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THE ECONOMY
AND
FINANCE OF THE
WAR
BEING A DISCUSSION OF THE REAL COSTS OF THE WAR AND THE WAY IN
A. C.
PIGOU, M.A.
IN"
THE
Author of Wealth and Welfare," " The Principles and Methods of Industrial Peace," " Protective and Preferential
Tariffs,"
etc.
M.
DENT
C^
SONS LIMITED
1916
PREFACE
The
greater part of this
in
little
book
is
constructed
The Economic
Costs
of the
War
of the War/'
Some
it
are
which
contributed to the
articles are,
To
obviate
that,
misunderstanding,
while
the general
it
may
of
be well to say
lines
the
recommendations,
A. C. P.
March
iQi6>
CONTENTS
Section
1.
Page
Introductory
a.
3.
4.
5.
The Effect on the Real Costs of the War of the Way in which Individuals economise
Governmental Interference with which Individuals economise
.
33
6.
the
Way
in
37 42
7.
8.
Governmental Interference with the Choice between Future and Present Resources
9.
....
.
4fl
53 65 83
10.
11.
Loans
After the
War
Appendix
90
INTRODUCTORY
I
wish to make
When
about
write
book
he
is
this
war has
cost
and
is
cost-
sphere
the
of
human
promise,
the
accumulated
wounds and
disease of
gone to
fight, the
home
compared
to
is,
my
mind,
and
insignificant.
But,
trivial as it is
from
remains that
many
it,
it.
desirable that
we should
try to
do
10
3.
It
is
scope of
my
inquiry.
The war
involves a
number
Exchequer
A
its
nation at war, in
has
to in
meet
through
Government.
For
instance,
a country invaded
by an enemy an
is
destroyed
In a country like
is
may
be
inter-
ference
which
war
involves.
Furthermore, when
economic value of
productive power
killed or
maimed, the
is,
Some
who
economists have
made
may be
These costs
are, in a sense,
economic
costs.
ii
which
propose to
What
am
come
money
that
During
estimated
United Kingdom
will
require
and
will
including
1300
sum
year
beyond March
Heaven forfend
will
be even larger
19 16an event which may the amount required for that year ov^ 206 millions than
larger
the
sum
money
is
facts
the
My
object
to
try to
throw a
imply.
la
3.
There
some people
still
to
which
have spoken,
sum
and used up
in the
They
tially
Government would
one-pound
Of
is
pounds do not
but
When we
up 1300
million
million
pounds, what
we mean
is
that
it
uses
up 1300
of
services
rendered by
real
materials.
is
over these,
This point
is
too obvious
We
may, therefore,
13
men engaged
They
include,
in the manufacture of
war.
They
include,
thirdly,
the
They
tion, material
built
up
wounds and
such
They
include,
fifthly,
extra
equipment
is
in
required for
times.
They
include,
lastly,
large
as the
allies.
But
the things absorbed for use in the war and the real
costs of the
14
If there
into
being at
soldiers
all.
The
which
The
war
to
some of
to
its
workpeople
in order that
do without
may
be provided.
The
by which the
vices
ser-
no war.
At
is
sight
it
may be thought
is,
As
a matter of fact,
as will
practical importance.
15
4.
What
which
is
In order,
howit is
may be
fully understood,
desirable
to
draw
attention
to
certain
fallacious
The
first
income as
it
The
costs of the
:
war
are represented
the
by 2300
millions.
and
make up
the costs
of these things.
it
This estimate
is
incorrect, because
i6
they are
now some
price
To
we ought no
We
ought to represent
it
by a
figure raised in
The
proportion of our
whole.
The second
I
fallacy is as follows.
The
facts, as
them, may be
the fallacy
granted.
But,
it is
urged
and
this is
to provide
we have
them out of
If the real
a real
3,000,000
more
field
work and other duties outside the of ordinary productive employment, it must be
for munition
less
enormously
than that.
17
amounts
to thirteen-thirtieths
much
war
The
real
on
this view,
sum
plus
all
do not say
has been
endorsed
by
at least
is
supposed
It is a
to be a high authority
on
financial matters.
If five
million
men
are with-
Government) has
com-
Government)
men from
men
But,
if
we
community has
and that
to
it
community
one sense
and
in a
i8
different sense
the second
clause,
and
are,
in
The
life.
man
a
1000 on
motor
we can
this purchase.
But
it
would be
a ridiculous blunder
to say that to
1000.
we
income to the
we must envisage
this
sum, not
as an
income already
its
normal
2000.
way we must
is
asked
number
of millions to war
purposes as
millions
prices, of
and
this
without
now
employed, in
The
is
third fallacy
is
that,
when
war
army
to the nation
may be
19
to the soldiers
large or small
respect of their
For example,
is
often
Germany can
a
being
conscripts,
receive
merely
very
much
was and
that,
still is
beheved by most
newspaper writers
dependants to
because married
separation
men have
must
whom
allowances
married soldier
men go to the army, whereas, in men have not such dependants, a involves much more real cost to the
I
beheve
this line of
argument
to be valid.
