgian banks amounting to $120,000,000.
   "In view of the high prices of foodstuffs, coal, metals, petroleum, war materials and machines, it is clear that the booty thus secured by the Germans during the last three years in the occupied territories is certainly worth several billion dollars."

Photo by James M. Beck

A Woman Operating a Multiple Spindle Drill in an English Shell Factory

"Since the war broke out," said M. Barriol, a French celebrated actuary, "no less than 1,500,000 women have been added to the ranks of wage earners in England, an increase of fully 25 per cent."

GERMAN MONEY INDEMNITY

It became commonplace after Germany's defeat was evident that her war cost must include the cost of the destruction she had caused her enemies. To estimate this was no easy matter. The attitude of the Germans on the subject was indicated by their constantly expressed hope that trade would recommence as usual and that they would be able to start economic relations in a favorable position. So we find the Cologne Chamber of Commerce beginning to prepare for peace by adopting a resolution expressing the hope that the destruction of French and Belgian industries would allow the rapid recovery of German power.

The Wall Street Journal used this statement as a guide to the Allied Powers for measuring the kind of indemnity that would be imposed upon Germany.

"One of the departments of the Government at Washington has in its files a report of a German commission on industry after the war. Reading this, one can understand the motive for what at one time looked like pure vandalism. Vandalism it was, by descendants of the Vandals, but it was a deliberate destruction of international competitors, killing the workmen—and workwomen—and destroying plants and machinery for the one purpose of removing competition. A physical injury to a child helped to weaken future competition in the world's trade; and it was upon the power gained thereby that Germany hoped to launch another war for world domination....

"A peace that gives the cold-blooded perpetrators of these crimes an advantage over their victims would not be equitable. If any must suffer, let it be those who are guilty, but don't give them a start ahead of their victims.

"In substance, that point should declare that Germany shall not profit through the wrecking of any Allied industry. Except to admit necessary foodstuffs, the blockade should not be lifted until every Allied country from England to Serbia has been industrially rebuilt. One object of the wholesale murder of civilians was to weaken industrially the enemy countries. The greater proportionate loss of man-power in the Allied countries should be met by restrictions on the entry of raw materials into Germany. Every piece of stolen machinery should be returned before her own industries are allowed to resume."

The soft plan of dealing with Germany's war cost was championed by Secretary Daniels. The Springfield Republican and the New Republic seemed to agree with the Manchester Guardian that Germany ought to to to be helped rather than punished, that the main thing was to set her on her feet again.

"Representative papers like the New York Times, Syracuse Post-Standard, Buffalo Express, and Sacramento Bee all insist that while we might or perhaps should claim no war-expenses from Germany, 'we must exact payment,' in the words of the Syracuse daily, 'to the last penny for losses suffered through illegal warfare.' Germany's submarine campaign cost us, according to this paper's figures, 375,000 tons of shipping and 775 civilian lives. If we take the burden of payment for this property and these lives from the guilty shoulders of Germany it would only be to 'pass it on to the innocent shoulders of the American taxpayer,' which, the New York Times declares, would be 'rank injustice'."

FORECASTING THE TOTAL COST OF WAR

It is interesting also to note an attempt made by one of the expert statiticians statisticians attached to the Guaranty Trust Company of New York to estimate the total cost of the war at the close of the four-year period. The five main Allies possessed, before the war, $406,000,000,000 for national work, a sum nearly four times as great as the national wealth of the two Central Powers. In four years the seven leading belligerents had spent $134,000,000,000. The only way to grasp the meaning of this enormous sum is to contrast the cost of the World War with all former wars. The total cost of wars that had taken place since the American Revolution was $23,000,000,000; the World War costs therefore, are six times greater. In these figures, staggering as they are, it was comparatively easy to figure out the costs, debts and interests of actual war expenditures. Much more complicated is the problem of estimating the property value destroyed through military operations on land and sea:

LOSS FROM DESTRUCTION OF PROPERTY

"The total area of the war zone is 174,000 square miles, of which the Western theater of the war, in France and Belgium, stretches over an area of 19,500 square miles, and it contains over 3,000 cities, villages, and hamlets, great manufacturing and agricultural districts, of which some have been totally annihilated and some heavily affected. The estimate by the National Foreign Trade Council of the war losses, which unfortunately does not go beyond 1916, is as follows:

"'Destruction of buildings and industrial machinery in Belgium, $1,000,000,000, and in France $700,000,000. The destruction of agricultural buildings and implements, of raw materials, of crops and live stock, has been estimated at a sum of $780,000,000 in Belgium and $680,000,000 in France. Roads were destroyed frequently by the retreating troops and have been seriously damaged by heavy gun fire and excessive use. The losses from destruction of railway bridges, etc., have been estimated in Belgium at $275,000,000 and in France at $300,000,000.

"'In the Eastern theater of the War Germany has been invaded only in eastern Prussia, where the agricultural population has been seriously impaired. Heavy damage was inflicted upon bridges, roads, and governmental property, including railroads. The direct cost to Germany through the loss of agricultural products, of manufacturing products, as well as in interest on investments abroad, of earnings from shipping and banking houses, and profits of insurance and mercantile houses engaged in business abroad has been enormous'."

ECONOMIC LOSS OF MAN-POWER

The same expert goes on to figure out the economic value of the loss of human life:

"Mr. M. Barriol, the celebrated actuary, gives the following figures as the capital value of man: in the United States, $4,100; in Great Britain, $4,140; in Germany, $3,380; in France, $2,900; in Russia, $2,020; in Austria-Hungary, $2,020 or an average capital value for the five foreign nations of $2,892.

"The number of men already lost is 8,509,000 killed and 7,175,000 permanently wounded, or a total of 15,684,000. Thus society has been impoverished through the death and permanent disability of a part of its productive man-power to the extent of $45,000,000,000.

"The loss of men, measured in terms of the capital value of the workers withdrawn from industry, is offset in some degree by the enhancement of the capital value of the remaining producers.... This loss of man-power is also partly offset by the large contingents of women drawn into industries. In England, out of a female population of 23,000,000, about 6,000,000 were engaged before the outbreak of the war in gainful occupations. Since the war broke out no less than 1,500,000 women have been added to the ranks of wage-earners, an increase of fully 25 per cent. Moreover, about 400,000 women have shifted from non-essential occupations to men's work. In the United States, approximately 1,266,000 women are now engaged in industrial work, either directly or indirectly necessary to carry on the war.

EFFECTS ON POPULATION

"The physical and moral effects of the war, the moral strain to which the nations have been subjected, the 'shell-shock' which has reacted upon the population at home as well as upon the soliders soldiers on the battlefield, the undernourishment and starvation of children as well as adults, all have resulted in a lowered vitality, the ill effects of which, especially in the countries of the Central Powers, are already seen in an increase of the death rate, in a spread of epidemics and diseases that have taxed the medical resources of all countries.

The lowered vitality of the race, which is still further aggravated by the millions of incapacitated soldiers and the premature and excessive employment of children and women in the industries, will eventually make for a lower standard of efficiency in all human activities, or a retardation of human progress. Authoritative statements are to the effect that in Belgium in the earlier period of the war, the deaths of women and children far outnumbered those of men. Annual deaths among the German civilian population have increased by a million above the normal.

"Besides the loss in actual population there is a loss of potential population. Carefully compiled figures show that by 1919 the population of Germany will be 7,500,000 less than it would have been under ordinary circumstances. The people in Austria in 1919 will be 8 per cent. less in numbers than in the year before the war. Hungary will be still worse off; it will have a population of 9 per cent. lower than in pre-war days."

CARNEGIE ENDOWMENT'S ESTIMATES

The Carnegie Endowment for International Peace made public in November, 1919, an elaborate report on the cost of the World War in human life and in property and the consequent economic losses. The chief conclusions derived from this intensive study of all the conditions may be summarized as follows:

All the wars of the nineteenth century from the Napoleonic down to the Balkan wars of 1912—1913, show a loss of life of 4,449,300, according to the report, while the known and presumed dead of the World War reached 9,998,771. (See Vol. III, pp. 403-5.) The monetary value of the individuals lost to each country is estimated, the highest value on human life being given to the United States, where each individual's economic worth is placed at $4,720, with England next at $4,140; Germany third, at $3,380; France and Belgium, each $2,900; Austria-Hungary at $2,720, and Russia, Italy, Serbia, Greece, and the other countries at $2,020.

With a loss of more than 4,000,000 the estimate puts Russia in the lead in human economic loss, the total being more than $8,000,000,000; Germany is next with $6,750,000,000; France, $4,800,000,000; England, $3,500,000,000; Austria-Hungary, $3,000,000,000; Italy, $2,384,000,000; Serbia, $1,500,000,000; Turkey, almost $1,000,000,000; Rumania, $800,000,000; Belgium, almost $800,000,000; the United States slightly more than $500,000,000; Bulgaria, a little more than $200,000,000; Greece, $75,000,000; Portugal, $8,300,000, and Japan, $600,000. On this basis the total in human life lost cost the world $33,551,276,280, and the loss to the world in civilian population is placed at an equal figure.

The attempt to determine property losses is the least satisfactory, as it is the most difficult. The destruction and devastation in the invaded areas of Belgium, France, Russian Poland, Serbia, Italy and parts of Austria are probably incapable of exact determination, and it may well be doubted if the exact losses will ever be known.

The total property loss on land is put at $29,960,000,000, one-third of which was suffered by France alone, its loss being given as $10,000,000,000, with Belgium next at $7,000,000,000, and the other countries following as follows:

Italy, $2,710,000,000; Serbia, Albania, and Montenegro, $2,000,000,000; The British Empire and Germany, each, $1,750,000,000; Poland, $1,500,000,000; Russia, $1,250,000,000; Rumania, $1,000,000,000, and East Prussia, Austria, and Ukraine together, the same amount.

Copyright by Central News Service

Launching the Quistconck at Hog Island

According to the report of the Carnegie Endowment the cargo loss at sea was $3,800,000,000, the total tonnage and cargo loss being $6,800,000,000. To offset the Allied loss in shipping, ship-building in the United States was rushed at topmost speed.

[Click for a larger image.]

In the property losses on sea, that is, to shipping and cargo, the report estimates that "the construction cost of the tonnage loss can scarcely be estimated at less than $200 a ton, and the monetary loss involved in the sinking of this 15,398,392 gross tons may, therefore, be placed at about $3,000,000,000." To this is added loss of cargo, which is estimated at $250 a ton, giving a cargo loss of $3,800,000,000, and a total tonnage and cargo loss of $6,800,000,000.

Among the indirect costs of the war, loss of production is placed at $45,000,000,000. In arriving at this figure an average of 20,000,000 men are counted as having been withdrawn from production during the whole period of the war, and their average yearly productive capacity is placed at $500. War relief is another indirect cost which totalled up to $1,000,000,000; and the loss to the neutral nations is given as $1,750,000,000.

With the total direct costs of the war amounting to $186,336,637,097 and the indirect costs to $151,612,542,560, the stupendous total of $337,946,179,657 is reached. Finally, the report says:

"The figures presented in this summary are both incomprehensible and appalling, yet even these do not take into account the effect of the war on life, human vitality, economic well-being, ethics, morality, or other phases of human relationships and activities which have been disorganized and injured. It is evident from the present disturbances in Europe that the real costs of the war cannot be measured by the direct money outlays of the belligerents during the five years of its duration, but that the very breakdown of modern economic society might be the price exacted."

THE WAR AS A PRODUCT OF HIGH PRICES

All of the great wars in European history have been followed by periods of increased production and economic expansion. Experts are convinced that the World War will prove no exception to the world's previous experience. Wars have been the principal influence that have determined the course of commodities and prices. In the Napoleonic Wars the index number rose seventy-two points in twenty years, but during the four years between 1914 and 1918 there was a rise of one hundred and eight points in four and a half years, a movement which Edgar Crammond, widely known British expert in economic and financial affairs, declared to be a movement to which there was no precedent in point of rapidity or magnitude. In an address outlined in the New York Journal of Commerce this authority estimated the direct cost of the war to the Allies as being roughly $145,000,000,000. The Central Powers had spent about $60,000,000,000. The total cost in dollars he estimated at $260,000,000,000. The upheaval caused by the war was manifested, according to the same authority, in the rise of the cost of living and in the universal increase of wages. Other economic consequences will be more gradually unfolded. Prospects of fall in the price of commodities and wages as the result of peace, he thinks, will be arrested for two reasons: First, the vast increase in the amount of paper money; second, the huge amount of public debts to the belligerents. He saw an additional psychological cause in the attitude of the laboring classes to maintain wages at a higher level than before the war and to improve the standard of living.

Reduced production is sufficient to account for all the economic disturbances that were produced during the war, according to the London Statist, which says:

"It is enough to say that production is reduced almost to a minimum, while consumption is going on at a most extravagant rate. Those who wish to pose as economists without competent knowledge are telling the public that all the evil is due to this, that, and the other thing—such, for example, as inflation, the rise in prices, the enormous loans raised, and several other fads. It is pure moonshine. The world is impoverished, firstly, because so much of the world's manhood is withdrawn from production to consumption; and, secondly, because reduction in production is so serious that very little has been saved either by the belligerents or the neutral countries of Europe, at all events. International trade is really carried on by barter. It is true that money is frequently paid. At the present time money has in some markets to be paid because credit has been injured, and those who possess wealth are not as willing as they used to be to trust to mere credit."

QUESTIONS OF INFLATION

The enormous advance of prices in England was synchronous with the issue of currency notes to an excess of £700,000,000 beyond the gold reserve. High officials in British administration ascribed this rise to the increased consuming capacity. According to the British Board of Trade a sovereign could purchase no more during the war time than eleven shillings would just before the war started. A writer in the Fortnightly Review, Mr. W. F. Ford, quotes Jevons' remark in his classical book on money in explanation of the phenomenon. "A number of bankers all trying to issue additional notes resemble a number of merchants offering to sell corn for future delivery, and the value of gold will be affected as the price of corn certainly is. We are too much inclined to look upon the value of gold as a fixed datum line in commerce, but in reality it is a very variable thing." Substitute today the word Government for bankers and one can see the reason for the upward rise in prices. This rise would take place apart from any questions of war waste, profiteering, difficulties of transport by sea or land or shortage of labor. All the countries involved have followed the same policy of inflation. The operation is depicted in the following passage:

"The inevitable result of extensive note issues by a number of Governments was that prices were irresistibly impelled upwards in all belligerent countries—apart from any questions of war waste, profiteering, difficulties of transport by sea or land, or shortage of labor. Belligerent countries became extraordinarily good markets in which to sell goods; and a golden harvest was temptingly displayed to neutral nations, in whose favor enormous trade balances rapidly grew up. In large part these balances were met by payment in gold.... But just as gold substitutes in the shape of paper money swelled the currencies and increased prices in the belligerent countries, so also the large quantities of gold coin sent to neutral States in payment for goods supplied to the warring nations swelled the currencies and increased prices in the neutral states themselves. The withdrawal of gold set up a natural tendency for prices to fall in the countries from which it had been exported; but not only was this tendency overcome, but the upward movement of prices was continued by the action of the several Governments in placing still further issues of inconvertible paper money on their respective markets. The net results have been that currencies have been inflated and prices forced up all over the world, that inconvertible paper money is tending more and more to drive out gold from the currencies of the states that issue it, and that the gold so driven out is being absorbed into the currencies of the neutral nations. Between August, 1914, and the date of her own declaration of war, America increased the amount of her gold currency by approximately £200,000,000 sterling. No real benefit has accrued.

"The currencies of the whole world have been artificially inflated to the extent that, under the most favorable circumstances existing in any part of the world, £5 are now needed to do the work in circulation that before the war was accomplished by £3. The loss to people with fixed incomes, the disturbance of trade, the potential labor difficulties are stupendous. And as a result of purchasing war material at excessively high prices, the dead weight of debt incurred by all the countries at war is very much greater than it need have been had currencies been kept within reasonable bounds."

CURRENCY EXPANSION IN GREAT BRITAIN

In Great Britain £200,000,000 worth of new paper currency was placed in circulation and there was a considerable expansion in the use of banknotes, silver and copper coinage. Proposals were made that the famous English Bank Act should be repealed and that excess issues of banknotes should be made legal on the payment of a tax. But apart from these theories of involving the banking system there was a good deal of adverse criticism.

"Mr. Herbert Samuel made a masterly attack upon the vicious system of War Finance, by which no less a sum than £196,170,000 is added to the expenditure by bonuses and increases of wages, which, in their turn, only force prices still higher and raise the cost of living. Lives have been conscripted; incomes have been conscripted; the only thing which has not been conscripted is labor. If the Government had at an early stage of the war had the courage to fix wages, instead of prices, the cost of living would then have been regulated by supply and demand. By fixing prices of commodities, after they had risen to almost famine figures, we have the maximum of loss and inconvenience, high wages, dear food, and a war bill that increases day by day. Despite Mr. Bonar Law's assurance that the bill of the year would not be so high as he expected, we have the fact that we are spending over seven millions a day. The satire of 'the cheap loaf' consists in its cost to the nation at large of £45,000,000 a year. Bonuses to munition workers amount to £40,000,000, bonuses to miners come to £20,000,000, to railway workers £10,000,000, to potato growers £5,000,000. Is this anything else but a system of gigantic corruption? In order that artisans and agriculturists may be kept in good humor with the war, they are bribed with bonsuses bonuses and allowed to buy food at prices which are partially paid by the rest of the community. If ever there was a case of robbing Peter to pay Paul it is here."

AMERICA'S EXPERIENCE WITH INFLATION

Protests against war inflation were not confined to British specialists in finance. What is inflation? As used by the more careful writers on the subject today, it is taken to signify the increase of bank credits not represented by any immediate addition to current wealth. For example, if the Government borrows by an issue of bonds, such bonds taken by the banks, and payment for them made in the form of bank credit which is at once transferred to individuals who have furnished labor or supplies, it is evident that there has been a net addition to the purchasing power of the community not represented by any corresponding addition to wealth whether of a saleable or available form. Mr. Delano, a member of the Federal Reserve Board, said that the war had produced a world inflation the like of which had never occurred before—"The usual symptoms of such methods of inflation are the disappearance of metallic money and the general advance in the prices of commodities." He gives the following illustration of what has taken place in this process of inflation:

"Prior to our entry into the war, when the European nations were buying heavily in the United States, they paid largely in gold for what they bought, and as a result about a billion dollars in gold coin came to this country in the period of two and one-half years. The reason the European nations were able to send us their gold was that they printed paper money for their own use, releasing gold for us. But that gold inflation in this country is one explanation of the general advance in prices of all commodities, although undoubtedly it is not the only explanation; for it must be freely admitted that prices have been affected, first, by scarcity, occasioned by increased demand from Europe for many articles produced by us; second, by reason of the fact that increases in taxes and wages of labor have entered into the cost of production and sale of all articles and account for a share of the increased prices of commodities."

CIVIL WAR INFLATION.