But,
if,
as I have
shown, the
maintenance of
they had
is
more
is
made from
the
ao
rest of the
them
if less
is
paid to
munity.
comthe
to
them and
is
rest of the
that
to say, to
the
same
in either case
equal to the
sum of the
The
the
is
closely connected
In
which
newspapers
indulge
it is
For example,
400
members
a distinguished Cambridge
translating extracts
man and
ex-minister for
some
to the place
from which
21
which
is
afterwards found to be
useless
all
similar in character
and
effects.
This
is
a fallacy.
it
From
is,
the
money standpoint
true
that
all
of the
Treasury,
of
course,
footing.
they
stand
upon
the
same
They
deplete the
Government
more
balances and
make necessary
the raising of
money.
To make masses
is
we do not want
and then
to transport troops
from Egypt
to the Dardanelles
to transport
them back
is
But
to
much more
may
one
resources.
to
ments made
to
foreigners
set.
different
expense of another
much
more
it is
the
22
criticise their
community.
23
THE EFFECT ON THE REAL COSTS OF THE WAR OF THE WAY IN WHICH INDIVIDUALS ECONOMISE
TURN now from matters of an elementary character
problem which presents greater
be remembered that the
difficulties.
It
to a
will
Chancellor of the
real costs of
the the
war
are
made up
community has
may be
forthcoming.
The
problem
is
slightly complicated
it is
by the
fact that, as
everybody knows,
British
possible,
in
up
Government, even
war time,
to
borrow
that
The main
is
part
very
of what
way or
we need not
million loan in
New York
24
scriptions to the
may
taxes
and domestic
loans.
By
combination of
collects
it
the
Government
the
sum
in the
The 1300
millions, there-
community
seems
in order to provide
them.
the
It,
therefore,
when
amount of
things
actually absorbed
given, the
amount of things
real
the
to
economic cost
the
community
is
In whatever
vision for the
way
individuals decide to
hand over
of their proceedings.
war
its
is
con-
cerned
tion
am
not
now concerned
all in
with
distribu-
^it
individuals
who have
to
make payments
That view,
plausible
it
will
be generally agreed,
it
is
very
one.
But
is
lie
incorrect.
The
amount of
35
War Loan
elect to
pursue.
In considering this matter
rule out as irrelevant to our
we may,
at the outset,
on
a considerable scale.
mean
cutting
down
whom we
at all;
they
are
methods of
obvious.
If
stop a
my
extra
taxes,
myself make no
of consumption or of savings.
is
The
to
is
required
shifted
away from me on
to
her,
make
it
really
happens
is less
it
apparent to
in detail
would
as in
is
the
same
down
pensions.
is
The
task 01
not faced by
a6
this device
;
of other people.
Furthermore, there
lines
is
to
be
added.
If
man meets
his
loan
he,
in
same way,
consump-
tea
that,
We
will
made
War Loan
will
contribution
pounds
and we
suppose further
price of the
to
The
net effect
is
Government by an
pounds
it is,
sum
to his contribution,
with the other hand to substract from his contribution one-third of that
He
sixty
27
for
pounds by making
to
it
necessary
the
Government
on somebody
else.
to
consumption of dutiable
this
articles.
If a
person does
and takes up
War Loan,
he, in
some measure,
I
What
do mean
of,
we
now
concentrate attention
upon them
similar reasoning
and
we
affect the aggregate
by others
inquire in what
way
real
conduct can
amount of
costs
The
Slate requires
will
from me a contribution
enable
it
to
services represented
by
1000 pounds.
By handing over
way
for
I
provide
it,
consumption or
28
at that
amount.
ment
But
and
this
is
though
I lose
and what
income
left to
the
things that
money income
adopt.
I
is
is
by
which
choose to
incidental
can so
burden whatever
or
income
This
by me.
suppose that
am
them
for
amusement on the
front lawn of
my
College.
To
provide the
money
for
my
it
from me
in
buying
bought.
from
my ownership
nobody
else
to the
is
affected at
Secondly, suppose
29
am
manu-
by
a person
who
is
unable to do anything
lace.
To
provide
the
money
for
my
that luxury.
loss
What
My own
my
wants
in the
is
the
same position
is
substantially equivalent to
what
it
was
quite different.
services to the
My
Government.
lace
Ex
which
therefore,
thrown completely
and her
The Government
spends
to
its
make
community.