The United States had large experience with inflation during the Civil War. Some $500,000,000 were in this way added to the cost of the war which might have been avoided. A plain statement of the real incidents of inflation is given by Mr. A. C. Miller of the Federal Reserve Board in his Financial Mobilization for War, in the following passage:

"For let it not for a moment be overlooked that inflation, in its effects, amounts to conscriptive taxation of the masses. It is, indeed, one of the worst and the most unequal forms of taxation, because it taxes men, not upon what they have or earn, but upon what they need or consume. The only difference for the masses between this kind of disguised and concealed taxation and taxes which are levied and collected openly is that in the case of the latter the government gets the revenue, while in the former case it borrows it, and those to whom it is eventually repaid are not those, for the most part, who have been mulcted for it. Inflation therefore produces a situation akin to double taxation in that the great mass of the consuming public is hard hit by the rise of prices induced by the degenerated borrowing policy and later has to be taxed in order to produce the revenue requisite to sustain the interest charge on the debt contracted and to repay the principal. The active business and speculative classes can usually take care of themselves in the midst of the confusion produced by inflation and recoup themselves for their increasing outlays. Indeed inflation frequently makes for an artificial condition of business prosperity. That is why war times are frequently spoken of in terms of enthusiasm by the class of business adventurers. But it is a prosperity that is dear-bought and at the expense of the great body of plain living people. It would be a monstrous wrong if in financing our present war we should pursue methods that would land us in a sea of inflation in which the great body of the American people, who are called upon to contribute the blood of their sons to the war, were made the victims of a careless or iniquitous financial policy."

INFLATION ILLUSTRATED.

One of the ways in which inflation was caused in the United States during the war period was the plan adopted by the banks of financing the loan directly by means of bank credits to the buyers. According to Mr. Carl Snyder the banking officials roughly agree that on the first Liberty Loan for $2,000,000,000 the banks may have loaned somewhere near half the total and on the second loan even more. Of course, this means a heavy expansion of bank credit. Economists are generally agreed that the flooding of the country with paper money brings about an enormous rise in prices. They differ chiefly in regard to the degree of inflation. The most accepted statement of inflation is that prices vary directly as the volume of the actual currency employed and its rate of turn over or velocity, and inversely with the volume of trade. The effect of bank credits is exactly that of an excessive issue of notes; that is, if they are expanded more rapidly than the actual volume of business there is a rise in prices, that is to say there is inflation.

The situation of the country during the war in regard to business was put plainly by Mr. Snyder in the following words: "Railroads cannot haul any more goods. The government is already stepping in to shut down on shipments on certain lines of industry. We can not get any more coal unless labor is drafted from other industries, and as a whole we cannot get any more labor as is evident from the fantastic wages that are now being paid. In a word, production and therefore the actual volume of exchange is practically at the limit and has been for a year or more. No expansion of bank credits can put this production any higher. It follows, therefore, as a practical fact that any expansion of bank loans now means inflation—to all practical intents dollar for dollar." Because of the introduction of a billion dollars worth of gold into the country, prices have risen nearly one hundred percent. The expansion of bank credits increases the cost of living and the cost of the war will be doubled.

Some bankers estimated that if the war lasted the expansion of bank loans might reach $50,000,000,000. The progress of these loans was encouraged by the cutting of the required metallic reserve under the new Federal Reserve system and the system of book credits with the Federal Reserve banks allowed to the banks that are members of the system. The following is Mr. Snyder's description of the way the inflation was encouraged.

"Every dollar of gold may become three dollars of Federal Bank credits and each dollar of this may in turn become the basis of eight dollars of credits for the Central Reserve cities, ten dollars for the smaller cities and fifteen dollars for the country banks, which works out to a practical average of ten dollars for all the banks in the Federal Reserve system."

He then went on to speak of the possibilities of this inflation and uttered a warning of the danger, because the only obstacle in the way was the good sense and conservatism of the American banks. Some authorities hold that a war cannot be fought without inflation. Mr. Snyder thought that the United States with large ante-war income could and should have tried the experiment. People want easy money and flush times. If credit were contracted there would be tight money and a high interest rate. Mr. McAdoo and the Administration at Washington feel highly elated when they roll up five billion of statistics, half of which are merely bank rolls. It seems not to matter that all this may add two or three billion to the already swollen credit currency and that the millions of poor people, small investors and life insurance holders who cannot expand their income in any adequate way must pay the piper. These are the millions who rarely have any voice in national affairs, and all the more so because they are for the most part ignorant. It seems an idle consequence that we may spend perhaps ten long weary years of hard times, of falling prices, declining business and sharp distress, paying for the orgy of inflated prices, waste and extravagance in which we are now indulging.

Photo by Paul Thompson

Ship-building at Camden, N.J.

One of the financial effects of the war was the transformation of the United States from a debtor to a creditor nation. Immense private fortunes were made. In no industry was there a greater boom than in ship-building.

CREDIT EXPANSION

The wide expansion of credit can be studied by making a comparison of the gold holdings of the leading nations. For example, in 1914 just before the outbreak of the war, the amount of cash held by all the banks of the United States was estimated at about $1,639,000,000. Of this amount about $913,000,000 was in the form of gold or gold certificates. Upon this basis there rested a structure of credit amounting to $21,351,000,000. In other words the gold basis of the country's deposit credits amounted to 4.27 percent.

In 1916 the cash held was $1,911,000,000; about $1,140,000,000 was in gold; and on this basis there rested a credit structure of $28,250,000,000.

UNITED STATES A CREDITOR NATION

One of the financial effects of the war was the transformation of the United States from a debtor to a creditor nation. The reconstruction period in finance is certain to bring about a situation described by a writer in the Wall Street Journal as one of the most interesting developments known in financial history. Financial waste in emergency measures was a superficial side of America's part in the World War. But this writer considers that what happened during the war was not altogether financial waste:

"A great upheaval took place in the world of finance. Credit resources were brought to the fore and nations established on a financial basis of far-reaching importance, but of a kind that had only a secondary place before.

"The war has turned the United States from a debtor to a creditor nation. Formerly we owed abroad something like $4,000,000,000, about three-quarters of which sum we have bought back. Moreover, Europe now owes us about $9,000,000,000—on private account; about $2,000,000,000 in securities; in United States Government obligations over $7,000,000,000. The world is under obligations to us in interest alone of between $400,000,000 and $500,000,000 a year."

After the United States took an active part in the war large credits and loans were made in behalf of other countries as the following excerpt shows:

"A total appropriation of $7,000,000,000 has been made, $3,000,000,000 by the Act of April 24, 1917, and $4,000,000,000 by the Act of September 24, 1917. Under these authorizations credits have been established in favor of the governments of Great Britain, France, Italy, Russia, Belgium, and Serbia. These loans, up to January 17, 1918, are given in the following table:

"On the basis of the requests being made on the Treasury, it is estimated that credits aggregating approximately $500,000,000 per month will be required to meet the urgent war needs of the foreign governments receiving advances from the United States. At this rate approximately the entire appropriation authorized by Congress will be accredited to our Allies by the close of the present fiscal year (June 30, 1918).

"A significant feature of the loans floated in this country in the last three and a half years has been the fact that many states and municipalities which formerly went to London to sell their securities have recently been financed through the United States. About $150,000,000 of the Canadain Canadian loans went to provinces and municipalities, and many of the South American obligations were contracted for municipal improvements. The neutral nations of Europe have also sought accommodation in the American money market. Loans have been made to the city of Dublin, Ireland, the London Water Board, and the French cities of Paris, Bordeaux, Lyons, and Marseilles."

DISAPPEARANCE OF GOLD CURRENCY

During the war gold almost ceased to be currency in all the Allied countries. The Central Powers at the end of the struggle had comparatively little. Of the total gold production the United States produced about twenty-five percent., while the British Empire produced nearly sixty-four. A writer in the Edinburgh Review proposed to take the opportunity of creating a standard price for gold. For example, if the standard price of gold were reduced to half, the prices of all commodities would come down in sympathy. We must take advantage of the fact that we are working with a paper currency, and all authorities agree that financial stability is only secured by the backing of as much gold as possible against paper securities and emergencies.

The plan involved an increase of the standard price. The success of the scheme depends upon the concordant will of the United States and Great Britain to adopt it as the following article suggests:

"Obviously if Great Britain or any other country alone attempted to alter the standard price of gold, and therefore the value of the present sovereign (or its equivalent), the currency would be debased, instead of being enhanced. It would also in effect amount to a partial repudiation of national debt. A standard ceases to be a standard if one nation can arbitrarily alter it, but surely there can be no argument against the creation of a new standard sanctioned by the whole civilized world for their mutual advantage. If Great Britain and the United States were to proclaim their desire to adopt my scheme it is hardly likely that any country other than the Central Powers would fail to welcome it. Spain, for instance, has increased her gold reserve to about £80,000,000 and greatly enhanced the value of her currency thereby. Would she fail to grasp the happy chance of making this £120,000,000, and would any country continue to part with its gold at £4 per ounce when it could get £6 or £8?"

WAR'S EFFECT ON SILVER

Along with all other commodities, that cinderella of finance—silver—had a share in the general rise in prices. One of the reasons is the enormous falling off of silver production in Mexico, where one-third of the total world supply is produced; another is the great demand for silver. Prior to the war, the use of silver plate by the wealthy classes had largely fallen off; but the war, because of the rise in wages, brought about a largely increased demand for silver to be used in ornaments:

"The war has brought into the market a vast number of new buyers for ornaments, whose demand in the aggregate is estimated to more than compensate for the falling off in the purchases by the wealthy classes of silver plate. Wages everywhere, not merely in England, but practically all over the world, have advanced, and particularly in Western Europe; moreover, immense numbers of women, and even children, are being employed who were not employed before, and those who were employed before have a larger income, particularly amongst the wage earning classes, than has been the case in this country for many years past."

The use of silver in coinage, too, was notably increased. Gold disappeared in countries where gold coins were used; paper money and silver token money took its place. Another reason for the advance in silver is connected with the demand for the metal in eastern countries. According to the London Statist:

" ... About half the annual production of silver throughout the world is absorbed by the East, meaning principally India and China. It has to be borne in mind that prices in the East have advanced as well as in Europe and the two Americas, and, consequently, more token money is required there as well as here. Silver is the standard of value, and not token money at all, in China; and in India, while gold is nominally the standard of value, the rupee is the actual coin in which the Indian natives, as distinct from mere government officials, reckon their wealth. Now, as one result of the war, nearly all the governments forbid the export of gold; consequently, India requires a steadily increasing supply of silver, not merely to do the work that silver did before the war, but, in addition, to supply the void created by the prohibition of the export of gold."

STOCK EXCHANGE WAR

The accompanying diagram showing how military operations in Europe affected the average prices of fifty stocks, half industrial and half railway, was published in the New York Times Annalist:

The wider black area shows the high and low average prices of the twenty-five industrials included in the fifty, and the white area the corresponding figures for the twenty-five rails. The lines begin at a time when Germany was suffering severely from her failure at Verdun and from losses in men and territory from the great Allied Somme offensive. The subsequent rapid decline (November to February) embraces the period of Bethmann-Hollweg's sensational peace offensive, followed a few weeks later by Germany's intensified submarine warfare. The lowest point of all (December, 1917) was reached after Germany's successful counter-thrust for Cambrai, her "peace offensive" with the Bolsheviki at Brest-Litovsk, and the taking over of our railroads by the government.—Literary Digest, October 19, 1918.

A further indication of how military operations reacted on Stock Exchange quotations was shown in the decided improvement that took place since the end of July, 1918, after the Germans were pushed back in their drive towards Paris. The most direct way of measuring this influence is to take the quotations for the bonds and notes of the Allied Governments dealt in at the New York Stock Exchange since 1915:

"The lowest quotations for these bond and note issues were reached in 1917, when the cause of the Allies assumed a gloomy appearance. The depression was aggravated by the general decline of the entire securities market in the later part of that year. Some recovery occurred by the end of last year, but the beginning of 1918 saw them still depressed. Last March, April, May and June, when the great German drives were in progress, they showed little disposition to break, but after the active participation of the American Army in the fighting began and news came that the counter-offensive had assumed a decided and successful phase, an assertion of strength took place in foreign government bonds, carrying quotations 'not only to the highest of the year, but in some instances to the best figures attained since they first made their appearance in the American market.' The following tabulation is presented by Bradstreet's as giving the range of prices for the most prominent bonds and short-term notes of foreign countries during 1917 and 1918, with the quotations for them on August 22nd:

[6]Curb market quotations.

Diagram Showing the Effect of the War on the Prices of Stocks

[(See explanation on page 32)]

"British issues, as shown above, declined least of all, 'and consequently had less ground to regain in the rise,' Bradstreet's adds:

"The feeling of confidence in England's credit has all along been a factor in connection with its American obligations. This will doubtless be strengthened by the announcement made this week that the United Kingdom secured 5 per cent. notes, due September 1, 1918, will be paid at their maturity on that date. There were originally $250,000,000 of these notes, which were sold in our market in 1916; but the outstanding issue has been reduced to about $180,000,000 by purchases in the market for redemption. French obligations have been one of the chief features of the advance. As will be seen from the above table, the French Republic 5½ per cents., due 1919, have risen 6 points from the low figures of the year. The 6 per cent. notes of the French cities, Paris, Lyons, Bordeaux, and Marseilles, with rises of about 10 points each, are conspicuous examples of the good effects following the checking of the German advance and the counter-offensive launched by the Allies and the American Army. No division of this part of the bond market has, however, shown such a marked improvement as the Russian external or dollar bonds, which though not listed at the Stock Exchange, are dealt in extensively on the New York Curb market'."

GERMAN PROPERTY IN AMERICA

Until the United States entered the war with Germany it had never been realized that an enormous share of the economic wealth of the country was under German control. Attorney-General Palmer, in an address at Detroit, estimated this share to be about two billion dollars in money value, with an economic and political value far greater:

"Furthermore, this structure was 'designed so to hold American industry as to frustrate the organization of our resources in case of war.' With two hundred American corporations controlled by the financial and military power in Germany, we had a situation that 'might easily have been fatal in America had it not been discovered in time.' When the war began in 1914 the structure 'had become so large and powerful and was so firmly entrenched in the industrial life of our country that its real commanders in Germany cherished the hope that it would prove the make-weight which would keep America out of the war, or, failing in that, constitute a powerful ally of the German cause in our very midst.'" Mr. Palmer added:

"'During the last twenty-five or thirty years Germany had built up upon American soil a structure reaching into every part of the country and stretching its arms across the seas to fasten upon Porto Rico, the Virgin Islands, Hawaii, and the Philippines. Congress has declared that all these enemy properties shall be managed and administered by the Alien Property Custodian with all the powers of a common law trustee, the proceeds to be distributed after the war in such manner as the Congress may determine. This means that the final disposition of the properties or the funds realized from their sale will be a topic for discussion and a subject for settlement at the council table of the nations at which permanent peace shall be restored to the world.

"'This being so, it seems to me to be an important part of our work to capture the army which Germany skilfully and craftily planted midst the busy wheels of American industry, and to break, never to be again repaired, the industrial and commercial chain which Germany has stretched across the American continent and our insular possessions. I would let Germany understand now that her plan has dismally failed. I would let her understand now that no matter how long she fights, or what sacrifice she makes, or what price she pays, however much territory she may occupy, or whatever worlds she may conquer, there is one place which she will never soil again with the tramp of the marching legions of her industrial army. That is the United States of America. I would divorce utterly and forever all German capital from American industry'."

II—WARTIME FOOD AND PRICE PROBLEMS
Intricacies of a Perplexing and Critical Situation Which Taxed the Ingenuity of Statesmen of All the Belligerents

Europe was financially plunged into anarchy in August, 1914. All the exchanges were demoralized, checks were not cashed, the five-pound note became a worthless scrap of paper. The only thing that counted was gold and goods. Prices advanced to prohibited levels. England, in danger of a food famine, set up a Food Control Committee. Then the discovery was made that the country was short of sugar. This shortage was due to the fact that the war broke out when supplies from Cuba and elsewhere were stopping and when the German imports had not begun. Sugar was bought to the value of $86,000,000 from every country which had it to sell. When the sugar merchants began to put the price up, purchasing was stopped for the time. Later the Government managed to secure the quantity required, because it became the only sugar importer. It also supplied the French Government with sugar at cost price. Any further difficulties with the sugar supply were due to freight shortage. By this system sugar was cheaper in England than in any other belligerent country and the Exchequer took in $34,000,000 in the way of taxes, after raising the rate from 45¢ per hundred weight to $3.36 per hundred weight.

In its control of the meat situation, the Government put itself in a dominating position by seizing all steamers that had refrigerating space. Enormous quantities of canned meats were imported from the United States from the American packing firms, but the Government practically created a state monopoly in frozen meat. This product was distributed by it to all the other belligerents, except Russia. The purchase of wheat was entrusted to a large importing house, which acted as an agent of the Government. For supplying the fish market, a service of fishing boats was maintained and a deal with Norway was made by which the whole Norwegian fish supply was secured:

"The British Government went into the beef business in order to supply the troops at home and overseas with chilled meat. It did so at an average cost of 12 cents per pound. It also supplied all meat of this kind required by the French Army, the Italian Army, the Belgians, and the Serbians. The amount of meat required for the British and French armies was over 50,000 tons per month; for the Italian Army about 10,000 tons per month. These quantities increased proportionately with the additions to the forces. Having created a state monopoly in the importation and control of chilled meat, the Government had to make provisions for domestic supplies outside the Army. The Board of Trade arranged to sell to British firms the surplus meat at market prices. They obtained a small commission, lower than it hitherto received from traders. Sales to speculators were prohibited.

"Wheat was quite as important as sugar and beef, although there was less risk of a world-corner. Wheat was purchased for Government account on somewhat similar lines as beef. One of the largest importing houses was commissioned to do all the purchasing, while the other houses held off, and it was four months before the corn trade, on the selling side, discovered that purchases were made for the state. Naturally the commission which the state paid on such transactions was nominal. The British Government organization bought and shipped wheat, oats, fodder, etc., for Italy. The French Government bought their civil ravitaillement wheat through the Hudson Bay Company. Large purchases were made in Canada on behalf of the Italian Government."

UNITED STATES AS FOOD PRODUCER

"It is hard to realize that the United States was in 1917 much less favorably situated for producing a huge food surplus than it was thirty years before. In the interim industrialism had made huge strides in the land, and a great urban population has risen to eat up a large part of the surplus of food produced by the farms. This change is indicated by a growth of the urban population in the twenty years from 1890 to 1910 from 22,720,223 to 42,625,383, or more than 80 per cent., while rural population during the same period increased from 40,227,491 to 49,348,883, or less than 25 per cent. If the same ratios have been maintained since 1910 urban population has now become one-half of the whole. In terms of food production decidedly more than one-half of our population now produces a very insignificant part of the food which it consumes, for the rural population includes all who live in towns of less than 2,500. The significance of the change is indicated by the following figures of the production, export, and consumption of typical food products. The comparison is between the average of the five-year period ending in 1895 and that ending in 1914. The average production of wheat per year for the former period was 476,678,000 bushels; for the latter 697,459,000 bushels, an increase of 46 per cent. Between these periods domestic consumption increased from 310,107,000 to 588,592,000 bushels, or about 90 per cent., while exports decreased from 166,571,000 to 104,945,000 bushels, or 37 per cent. The average production of corn for the former period was 1,602,171,000 bushels; for the latter 2,752,372,000 bushels, or an increase of 72 per cent. Consumption increased from 1,552,003,000 to 2,790,962,000 bushels, or 79 per cent., while exports decreased from 50,168,000 to 41,509,000 bushels, or 17 per cent. The figures upon sugar, beef, pork, and other staples lead to similar conclusions. The growth of industrial centers has given us an increasingly urban population which has been consuming a larger and larger part of the food surplus."