In this
which
the
Government
gets
is
by me, but
also,
worth of services
I
lost
Whether
economise in
shells or in this
vellous lace,
much
the same.
30
it
pounds.
So much for my two extreme illustrations. Let me now state the general principle implied in them. When I diminish consumption or investment to the extent of looo pounds in order to pay that sum to
the
Government,
I release
from employment
in
my
men and
If these
of machines that
have for
me
that value.
burden
is
If
they
work required
by Government no
value, an extra
burden equal to
to
me
Government
generally,
More
which
these
falls
to
that I bear
In
me
to
31
the difference between 1000 pounds and whatever the services dispensed with by
me
are
worth
That
to
set
is
It
remains
out
practical
implications.
These may
conveniently be considered in two divisions, according as they affect our purchases of direct personal
services
or
Let
is
quite plain
of
men
of young able-bodied
men
fitted for
mihtary service
are quite as
skill
Government
the
employers.
On
other
hand,
the
services
of
lawyers, of highly-skilled
gardeners, of poets, of
men
of young
men
objections to
combatant
skill
service,
of midwives, of
women
with special
as
children's nurses, of
artistes are
ballet dancers
less valuable to
and of music-hall
much
are to private
employers.
if
Therefore, other
being equal,
we have
there
is
to choose
to
know about
orchids,
we should
dismiss
32
the chauffeur.
dismissing
its
its
professor of Chinese,
should dismiss
If
its
pro-
we
are in
doubt
we
If
our
nursery maid
likely to
we
whereas,
if
she
is
a genius in
when she
her
**
come
in
half in
hand," then we
For,
may
justifiably retain
her services.
taxes with
we should
by our
if
taxes to be
much
larger
who was
services approximating
The
first
is
in this con-
nection
33
home.
similar
made up
rail
such
things, for
example, as coal.
Next, there
Government
in
exceptionally
quantities
for
troops
things
Next there
which
are
made by
These commodities
setting
up new
factories.
economy.
By paying
a value
savings
the
made
in respect of
Government
which
approximately as
jointly
submit
are a for
to in providing
On
Such things
public)
economy.
Among them
is
included
34
There
by museums
and
art galleries.
collections, there is
embodied an enormous
capital
war
service.
If
down and
by the
the saving
State, the
this
receipts of the
Government
are
measured by
is
balanced by no
At
first
sight
it
to
still
remains
something to be said.
War
Loan
to
lie
but which,
if
made
available for
Government, would
It
has
is
now
to be
somewhat
simple than
this.
For
let
tax-payer or loan-subscriber
is
doubt between
35
would
release for
the use of
Government
services of exactly
is
equal
value to
them.
naturally
real costs
manner by the
selection of the
these economies.
so.
This, however,
is
not necessarily
The
reason
consumed
By economising
of them as
we much
we
In this
way we
forms of
in pro-
we have
on the
ceased to consume.
The product
of this
set
released capital
balance sheet,
Even
in
56
apt to be con-
have described.
In
subject
to
diminishing
returns,
that
and
it
is
a
in
economy
part of
those
who
advantageous.
organisation
appropriate to the
by conditions of diminishing
with
greater
and
the
intensity
which
these
conditions
operate, are
much
than usual.
There
is,
Economies
So
also
is
have economies
body of
37
6.
The
made
it
and subscribers
to
amount of the
real
in
to
make provision
payments
is
the
State.
to direct their
affect
these
most favourably.
About
this there
need
be no difl&culty or dispute.
question
is
raised
when
is
Government ought, by
fiscal
or other measures, to
;
for
if
will
be advantaged
it.
make him do
Nevertheless, there
clearly
upon commodities
in
advantageous.
Special duties
upon
38
many
advocates.
There
are,
difficulties in the
demand
to
The
first
of
them has
a
do with the
serves
sub-
stitutes.
When
commodity
purpose
fairly ready, at
in technical language
when
the
demand
is fairly elastic
the
on the commodity
will
em-
ployment
In these
its
circumstances,
object.
therefore,
if
the
tax will
achieve
But,
which people
will not
rehnquish readily
the demand
which
is
inelasticthe effect
may be
tax
quite different.
upon
it,
is
done.
It is,
normally serves
it,
39
effectively.
these
circumstances,
unless
taxes are
imposed on
means of
of a tax on one
but to satisfy
in a
different
is
way
at a cost of capital
Herein
a serious
of
museums and
art galleries.
May
demand from
Herein, too,
duties
picture
is
palaces
and public
houses i
way of import
ing
excise
less
unaccompanied by correspondInstead
duties.
capital
of causing people
to
employ
may
cause
them
to satisfy
home.
Any
attempt to
utilise fiscal
machinery
to
direct individual
economy
to be
The second
is
difficulty
is
equally important.
It
40
will be a much more man than to a rich man. An increase of price, which may make Httle difference to the amount consumed by the rich, may place a
may
man, who
man.
a very clumsy
It
people
among whom
it
most
suffering,
a httle
where a
large check
would
that,
The
inevitable inference
is
rationing,**
attempted to
of duties
a pohcy
that
Such a
is
well-being.
Rationing,
however,
is
obviously
impracticable
except over a
somewhat
the
is
narrow
field
of
commodities.
Furthermore,
difficulty against
which
it
is
designed to guard
41
consumption.
What
to
has
been
imply that
there are
no cases
commodities may
be usefully
employed
as
an instru-
ment
community
does imply,
and
skill.
7.
Up
have
been concentrated
We
to
now
upon
whom
These
re-
in their
power
either of
and present
sources.
The
tax-payers or subscribers to
deter-
mines how
are borne
thrown
upon future
generations.
It is, therefore,
desirable
to consider in
some
detail in
To draw upon
to
means
thus
the
trench
upon
or
potential
capital,
leaving
current
income
intact
but reducing
it
income of
after years
below what
in
would otherwise
can be done
have been.
fall
The ways
divisions,
which
this
into
two
countries.
Each
43
may
in
Of
goods.
made
use of
way
for,
Practically,
and,
of course,
is
urgency in point
of time
this resource
The
by
capital
sale
works of
art
silver bullion.
By
be obtained.
is
was
44
such
amounted
to
some 3500
million
from American
sent world war.
railways.
New York
is
which any
of,
large
amount of
Even
securities can
be disposed
and
New York
however,
it is
evident
There
made of
large holdings
Of
that are
available for
itself first is
of
its
capital wealth.
This wealth,
it is
said, in the
case of the
a
if
by
resort to
it,
we
could,
sum we
But
so
immense
that,
war
view
is
45
upon
it,
its
railway lines,
fixed
its
reservoirs,
and so
forth.
These things,
in
The only
stocks
of
shops
and
warehouses.
is
This
way of
second way
is
it
were, of
refrain-
by
make good
wear and
It
tear
and
Kingdom amounts
year.
to
some 170
to
million
pounds a
By
allowing plant
if
depreciate,
it,
we have
add goods
to
the power,
we choose
to exercise
to
to this
sum
our
the
third
way
is
refraining
46
It
therefore, yield
as that,
or, allow-
towards
war
costs.
now
into
To draw upon
income of
after
present means
to
leave
the
moment.
There can be
siderable measure, at
classes.
events
among
the poorer
Many men
and
artificial rules
designed
in
industries
directly
the
reports of the
that the
very
much
much less numerous many women and some men, who were formerly
'
47
have turned to
these extra
labour.
What
it is
amount
to in the aggregate
impossible
probable
that in
Germany
this
in greater
measure than
so desire,
call
it is it.
United Kingdom
and,
if
we
increased
upon
The
is
form of
The
obvious
To
must be added.
Hitherto
it
is
and sharp.
blurred.
In fact
it
is,
in
some circumstances,
a certain distance
After
we have descended
efficiency of
power.
At a
later stage
48
8.
to intervene
how
far
it
is
proper
them
necessary to dispose
wide-spread
popular
error.
Many
persons
method of
upon
collecting
money
is
and
is
war
is
met by
taxes
;
the present
is
met by loans
necessarily
What
is
has
been said
however,
in-
already have
made
it
49
The
fact,
that,
it
when
the
Government
money by
a tax,
interest, is
not burdened
who pays
the tax
may have
capital.
taken
employed
creating productive
fact, that,
it
In hke
raises
is
manner, the
when
the
Government
money by
person
a loan,
burdened
for
the
who
used
it
been
up
in
immediate
Of
course,
is
true that,
when
interest
contracted
mulcted
to
provide
is
it.
upon them
and to
offset
who
hold loan-stock
whom
the
interest
is
handed over.
The
how
far the
burden of war
expenditure
is
draw.
The
50
without foundation.
between the
upon
Of
is
But
in
there
is
Thus,
so far as the
sumption by
articles
rationing
**
raw materials
generally,
on
deliberately
impedes investment,
in
it
controls
within the
United Kingdom
itself,
it
encourages
them
to
51
therefore,
These
two
sorts
of
policy,
produce contrary
effects.
Government
is
exercise
through
the
is
In
6,
the conception
it
war
costs.
how-
ever,
the
general way.
would seem
detailed circum-
war
in
which
we
are engaged.
The
war
to
ever
The above
enough
to
form
52
But
generalisation.
Tax-
own
well-
On
is
the contrary,
if
they are
left
to themselves,
it
less
Hence,
their
the
Government
so
acts
it
as
to
influence
certainly
ought not to
means
to discountenance extravagant
and
unnecessary consumption.