THE FOOD CONTROLLER

No policy of laissez-faire for handling the food situation was possible. The need of direction was paramount and required administrative talent of a high order. Fortunately the United States met this demand.

The work of Herbert M. Hoover was one of the main factors in securing the Allied victory. This was recognized by as conservative an organ of public opinion as the London Economist, which speaks of him as an unimpeachable authority and as the organizer of the Allied victory. His experience is a tribute to the wonderful readiness and self-sacrifice shown by the Americans in the matter of food consumption and to the untiring and increasing success of our fleet in combating the submarine.

How much success in the war depended upon food supplies may be gauged from the panicky feeling prevailing in Government quarters in England when it was reported in the winter of 1917—18, that the American wheat surplus had been used up. Lord Rhonda, the British Food Controller, cabled to Mr. Hoover—"We are beaten, the war is over." Then began the era in the United States of wheatless days and war bread. The result of this period of national abstinence enabled the exportation to Europe of about 150,000,000 bushels of wheat. A British member of the Allied Food Commission said it was very remarkable to see a whole nation denying itself of all wheat products, "not because it was short but because it wanted to assist." This rationing was accomplished with very little exercise of authority, and the peril of the defeat of the Allies by famine was averted.

Centres of Live Stock Production Throughout the World

AMERICA'S CONTRIBUTION IN FOOD TO THE ALLIES

Mr. Hoover in a letter to President Wilson stated that the total value of American food shipments to Allied countries for their armies, for the civilian population, Belgium relief and Red Cross, amounted to about $1,400,000,000 for the fiscal year, 1918:

"Shipments of meats, fats, and dairy products were as follows,

"'Our slaughterable animals at the beginning of the last fiscal year were not appreciably larger in number than the year before, and particularly in hogs; they were probably less'; so, as Mr. Hoover points out, 'the increase in shipments is due to conservation and the extra weight of animals added by our farmers.' Our shipments of cereal and cereal products have been,

"The total shipment of wheat from our last harvest was about 141,000,000 bushels, with 13,900,000 of rye, a total of 154,900,000 bushels, of prime breadstuffs. Mr. Hoover notes a remarkable achievement in connection with the wheat shipments:

"'Since the urgent request of the Allied Food Controllers early in the year for a further shipment of 75,000,000 bushels from our 1917 wheat than originally planned, we shall have shipped to Europe, or have en route, nearly 85,000,000 bushels. At the time of this request our surplus was already more than exhausted.

"'This accomplishment of our people in this matter stands out even more clearly if we bear in mind that we had available in the fiscal year 1916—17 from net carry over and a surplus over our normal consumption about 200,000,000 bushels of wheat, which we were able to export that year without trenching on our home loaf. This last year, however, owing to the large failure of the 1917 wheat crop we had available from net carry over and production and imports only just about our normal consumption. Therefore, our wheat shipments to Allied destinations represent approximately savings from our own wheat bread.'

"The effort and sacrifice made by our people to do this are more fully appreciated when we consider that last year's wheat crop was a small one and that the corn failed to mature properly. Mr. Hoover concludes his letter with these words of warm appreciation of the people who have made up the army of which he has been the commanding general:

"'I am sure that all the millions of our people, agricultural as well as urban, who have contributed to these results should feel a very definite satisfaction that, in a year of universal food shortages in the northern hemisphere, all of these people, joined together against Germany, have come through into sight of the coming harvest, not only with health and strength fully maintained, but with only temporary periods of hardship. The European Allies have been compelled to sacrifice more than our own people, but we have not failed to load every steamer since the delays of the storm months of last winter.

"'Our contributions to this end could not have been accomplished without effort and sacrifice, and it is a matter for further satisfaction that it has been accomplished voluntarily and individually. It is difficult to distinguish between various sections of our people—the homes, public eating places, food trades, urban or agricultural populations—in assessing credit for these results, but no one will deny the dominant part of the American women'."

AGRICULTURE AND THE WAR

The significance of the strides made in agricultural productivity by which Mr. Hoover's food campaign was made possible and successful is brought out in the report of the Secretary of Agriculture for 1918:

"The efforts put forth by the farmers and the agricultural organizations to secure increased production can perhaps best be concretely indicated in terms of planting operations. The size of the harvest may not be the measure of the labors of the farmers. Adverse weather conditions and unusual ravages of insects or plant diseases may partly overcome and neutralize the most exceptional exertions."

ACREAGE UNDER CULTIVATION

"The first year of our participation in the war, 1917, witnessed the Nation's record for acreage planted—283,000,000 of the leading cereals, potatoes, tobacco, and cotton, as against 261,000,000 for the preceding year, 251,000,000 for the year prior to the outbreak of the European war, and 248,000,000 for the five-year average, 1910—14. This is a gain of 22,000,000 over the year preceding our entry into the war and of 35,000,000 over the five-year average indicated. Even this record was exceeded the second year of the war. There was planted in 1918 for the same crops 289,000,000 acres, an increase over the preceding record year of 5,600,000. It is especially noteworthy that, while the acreage planted in wheat in 1917 was slightly less than that for the record year of 1915, it exceeded the five-year average (1910—14) by 7,000,000; that the acreage planted in 1918 exceeded the previous record by 3,500,000; and that the indications are that the acreage planted during the current fall season will considerably exceed that of any preceding fall planting."

YIELDS OF PRINCIPLE CEREALS

"In each of the last two years climatic conditions over considerable sections of the Union were adverse—in 1917 especially for wheat and in 1918 for corn. Notwithstanding this fact, the aggregate yield of the leading cereals in each of these years exceeded that of any preceding year in the Nation's history except 1915. The estimated total for 1917 was 5,796,000,000 bushels and for 1918, 5,638,000,000 bushels, a decrease of approximately 160,000,000 bushels. But the conclusion would be unwarranted that the available supplies for human food or the aggregate nutritive value will be less in 1918 than in 1917. Fortunately, the wheat production for the current year—918,920,000 bushels—is greatly in excess of that for each of the preceding two years, 650,828,000 in 1917 and 636,318,000 in 1916, and is next to the record wheat crop of the Nation. The estimated corn crop, 2,749,000,000 bushels, exceeds the five-year pre-war average by 17,000,000 bushels, is 3.4 per cent. above the average in quality, and greatly superior to that of 1917. It has been estimated that of the large crop of last year, approximately 900,000,000 bushels were soft. This, of course, was valuable as feed for animals, but less so than corn of normal quality. It should be remembered, in thinking in terms of food nutritional value, that, on the average, only about 12 per cent. of the corn crop is annually consumed by human beings and that not more than 26 per cent. ever leaves the farm. It should be borne in mind also that the stocks of corn on the farms November 1, 1918, were 118,400,000 bushels, as against less than 35,000,000 bushels last year, and 93,340,000 bushels, the average for the preceding five years. It is noteworthy that the quality of each of the four great cereals—barley, wheat, corn, and oats—ranges from 3 to 5.4 per cent., above the average.

"The tables printed below may facilitate the examination of these essential facts:

NEED OF FOOD CONSERVATION

Statistics have not yet been published as to the comparative food production before the war and during the war years. Statistics of this kind would go a long way towards settling the question whether high prices were due to currency inflation or due to a scarcity of food. It must be remembered that the arguments on both sides are expressed very dogmatically. Take, for example, the following passage from an address by Mr. Moulton: "The food problem," he says, "goes much deeper than conserving the use of an existing stock of foodstuffs. The real food problem is how to secure a supply of food large enough to meet the continuous requirements of this nation and our Allies. This is more a question of production than of consumption. That is to say, conservation in consumption is less important than large production. There is no possible escape from a substantial shortage of the necessities of life."

The same point of view is expressed in the following extract:

"It is not usually understood that the chief cause of the enormously high prices of the necessities of life at the present time is their relative scarcity. The supply of necessities in this country has not materially increased, but the demand for them, owing to the requirements of our Allies, has enormously increased. We can prevent a still further soaring of prices only by increased production of necessities—increased production to be accomplished, let it be repeated through a diversion of productive power from the non-essential lines.

"The wealthy have often been urged since the war started to spend lavishly on luxuries and to economize on necessities in order that the necessities will remain for consumption by the poor. This is sheer shortsightedness; for the energy devoted to the production of luxuries for consumption by the wealthy would, if diverted to the production of essentials, give us a sufficient supply of the necessities of life that all might have them in relative abundance. The result of a policy of spending lavishly on luxuries is an inadequate production of necessities and hence prices so high as to cause real privation among the masses. Those engaged in producing luxuries obviously cannot at the same time be engaged in producing necessities."

In a war of attrition, physical deterioration of the masses of society in consequence of inadequate nourishment was certain to result in a serious decline in national morale, and this was a decided factor in the final outcome of the struggle. Food and other physical necessities would win the war. Mr. F. A. Vanderlip used the same argument for economies:

"Thus the diversion of productive resources to public ends requires of each of us a voluntary or compulsory rearrangement of individual and household budgets and radical changes in the habits of our lives. We must encourage direct diversion by reducing to a minimum our consumption of articles which can be used by our soldiers. But it is even more important that we give up the consumption of non-essential things in order that the productive energy which they embody be devoted to the accomplishment of the purpose in hand. The amount which we are forced to give up or voluntarily surrender constitutes a surplus over private consumption that measures the extent of our ability to wage war. We are fighting a nation which continues to be willing to reduce private consumption to the barest subsistence minimum. Unless a large surplus is produced we can gain no active participation in war and cannot hope for a victorious peace. The larger the surplus the shorter the war will be, and the nearer we are to victory."

GREAT BRITAIN'S FOOD DANGER

Under the long régime of free trade Great Britain depended upon other countries for its food supply. To offset the submarine campaign earnest appeals were made to make England self-supporting in this respect. The appeals were answered and were given enthusiastic popular support. What strides were made in England's agriculture since the war began can be seen from a paragraph in the London New Statesman:

"In 1918, as against 1916, the acreage (England and Wales) under oats is up by 35 per cent.; that under wheat by 38 per cent.; that under barley by 11 per cent.; that under other grain by 69 per cent.; that under potatoes by 50 per cent. The number of allotments (1,300,000) has increased by 140 per cent. The Report of the Food-Production Department ... is as satisfactory as we could wish; the number of acres under cultivation in the United Kingdom has gone up by over four millions in two years, all records being broken.

"This figure ignores the great increase in gardens and allotments, and it is estimated that, on the present scale of consumption, this year's home harvest will be sufficient to feed the population for forty weeks. The supply before the war was only enough to meet a ten weeks' consumption. Breadstuffs are not everything; and even of them one-fifth still has to be provided. But granted that we can keep this rate of production up, and—in spite of the drains of the Army upon our labor—can, with the help of women and prisoners, save what we produce, the wolf has now been driven a considerable distance from the door. With sinkings diminishing and ship-building on the increase, we can, we think, congratulate ourselves on the final failure of the German attempt to starve us out."

ACREAGE INCREASE DUE TO WOMEN'S LABOR

"Much of the increased cultivation has been done by women, we are told, and Mr. Prothero, the British Minister of Agriculture, had a cheerful picture to paint when appealing for recruits for 'the Women's Land Army.' As reported by the London Morning Post his speech ran:

"'Today (1918) the acreage under wheat, barley, and oats is the highest ever recorded in the history of our agriculture. That is one of the finest achievements of the war. In the same period the number of allotments has been increased by 800,000, which means something like 800,000 tons of produce raised additionally, a big saving in transport, and an improvement socially and morally. This advance has been effected in spite of the fact that there are 500,000 fewer laborers on the land. It is because of that decrease of labor that the appeal is being made for more women. I do not believe that any assembly of British farmers will hold back men who can possibly be spared when the alternative is our troops being driven back by overwhelming numbers and butchered on the beach by German guns. The promise of the harvest is not yet fulfilled, and there is much to be done. Women's work on the land is a vital necessity. I know the work they are asked to do is hard, bringing with it discomforts, and, comparatively speaking, is poorly paid. Life on the land is not luxurious, but it brings health with it, and the women have the conviction that they are doing something in one of the most important fields to make victory sure.'"

EVIDENCES OF FOOD SHORTAGE

One of the by-products of the food situation in England was the suffering occasioned by the scanty food supply on the canine population of the island. The London Times of June, 1918, contained the following pathetic paragraph:

"Considerable alarm has been caused among dog owners by the intimation that stocks of biscuits are practically exhausted. Not only is this the case, but the prospects of more flour being released for their manufacture are also remote unless some action is taken by the government to insure further importations of low-grade flours suitable for the purpose.

"The state of things is undoubtedly acute. Until the food economy campaign set in early last year most households provided enough waste to feed a dog, and where more than one was kept butchers' offals could be had for a few pence. These sources of supply having now vanished, much ingenuity will have to be exercised in order to preserve the family friend and guard from extinction. Blood, steamed until it is of a solid consistency, fish heads, and the heads of poultry offer some alternatives. Rice, oatmeal, and other cereal products may not be used.

"The whole question of dogs is engaging the closest attention of the authorities. Admittedly the problem of reducing the numbers is beset with difficulties, and, whatever is done, it is extremely unlikely the one-dog owner will be disturbed, the government recognizing the sentimental forces involved, to say nothing of the utility value of many breeds."

Copyright by Underwood & Underwood

Members of "The Women's Land Army" in England

Girls weeding frames in which cauliflower plants were set out to be ready for market in the early spring.

[Click for a larger image.]

But while English dogs were threatened with starvation, dogs of Germany were having a still worse time. Numerous cable paragraphs were published giving the price of dog flesh in various German cities.

Indeed, from all over Germany, at the closing period of the war, the hope of drawing upon Russian food supplies was seen to be illusory. There was much talk of getting food from the Ukraine, but this was probably used to keep up popular morale. The situation in the Ukraine did not encourage German hopes. This was frankly admitted by the Frankfort Zeitung:

"The stores and warehouses in the Ukraine are almost emptied. The peasants' stocks are depleted, while the best seed corn has been used to feed cattle or to supply a secret still, which nearly every household possesses.

"The outlook for next harvest is most unpromising. The peasants have plundered the estates, destroyed farm buildings and machinery, and have stolen or slaughtered most of the cattle. No labor is available for cultivation, and there are no facilities for harvesting the next crop, while the sugar industry is confronted with ruin, owing to the decrease of beet cultivation."

FOOD CONTROL FOR NEUTRALS

It is interesting to study the effect of the war on the food situation of the neutral powers. In Scandinavia, there was at first a panicky feeling of a world-wide catastrophe; then there came the realization of an unparalleled chance for making profit. The international shortage of tonnage made freight rates soar. Shipping shares became attractive. Then came the submarine sinkings, and the refusal of the Allies to allow goods to be imported into Scandinavia for the sole purpose of selling them to the Central Powers. Imports fell off rapidly. Everything which could be sold had been sold in the beginning of the war. The next step was the placing of an embargo on exports by the Scandinavian governments:

"The index of the Swedish official list of laws, dated October 31, 1916, forbidding exports, mentioned more than 1,100 articles, and even that was expressly called only a help to find the commodity looked for and did not pretend to be a complete index. The result was, of course, that trade, compared to former volumes, decreased very considerably, and the energy as well as the wealth actually earned was turned towards speculation on the local exchange.

"To supply all the people of Scandinavia with the necessities of life was a problem. Law upon law, one governmental decree after the other, tried to regulate the distribution of commodities as well as their prices. The majority of the people were in actual need. Prices soared, and it really did not matter to the ordinary man whether the cause of this rise in the cost of living was a too big circulation of paper currency or a limited supply of goods. What confronted him was the fact itself, not theories, and he realized all too well that he could not make 'both ends meet.' There was, generally speaking, no doubt that under normal circumstances the laws of supply and demand will work satisfactorily to the community and that artificial interference was only harmful. The supply being short, consequently the demand and the consumption must be controlled to secure a fair distribution. Sugar cards, which had been used in Sweden for months, and which were decreed in Denmark to go into force January 1, 1917, were an example of the means employed to control the distribution and to prevent waste to supplies.

"While on the one hand one saw new millionaires permit themselves to indulge in the most senseless luxuries, which incidentally added considerably to the high cost of living under circumstances like these, the less well-to-do actually were without many things formerly considered necessities. Collections of money and foodstuffs were made all over Scandinavia to help the less fortunate through the winter. The poorer population of the cities was especially considered. It was even difficult to get a roof over one's head. Proposals and counter proposals to remedy the evil were forthcoming, but no real remedy seemed to be in sight."

FEEDING EUROPE'S STARVING MILLIONS

A preliminary accounting was rendered on December 1, 1919, by Herbert C. Hoover, covering the $100,000,000 fund appropriated by Congress for the relief of starving Europeans. From Mr. Hoover's report it appears that in payment for relief supplied to eight European countries Mr. Hoover decided to accept their notes bearing 5% interest. Mr. Hoover's report stated:

"About 88 per cent. of the relief supplies furnished were sold under contract to the various Governments in the relief areas. For all such sales these Governments gave their special treasury notes in a form approved by the United States Treasury, bearing 5 per cent. interest, due June 30, 1921, to June 30, 1924. It was impossible to obtain reimbursement in cash because the currency in the countries to which these supplies were sent was impossible to convert into foreign exchange, except in comparatively insignificant amounts.

POLAND THE BIGGEST DEBTOR

"I give herewith approximate list of the notes of each Government, which we expect to turn over to the United States Treasury.

"The remaining 12 per cent. of the supplies was donated in assistance to private organizations set up in each country under direction of the American Relief Administration for the purpose of furnishing food on a charitable basis to undernourished children. For such supplies it was, of course, impossible to obtain reimbursement. This service has contributed greatly to stabilizing the situation in those countries, aside from the physical benefits to more than 3,000,000 undernourished children, to whom the war threatened serious and permanent injury. Certainly this service is one for which the name of America will always be held in deepest gratitude."

FOOD CONDITIONS AFTER THE ARMISTICE

It is impossible in words to show what the food conditions were in Europe after the armistice was signed. The United States Food Administration issued a statement that there were 420,000,000 people in Europe with food supplies sufficient to last only until next harvest for a small proportion of them. Some countries had to be supplied at once; others, it was believed, could help themselves temporarily, provided they could be given guarantees of food for the future. Many countries were devastated, undernourished and stripped bare of food and agricultural equipment because of enemy occupation. A graphic picture of the situation was presented by the Food Administration in the Hunger Map of Europe.

A Map Issued by the Food Administration to Show Food Conditions in Europe After the Signing of the Armistice.

NEW FACTORS AFTER NOVEMBER, 1918

An official survey of how cessation of active fighting introduced new factors in the food situation is presented in a publication of the Agricultural Department, July, 1919.

"With the signing of the armistice and the cessation of active fighting, new factors were introduced which affect the food situation. One of these was the step taken to release shipping as rapidly as possible, with the prorable probable result that the agricultural products of the more distant producing countries will again largely appear on the markets of Europe. The channels of trade are being reëstablished and food supplies will be sought wherever they can be secured most cheaply.

"A provision of the armistice required the immediate evacuation by the Germans of a large area in Belgium, France, Alsace-Lorraine, Luxemburg, and other territory. As a result many millions of people have been added to those that must be aided and fed by the Allies, and a material increase in the amount of foodstuffs to be imported has been made necessary. It may be found, too, that Turkey, Austria, and even Germany will have to draw on outside supplies to meet their needs.

"The demobilization of the European armies will permit men to return to the farms, and it may be expected that under the stimulus of an urgent demand for food an attempt will be made this year to increase food production in all the affected European countries. The devastated regions will be slow in recovering. Much time and labor will be required to construct necessary homes and farm buildings, level the ground, remove obstructions, and in other ways prepare for a resumption of regular agricultural activities. But it must be remembered that as compared with the whole of the countries concerned these areas are small and should not affect the results in any large way.

"In many sections of Europe there is a shortage of horses and other work stock, farm machinery, seeds, and fertilizers. In these localities a normal production should not be expected, but it is evident that under favorable conditions a material increase over the past year will be secured.

CEREAL REQUIREMENTS FOR 1919

"The following table presents estimates of the cereal requirements for 1919 and shows the world balance as deficit or surplus. Figures for the cereals, except rice, represent millions of bushels.

"The figures on import requirements of the Allies and neutrals are those estimated for 1917—18, while the estimated requirements of Germany and Austria are pre-war net imports.

"The rice surplus might be required in the Orient for countries whose crops may have failed.

"The cotton table is based upon normal industrial conditions in all the consuming countries and upon the restoration of the spinning industry in the devastated regions. If conditions do not reach normal, and if the industry is not restored, the consumption of cotton will be substantially less. With practically complete restoration, cotton consumption may well be expected to equal the normal or pre-war times on account of the present shortage of cotton goods in various countries. The economies which the peoples of Europe must practice for some years to come must be considered."

CENTRAL EUROPE IN DIRE WANT

News from Europe showed everywhere acute suffering from lack of food; even in France the country districts were badly off. A member of the Federal Food Administration reported that bread was practically the only food that anyone could afford. President Wilson referred to this subject in the address with which he accompanied his announcement of the terms signed by Germany. He definitely took a stand in favor of provisioning the country, explaining that by use of the idle tonnage of the Central Empires it ought presently to be possible to lift the fear of utter misery,

"'from their oppressed populations and set their minds and energies free for the great and hazardous tasks of political reconstruction which now face them on every hand. Hunger does not breed reform; it breeds madness and all the ugly distempers that make an ordered life impossible.

"'For with the fall of the ancient governments which rested like an incubus on the peoples of the Central Empires has come political change not merely, but revolution.'

"Putting this danger into a nutshell, the Wall Street Journal asks whether Central Europe shall have 'bread or Bolshevism?' This strong exponent of a firm social order is of the opinion that 'we must recognize the fact that hunger breeds anarchy, and that the most effective weapon against Bolshevism is a loaf of bread.' Victory has made the Allied peoples, 'through their governments, responsible for world conditions,' in the opinion of this paper as well as of the Montreal Star quoted above, and Food Administrator Hoover declares that 'the specter of famine abroad now haunts the abundance of our tables at home.'"

TO PREVENT FAMINE IN GERMANY

Both in England and in France there was official recognition of the need of preventing famine conditions in Germany. It was believed that large imports of wheat could be brought from Australia and India. The Times (London) said:

"Mr. Hoover expects that enough wheat will be brought from those countries to permit reduction of the percentage of substitutes now required in bread, and thus release fodder grain for dairy use. The change, it is said, may take place within three months. But it will not reduce the total of foodstuffs which we must supply. He predicts that 'our load will be increased,' and that there will be a greater demand for economy.

"The available quantities of grain are sufficient. From our great crop of wheat we can spare more than 300,000,000 bushels. Canada, with a yield almost equal to last year's, has a surplus. While our crop of corn shows a decline of 441,000,000 bushels from that of a year ago, it is very near to recent averages and of very good quality. The output of home gardens, increased by one half, is not included in official reports, although its value exceeds $500,000,000. Australia has on hand the surplus of three wheat crops, India is said to have 120,000,000 bushels for shipment, and much can be taken from Argentina. As a rule, our war partners in Europe increased their crops this year. England gains 30,000,000 bushels of wheat, Italy 24,000,000, and France 35,000,000. But other crops in France are short, and the nutritive value of the entire yield is less than that of last year's harvest. It is well known that the Central Powers have very little food; and no help can come to them from the East. Before the war Russia exported a large surplus of wheat. Many of her people are now starving. So far as can be learned, she has no grain to sell. Bulgaria and Rumania have the smallest crops in fifty years. Germany and Austria can get no grain from the northern neutrals; we are sending wheat to them. There is food enough to supply the wants of our European friends and foes until the next harvest if it can be carefully distributed. But if the plans for helping those who have fought against us, as well as our partners in the war, are carried out, the American people must practice economy and submit to restrictions for some time to come."

Copyright Underwood & Underwood

A Food Riot in Sweden

News from Europe immediately following the armistice showed everywhere acute suffering from lack of food. A member of the Federal Food Administration reported that bread was practically the only food that anyone could afford.

[Click for a larger image.]

SUGAR DISTRIBUTION

Among the multiform activities of the American Food Administration, the distribution of sugar was most difficult. America had to supply sugar to the Allies and retain enough for the use of its own people. The matter of the feeling of personal self-sacrifice was difficult enough but there was the further question of how to organize and allocate distribution. The government had to decide the amount to be distributed to sugar-using industries. These industries had to be classified. For the manufacture of soft drinks it was decided to allow only one-half of the sugar used in normal times. Bakers were given a 70 percent. allotment and hotels were permitted three pounds of sugar to every ninety meals served, including cooking.

The sugar resources of the country, both cane and beet-root, were regulated by the so-called Sugar Equalization Board. The operation of this body was explained officially in the Literary Digest:

"This board is a part of the Food Administration and approved by the President. Its purpose is to equalize the cost of various sugars and to secure better distribution. It can also coöperate with the Allies in the procurement of sugar for them and in the adjustment of overseas freight rates. Through capital supplied by the President through his special funds, it is enabled, when desirable, to buy up all available sugars at different prices and resell them at one fixed and even rate.

"In other words, it provides a sort of vast storehouse of sugar, which may be doled out where it is most needed, at a price secure from the fluctuations otherwise inevitable in war time."

KEEPING DOWN THE PRICE

What might happen without this Sugar Equalization Board is illustrated by the Civil War, when sugar, because of speculation, went as high as thirty-five cents a pound. And at that time there was no world shortage of sugar. If there were no sort of sugar control today, it may readily be believed that the consumer might have to pay sugar prices soaring far above those Civil War levels.

"It costs more to produce and market some sugars (such as domestic beet sugar and Louisiana cane) than it does others, such as Cuban cane sugar. But that is no reason why the sugar manufacturer, whose production costs are high, should suffer, even to the extent of being forced out of the market. Nor can the country afford to have this happen under present war time shortage of nearby supplies. Consequently, when it becomes necessary, the Sugar Equalization Board through its purchasing powers can insure fair profits to the manufacturers. Then the Board may resell this sugar, so that it reaches the public at a price lower than what the maximum would otherwise be."

POTATO ECONOMY

In order to remedy the generally inadequate food supply, it became necessary to treat such a standard food as the potato according to newly devised methods by which it could be stored for permanent use and widely distributed. In a lecture in Economics given to a class of the National City Bank, it was stated that, since the war began, it was found practicable so to preserve the potato by grinding and drying as to transform it from a local and perishable commodity to one which could be produced in almost unlimited quantities and distributed to any part of the world:

"The potato can be grown in almost any temperate zone area, but theretofore nine-tenths of the world's crop of 6,000,000,000 bushels is grown in a half-dozen countries, and almost exclusively in Europe and North America. Germany, Russia, Austria-Hungary, France, Great Britain, and the United States have produced in favorable years about 5,000,000,000 bushels, while the remainder of the world produced only 1,000,000,000. These six countries that produced five-tenths of the world's potato crop have only 450,000,000 peoples, while the potatoless world has a population of over 1,200,000,000, from which it appears that 'fully two-thirds of the population of the world live outside of the area.'

"Germany is by far the largest potato grower of the world, producing about 2,000,000,000 out of a world crop of 6,000,000,000 bushels, using them as a food for man and animals and the production of alcohol for use in her industries, and for the production of heat and power when necessary. Next in line is European Russia, with an annual crop of about 1,000,000,000 bushels; Austria-Hungary, 600,000,000; France, 500,000,000; United States, 450,000,000, and Great Britain, 300,000,000 bushels.

"This new system of turning the potato into a condition in which it can be readily distributed has, quite naturally, developed in the country which has the largest potato production of the world, Germany. Factories for the crushing and drying of the potato and turning the product into flour for man, flakes and cubes for animals, or alcohol for the chemical industry and also as a substitute for petrol, have grown from about a dozen a few years ago to over 400 in 1914 and 840 in 1916, with a capacity to turn into this condensed form more than 1,000,000,000 bushels of potatoes a year. The reduction in weight is about 60 per cent., while the product can be preserved almost indefinitely.

"The value of our own potato crop in the United States last year was approximately $540,000,000 at the place of production, and yet the amount entering international trade was only $4,000,000. Our potato crop averages about 90 bushels per acre, that of European Russia 100 bushels; France 135 bushels; Austria 150 bushels; United Kingdom 124 bushels, and Germany 200 bushels and upward per acre, her large flavorless potato, grown chiefly for alcohol, having reached and sometimes exceeded 500 bushels per acre."

FUEL CONTROL

The coal industry was the one basic war industry. Food and munitions were dependent upon the coal supply. It is not necessary to elaborate this argument; it is patent to every one. The following table gives a view of the coal production of the most important countries:

THE COAL SHORTAGE

A rapid advance in coal prices was inevitable under war conditions of unceasing demand and diminishing supply. Says Mr. William Notz in an article in the Journal of Political Economy, June, 1918:

"The question of war-time coal prices offers many angles of interest. Everywhere prices have increased far above pre-war levels. Voluntary agreements on the part of producers and dealers to limit prices and profits have failed without exception. In all the leading coal-consuming countries of the world maximum prices had to be fixed sooner or later by government action. In every case the maximum mine prices are considerably above the average scale of prices obtaining in the years immediately prior to the war. In every country where maximum sales prices at the mines were fixed, liberal allowances were made for wage increases to mine workers. In Great Britain present maximum mine prices approximate 6s. 6d. above the average mine price which obtained during the year ending June 30, 1914. In the United States special mine prices have been fixed for each state, and in many cases also for certain coal fields within a state. The f.o.b. price for bituminous coal in Pennsylvania was in 1913 $1.11 and in 1918, $2.60. Anthracite increased to $4.00 ($4.55 for white ash broken).

"In Germany the total increase in mine prices of the Rhenish-Westphalian Coal Syndicate from the beginning of the war to January, 1917, approximated $1.25 per ton.

"While a certain degree of uniformity is noticeable in the rise in price levels for coal at the mines in the countries where maximum prices have been fixed, an entirely different picture presents itself if we compare the maximum retail coal prices obtaining under government regulations in different sections of the same country. In most countries the national coal controller has established a uniform maximum margin of profit for all retail coal dealers, while local authorities have fixed maximum retail coal prices for their communities. By reason of the fact that in establishing maximum retail consumers' prices allowances had to be made for increased handling expenses, freight rates, middlemen's profits, war taxes, etc., retail coal prices at the present time universally show a very heavy increase over pre-war prices."

FUEL CONSERVATION MEASURES

American Fuel Control had to grapple drastically with a situation of shortage so dangerous that a catastrophe might have been precipitated at any moment. Fuel Administrator Garfield issued orders for coal conservation of a most startling and unusual character. Factories east of the Mississippi were ordered shut down for five days beginning January 18, 1918. Monday, furthermore,

"was decreed a holiday for ten weeks on which offices, factories, and stores, except drug and food stores, must use only such fuel as is necessary to prevent damage. The order under which these restrictions were made, according to the Fuel Administration's statement to the press, was 'designed to distribute with absolute impartiality the burden,' and it added that the Fuel Administration 'counts upon the complete patriotic coöperation of every individual, firm, and corporation affected by the order in its enforcement.' We read further that the government aims to carry out its plan without 'undue interference with the ordinary course of business' and earnestly desires to 'prevent entirely any dislocation of industry or labor.'

SHUT-DOWN OF INDUSTRY TO SAVE COAL

"Fuel Administrator Garfield hoped to save 30,000,000 tons of coal and to give the railroads a chance to straighten out the transportation tangle in the eastern states, according to a Washington correspondent of the New York Tribune, who notes that the measures were taken by the President and the government heads 'as a desperate remedy.' The closing down of the greater part of the nation's industries, trades, and business, says the New York Sun, is the 'fruit of the insane, criminal starvation of the railroads by the government for a generation'; yet regardless of what it may cost any individual or group of individuals, the order is to be 'greeted without protest.' A surgeon was more welcome than an undertaker, in the view of this daily, and a disaster of the second degree and a temporary one is better than a disaster of the first degree and a permanent one. If the five-day term clears the railroads and the Monday holidays set the trains running with their former clocklike regularity, the Sun added, we can resume being the 'busiest nation on earth, instead of being an industrial paralytic.' While recognizing that the order struck Utica and all cities in the designated territory 'a staggering blow,' the Utica Press holds that there is really nothing a patriotic city could do about it save to accept the situation with as good grace as possible, and if the result hasten the end all will agree that it was a good investment. The Chicago Herald considered the order 'a tremendous decision' carrying with it a 'tremendous responsibility,' and while the chief industries of the principal part of a nation can not be stopped even for a day without disorganization and loss, still the country is willing to pay the price 'if it is the necessary cost of preventing the suffering of hundreds and thousands, perhaps millions, of individuals and of keeping certain indispensable war and public functions going at their accustomed speed.'"

Copyright by Underwood & Underwood

Harry A. Garfield

As Fuel Administrator during the war he issued orders for coal conservation of a most startling character. Factories east of the Mississippi were ordered shut down for five days beginning January 18, 1918. Monday was decreed a holiday for ten weeks "on which offices, factories and stores must use only such fuel as is necessary to prevent damage."

[Click for a larger image.]

THE GOVERNMENT'S EXPLANATION

From Fuel Administrator Garfield's explanation of the necessity of the order the following passage is taken:

"The most urgent thing to be done is to send to the American forces abroad and to the Allies the food and war supplies which they vitally need. War munitions, food, manufactured articles of every description, lie at our Atlantic ports in tens of thousands of tons, while literally hundreds of ships, waiting, loaded with war goods for our men and the Allies, can not take the seas because their bunkers are empty of coal. The coal to send them on their way is waiting behind the congested freight that has jammed all the terminals.

"It is worse than useless to bend our energies to more manufacturing when what we have already manufactured lies at tidewater, congesting terminal facilities, jamming the railroad yards and side tracks for a long distance back into the country. No power on earth can move this freight into the war zone, where it is needed, until we supply the ships with fuel.

"Once the docks are cleared of the valuable freight for which our men and associates in the war now wait in vain, then again our energies and power may be turned to manufacturing, more efficient than ever; so that a steady and uninterrupted stream of vital supplies may be this nation's answer to the Allies' cry for help....

"This is war. Whatever the cost, we must pay it, so that in the face of the enemy there can never be the reproach that we held back from doing our full share. Those ships, laden with our supplies of food for men and food for guns, must have coal and put to sea."

GARFIELD'S PLAN FOR FUEL ECONOMY, 1918—19

After the trying experiences of the winter of 1918, the Fuel Administration began to prepare in the following summer for another prospective shortage in coal supply. Fortunately the following winter was remarkably mild throughout the country. But the plans outlined by the Fuel Administration are more than useful as a matter of record. They may be used as a model under other conditions of fuel shortage. The following passage from the Fuel Administration Bulletin illustrates the plan of campaign:

"Fuel economy is being given intensive study in connection with steam plants and industrial uses. An organization is already in existence, provided with engineers and inspectors who will visit every one of the two hundred and fifty thousand steam-producing plants in the country with a view to the improvement both of equipment and firing practice. This is expected to save twenty million tons of coal.

"The economical use of power in factories will be in the hands of organized shop committees. The power loads of the public utilities throughout the country are being studied with a view to readjustments which will result in large saving.

"In many cities the isolated power plants which use an extravagant amount of coal in proportion to the power produced will be urged to obtain more economical power from large producing stations.

"The introduction of 'skip-stop' schedules on all the street railways is expected to save a million tons of coal. The consolidation of ice plants will yield a still larger tonnage. Unnecessary outdoor lighting, including advertising signs and display illumination, will be reduced. Hotels, office buildings, apartment houses, and public buildings are being asked to join in rigid economy of light and heat.

"Every American citizen will be asked to clean his furnace, keep it in repair, and study economical firing. Instructions prepared by the highest authority will be furnished by the Fuel Administration.

"If every one joins in this movement, from the owner of an industrial plant to the householder with his furnace and cook stove, if indoor and outdoor lighting is reduced to the amount absolutely needed, if houses are not overheated, the furnace dampers properly adjusted, and the ashes sifted, it will be possible to save from fifty to seventy-five million tons of coal without serious inconvenience to the American people."

DIFFICULTIES OF FUEL CONTROL

Some conception of the difficulties involved in the work of fuel control was set forth officially in a paper published by the Fuel Administration called Fuel Problems in War Time. The production of coal, it pointed out, stands on a different basis from that of any other major industry of the country. The differences are illustrated in the following paragraphs:

"As an illustration, consider the cotton crop with its millions of bales. Every bale of cotton raised in the country last year amounted to no more than the coal moved in one and one-third days. Or take the wheat crop for comparison. We hear of the immense preparations made during the fall months for moving the wheat crop; yet the weight of America's enormous wheat crop of 1917 is equaled by the coal mined and transported every eight days.

"Every year the miners go into the ground and dig out coal and the railroads ship it for hundreds of miles, dragging back the empty cars, until the amount mined equals two and one-fourth times the earth and rock removed in digging the Panama Canal. It took sixteen years to dig the Panama Canal. Our miners will dig two and one-half Panama Canals this year.

"In the mining of coal we are dealing with a task so gigantic that the wonder is not why we have not increased production to meet the demand, whatever that might be, but how, with the men and equipment overtaxed by the multiplicity of the demands of the war, we were able to increase the output fifty million tons in 1917, and will be able to add a probable fifty million tons to that high record the present year.

"The wonder is increased when we note that every other coal-producing country now in the war found it impossible to maintain the pre-war production of coal. In every case the output is less now than before the war. In England seven and one-half per cent. less coal was produced the first year of the war than in the previous year and five per cent. less than this reduced output in the following year. America alone has been able to increase its production of coal in addition to meeting the thousands of other increases demanded by war preparation.

COAL AND THE STEEL SUPPLY

"As every one knows, coal mining is very largely a matter of coal transportation. The most difficult task involved in an increase must fall upon the railroads. The wonderful work these railroads are doing is brought into bold relief when we remember that in 1914, when the great war started, the output of bituminous coal in the United States was 423,000,000 tons, and that in 1918 it promises to be nearly 200,000,000 tons greater.

"Apparently, this country today can furnish the steel required if only it can get the necessary coal. The work of the Fuel Administration during many months has been directed toward increasing coal production. These efforts have borne much fruit, miners are approaching one hundred per cent. service, while the railroads are outdoing themselves expediting the movement of coal cars from the mine to the consumer and back again.