53
9.
Hitherto the
working
is
that
importance.
either
The
costs
of
the
by disposing abroad of
or by
utilising current
and labour.
is
The
methods
if
saleable property
upon
made
in
if
new
home
the alternative
method
54
a
The purpose
of this section
to
portance to which
gives rise.
Since, however,
as will presently appear, these questions are associated with the general
changes,
to clear
it is
away
movements.
There
that,
is
when
the
foreign
exchanges
move
against
own
in
moved
the
in
;
the
same proportion.
This, however,
an error
Germany.
of Dutch
The
rate
of
between
that
money
in
to give in
of
German money in Germany. Consequently, when it is said that the Dutch exchanges have moved
Germany,
as they have
against
now
done, to the
extent of
cent.,
what
is
meant
is
Dutchmen
in
55
per
cent,
less
German mark,
on Dutch money
in
Germany and
also the
remained unaltered,
or
if
this
in
the
value of
German money
necessarily
relatively to
mean
also
fall
German goods
German goods
Germany had
quantity of
Dutch goods.
But,
if
one another,
this implication
Holland have
the
value of
German money
fallen
to
value
of
German goods
risen
to
German money
In
these
relatively
has
twenty-seven
per
cent.
circumto
stances,
the value of
German goods
56
Dutch goods
unaltered,
German goods
before.
a given quantity of
It
Dutch goods
is
the same as
follows that
movements
in the
money
price changes.
general caveat.
practical importance
While
German mark on
neutral exchanges
has fallen over twenty per cent, more than the value
Germany have
risen
some
more than
prices in England.
in
a smaller
Germany than
is
it
This
important fact
who conthat
But,
when we
recollect,
England's
demand
enormously
demand
trade
have both
57
restricted
by the
British blockade,
There
second
very
wide-spread
opinion,
Germany
that,
if
to
correct.
This opinion
is
the exchanges
move
Dutchman
to an
ounce
of gold in
less in
Holland
ounce from Germany to Holland, Dutchmen holding these claims, instead of selling their
bills
in
Germany and
export
is
And
that
is
away from
it.
In
view of the
war, the
fact that,
from a very
German exchange on
neutral
countries
To obviate misunderstanding, it should be added that analysis on the above lines cannot by itself yield a measure of the alteration which has occurred in the absolute rate of interchange between English (or German) and neutral goods. In order to obtain such
>
we should need also to take account of the rise of freights and of the change which has presumably taken place in neutral countries in the relative prices of export goods and of goods in
a measure,
general.
58
the
possesses
are
an enormous gold
reserve,
these opinions
evidently in
qualification
need of
is
qualification.
The
required
that
may be
entirely
In
these circumstances,
large adverse
at
movements
is
in the exchanges
not
work.
There
country which
still
The preceding
tions
was designed
way
for a study
it
necessary
The
general situation
sufficiently plain.
is
Kingdom
of food and raw materials, and to pay for them out of her claims for interest upon loans formerly
made
sale
of current
59
As
demand
enormously increased, on
own
to
of our
allies
available for
making exports
has diminished.
It is true that
made
partly filled
by the
we were
formerly
accustomed
make
it
extremely
tlie
difficult for
us to find means of
paying for
desire to
make.
disadvantages.
the
great
enhancement
in
we demand cannot be
Since
provided by foreign
sellers
except at a considerably
we want more
we
Secondly,
tlie
make
it
6o
and,
if
may
also
be impossible
and
munitions
which
is
absolutely
lie
essential
to
Herein
The
position of the
money
exchange with
New
in
We
;
may
or,
rigorously cut
down
necessary
we may
divert resources
ties for
home
them
Both
into
making more
ways
are
commodities
export.
these
we
cut
down
we
and labour
motor
shells
cars to that of
:
yielding
imported
and,
if
we
and and
we
labour
from
directly
yielding
consumables
The
utilisation
of
current
capital
and
6i
way of financing
Over against
this there
movements of
will
prices
and
presumably cause
principal
Some
capital
unnecessary
imports
will
will
be cut
off,
some
and labour
to
be turned
be sold
is
The
question
we have
solution
is it
to ask is
this
normal
individualistic
satisfactory, or
of
the
exchange
problem
interest
that
it <
the
Government should
to
modify
Now,
in the inquiry
was
tacitly
assumed
is
made between
and that
tacit
assumption was, in
fact,
justified.
discussion, however,
if,
quite different.
For,
of two nations
6a
at war,
one
is
able to obtain
sale
by the
may
eventually
important to con-
the
practical
inferences
this circumstance.
Though Germany
possesses
larger
hoard of
little
On
we
possess
is
very
much
Furtheris
is
actually available
Germany's
and
useless.