"But war's demands mount so rapidly that even with full speed ahead production can not make the pace. A fuel deficit can be averted only by the most intensive conservation. Conservation, economy, savings, sacrifice must fill the gap between the possible increase of production and the greater increase of demand. If every user of coal will join the army of fuel conservationists, realizing that the need for steel to carry on this war is practically unlimited and that every ton saved means an additional five hundred pounds of steel, there is prospect—the figures show it—that the work of the miners will not be in vain. Our increased production, plus conservation, the Fuel Administration believes, can furnish the coal, and hence the steel needed for the war, and still leave none of our people cold."

SIDE ISSUES OF FUEL CONTROL

Economizing coal involved all kinds of unexpected side issues. As an illustration of the far extended reach of the Fuel Administration there was the example of the skip-stop plan in street railway traffic enforced by the Federal administration. A writer in the Chicago Engineering and Contracting Journal suggested, September 4, 1918, that the Government should adopt and extend the policy of compelling individuals and corporations to use economic methods and machines:

"Conceive, if you can, what could be accomplished in America in the way of increased productivity and economy if our Federal Government had the authority to make every individual and every company adopt any method or device that had been proved to be economic. No engineer acquainted with the application of the principles of the science of management can doubt that if the universal adoption of those principles could be forced upon producers in general, this nation could increase its productivity fully 25 per cent. That would alone add more than twelve million dollars annually to the national income. But that is not all. The application of the principles of the science of management is only a fraction of the total enginery at our disposal. We have literally countless labor and material-saving machines and appliances that are scarcely used, although many of them are generations old. Does this sound incredible? Certainly not to any engineer who has a wide acquaintance with the literature of engineering.

"Take so simple a thing as the heat insulator for steam pipes and boilers. It has been known to engineers for nearly a century that by encasing boilers and pipes with magnesia or other suitable insulators, practically all heat radiation and conduction losses could be stopped. Furthermore, it has been known to engineers that the saving in fuel thus effected would pay an annual interest of 20 per cent. on the cost of the heat insulator. But go into the basements of steam-heated residences if you want to get a conception of how rarely this knowledge is applied. The landlord may know that heat insulators would earn a big return on their cost, but since they would earn it for the tenant and not for himself, he does not cover the boiler and pipes adequately, if at all. The tenant, even if he knows the economics of heat insulating, will not spend the money for insulators whose use he may not enjoy for more than a year or two before he moves out. For similar reasons very few houses have double windows, although double windows will save fully 15 per cent. of the fuel required to heat the average house. On these matters the Fuel Administration has power to act, and it should act."

FUEL CONTROL IN GREAT BRITAIN

Coal mining was always one of the most significant elements in British trade. Before the war 270,000,000 tons of coal were produced in the mines of Great Britain. Parliamentary legislation of a most radical character dealing with the ownership and operation of coal mines was passed. The main provision of this legislation was described in the following passage from the London Morning Post:

"Briefly, the main provisions of the bill are the following: Under the present Finance Act the state takes 80 per cent. of the profits in excess of those made in the two best of the last three pre-war years, or above 9 per cent. of the capital employed. The new scheme deprives owners of these statutory rights. It does away altogether with the percentage standard. Output is made the chief determining factor in the regulation of the profits to be retained by the coal owner. The production of a colliery working under normal conditions during the two pre-war years, which has already been adopted under the Finance Act for the purposes of the Excess Profits Duty, is adopted as the standard output. If that output is maintained in any accounting period under the new bill, the colliery owner will be guaranteed a profit equal to the average profit made in the standard period, whether he makes it or not. If his trading profits in the accounting period are greater than those in the standard period, the treasury will take its 80 per cent. of the difference under the authority of the Finance Act, the Controller will retain 15 per cent. of it in order to create a fund for the compensation of the less fortunate collieries and the administration of his department, and the coal owner will be allowed to retain 5 per cent. of the excess. Thus a colliery company with a profits standard of £50,000 will, if it maintain its standard output, continue to receive £50,000; if such company make, say, £70,000, it will be permitted, generally speaking, to retain only 5 per cent. of the extra £20,000, that is to say, £1,000, plus the statutory £200, or £51,200 in all; but in no case shall the retainable profits exceed five-sixths of the profits standard. In that illustration the scheme is to be seen at its best, and, under the conditions, it is not unreasonable."

Photo by P. Thompso

Drying Fruit and Vegetables to Save Tin and Glass

Conservation became a great watchword during the World War. Mr. F. P. Lund of the U. S. Department of Agriculture showed women how tin and glass could be saved by drying fruit instead of canning it.

[Click for a larger image.]

OTHER FORMS OF CONSERVATION

The War Industries Board worked out a program for clothing conservation that showed a positive genius for detail. The most technical directions were issued regarding clothing. Double breasted coats, for example, were eliminated and the Board urged the wearing of sack suits only. Even the complicated subject of handling women's attire had no terrors for the experts employed by the Board. The characteristic features of its order can be judged by the following extract from the directions published on this subject:

"All shoes, both leather and fabric, shall be restricted to black, white, and two colors of tan (the two colors of tan to be dark brown or tan and a medium brown or tan).

"Patent leather shall be black only. These color regulations do not apply to baby shoes made of fabrics.

"Shoe-manufacturers shall not, for the next six months, introduce, purchase, or use any new style lasts. They may replenish to cover wastage or to meet requirements on present lasts now in use in the manufacture of shoes. This is to be effective at once. By new style lasts is meant any lasts which have not actually been used for the manufacture of shoes in the past season.

"The use of leather as a quarter lining in oxfords and low shoes is permitted only when used in skeleton form with fabric. Leather linings will be permitted in evening slippers where uppers are made of fabrics. We advocate the use of full fabric linings for low shoes wherever possible.

"The maximum height of women's shoes, both leather and fabric, shall not exceed eight inches (measured from breast of heel at side to center of top at side of finished shoes), size 4B to be the base measure.

"The maximum height of misses' shoes, size 1½, shall not exceed 6½ inches (measured as above).

"The maximum height of children's shoes, sizes 8½-11, shall not exceed six inches.

"The maximum height of boys' and youths' shoes shall not exceed 5½ inches.

"The maximum height of infants' shoes, sizes 4-8, shall not exceed 5½ inches.

"The maximum height of button shoes for women shall not exceed 6½ inches.

"The maximum height of all women's overgaiters shall not exceed eight inches, measured from breast of heel at side to center of top at side.

"The maximum height of misses' overgaiters shall not exceed 6½ inches (measured as above)."

LEATHER CONSERVATION

Germany was not the only country prepared to employ substitutes. When the National Army in the United States was organized the Wall Street Journal predicted that on account of the large consumption of leather for military purposes, the civilian population would be obliged to have thinner soles and probably to use leather substitutes:

"Price fixing on leather is still 'in the air.' It is not an easy proposition, in view of the complexity of grades and the variations in quality. The most practicable arrangement would be a series of general price standards, with allowance for deviations. Unlike other commodities, leather trading is a very flexible affair. The trade is confident of fair price maxima in relation to recently fixed hide quotations; possibly, in view of higher labor and other costs, of somewhat more liberal rates than hide prices, which have just been modified upward somewhat.

"Leather prices have been tending upward all round. Heavy sole leather, which did not recede nearly as much as lighter grades in the slump of last winter, are now nearly back to the high point of early last fall. Union sole has advanced four cents since May 1, and for some varieties of leather above No. 9 iron the market is around eighty cents, against sixty-five cents earlier this spring.

"In leather it is a case of all-round conservation, plus intensive effort for maximum output with government aid. Export license-restrictions have just been tightened, and most of what is shipped now goes to England. Neutrals must wait. In nine months to April 1st we exported but 20,342,101 pounds of sole leather, against 84,267,573 a year before. In March we shipped only 490,000 pounds to other countries than England, against 1,945,000 a year earlier. Hardly any is now moving save on British government order.

"Men't Men's shoes of higher quality and price will be affected chiefly by the requirement to carry soles as light as women's wear. This will involve either more frequent buying or more resort to tapping. Cheapest grades of shoes will be least affected, being almost wholly outside the military scope. In fact, some manufacturers of low-priced shoes have lately been enabled to use better material than usual, thanks to army 'leavings.' It is the urgent advice of the Government and tanners that shoe manufacturers promptly conform to the new program and that consumers cheerfully accept it. Meanwhile, experiments are continuing under government direction as to further extension of the use of composition or even of wooden soles to help meet the increased demand and short supply equation in leather."

FAIR PRICE LISTS

Photo by P. Thompson

"Back on the Farm"

The number of slaughterable animals decreased in the United States and in Europe during the war. The shortage of fats was helped by the production of more animals, increasing the weight of those slaughtered, and by changed methods of cooking, including the substitution of vegetable oils for butter.

[Click for a larger image.]

One of the plans to prevent the discontent arising from food speculation promoted by retailers and profiteers, was the preparation of fair price lists to protect the consumer. Every week new price lists were prepared so as to cover new fluctuation of cost to the retailer. These lists were given to the newspapers so that the consumer might be steadily informed and advised as to what he ought to pay the retailers in his city or town. It was shown how the patriotic retailer gained by the protection that this list offorded afforded him against the danger of unpatriotic profiteering. The United States Food Administration explained in a public statement the significance of the fair price lists. "They were nothing more," it said, "than bulletins to inform the public of the prices the retailer has to pay for certain foods, and the price he has to sell them to the consumer.

"Such a bulletin at one stroke does away with all the obscurity which too often veils the price increase which takes place at the hands of the retailer.

"To give an example, it shows at just what price a retailer is able to buy oatmeal and at just what price he is entitled to sell it. If any retailer decides to set upon the food he has for sale a higher price than that which brings him a fair profit, he is labeling himself 'Profiteer.' And thereafter it depends upon the public's own choice whether they shall trade with him or not.

"In accordance with the plans of the Food Administration such a system of fair price lists is now in operation throughout the country. Every week new price lists are prepared so as to cover new fluctuations of cost to the retailer. And these up-to-the-minute fair price lists are given to the newspapers to print so that the consumer may be steadily informed and advised as to what he ought to pay the retailers in his city or town."

HOW FAIR PRICE LISTS ARE MADE UP

"In theory the plan is the simplest imaginable. But it is complicated by the size of this country and by the variety of local food conditions which are bound to affect the price at which the retailer can buy and sell his foodstuffs. It would be utterly impossible to set forth one fair price list which would be fair for every spot in this country at any one time. A grocer in Calais, Maine, may be able to buy potatoes at a lower rate than a grocer in Snohomish, Washington. And the grocers of Red Oak, Iowa, may have to pay a different price from either. Obviously, each locality must determine its own fair price list.

"This is done by establishing in every community or county where fair price lists are to be put out a Price Interpreting Board, consisting of representatives of wholesale grocers, retailers, and consumers. The County Food Administration or his representative should act as chairman of this board. Such boards include representatives of both 'Cash and Carry' stores and 'Credit and Delivery' stores. These boards secure from wholesale representatives the prices charged to the retailer for various staple foods. With this as a basis, plus their knowledge of local conditions, and guided by a schedule of maximum margins submitted to them by the Food Administration at Washington, they determine what is a reasonable profit at which the retailer may sell to the consumer. Thus the retailer does not have a scale of selling prices arbitrarily thrust upon him; he helps determine them himself."

PROFITEERING

The natural and inevitable results of war on living conditions with food shortage and high prices were an unfamiliar factor in American experience for two generations. The artificial product of war time industry, "profiteering," was hard to be evoluted and caused resentment against those responsible for the practice. To deal with profiteers was no easy matter. How can profiteering be discriminated from legitimate profit-taking? How, too, can its existence be proved, for high fixed prices are not always an evidence of profiteering methods. The complexities of the various trade practices lumped together under the term profiteering are illustrated in the pamphlet on Profiteering, issued by W. B. Colver, Chairman of the Federal Trade Commission, in the form of a letter submitted on request to the U.S. Senate:

"Survey of the petroleum field shows that the market, when under the control of dominating factors, such as Standard Oil, can be one of huge profits without the device of the high fixed price. No price for the public has been fixed upon petroleum and its products by the government. Unlike the situation in steel, flour, and coal, there has been as yet no government interference with the law of supply and demand except in the instances of government purchases. Under that law large profits may eventuate through the bidding up of prices by anxious buyers. And, moreover, even in the absence of this element, prices may be forced up by spreading false and misleading information concerning the condition of supply and demand. Reports, for instance, have been circulated that the supply of gasoline was endangered for the purpose of maintaining the high price of that product and the heavy profits from it. At different stages of the oil industry different products of petroleum have yielded the heavy profits. Kerosene was once the chief profit producer. Gasoline followed and superseded it as the chief producer of profits. Enormous profits are now being made in fuel oil, with the advantage to the refiner that the high price of that product meets no popular challenge. Gasoline is maintained at its present high price and produces heavy profits for the low cost refiners."

PROFITEERING IN THE MEAT INDUSTRY

"Similarly, the power of dominant factors in a given industry in maintaining high prices and harvesting unprecedented profits is shown in a survey of the meat packing situation. Five meat packers, Armour, Swift, Morris, Wilson, and Cudahy, and their subsidiary and affiliated companies, have monopolistic control of the meat industry and are reaching for like domination in other products. Their manipulations of the market embrace every device that is useful to them, without regard to law. Their reward, expressed in terms of profit, reveals that four of these concerns have pocketed in 1915, 1916, and 1917, $140,000,000. Comparisons between their present profits and those of the pre-war period are given below. However delicate a definition is framed for 'profiteering,' these packers have preyed upon the people unconscionably. They are soon to come under further governmental regulation approved by Executive order."

PROFITEERING IN THE MEAT INDUSTRY

Some further details on the methods of securing huge profits in the meat packing industry are given in the following:

"An exposition of the excess profits of four of the big meat packers (Armour, Swift, Morris, Cudahy, omitting Wilson as not comparable) is given in the fact that their aggregate average pre-war profit (1912, 1913, and 1914) was $19,000,000; that in 1915 they earned $17,000,000 excess profits over the pre-war period; in 1916, $36,000,000 more profit than in the pre-war period; and in 1917, $68,000,000 more profit than in the pre-war period. In the three war years from 1915 to 1917 there their total profits have reached the astounding figure of $140,000,000, of which $121,000,000 represents excess over their pre-war profits.

"These great increases in profits are not due solely to increased volume of business. The sales of these companies in this period increased 150 per cent., much of this increase being due to higher prices rather than to increased volume by weight, but the return of profit increased 400 per cent., or two and one-half times as much as the sales.

"The profit taken by Morris & Co. for the fiscal year ended November 1, 1917, is equal to a rate of 18.6 per cent. on the net worth of the company (capital and surplus) and 263.7 per cent. on the three millions of capital stock outstanding. In the case of the other four companies the earned rate on common capital stock is much lower—from 27 per cent. to 47 per cent.—but the reason for this is that these companies have from time to time declared stock dividends and in other ways capitalized their growing surpluses. Thus Armour in 1916 raised its capital stock from twenty millions to one hundred millions without receiving a dollar more of cash. If Swift, Wilson, Cudahy, and Armour had followed the practice of Morris in not capitalizing their surpluses (accumulated from excessive profits), they too would now show an enormous rate of profit on their original capital."

JUGGLING OF ACCOUNTS—HUGE SALARIES

Mr. Colver gives information supported by trustworthy data on other devious and subtle types of profiteering practices:

"In cases where the government fixes a definite margin on profit above costs, as in the case of flour, there is a considerable incentive to a fictitious enhancement of costs through account juggling. This has added to the volume of unusual profits. Increase of cost showing on the producers' books can be accomplished in various ways. The item of depreciation can be padded. Officers' salaries can be increased. Interest on investment can be included in cost. New construction can be recorded as repairs. Fictitious valuations on raw material can be added, and inventories can be manipulated.

"The Federal Trade Commission has been vigilant and untiring in its exclusion of these practices. An instance of this practice was afforded by the Ismert-Hincke Milling Co., of Kansas City, Mo. This company padded its costs by heavily increasing all its officers' salaries and by manipulating the inventory value of flour bags on hand. As evidence of the length to which padding can be carried, it may be added that this company even included in its costs the gift of an automobile which it charged to advertising expenses. This case was heard of by the commission for the Food Administration. The commission recommended revocation of license and the recommendation was followed.

"Payment of extraordinary salaries and in some instances bonuses to executives of corporations have been found by the commission during its investigations."

WAR COST OF LIVING

A complete synopsis of the cost of living situation in the United States, during the four pears' years' period July, 1914, to June, 1918, was issued by the National Industrial Conference Board after a country-wide survey. The basis taken was that of family budgets divided under five heads: food, shelter, clothing, fuel and light, and sundries. The average increase for the period was shown to be between 50 and 55 per cent. The most marked advance was in clothing, 77 per cent. But the food advance of 62 per cent. was really more important because food represented 43 per cent. of the average expenditure, while clothing represented only 13 per cent. Wholesale prices, the report pointed out, are not to be relied upon in estimating the cost of living, because many articles enter only indirectly into the family budget. Often, too, wholesale prices are not reflected in retail prices until months later. The estimates given by the Board were based upon the expenditures of eleven thousand families:

"In reaching 52.3 per cent. as the amount of increase in the cost of living for the four years' period, the expenditures of 11,000 families were considered. Following is a table in which besides the 52.3 per cent. for all items entering into the family budget, the percentage for rent, clothing, fuel, and light, and sundries are given:

The figures examined prove that there was a fair similarity of increase in the different sections of the country. The advance in rent in the dwelling places of the average wage earner was put down at 15 per cent.

"A general summary is given of changes in the cost of living among industrial workers as presented by the Railroad Wage Commission for the period between December, 1915, and the end of April, 1918, as follows:

"By the Brotherhood of Locomotive Firemen and Enginemen the advance in living costs between 1914 and 1917 was placed at 43 per cent. Conditions among ship-building workers on the Pacific coast, as arrived at by the United States Shipping Board, indicated that between June, 1916, and February, 1918, living costs had gone up 46 per cent. A table is given which shows relative increase in the cost of food as measured by wholesale and retail prices for the past six years."

CIVIL WAR COST OF LIVING

The Civil War years of the United States were always remembered as the era of high prices. Yet it is interesting to know that the increase in living cost after the United States had been in war one year was greater than the increases in the fourth year of the Civil War. During the Civil War prices rose from 100 to 117 per cent., but necessities were relatively cheaper than at present because the currency was depreciated. In January, 1864, gold was at a premium of 52 per cent.

Emerson David Fite, assistant professor of history in Yale University, describes "Social and Industrial Conditions During the Civil War" as follows:

"The situation in New York City at the end of the year 1863 is typical of the period. Eggs had then reached 25 cents per dozen, from 15 cents in 1861; cheese, 18 cents from 8 cents; potatoes, $2.25 from $1.50 per bushel, and for all the necessities of life there was an advance ranging from 60 to 75 and in some cases even 100 per cent. Wages, on the other hand, lagged behind; the blacksmith's increase was only from $1.75 to $2 per day, that of common laborers from $1 to $1.25, that of bricklayers from $1.25 to $2, and the average increase in all the trades was about 25 per cent., or less than one-half the increase of prices. The winter of 1863—64 and the ensuing months were accordingly a time of unusual industrial unrest, which increased in severity as the discrepancy between wages and prices continued. The dollar was slowly but surely diminishing in value, and labor engaged in a determined struggle to force wages up, capital to keep them down. The advantage lay with the employing classes, but labor in 1864 recovered much of the ground that had been lost in the two previous years, and the war closed with wages much nearer prices than a year earlier. It was generally agreed at the time that prices during the entire war period advanced approximately 100 per cent. and wages from 50 to 60 per cent."

WHERE THE COST OF LIVES WEIGHED THE MOST

The rapid rise in the cost of living was much more severely felt by the classes of the population dependent upon small or less rigid incomes. In many industries wages increased faster than everage average living expenses. Figures published by the New York Labor Bureau show that the sum distributed in wages to industrial workers was substantially doubled in the four years of warfare. Investigation conducted by the National Industrial Board of Boston showed that there had been an increase of 50 to 55 per cent. in the budget of the average wage earner from July, 1914, to June, 1918.

"The increases for the different items are given as follows:

In explanation of these figures the report goes on to say:

"'In combining the percentages of increase for the respective items, in order to determine the average increase for the budget as a whole, food was taken as constituting 43 per cent. of the total family expenditure, rent 18 per cent., clothing 13 per cent., fuel and light 6 per cent., and sundries 20 per cent. Applying the Board's percentages of increase for the respective items to this distribution of the budget, the average increase is 52 per cent. The distribution of budget items just given is an average based on cost of living studies made by several United States Government bureaus and other agencies, covering in all 12,000 families.

"The proportions of these major items of expenditure can be varied within narrow limits, but no reasonable arrangement would cause a wide change in the increase in the total cost of living as given above. For instance, if, instead of this average distribution of the budget, food be allocated as much as 45 per cent., rent and clothing 15 per cent. each, fuel and light 5 per cent., and sundries 20 per cent., the indicated increase in the total cost of living, using the Board's percentages of increase for the respective items, would be 54 per cent."

All articles of food, we are told, show a considerable increase in price since 1914, exceptional advances being recorded in the case of flour, lard, and cornmeal. The item of rent, says the report, "showed such wide variation that no general average applicable to all sections of the country could be reached," but the 15 per cent. estimate "is apparently ample to cover the increase in wage-earners' rents in New York, Chicago, Philadelphia, Boston, and St. Louis, which alone include several millions of the country's industrial population." Of the increase in clothing prices we read:

INCREASED COST FOR WEARING APPAREL

"Information secured from retail stores in cities well distributed throughout the country indicates increases in prices of the most common articles of wearing apparel, ranging from 50.5 per cent. for women's dollar blouses up to 161 per cent. for men's overalls. Striking increases occurred in the prices of certain yard goods, where advances in cost over 1914 prices amounted, in a number of cases, to more than 100 per cent.

"Men's hosiery, selling for 15 cents in 1914, cost in June, 1918, usually not less than 25 cents, and women's hosiery, selling for 25 cents four years ago, brought 45 cents in June of this year. Knit underwear, the report finds, had increased nearly 100 per cent. Women's shoes of a standard grade increased 88.5 per cent.; men's 69 per cent. Women's kid gloves which in 1914 cost $1 averaged more than $2 in June, 1918.

"The report places the average rise in the total clothing budget since 1914 at 77 per cent. This increase compares with an increase of 51.33 per cent. between 1914 and 1917 for families in the ship building districts of Philadelphia and an increase of 54.21 per cent. among similar families in the ship building district of New York, as reported by the United States Bureau of Labor Statistics. The difference between these increases and the Board's figure of 77 per cent. is largely explained by the difference in the period of time covered; clothing prices have continued to advance since 1917. Further increases in the fall of 1918 were, moreover, clearly indicated by the statements of retail dealers."

WAR PRICES AND LUXURY IMPORTS

In spite of the contention that war-time conditions led to an increased standard of luxurious living, statistics of imports indicated a rapid fall in articles of luxury brought into the country. In the fiscal year, 1918, there was a material decline compared with the preceding year and a marked decline when compared with the year before the war:

"A recent compilation by the National City Bank shows this in practically all imports usually classed as luxuries. That the imports should be less than before the war was quite natural by reason of the fact that many articles of this character originated in European countries, some in countries with which we are now at war, and some with our Allies who are otherwise too busily employed.

"In art works, for example, the value of the imports of 1918 was only about $11,000,000 against $23,000,000 in 1917, and $35,000,000 in the fiscal year 1914. In automobiles the value in 1918 was about $50,000 against nearly $2,000,000 in 1913, and more than $2,000,000 in 1912, while the average value per machine imported in 1918 was less than one-half what it was before the war. Decorated china imported in 1918 was about $3,500,000 in value against practically $8,000,000 in 1914. Of cotton laces imported in 1918 the value was about $10,000,000 against $16,500,000 in 1917, and nearly $34,000,000 in 1914. Of silk laces the 1918 imports were valued at little more than one-half those of 1914. Of cotton plushes and velvets the quantity in 1918 was less than 1,000,000 yards against more than 3,000,000 in 1917, and practically 5,000,000 in 1914. Of ostrich feathers, in 1918 the imports were valued at nearly $1,000,000 against nearly $4,000,000 in 1914 and over $6,000,000 in 1913. In precious stones the total for 1918 was only about $32,000,000 against $47,000,000 in 1917 and $50,000,000 in 1913; while of pearls alone the value in 1918 was less than $2,000,000 against over $8,000,000 in 1917, and more than $10,000,000 in 1916.

"In articles of food usually classed as luxuries there was also a marked fall. Cheese imported in 1918 amounted to about 9,000,000 pounds against 15,000,000 in 1917, and 64,000,000 in 1914. Of currants the imports of 1918 were over 5,000,000 pounds against 25,000,000 in 1916 and 32,000,000 in 1914, and of dates only 6,000,000 pounds in 1918 against 34,000,000 in 1914; while olives and olive oil showed totals in 1918 of about one-half those of the year before the war."

The Nations and Their Wheat Supply

Under the Lever Bill, which became the Food Control Law after the United States declared war, the President was authorized to fix a reasonable guaranteed price for wheat.

GOOD EFFECTS OF PRICE CONTROL

It became accepted on all sides that price control was the one method to correct the inequalities of war conditions. It was necessary to prevent the poorer classes in the population from having an inadequate consumption of wealth. There was the political side, too. Price control had an effect on the morale of large strata of the population. It acted as a bulwark against the rising tide of discontent and internal dissension incident to warfare on a democratic scale. Mr. Sydney Webb, a well known English student of labor problems, conceded that the British government had by its system of price control been fairly successful in staving off any general fall in the standard of life in its people. How the system worked is summarized by him in the following passage:

"What has been successful in Great Britain in economizing supplies has been a widespread appeal to the whole nation to limit its consumption of wheaten bread (4 pounds per week), meat (2½ pounds per week), and sugar (¾ of a pound per week) to a prescribed maximum per person in the household; and to make up the necessary subsistence by the use of substitutes, such as fish, other cereals than wheat, and other vegetables than potatoes, of which the crop throughout all Europe has largely failed. More efficacious still has been the absolute government monopoly of sugar, secured at the very beginning of the war, and the drastic restriction of the total quantity allowed to be issued from store, the aggregate reduction being thus infallibly secured, and the retailers being left to share what sugar they obtained among their customers. It has been found useful, too, to make the wheaten flour go farther by compelling all the millers to include both an increased proportion of bran and a certain proportion of other cereals. More drastic measures are near at hand."

STAY-AT-HOMES WHO MADE MONEY

The important effort, as seen by the Economist, was to back up the armies at the front by a policy of self-sacrifce sacrifice at home, and it spoke in drastice drastic terms of the constant evidence of profiteering among certain classes in England. The contrast in the attitudes of those at the front and those active in business life is set forth in the following words:

"One of the most curious and interesting psychological facts of the war is the manner in which one man goes to the front and becomes a hero and a preux chevalier, while another, just like him in training and blood and outlook, stays at home and works for spoils, whether in wages or profits, resenting taxation, grumbling about his food, and seeming to think that this war for justice was invented to increase his wealth and comfort."

PRICE CONTROL IN UNITED STATES

Although price control is a measure disapproved of by economists, experience has shown that for certain products, such as wheat and flour, it produced good results. In the case of bituminous coal, Professor Anderson of Harvard said that it had probably done much harm and little good, because the cut in price was too drastic. One good feature of the price control system was the ability to apply it to draft labor from non-essential industries to the production of munitions and necessities of life. It was possible to do this by refusing coal, copper, steel and freight cars to the non-essential industries. How the Food Administration came to be a general price fixing body is explained in the following article by a member of the Food Administration:

WHEAT AT $2.20 A BUSHEL

"There are many evidences that price fixing has come to lodge itself as an unwelcome factor in the program of the Food Administration. Price fixing came to be a fact even while avoided as a theory, and eventually it has become necessary to face it, if not to accept it, even as a theory. What are the evidences that price fixing is essentially involved in the program of the Food Administration? One piece of evidence lies in the fact that when once you have fixed the price of one commodity the condition is bound to be reflected in other commodities. In fixing the price of wheat Congress fixed as well, though not so explicitly, the price of corn, and hogs, and sugar beets. The determining and administering of these prices it left to the Food Administration.

"A further evidence that the Food Administration could not avoid the onus of price fixing lies in the reasons for which the Administration was brought into existence and the services it was created to perform. The Food Administration is a war agency. Its chief purpose is the feeding of warring nations, our own nation and the Allies. All its other activities, its conservation, its stabilization of trade processes, its encouragement of production, are tributary to the one purpose of segregating stocks of food for the effective prosecution of the war. This latter purpose, in fact, takes the Food Administration directly or indirectly into the market.... By Section 14 of the Lever Bill, which became the Food Control Law, the President is authorized from time to time to determine and fix a reasonable guaranteed price for wheat and this section itself fixed the price for the crop of 1918 at not less than $2 per bushel at the principal interior primary markets. Pursuant to this section the President has, by two separate decrees, set the price of 1917 wheat and of the 1918 crop at $2.20 per bushel. Section 11 of the law authorizes the President to purchase and store and sell wheat and flour, meal, beans, and potatoes. Manifestly any purchase so made by the government would in effect fix the price. Aside from these delegations of power no authority is given by the Food Control Law to fix prices. And yet a study of the operations of these provisions as well as a regard for the implications of other functions of the Food Administration carry the conviction that price fixing is a necessary and inescapable corollary of the effective prosecution of the Food Administration program."

PRICE LEVEL, NOVEMBER, 1918

With the close of military operations there was noted a slight decline in commodity prices; how far the downward tendency would reach was considered a moot point. The apparent zenith point in prices was attained in July, 1918, but Bradstreet's prudently thought it unwise to indulge in any prophecies regarding low prices. The increased demand for food products among the stricken peoples of Europe would, it was believed, prevent any considerable fall in prices. There was not much to encourage consumers in the study of the index numbers of food commodities. The writer in Bradstreet's shows a wide range of price movements in the following table, in which are given the index numbers based on the prices per pound of ninety-six articles:

The groups that make up the index number are as follows:

Photo by P. Thompson

A Municipal Canning Station

In city establishments like the one shown above, food that would otherwise go to waste in the markets was saved, and women were instructed in the best methods of putting up fruits and vegetables for winter use.

[Click for a larger image.]

FOOD CONDITIONS AND PRICE LEVEL, 1919

A clear summary of the food situation and price conditions in the half-year succeeding the armistice is to be found in the Federal Commission's Memorandum on food stocks and wholesale prices, June, 1919:

"The comparative amounts of food stocks on hand June 1, 1919, as against June 1, 1918, in the case of many important foods, show that the stocks are considerably larger.

"On June 1, 1918, the United States stocks were in demand for feeding the armies of the Allies as well as the civilian population. The fact that stocks of many important foods were much larger on June 1, 1919, while prices were as high or higher, apparently, means that they are being withheld speculatively for a world demand which is not now here but which is expected when hunger-impelled strikes secure higher wages with which higher food prices can be paid.

"The statistics of stocks are from the latest and last issue of the Bureau of Markets 'Food Surveys,' June 27, 1919. We use the quantities reported by identical firms for 1918 and 1919. (Stocks held June 1, 1919, by other firms not reporting for June 1, 1918, increase the actual stocks from 5 or 10 per cent. up to 20 or 25 per cent. over the comparable stocks). The stocks are those in warehouses and cold storage houses and in hands of wholesale dealers. Retail stocks are not reported. The prices are wholesale prices, furnished by the Bureau of Labor Statistics, for the first Tuesday in June.

[10]First week JUNE.

[11]Increase in price.

The following data, taken from the Monthly Labor Review of July 1919, give a survey of the retail prices of food in the United States:

[12]15-16 ounce can.

[13]Baked weight.

[14]8-ounce package.

[15]28-ounce package.

[16]No change in price.

"The total of dry storage stocks, including those that increased and those that decreased is as follows, all items being reduced to pounds:

"That is the total dry storage stocks reported on June 1, 1919, were 124 per cent. of those on June 1, 1918.

"The total of cold storage items reported in pounds in June, 1919, and June, 1918 (omitting apples in barrels but covering eggs; frozen eggs; butter; cheese, frozen and cured beef; frozen lamb and mutton; frozen, dry salt and pickled pork; lard; and frozen poultry), was as follows:

"That is, cold storage stocks this June are 100.1 per cent. of those last June.

"None of the above figures include army stores nor the army excess supply which is to be distributed by the War Department under resolution of the House of Representatives.

"The sum of dry storage and cold storage (except apples) for the two periods (combining the figures already given) was as follows:

"That is the total stocks reported on June 1, 1919, were 119 per cent. of those on June 1, 1918.

"This as noted does not include Army supplies.

"Grouping the commodities in four classes:

"(1) Those increasing in stocks and increasing in price.

"(2) Those increasing in stocks and decreasing in price.

"(3) Those decreasing in stocks and increasing in price.

"(4) Those decreasing in stocks and decreasing in price; we have the accompanying significant tables, which indicate that the 'law of supply and demand' is not working.

III—INDUSTRY AND LABOR IN WARTIME
Unprecedented Conditions and Developments Due to the World War and How They Were Met

The issue of the great world conflict between autocracy and democracy rested largely in the hands of the laboring classes behind the lines. Mr. William B. Wilson, Secretary of Labor, placed vividly before the public in one of his official statements the views of American labor at the outbreak of the war:

"During the past decade the sentiment of American labor has crystallized against resort to arms as a means of settlement of disputes between nations. War had come to be considered wasteful economically, socially, and morally. Labor felt that no national advantage gained through force of arms could offset the human life sacrificed, the burden of taxation levied upon successive generations to pay the cost of war, the standards of life set back or destroyed, which had to be rebuilt slowly and with infinite sacrifice. In short, war had come to be looked upon as morally wrong, entirely unnecessary, a calamity that could be avoided and must be avoided if the race was to progress. This feeling was shared to a greater or lesser extent by the workers of all civilized nations, and there was a universal feeling in world labor ranks prior to the outbreak of the European war that this sentiment, shared by many thoughtful people outside the ranks of the wage workers in all civilized nations, was strong enough to prevent any armed conflict which would involve any number of peoples. This sentiment was undoubtedly responsible for the lack of military preparedness, in the sense that Germany prepared, among the other major powers now engaged in the world conflict.

"When the war clouds broke in Europe, American labor was stunned. All its preconceived notions as to the inability of any great nation to wage war upon another nation because the working people would refuse either to fight or produce munitions and supplies of war were shattered when nation after nation quickly mobilized its armies and the organized labor movements of each country, without exception, quickly pledged their men and their resources to the support of their respective governments. But the fact that America itself might be drawn into the world conflict was still foreign to the mind of the American workman. While American labor grieved over the fate which had befallen its kind in Europe no sense of danger to this country was apparent. From the beginning of this Republic it had been our national policy to hold aloof from the quarrels of the Old World. The splendid isolation of thousands of miles of ocean protected us. We had no quarrel with Europe and we asked but to be let alone. We stood upon our rights to protect the people of continental America from invasion or aggression as enunciated by the Monroe Doctrine, and further than that we could not see that the European conflict embroiled us as a nation. Let Europe settle her own family quarrel. We were to remain the one great neutral nation of the earth. When the time came America, untrammeled by participation in the conflict, with no desire for American aggrandizement or territorial expansion, would be the natural messenger of peace to war-worried Europe."

SAFEGUARDS FOR WORKINGMEN

From the moment of the declaration of war the general loyalty of the laboring classes throughout the United States was apparent. This attitude of loyalty found a ready response in the immediately declared intention of the Government to safeguard the interests of the workingmen. Congress announced its attitude toward standards of legal protection for workers. It was printed verbatim in Labor Laws in War Time, 201, p. 1, as follows:

"Whereas, The entrance of the United States into the World War appears imminent; and

"Whereas, Other countries upon engaging in the conflict permitted a serious breakdown of protective labor regulations with the result, as shown by recent official investigations, of early and unmistakable loss of health, output, and national effectiveness; and

"Whereas, Our own experience has already demonstrated that accidents increase with speeding up and the employment of new workers unaccustomed to their tasks, that over fatigue defeats the object aimed at in lengthening working hours, and that new occupational poisoning has accompanied the recent development of munition manufacture; and

"Whereas, The full strength of our nation is needed as never before and we cannot afford to suffer loss of labor power through accidents, disease, industrial poisoning, and overfatigue; now, therefore, be it.

"Resolved, That the American Association for Labor Legislation, at this critical time, in order to promote the success of our country in war as well as in peace, would sound a warning against the shortsightedness and laxness at first exemplified abroad in these matters, and would urge all public-spirited citizens to coöperate in maintaining, for the protection of those who serve in this time of stress the industries of the nation (who as experience abroad has shown are quite as important to military success as the fighting forces), the following essential minimum requirements:

I. SAFETY

"1. Maintenance of all existing standards of safeguarding machinery and industrial processes for the prevention of accidents.

II. SANITATION

"1. Maintenance of all existing measures for the prevention of occupational diseases.

"2. Immediate agreement upon practicable methods for the prevention of special occupational poisonings incident to making and handling explosives.

III. HOURS

"1. Three-shift system in continuous industries.

"2. In non-continuous industries, maintenance of existing standard working day as basic.

"3. One day's rest in seven for all workers.

IV. WAGES

"1. Equal pay for equal work, without discrimination as to sex.

"2. Maintenance of existing wage rates for basic working day.

"3. Time and one-half for all hours beyond basic working day.

"4. Wage rates to be periodically revised to correspond with variations in the cost of living.

V. CHILD LABOR

"1. Maintenance of all existing special regulations regarding child labor, including minimum wages, maximum hours, prohibition of night work, prohibited employment, and employment certificates.

"2. Determination of specially hazardous employments to be forbidden to children under sixteen.

VI. WOMAN'S WORK

"1. Maintenance of existing special regulations regarding woman's work, including maximum hours, prohibition of night work, prohibited hazardous employments, and prohibited employment immediately before and after childbirth.

VII. SOCIAL INSURANCE

"1. Maintenance of existing standards of workmen's compensation for industrial accidents and diseases.

"2. Extension of workmen's compensation laws to embrace occupational diseases, especially those particularly incident to the manufacture and handling of explosives.

"3. Immediate investigation of the sickness problem among the workers to ascertain the advisability of establishing universal workmen's health insurance.

VIII. LABOR MARKET

"1. Extension of existing systems of public employment bureaus to aid in the intelligent distribution of labor throughout the country.

IX. ADMINISTRATION OF LABOR LAWS

"1. Increased appropriations for enlarged staffs of inspectors to enforce labor legislation.