It
follows that
we have
in
our saleable
To
same
thing.
If
Englishmen
choose to
power of
selling gold
63
a kind
an additional resource
of
financial
reserve
which^
if
properly
employed,
In so
this
them
to conduct the
assist
war
them towards
It
we
have, in
placent than
Germany
in this matter.
And
it
has
German
country, because
resources,
whereas
freedom
from
blockade,
really
been
and
securities,
has enabled us to be
is,
This suggestion
of
But the
has been
I
made
point which
It
is
am
in
war should be
and
labour,
sale-
64
able
alikeshould be
the
rigorously conserved.
restrict
the
im-
be dispensed with
more expensive
purposes, and, purposes.
vour,
it
fruits,
It is also
by
their
stocks, to
control.
is
not right,
exchanges.
The
necessary correction
is
necessary, or at
least
much
higher degree
than
is
for
it
Germany
should
by
be accomplished,
resort to current
so far as
capital
and labour
convenience.
If
65
the critical
command, when
moment comes,
conserving
scale, they
it till
By
it
into the
may,
66
10.
We
have
now
of war finance as
how
far the
Government should
finance the
how
is
far
by
internal loans.
large scale
The
feasible
on a
currency
being ruled
methods are
Some comWhat
the pro-
the
right to cover
S*
by
taxes
As regards
indeed, no
thing
for
diffi-
The
natural
to
and obvious
our
Government
do
is
it
has
itself
borrowed.
But
what
is
is
used up by ourselves
5*
67
war
costs
between
is
secondary
and remote.
There
is,
between people of
which
its
influence
is
primary and
direct.
graph
may be
satisfactorily
answered,
the
exact
in an exactly
similar position
taxes to that
costs
of
collection)
No
it
would
not.
But the
interest itself
:
would have
to
so that,
if all
members of
community
v/ere in the
same
that each of
of a
new
tax of equivalent
lent 1000
amount
pounds
on himself.
A man who
to the State
would
pounds
a year interest
on
it
but, in
68
have to pay
pounds a year
in extra taxes.
If
tax,
it,
All
this
is
plain
enough.
But, of
number of people of
rich people,
of
some very
some moderately
rich,
In view of this
That
now
to
be made
clear.
of resources which
to take
it is
Government
available for
The margin
taxation
among them
is,
and
as regards the
Conse-
quently,
as the extra
1300
million
finance
twelve
to be raised in a
is
necessary that
by
part of
it
shall
people.
Furthermore,
is
speaking, as
we
pass
up
69
means,
not
an
individual's
income
one
man
his available
margin
is
no choice whatever.
Of
the
money needed by
man
another more than the poor man, and the very rich
man more
man
and the
increase, not
merely pro-
This, as I say,
is
necessary
and about
there
is
it
there
is
no
What
opportunity
how
rich should
far in the
be made in
form of That
loans,
is
and how
form of taxa-
tion.
upon
to decide.
What, then,
of
raising
is
1000
from
the
better-to-do
classes
subscribed
in
progressive
there
is
sense
S*
As regards
These
immediate
effects,
no
difference.
70
whichever plan
effects,
adopted.
is
But,
as
aggregate
there
very
rich
great
difference.
Under
the
tax
method the
and
laid
upon them.
this
;
Under
the
also
on
Under
obtained
method
a great deal of
money
the
is
rich
this generation
compensation.
Under
is
loan
method
but a contract
appended
money
conduct.
That
is
the
vital
difference
It
should decide
how
war by
it
taxes
and how
far
by
loans,
forms
Having got so
at
in
our analysis,
let
us look
attitude
what
actually
happens.
The
general
71
am
be represented somewhat
bution of the expenses
way.
The
distri-
the
to
objective
burden
richer
of
and
Government
That being
in
is
peace
time between
poorer citizens
so,
presumed
be reasonably proper.
it is
of
them ought
few
to
be increased in
but only
being
It
all
solidarity.
How
cannot be done by
in
classes
a sufficient
if
that
be reduced to starva-
But
it
The
be
taxes
on the poorer
on the
less
cannot
practically
increased in
the taxes
Let
more or
war
simibr proportion.
When
this
has
been done, by
costs will
enormous
remain.
from
the
will
richer
classes.
72
be
distri-
in the proportion in
is
dis-
among people
proportions
describing,
It
tell
am now
seems one
is
to
me
it is difficult,
of course, to
whether
judging rightly
mass of
it
would express
argument
the
I
itself
more or
less
At
all
events,
what
fairly
Government has
done accords
In
my
is
incorrect,
and the
country.
With the
first
that
the
revenue
com-
munity, as
proper,
quarrel.
it
is
reasonably
would be
middle of a war to
As
practical
it
persons, whatever
we may
think about
in private,
we must
agree- under
73
if
we
will,
to take
That, at
all
events,
is
what
propose to do.
But, granted
is
is
also
war
5*
This proposition
is
open
to
number
of
substantially undisturbed
by the war.
If the
be made in the
matter of
fiscal
policy that
is
adopted.
As
adversely
it
To
begin with,
is
way or
become
industrial capital.
74
rate
;
new high
rate
will
thereafter
be
who
invest
War Loan,
in
who
invest
new
in
capital
ordinary industry.
point of
Furthermore
and
War
this is a
some importance
the
The
rise
in appearance.
last
Loan was
that
is
now
But,
it
of prices
it
now
is
amount
what
means.
Translate
the
a
loo sovereigns
half sovereigns
of principal
Supposein
buys one
is,
prices
that
present
one
sovereign
sheep.
Then an investment
of loo sovereigns
The
interest
promised on that
is
sovereigns.
going to be,
75
will
now.
If
that is so,
one sovereign
mean
four
and four and a half sovereigns and a half sheep but six sheep.
will
mean not
is
That
to say,
though
is
money
only four and a half per cent., the real rate in terms
of tilings
cent.
is
an
A^
On
poor stand to
hostilities,
lose.
army
to
services of those
who remain
this fact,
be
in exceptionally keen
demand
and
coupled
by the
whole,
ever,
is
State,
fairly
may
prosperous.^
essentially short-lived.
in
The
absorption and
destruction
war of
large
masses of resources,
1 As regards the actual position of the working classes at the present time, it appears that the rate of money wages (including war bonuses) has, on the average, risen considerably less than But the allowances paid by the State to dependants, retail prices. the long hours of overtime worked by many work-people, and the
advent into industry of large numbers of women and of relatively inefficient men, who in normal times are either not employed at real all or only employed intermittently, have probably caused the income of the average working-class family to stand somewhat
above
its
normal
level.
76
means
The
last-
almost certain to
fact
This double
poor
This, however,
not
all.
As
a matter of practice
large levies are
fit is
when very
as
is
probable in the
war
loans and
war
taxes,
War Loan
normal borrowings
to
The
result
is
that the
money income
held by the
buys them
less
commodities than
it
bought
77
This means
what
hand over
is
War Loan
subscriptions
the poor. tax
really exacted
For the
and such a
rich people.
The tendency
currency inflation,
therefore,
promote, thus constitutes a further cause of worsening in the comparative position of the poor.
considerations, even
to
if
These
proportionate
which
is
is
proper in present
conditions.
I
now
to this proposition.
conis
an
enhanced governmental
It
would
reason.
not,
think,
Presumably,
ground,
on which the
in
burden prevailing
is
respect
of ordinary
peace
charges
deemed
to
78
be proper,
is
carries with
it
what we regard
sacrifice*
Let
this
be
so.
Then suppose
all
the
amount of
objective
is
burden
round
to be
quadrupled.
There
reason to
burden
on a poor man
sacrifice
burden of
and suffering
on him
in a proportion
burden.
burden of
caused
is
by taking away
ten
pounds out of
pounds
no
pounds out
away
forty
pounds out of
fifty
pounds
will, I
If
be
so,
it
same
as before, but
be recollected
79
diminution
tinction,
it is
natural to frame
:
as the following
rule, in a position to
capital to
any
more
ment
is
it is
to
leisure
more
likely it is to
material capital.
drawn on page
47.
leisure
reacts
on
their efficiency,
an investment of
capital.
Furthermore, there
it is
an investment which, in
in-
we quadruple
rich,
;
upon the
we
but,
we quadruple
8o
we
It
accomplish the
much more
serious injury of
when
is
the aggregate
amount of
the
Government's need
burden involved
in
ought not to be
but ought
all classes,
more
paragraphs
tive
to
be specula-
and inconclusive.
burden which
is
is
also
proper now
an objection which
I think,
is it
be
Why
that
pound from a
and
rich
man
causes
less
suffering
follows
amount of
sacrifice
involved in
81
would be one
that so operated as to
make
to different similarly
Why
then do economists
revenues of Government i
is
The
principal
that,
in
arrangements
framed on
this plan
would
upon which
it
is
levied
and preventing
other tax-
relief to
payers.
is,
There can be
doubt that
this objection
The
expectation
pound on
far to prevent
is
on an exceptional occasion
in the
way
that
taxes
levied
the
ordinary
is
course
might
be expected to do.
This point
of fundamental
82
has
:
amounts
to
no
less
than this
from proposing
much
community should be
upon them
of peace.
If this
laid
upon
it
the shoulders of
is
proper to lay
normal expenditure
is
plain.