"2. Representation of employees, employers, and the public on joint councils for coöperating elsewhere with the labor departments in drafting and enforcing necessary regulations to put the foregoing principles into full effect."

ORGANIZING LABOR FOR WAR WORK

Supplying the man power for industrial action during the war was a really more complicated task than drafting men for military service. In the earlier period of American participation labor was distributed more or less according to the law of supply and demand. The unequal distribution of workers became a grave problem. To meet this the United States Employment Service of the Department of Labor took over the supply of war industries with common labor, and all independent recruiting of labor by manufacturers having a pay roll of more than a hundred men was discontinued.

In the Heart of the Bethlehem Steel Plant

H. E. Coffin, Chairman on Industrial Preparedness of the Council of National Defence, described the conflict as a war of munitions, of factories, of producing powers, of sweating men and women workers. In the plant sketched above, 26,000 men toiled and sweated during the war to make munitions for our troops overseas.

[Click for a larger image.]

"On this Board were representatives of the War, Navy, and Agriculture Departments, the Shipping Board and the Emergency Fleet Corporation, the War Industries Board, and the Food, Fuel, and Railroad Administrations. Assistant Director Nathan A. Smyth, of the United States Employment Service, was quoted in the New York Globe as saying in part:

"'Today the war industries of the country are short about 500,000 unskilled workers, and the coming requirements of war production necessitate finding between 2,000,000 and 3,000,000 more.

"'Similarly the demand for skilled workers in war industries is greater than the immediately available supply. Before long we will have to take every tool maker and die-sinker in non-war work and put him in war production.'

"The country was divided into thirteen Federal districts, by the regulation of labor for war industries, and each was in charge of a superintendent of the United States Employment Service, while the States within the several districts were in charge of a State director. The labor problem this measure was designed to remedy and control was pictured by Secretary of Labor Wilson, who was quoted in the New York Sun as saying in part:

"'The Government found itself in need of men, and on going out to get them found itself in competition with private industry, which was equally hard pressed. Men who had never drawn more than a common laborer's wages found themselves at a premium in the market, and began to ask and receive extortionate prices, and to rove from place to place seeking still higher prices.

"'Everywhere industry was hampered by what is known as the turnover, or the constant shifting of itinerant labor, in some cases the loss in efficiency running as high as 100 per cent. This is what is perhaps best described as the evil of the individualistic strike—the strike by the man, thousands of him, in different yards and factories all over the country, who is forever throwing down his tools and wandering away on the slightest rumor of higher wages elsewhere, who by his habit of roving never masters the details of any trade, and who in the mass accounts for a greater loss than all the organized strikes and walkouts in the land.'"

INFLUENCE OF WAR CONDITIONS

In the United States under war conditions labor unrest did not reach the intense form manifested in England. Nevertheless a great many strikes were reported. Surprise was expressed that the labor adjustment machinery of the War Department and of the Navy Department was not appealed to. Besides there was the National War Labor Board to take up mediation. Investigations in Bridgeport, Connecticut, showed an increase of earnings of 81 per cent. against an increase of living prices of 61 per cent. Yet at one time the Press reported strikes in over 350 machine shops in New Jersey—nearly all engaged in necessary war work—as well as trouble in many shipyards. Of course there was the explanation of foreign propaganda or a tendency toward industrial Bolshevism. Such explanations failed to account for the fact that American workmen as a whole were patriotic.

Attention was called, on the other hand, to the warm tribute given by the Federal Fuel Administrator to the bituminous coal miners who had brought production past the 13 million ton mark in the second week in July, 1917, and the exceptional efforts of diligent and patriotic workers in the shipyard. A portion of the press emphasized the unreasonableness of striking while the laboring people enjoyed, during war time, immunity from service and immunity from the pressure of competition for wages. The Springfield Republican protested against applying to the workingmen exaggerated standards of economic rectitude.

"It is easy to be harsh in one's judgment even in the case of the strikes that occur. Why do they strike at all while the war continues? Have they no capacity for self-sacrifice for the country? These questions will be asked by many people whenever war work anywhere is checked in the least degree by workmen dropping their tools.

"On the other hand, let us not be unjust to labor, for in the American Army in France labor is represented by multitudes of youth upon whose gallantry and steadiness all our hopes of victory depend. No class here at home gives 100 per cent. efficiency or commits itself to 100 per cent. of sacrifice in the winning of the war. Why demand it of the wage earners or the labor unions?

"Simply because of its organization and its machinery of leadership, however, labor enjoys an exceptional opportunity to contribute to the winning of the war. This is the first great war in history in which labor has been organized into an economic unit, and that is the reason for some special war problems today which were never encountered by governments in previous wars. But there can be gains even more than losses to the national strength by reason of this organization, if the opportunity be accepted to promote labor's contribution. This is a task especially for the leadership of organized labor. It is certainly no exaggeration to say that in no way can labor be advantaged after the war so much as by the wholehearted acceptance of its opportunity for loyal service to the nation during the war. Let labor splendidly do its part in bringing victory and its future influence will expand beyond the dreams of its prophets....

"Labor and victory are inseparable; nay more, the one may command the other, and thus it may control the fate of the world."

INDUSTRIAL MEANING OF WAR

Mr. H. E. Coffin, Chairman of the Committee on Industrial Preparedness, described the European War in its last analysis as a war of munitions, a war of factories, of producing powers, of sweating men and women workers. When the United States entered the war there were four main things required of its government and its people, viz., ships, munitions and materials of war, food and soldiers. It can be seen that three out of these four factors are matters that belong to the economic history of the war. Fortunately for our Government, it had the experience of foreign countries to learn from, and learning was an essential part of war preparation in spite of the resources in hand in the United States; as Mr. Coffin said:

"A close observation of the experience in foreign countries has shown us the vital necessity for a peace time prearrangement for conversion in all industries. Wars, as now waged, involve every human and material resource of a belligerent nation. Every factory and every man, woman, and child are affected. Every sinew of industry, of transportation, and of finance must be harnessed in the country's service. In England two years and a half ago there were three government arsenals. Today thousands of England's industrial plants are being operated as government factories for the production of war materials, and many other thousands of plants, still under private control, are centering their energies in this same direction.

"We have here in the United States vast resources in manufacturing and producing equipment, but they are unorganized and uneducated for the national service. Our observations of the European War have taught us that it is upon organized industry that we must base every plan of military defense. In the event of trouble with any one of the several first-class powers, between 80 and 90 per cent. of our industrial activity would of necessity be centered upon the making of supplies for the government. We have learned also that from one to two years of time and of conscientious effort are needed to permit any large manufacturing establishment to change over from its usual peace-time commercial line to the quantity production of war materials for which it has had no previous training."

In certain respects the position of the United States was unique, not only because of its resources but because it was to a certain extent self-dependent as a belligerent. England was able for some time to import large quantities of munitions and supplies from other countries. In the case of the United States when it entered the war, munition and food supplies had to come from its own resources. Practically all of the war materials had to be ultimately produced in the United States. Many observers were optimistic because they had a sanguine opinion of the efficiency presented by American industrial democracy. But efficiency alone could not win the war. There were certain limitations to the sphere of efficiency. This was pointed out by Mr. H. G. Moulton in an address on "Industrial Conscription," delivered before the Western Economic Society, at Chicago, in 1917:

"At this point it should be emphasized that the position of the United States is unique, so far as the allied nations are concerned. England, for instance, at the outbreak of the conflict could import vast quantities of munitions and supplies from other countries. England, therefore, had a fourth alternative, one denied to us because the struggle is now world-wide. All of the materials of war that we furnish must come from the current energy of our own people. We must ourselves produce these ships, munitions, food supplies, and stocks in the coming months. There is no one else to do it for us. In this connection I should like to emphasize with all the power at my command the argument that we cannot by bond issues shift the burdens of this war to future generations. The mere fact that all of us—as represented by the government—borrow from some of us—as represented by bond purchasers—does not change the other essential fact that we, the people within this country, must actually produce practically practically all the war materials we are to have for use in the war.

"There is also much current discussion of the wonderful gains that may be made through increasing efficiency. It is argued that we should make our patriotic impulses the occasion for the universal introduction of scientific management. It of course goes without saying that we should do all that we possibly can to further the improvement of industrial methods; and doubtless something may be accomplished."

Forging Armor Plate

"Every man, in the draft age at least, must work or fight," said General Crowder. And the workers were just as important a factor in winning the war as the fighters. In the gigantic machine sketched above, ingots of sixty and seventy tons were pressed into plates of any size and thickness for use on our super dreadnoughts.

[Click for a larger image.]

LABOR DISLOCATION

It is estimated that about 35,000,000 men, women and children in the United States do the country's work: dig its coal, raise its crops, run its trains, build its roads, make its powder, turn out its munitions. There was an increase each year of a million man-power through immigration. The result of the war was that this source of supply was cut off. What was the economic significance of this cutting off of immigration? The immigrant was almost the only source of what we call day labor—the men who do the building and repairing of railroads, the mending of streets and roads, mining, and the rough work of steel mills and other factories. Along with the cessation of immigration came the withdrawal from labor power of two million men who were drawn into the Army. These men, incidentally, became large consumers of goods rather than normal producers of wealth. Some estimates were made that the United States Government was using for war purposes about one-half of the entire productive capacity of the country. These figures enable one to gauge the industrial dislocation caused by the war. In matters affecting the members of what might be called the labor army, which still kept up the work of production, the Government laid great emphasis on the need of securing industrial peace.

A Mediation Commission was appointed by the President to deal with conditions of labor unrest. This Commission made a report early in 1918, in which it spoke of the lack of knowledge on the part of Capital as to Labor's feelings and needs and on the part of Labor as to problems of management. The program outlined by the Commission was as follows:

1. "Modern large scale industry has effectually destroyed the personal relation between employer and employee—the knowledge and coöperation that come from personal contact. It is therefore no longer possible to conduct industry by dealing with employees as individuals. Some form of collective relationship between management and men is indispensable. The recognition of this principle by the government should form an accepted part of the labor policy of the nation.
2. "Law, in business as elsewhere, depends for its vitality upon steady employment. Instead of waiting for adjustment after grievances come to the surface there is needed the establishment of continuous administrative machinery for the orderly disposition of industrial issues and the avoidance of an atmosphere of contention and the waste of disturbances.
3. "The eight-hour day is an established policy of the country; experience has proved justification of the principle also in war times. Provision must of course be made for longer hours in case of emergencies. Labor will readily meet this requirement if its misuse is guarded against by appropriate overtime payments.
4. "Unified direction of the labor administration of the United States for the period of the war should be established. At present there is an unrelated number of separate committees, boards, agencies, and departments having fragmentary and conflicting jurisdiction over the labor problems raised by the war. A single-headed administration is needed, with full power to determine and establish the necessary administrative structure.
5. "When assured of sound labor conditions and effective means for the just redress of grievances that may arise, Labor in its turn should surrender all practices which tend to restrict maximum efficiency.
6. "Uncorrected evils are the great provocative to extremist propaganda, and their correction would be in itself the best counter-propaganda. But there is need for more affirmative education. There has been too little publicity of an educative sort in regard to Labor's relation to the war. The purposes of the government and the methods by which it is pursuing them should be brought home to the fuller understanding of Labor. Labor has most at stake in this war, and it will eagerly devote its all if only it be treated with confidence and understanding, subject neither to indulgence nor neglect, but dealt with as a part of the citizenship of the state."

ADVISORY LABOR COUNCIL

In order to prevent lack of coördination in the government's handling of the labor situation an advisory council was created to help the Secretary of Labor to organize the new war work. The field of this advisory council is indicated in a series of memoranda presented to him in January, 1917.

1. "An Adjustment Service which will have to do with the adjustment of industrial disputes according to policies and principles arrived at through the deliberations of the War Labor Conference Board.
2. "A Condition of Labor Service which will have charge of the administration of conditions of labor within business plants.
3. "An Information and Education Service which will devote itself to the establishment of sound sentiment among both employers and employees and to the establishment in individual plants of the local machinery (e.g., employment management) and policies necessary for the successful operation of a National Labor Program.
4. "A Woman in Industry Service which will meet the problems connected with the more rapid introduction of women into industry as a result of war conditions.
5. "A Training and Dilution Service which will administer such training and dilution policies as may be agreed upon.
6. "A Housing and Transportation of Workers Service whose duty it will be to provide the housing facilities to meet the nation's needs.
7. "A Personnel Service whose duties it shall be to assemble and classify information concerning appropriate candidates for positions in the war-labor administration and make recommendations for appointment.
8. "A Division for the Investigation of Special Problems which would be a part of the Secretary's office force and would conduct investigations in the placing of contracts, in priority of labor demand, in powers of the Department, in problems of reconstruction, and would assist in formulating the national labor policy.
9. "An Investigation and Inspection Service to provide the field force of examiners and inspectors required by the other services."

After various stages of experience the War Industries Board secured something more than an advisory position. This was done only after a year of warfare. The final situation was explained by Mr. C. M. Hitchcock in the Journal of Political Economy, June, 1918:

"When on March 4th of the present year the President appointed Bernard M. Baruch Chairman of the War Industries Board and defined his duties he did not, as certain press reports have implied, create an industrial dictator. His action did clear the way for Mr. Baruch's assumption of the duties of a director of industrial war strategy, of an industrial Chief of Staff—for the present position of the War Industries Board in the American Government is comparable in its relation to national industrial policy to nothing so much as the functions of the General Staff of the Army in its jurisdiction over military strategy. After a year of war the direction of industrial policy is placed in single hands, and a central planning board is established for dealing not only with the problems of production and purchase but with the whole attitude of the government toward the mobilization of business resources for the prosecution of the war. Leadership has been focused and an administrative channel opened for the inauguration of a studied and inferentially constructive industrial policy.

"From the present trend of events the War Industries Board promises to become the sole directing agency between the government and industry. Backed by the power of the President to commandeer, to withhold fuel, and in other ways to force the halting into line, it can mold the country's industrial system almost as it will—whether in organizing the nation for war or in directing the lines along which it shall return to normal conditions when peace comes. In a system of government such as ours, where the responsibility for directing the war rests almost exclusively in the hands of the President, and where his power ultimately becomes almost absolute, the Board has been shaped into a very potent instrument.

"Yet powerful as it may become, subject only to the jurisdiction of the President, it is well to remember that in a comprehensive national war plan it cannot stand alone. Its policies must be subject to the administration's general strategy in the war—for instance, to the amount of munitions in comparison with the number of men or the amount of food that it wishes to send abroad at any given time. The munitions program and the conversion of industry to war purposes must be governed by the ultimate end in view. In addition, one of the great factors in production—the labor factor—is being administered by another government agency, and it is obvious that priority in the labor supply must go hand in hand with priority in materials."

WORK OR FIGHT

Military men were as keen as business men in realizing the industrial factor as a powerful contributory cause in winning the war. General Crowder's famous "work or fight" alternative was a sufficient witness of this fact. He said:

"Every man, in the draft age at least, must work or fight.

"This is not alone a war of military maneuvers. It is a deadly contest of industries and mechanics. Germany must not be thought of as merely possessing an army; we must think of her as being an army—an army in which every factory and loom in the Empire is a recognized part in a complete machine running night and day at terrific speed. We must make ourselves the same sort of effective machine.

"We must make vast withdrawals for the Army and immediately close up the ranks of industry behind the gap with an accelerating production of every useful thing in necessary measure. How is this to be done? The answer is plain. The first step toward the solution of the difficulty is to prohibit engagement by able-bodied men in the field of hurtful employment, idleness, or ineffectual employment, and thus induce and persuade the vast wasted excess into useful fields.

"One of the unanswerable criticisms of the draft has been that it takes men from the farms and from all useful employments and marches them past crowds of idlers and loafers away to the Army. The remedy is simple—to couple the industrial basis with other grounds for exemption and to require that any man pleading exemption on any ground shall show that he is contributing effectively to the industrial welfare of the nation."

Building Howitzers

A nine-mile howitzer nearly ready for transportation. Beyond are seen heavy armorplate turrets in the making. The small and large manufacturers were given equal opportunity to obtain war business.

[Click for a larger image.]

Industrial preparation for war was guided by the principle of priority. This is an old principle, but it began to be applied in unheard-of ways. When an army is to be moved all means of transport in sight are commandeered. When an army is to be fed, civilians protest in vain against the seizure of stores. These practices were always features in the history of warfare.

A novel factor in priority as applied during the present war was the breadth of its scope.

"When the whole industry of a nation is mobilized behind the fighting line, it is not merely finished munitions that must be given priority in transportation, but also the materials and fuel for further munitions production. The food supply of the industrial population, as well as that of the army, has a claim to priority. So also have clothing supplies, lumber for housing, and whatever else is essential to working efficiency. In production it would be impossible to fix definite limits upon the application of the priority principle. We can not much longer permit the free flotation of the securities of foreign enterprises, nor even of the less essential domestic enterprises, so long as national loans or issues designed to finance railways or industrial enterprises of prime necessity are to be floated. Modern warfare, in involving the whole national life, has made inevitable a control of business practically coextensive with the economic system.

"The application of the priority principle to transportation and production is quite in accord with plain common sense. It is none the less revolutionary in its social economic implications. What it means is that necessities shall have right of way. If we have excess productive capacity, the unessentials and luxuries may be provided, but not otherwise. And necessities are definable in terms that take account only of physical requirements. There is no room in the definition for class distinction. A new country house may seem a matter of necessity to the man of fortune, but he will persuade no priority board to permit shipment of building materials while cars are needed for coal or wheat. Nor will he persuade them to let him have lumber that could be used for ships or workingmen's camps, or labor that could be employed to advantage in production for more clearly national and democratic needs."

WAR SUPPLIES

The United States, following the experience of other belligerents, adopted the policy of decentralization in the production of war supplies. A plan was worked out under which the small and large manufacturer were given equal opportunity to obtain war business:

"Under the plan that has been worked out for bringing the manufacturing resources of the country into more effective coöperation with the government, the country is to be divided into twenty industrial regions, with the following cities as centers: Boston, Bridgeport, New York, Philadelphia, Pittsburgh, Rochester, Cleveland, Detroit, Chicago, Cincinnati, Baltimore, Atlanta, Birmingham, Kansas City, St. Louis, Dallas, Milwaukee, St. Paul, Seattle, San Francisco. The following plan for effecting the organization is suggested by the officials in charge:

1. "Organize through Chambers of Commerce and other business associations Industrial Committees with the principal industrial center as headquarters and such subdivisions as are recommended by the business association of each district.
2. "Develop such organization in various classes of industry as well as in area for greatest convenience, to get information of all classes of products in and between regions.
3. "Having established such region and sub-region, through the coöperation of the best business men in each district have a survey of the industries recorded in the hands of the section in Washington of the War Industries Board for information to the various procurement sections of the government.
4. "Each region may have in Washington a representative who through the Resources and Conversion Section of the War Industries Board may keep in direct contact with his region and be available to the governmental procurement divisions or the War Industries Board for prompt action in giving data from his region.

"The detailed form of organization suggested for each region (subject, of course, to modifications as desired to meet the needs of any region) is known as the Cleveland Plan, which has been for some time in operation. Under this plan each region is divided into eight sub-regions, an important industrial city in each sub-region being designated as a center. Each sub-region has a local War Industries Commission which coördinates all industry within its territory. Within each sub-region manufacturing is divided into the following classes: castings, forgings and stampings; machinery and machine products; rubber products; clay products, chemicals, oils, and paints; textiles and clothing, wood and leather; engineering; automotive. Other classifications may of course be added in important lines of industry."