The
proportion
which the
Government has
taxes
hitherto
made use
of the
method of
and the
method of loans
is
from
that in
which these
different sections
and exceptional war, the veiy rich and the rich ought
to bear a proportion of the objective
burden very
that.
which
83
in
is
financed
with
money
large
incomes should be
and the ratio in which it is much diminished financed with money collected from them under some form of progressive taxation should be much
increased.
84
II,
It
is
before
is
quail,
we and our
allies
will
To my mind
may prove
in the
position of affairs.
The
thing that
too
much
in
for us
is
to provide at the
moment,
form
which they
enormous resources
If
we
this,
may
means
terrify us.
is.
prospect
First,
will
which,
estimated, will
amount
at the
end of the
85
this
On
debt
inconvenient
by
The
and the
interest to
be paid in
To
upon production,
It threatens,
how much
was shown
The
necessity of such
payment
it
since, as
will usually
be the poor
of course, a
the rich
who
receive
is,
But
it is
as a
capable
of taxation.
86
Secondly,
war ends,
a great quantity of
Furthermore, a
by the
activity of capital
and labour,
will
not have
been produced.
There
will, therefore,
be in exist-
ence
if
be smaller than
it
way must
is
not,
financed
it
would have
been
is
had
to resources normally
destined to
become new
it
capital,
that equipment,
Furthermore, the
measure of
this loss is
of production alone.
For, as was
shown
in the pre-
87
can claim
and
way
in
income
distributed.
is
Thirdly,
out, there
bound
to
be a period of
while industry
ditions.
It is
duration and
much
less
economists in
general expected.
facilitated
That
transition,
however, was
large
army
be
much
care and
Government,
if it
is
to be
negotiated with a
minimum
first
few months of
88
be sure to have
able enterprise.
open immense
is
practically certain
that,
to
make good
This boom,
if
history
any guide,
will generate in
reasoning sense of
investment.
The
result,
be
failures, crisis
and depression.
it is
danger
is
to be obviated or mitigated,
to
initial
peace boom.
What
independent of the
If
air,
or
if,
and that
enemy
is
skilled to
make,
But,
if,
in lieu of boasts of
growhngs
89
peace of
if this
of real international
economic sphere
will
may
The
shattered
fabric of civilisation
may
yet be restored
over the
90
APPENDIX
TABLE OF PRIVATE ECONOMIES
When
a person has decided to effect economies
in his personal
which
to
econo-
spending
money on
different things,
and the
different things.
The
cussion here.
man
hurts himself
more by economising on
and that
to
necessaries than
on luxuries
cut
down
young
children, is
more
injurious than to
abandon beer-
The
well
however,
less
understood, and
it
has,
therefore,
seemed worth
com-
91
non-dutiable
of food
or
drink
little
means a
more than
Economies in respect of
overseas, such as oranges
articles
imported from
articles
and bananas, or
the raw
materials of
But
of
articles
2.
made up,
as
II.
Articles of Clothing
1,
9a
nation.
now
2.
some reason
sum
saved on
textiles in the
manufacture of soldiers*
A sovereign
made
on
women
workers, has
much
less
than
full
owned by somebody
because
releases
no
capital or labour.
III.
Travel
I.
A
**
The
idea that
patriotic
'*
Government,
93
a fallaqr;
the running
of trains
is,
nation, because
2.
uses
up
capital
and labour.
third
class
sovereign
saved
by
travelling
instead of
first class
passenger differs
much
less
from that of
a third-class ticket.
in
motor
full
value for
releases petrol
full
and
chauffeurs*
has
not quite
cab can
value
unless
the
motor car or
taxi -
itself
be converted to
war
service.
IV.
1.
repair
purchase, repair
motor
So
by the dismissal
(except
in
of chauffeurs, ordinary
men
servants
94
women
3.
without specialised
training
but
physically
whose value
chiefly
due
to
highly specialised
war needs
artist
a highly-
flower - gardener, an
in
cookery, an
maid or governess, a
less
has much
than
4.
sovereign saved by
economy
in the use of
somewhat
less
than
coal
full
and labour
be so employed.
V. Recreation
1.
A A
game preserv-
certs, theatres
and
lectures has
much
set
less
than
full
and
orators,
who would
be
free
thereby,
gb
highly-specialised
sovereign
saved
by buying
cheap
seats
by much
less
than
cost
5.
which
is
and
the
State, because
releases practically
no
capital
and
labour.
employ,
down
pensions that
we have been
96
scriptions
hospitals or
charities,
has no value
is
All that
happens
that a
transferred to us
is
no
c
real
economy
n services.
^Ye^rt*
p-|;^L4
::
LD
2IA-60W-7
'fifi
(G4427S10H76B
,,
GeneraJ Librarv