Such regional divisions were but one factor in industrial administration. Government needs and labor shortage made imperative the regulation of manufactures by the priority system.

Guns and Armaments for United States and Her Allies

Interior of one of the Bethlehem Steel Company's mills—among the largest plants in the world for the production of munitions during the War.

[Click for a larger image.]

THE PRIORITY SYSTEM

The actual working of the priority system is shown in the following general classification of industry for the purpose of priority treatment:

• Ships—Including destroyers and submarine chasers.
• Aircraft.
• Munitions, Military and Naval Supplies and Operations—Including building construction for government needs and equipment for same.
• Fuel—For domestic consumption, and for manufacturing necessities named herein.
• Food and Collateral Industries—
  • Foodstuffs for human consumption, and plants handling same.
  • Feeding stuffs for domestic fowls and animals, and plants handling same.
  • All tools, utensils, implements, machinery, and equipment required for production, harvesting and distribution, milling, preparing, canning and refining foods and feeds such as seeds of foods, and feeds, binder twine, etc.
  • Products of collateral industries, such as fertilizer, fertilizer ingredients, insecticides and fungicides, containers for foods and feeds, collateral products.
  • Materials and equipment for preservation of foods, and feeds, such as ammonia and other refrigeration supplies, including ice.
• Clothing—For civilian population.
• Railroad—Or other necessary transportation equipment, including water transportation.
• Public Utilities—Serving war industries, Army, Navy, and civilian population."

But the perplexity of applying this system to such a question as fuel administration is shown in the following list taken from one of the trade publications of the Administration for April, 1918:

"The Fuel Administration has therefore arranged the following list of preferred industries:

• Aircraft—Plants engaged exclusivevly exclusively in manufacturing aircraft or supplies and equipment therefor.
• Ammunition—Plants engaged in the manufacture of ammunition for the United States Government and the Allies.
• Arms (small)—Plants engaged in manufacturing small arms for the United States Government and the Allies.
• Army and Navy cantonments and camps.
• Chemicals—Plants engaged exclusively in manufacturing chemicals.
• Coke plants.
• Domestic consumers.
• Electrical equipment—Plants manufacturing same.
• Electrodes—Plants producing electrodes.
• Explosives—Plants manufacturing explosives.
• Farm implements—Manufacturers exclusively of agricultural implements and farm-operating Equipment.
• Feed—Plants producing feed.
• Ferro-alloys—Plants producing same.
• Fertilizers—Manufacturers of fertilizers.
• Fire brick—Plants producing same exclusively.
• Food—Plants manufacturing, milling, preparing, refining, preserving, and wholesaling food for human consumption.
• Food containers—Manufacturers of tin and glass containers and manufacturers exclusively of other food containers.
• Gas—Gas-producing plants.
• Guns (large)—Plants manufacturing same.
• Hemp, jute, and cotton bags—Plants manufacturing exclusively hemp, jute, and cotton bags.
• Insecticides—Manufacturers exclusively of insecticides and fungicides.
• Iron and steel—Blast furnaces and foundries.
• Laundries.
• Machine tools—Plants manufacturing machine tools.
• Mines.
• Mines—Plants engaged exclusively in manufacturing mining tools and equipment.
• Newspapers and periodicals—Plants printing and publishing exclusively newspapers and periodicals.
• Oil—Refineries of both mineral and vegetable oils.
• Oil production—Plants manufacturing exclusively oil-well equipment.
• Public institutions and buildings.
• Public utilities.
• Railways—Plants manufacturing locomotives, freight cars and rails, and other plants engaged exclusively in manufacture of railway supplies.
• Refrigeration—Refrigeration for food and exclusive ice-producing plants.
• Seeds—Producers or wholesalers of seeds (except flower seeds).
• Ships (bunker coal)—Not including pleasure craft.
• Ships—Plants engaged exclusively in building ships (not including pleasure craft) or in manufacturing exclusively supplies and equipment therefor.
• Soap—Manufacturers of soap.
• Steel—Steel plants and rolling mills.
• Tanners—Tanning plants, save for patent leather.
• Tanning extracts—Plants manufacturing tanning extracts.
• Tin plate—Manufacturers of tin plate.
• Twine (binder) and rope—Plants producing exclusively binder twine and rope.

CIVIL WAR CONDITIONS

During the war period labor was much better off than during the Civil War epoch. The New York World presented the following table from the Merchants' Magazine of December, 1864, showing the rise of prices during the Civil War era:

"Wheat flour, one of the prime necessities, 'was at no time during the Civil War above $7.35 per barrel, which is somewhat less than four cents per pound,' while at the present time it is seven cents per pound, 'or close to 100 per cent. higher than the top notch of the '60s.' Lard has already advanced about 100 per cent., while its greatest advance during the Civil War was 75 per cent.

"'The present-day advance in the price of clothing in general has not been proportionate with the advance of foodstuffs, though it has been considerable, especially as to the cheaper grades. Cotton shirts that sold for 48 cents in 1913 are now bringing 90 cents to $1. Cheap hosiery has also about doubled in value. Suits that formerly sold for $15 are now bringing $17, which is about 10 per cent. advance. Cotton goods during the Civil War were exceptionally high, owing to the difficulty of procuring the staple. After the stocks on hand at the beginning of the war were exhausted, New England mills shut down because of inability to get supplies. In 1864 raw cotton ruled at 72 cents per pound, while at one time it touched $1.90. Cotton goods of all kinds were therefore extraordinarily high.'

Copyright Underwood & Underwood

Plowing by Night

The number of men drawn from Great Britain into the army and navy during the war was about 5,000,000. This meant extraordinary efforts of production were necessary on the part of those who were left behind. By means of a motor tractor and an acetylene gas generator, the owner of the farm shown above was able to run day and night shifts.

[Click for a larger image.]

"The public spirit manifested at present is much more admirable than that displayed in the '60s, as shown by the following first-hand description of life in those days, as compared with what we see on every hand today. Said the New York Independent of June 25, 1864:

"'Who at the North would ever think of war if he had not a friend in the army or did not read the newspapers? Go into Broadway and we will show you what is meant by the word "extravagance." Ask Stewart about the demand for camel's-hair shawls and he will say "monstrous." Ask Tiffany what kind of diamonds and pearls are called for. He will answer "the prodigious, as near hen's-egg size as possible, price no object." What kind of carpetings are now wanted? None but "extra." Brussels and velvets are now used from basement to garret. Ingrains and three-plys won't do at all.

"'Call a moment at a carriage repository. In reply to your first question you will be told, "Never such a demand before, sir." And as for horses, the medium-priced $500 kind are all out of the market. A good pair of fast ones, "all right," will go for $1,000 sooner than a basket of strawberries will sell for four cents. Those a "little extra" will bring $1,500 to $2,000, while the "superb" 2.40 sort will bring any price among the high numbers.'"

GREAT BRITAIN'S PRODUCTIVE POWER

To appreciate what industrial mobilization meant in England the best method is to start with the figures on national production taken from the British census of 1907, the last accesible accessible for the peace period:

By 1914 the British Empire had probably advanced its income to at least $12,500,000,000; and the surplus of goods which it had to export as loans to foreign countries seems to have increased from about $500,000,000 to $1,000,000,000. What happened in war-time? First of all there was an unprecedented manufacture of munitions and war supplies. This production was needed not only for Great Britain, but also for her Allies. Seven-tenths of what was produced in Great Britain in the year 1907 was immediately used up in the form of personal consumption by its population; accordingly war industrial activities meant either that British production must be increased or British comsumpton consumption reduced, or that more goods must be bought from foreign countries through the sale of British liquid capital assets.

First of all, consumption was cut down; in detail, this was accomplished in the following ways: 1. By cutting down all normal additions to England's national plant, i. e., by building no more houses, factories, railways, roads, etc., except for purely war purposes. This expenditure in 1907 amounted to about $950,000,000. 2. By cutting down and ceasing as far as possible to spend money on the maintenance of this national plant, except the minimum required to keep it running. This expenditure in 1907 amounted to $900,000,000. 3. Most important of all, by cutting down civil personal expenditure. This was so far the largest item of consumption that it was here that the most important savings were made.

A WHOLE POPULATION AT WORK

In England the total number of "occupied males" between the ages of 18 and 44, i. e., roughly, the conscription age was, in 1911, 7,200,000. The number of men from the United Kingdom in the Army and Navy amounted to over 5,000,000; therefore, out of every seven of these men, on the average five were soldiers or sailors. These men were lost from the productive capacity of the nation. It is obvious that if English production remained the same, or increased, it must have been the result of extraordinary efforts on the part of the small percentage of occupied males of fighting age left, on the part of all the other males occupied or formerly occupied, and on the part of all females.

Mr. R. H. Brand, in discussing the situation in 1918, said:

"Notwithstanding the great difficulties, I think it is probable that our production is quite as great as before. Measured in money, and owing to the rise of prices, it would probably be much greater. This is due to the fact that the whole population, practically speaking, has been working, and working intensely. Millions of women who have not worked before are working now. No one is idle. Every acre of land or garden that can be used is being used. Methods of production have been speeded up, labor-saving machinery in industry and agriculture multiplied. In every direction the wheels have been turning faster.

"But, perhaps more important still, the character of our production has entirely changed—almost our entire industry is producing for war purposes. Ordinary civil needs are no longer considered. We have of course to produce what is essential for life, but beyond that all our energies are directed to war production. The government has of necessity compelled the whole of British industry to produce for war and to produce what it is told to produce, because in no other way could our own armies and our Allies have been supplied. No man is free to do what he likes with his labor and capital, with his ships, or with his steel. He has to do what he is told to do. By this means production for war purposes has enormously increased, and civil consumption has enormously decreased, because the goods for the civil population were no longer produced and one cannot buy what isn't there. Instead of gramophones, the gramophone company makes fuses; instead of cloth for ordinary clothes, the woolen factory makes khaki; instead of motor cars, the motor-car maker makes shells.

BRITISH INDUSTRY ON WAR BASIS.

"Apart from selling our liquid capital assets in return for foreign goods, and apart from borrowing from foreign countries for the same purpose, our power to provide our own army and navy with all they want and have any surplus over for our Allies has indeed depended entirely on our extraordinary efforts in production—not in normal production, but in war production—and also on the extent to which we have been able to reduce our civil consumption of all kinds. I put production first because, while economy in consumption is exceedingly important, increased productive capacity devoted to war material, in my opinion, is still more important. Our increased productivity has, as I say, been devoted entirely to war requirements. We have had to turn over our whole industry from a peace to a war basis. We have both voluntarily and compulsorily cut off the production of goods which are unnecessary for war purposes. Many trades have been actually shut down and the labor taken from them and handed over to war industries. Labor itself has been subjected to restrictions which would have been wholly impossible before the war. Labor may not leave its employment without government leave; salaries and wages may not be increased without government approval. Measures for the control of industry which were unheard of and, in fact, absolutely impossible before the war have been imposed upon all industry.

"Fixed prices had been placed on the most important materials; the government now has the absolute control of the use of steel, copper, lead, wool, leather, and other materials for which the war demand is insatiable, and also of all materials manufactured therefrom. No use may be made of most of these materials for any purpose whatever without a certificate being first obtained, no buildings of any kind may be erected without leave of the Ministry of Munitions. The whole of industry may now be said to be directed according to the requirements of the government, its regulation is an enormous task. In the head office of the Ministry of Munitions alone there are more than 10,000 people.

Mr. R. H. Brand, who is responsible for these statements and used them in an address to the American Bankers' Association, showed how these regulations had resulted in a decline of British imports from peace conditions of 55,000,000 tons annually to war conditions of 20,000,000 tons. The imports were nearly all foodstuffs. England exported large amounts of munitions and supplies to her Allies. In the year 1916 alone we supplied them with 9,000,000 pairs of boots, 100,000,000 sand bags, 40,000,000 yards of jute, millions of socks and blankets, and in addition several thousand tons of leather; also cloth, foodstuffs of every kind, portable houses, tools, hospital equipment and so on.

LABOR POWER IN ENGLAND

Mr. Lloyd George became the man naturally selected to be Prime Minister because of his success in directing one of the chief war industries—the work of munitions. In May, 1915, when he was made head of the newly created Department of Munitions, the problem before him was no easy one. The Central Empires were able to turn out 250,000 shells a day, while the British rate of production was 2,500 high-explosive shells a day, and 13,000 shrapnel shells. Lloyd George selected a large technical staff; the work was decentralized as much as possible, and special committees were formed for the purpose of organizing the work in each district. The question of raw materials had to be handled and this was not always easy because there were unscrupulous suppliers trying to make a corner in their goods. New machinery had to be made for the manufacture of large shells; all the big machine works were taken under direct control by the Government. Old factories had to be equipped and altered and twenty-six large plants had to be created. To provide the labor power, workmen were recruited by voluntary methods. A hundred thousand were in this way got together by July, 1915, most of whom were experts in machinery and ship-building. The result is pictured in the following extract by a French expert, Jules Destrée:

"On the 20th of December, 1915, Mr. Lloyd George, in a speech delivered in the House of Commons, summarized the results of the first six months of his tenure of office. We will take a few points.

"Orders placed before the formation of the department were delivered with an increase of 16 per cent. on previous deliveries. The number of new orders placed increased by 80 per cent.

"The state regulation of the metal market resulted in a saving of from 15 to 20 million pounds sterling.

"The present output of shells for a single week is three times as great as the entire output for May, 1915, which means that the rate of production is twelve times as great.

"The enormous quantity of shells consumed during the offensive of September, 1915, was made good in a month. The time will soon come when a week will suffice.

"The output of machine guns is five times as great; that of hand grenades is increased forty fold.

"The production of heavy artillery has been accelerated, and the heaviest guns of the early days of the war are now among the lightest.

"An explosive factory in the south of England, which on October 15, 1915, started to fill bombs at the rate of 500 a week with a staff of 60, was in March, 1916, turning out 15,000 a week with a staff of 250.

"An entirely new factory which started work at the end of October, 1915, with one filling shed and six girl fillers and an output of 270 a week, was in March, 1916, employing 175 girls and handling 15,000 bombs a week.

"The Ministry of Munitions has built, or is building, housing accommodation for 60,000 workers, and canteens and mess rooms in munition works now give accommodation for 500,000 workers a day.

"All the workmen were assigned either to the works already in existence—which in many cases were short of hands and unable for this reason to fulfill their contracts—or else they were allotted to the new factories.

"But in view of influence wielded by the labor unions, various provisions were inserted in the Munitions Act. They related to the settlement of labor disputes and to the prohibition of strikes and lockouts the grounds for which had not been submitted to the Board of Trade.

"To obviate such disputes, which were generally called forth by the excessive profits accruing to the employers and the demands of the wage-earners, the system of 'controlled establishments' was instituted. Every establishment engaged on munition work was placed, so far as the regulation of profits and salaries was concerned, under direct government control. Any modification in the rate of wages had to be submitted to the Ministry of Munitions, which had power to refer the question to an arbitration board specially set up by the act.

"To complete this rapid survey it must be added that a department was created by the Ministry of Munitions, under the control of an undersecretary, whose special business it was to examine war inventions."

INDUSTRIAL DISLOCATION IN FRANCE

When war was declared in 1914, the result in France was a complete disorganization. It must be remembered that workingmen from the age of 19 to 45 were called to the colors. This meant that the labor supply was reduced by about three-fourths. The revival of trade was very slow until the beginning of 1915. When it began to be realized that the war would be a long one, and when the consumption of ammunition and war materials was beyond all previous records, the Government was forced to prepare a program for industrial warfare. It was a hard task because much of industrial France was under enemy occupation. Munition work had to be undertaken in neighborhoods largely agricultural. Everything was lacking: labor, coal, raw material and transportation. As it became evident that the stoppage of industrial work was a serious mistake, an attempt was made to revive industries not connected with munitions, such as paper manufacture, glove and silk making. The operations undertaken by the Government are described in the following passage from M. R. Blanchard's article in the North American Review (1917):

"The first was to take men out of the army and send them to industrial work. This was done with great caution during the winter of 1914—15. The proportion of the men thus taken increased more and more during the year 1915 and reached its fullest extent in 1916. The specialists in steel work were the first to be taken out of the trenches; these were far from being sufficient, and common workmen were added to them. Then chemists and workmen trained in the manufacture of explosives were recalled; electric engineers were sent back to the hydro-electric plants; miners above thirty-five years of age who belonged to the territorial regiments were sent to the mines; paper-makers and cardboard-makers who could be employed in the preparation of explosives were put to work; cabinet-makers were put to manufacturing rifle stocks; wood-cutters were brought back from the front in order to see that there was no waste in providing the enormous amount of wood needed in the army. All this recalling of mobilized men was effected at first according to the need, and without method. By degrees it became clear that the output would be greater if these soldier-workmen were assigned to the plants or factories where they were working before the war. As it would have been unwise to take too large a number of men out of the fighting units, hundreds of thousands were taken from the auxiliary troops of the interior, men who through lack of physical ability to fight were employed in sedentary tasks. Thus in 1915 and 1916 auxiliaries were swept away to become workmen, foremen, secretaries, bookkeepers, accountants, etc. Finally the administration decided to draw from the oldest classes of men still under the military law. These were called in 1915 and sent to the factories—men born in 1868, either bachelors or married men without children.

"Another draft was made on the civil population. To make up for the absence of male help, women were called upon for a great number of occupations. Along with the women the refugees were to do their part. After a rather long period of unsettled life these refugees took again to regular occupations, some working in the fields as agricultural hands, others in factories. Today it is difficult to find unemployed people among them.

"The alien population for France is also large, considerable numbers of Italians, Spaniards, and Portuguese being employed in the southeastern region. A newer element was provided by natives from French colonies, namely, Morocco and Algeria. Since the war started large numbers of Greeks and Armenians had been imported into France; and during the last two years somethink something like 200,000 Chinamen had been brought to France for unskilled work. The last resource was the enemy itself. There were in France more than 250,000 German prisoners engaged in various work and receiving a salary for it."

Germany's industrial mobilization was picturesquely described by the head of the General Electric Co., Dr. Walter Rathenau, who was appointed at the beginning of the war to superintend the supplying of the German War Office with raw materials. He told the officials at the War Office that Germany was provided with more war materials only for a limited number of months. Accurate statistics were prepared in a short time on the power of production in various German industries. Then all the raw material was put where it could be commandeered. The flow of products was restricted, so that the raw material and also half manufactured products could be automatically diverted to articles needed by the Army. New methods were discovered and developed. Where former technical means were insufficient substitutes had to be found. Where it was prescribed that this or that article was to be made out of copper or aluminum, it was permitted to make it out of something else. All the laboring power of the country, including men from 16 to 60, were enrolled and controlled from the central organization called the War Office, described by General Gröner as follows:

"The new War Office represents Germany as a colossal firm which includes all production of every kind and is indifferent to the kind of coat, civil or military, which its employes wear. The new measures are intended to mobilize all effective labor, whereas up to the present we have only mobilized the army and industry. The whole war is becoming more and more a question of labor, and in order to give the army a firm basis for its operations the domestic army must also be mobilized. All the labor, women's as well as men's, must be extracted from the population, so far as possible voluntarily. But if voluntary enlistment does not suffice we shall not be able to avoid the introduction of compulsion."