War loan

“ Advertising for the second War Loan was on a great scale, but in proportion to the amount subscribed the cost of it was probably small, according to the ideals that ruled before the war. A Colonial loan, or a first-class American railroad bond, almost places itself, and the profits on the issue to all who handle it are proportionately low. The more questionable the security, the more it has to pay for its footing, and the higher are the profits of those who father it and assist the process of delivery, as long, that is, as the birth is successfully accomplished. ”

“ Each successive war loan, issued at intervals of six months, elicited larger subscriptions than its predecessor. One war loan of 1915 surpassed all previous achievements of any government, and has even to-day been overtopped, in the amount of subscriptions, only by the British war loan of last February and by Germany's own loan of the ensuing April. ”

“ The taking of money out of the United States during such a war as this might seriously embarrass the Government in case it needed to borrow money, and it might also seriously impair this nation's ability to assist the neutral nations which, though not participants in the war, are compelled to bear a heavy burden on account of the war, and, again, a war loan, if offered for popular subscription in the United States, would be taken up chiefly by those who are in sympathy with the belligerents seeking the loan. ”

“ When it was found out the other day that the war would last for some months longer, the National Bank of Germany, along with many other German banks, raised enough money on bonds to keep Germany going until after Christmas, without making a war loan, though the cost to France and England is somewhat less individually, still it amounts to nearly the same when the two countries are taken together. A conservative cost of the war per day is fifteen millions, of which Germany is said to spent eight millions. ”

“ The demand for loans varies much more largely than the supply, and embraces longer cycles of years in its aberrations. A time of war, for example, is a period of unusual drafts on the loan market. The Government, at such times, generally incurs new loans, and as these usually succeed each other rapidly as long as the war lasts, the general rate of interest is kept higher in war than in peace, without reference to the rate of profit, and productive industry is stinted of its usual supplies. ”

“ At a time when the old six-per-cent loans, with ten or twelve years to run, stood barely at par, any new six-per-cent loan to a large amount, with a vast war in prospect, could hardly be taken at the same rate.
The Federalists, delighted with this failure, said, with some show of reason, that if the Southern States wanted the war they ought to supply the means, and had no right to expect that men who thought the [208] war unjust and unnecessary should speculate to make money from it. ”

“ But everywhere in Europe what is happening is a great transformation of the property owner into a rentier, and the passing of realty into the hands of the State.
At the end of the war Great Britain will probably find herself with a national debt so great that she will be committed to the payment of an annual interest greater in figures than the entire national expenditure before the war. As an optimistic lady put it the other day: "All the people who aren't killed will be living quite comfortably on War Loan for the rest of their lives." ”

“ When the great Anglo-French loan of $500,000,000 was first discussed as a possible American financial feat, people over here began to wonder why Great Britain and France, whose combined wealth exceeds that of all the other nations at war, should want overseas assistance. ”

“ Rising prices bilk the creditor. Increased production will check the rise in prices and get him a real payment. The outlook for the national creditor seems to be that he will be partly bilked and partly paid; how far he will be bilked and how far depends almost entirely upon this possible increase in production; and there is consequently a very keen and quite unprecedented desire very widely diffused among intelligent and active people, holding War Loan scrip and the like, in all the belligerent countries, to see bold and hopeful schemes for state enrichment pushed forward. ”

“ Whatever it pays in interest and amortisation of our war debt, it will pay to itself. We cannot get a farthing out of posterity. All we can do, by leaving it a debt charge, is to affect the distribution of its wealth among its members. Each loan that we raise makes us taxpayers collectively poorer now, to the extent of the capital value of the charge on our incomes that it involves. The less we thus charge our productive power, and the more we pay up in taxes as the war goes on, the readier we shall be to play a leading part in the great time of reconstruction. ”

“ The Government must borrow. In the first year of the war the banks loaned the United States $150,000,000 at 7.3 per cent. interest. Many other loans were secured as the war went on—one for $500,000,000, another for $900,000,000. As security the Government issued bonds, bearing various rates of interest and payable after a certain number of years. Treasury notes were also issued and made legal tender for all debts public and private. As the Government paid its own debts with them, they were in the nature of a forced loan. ”

“ When we consider the short time that the United States was in the war, its cost was staggering. And we must remember that the United States lent no money out of surplus, but that her ability to grant the huge credits to her associates in the World War was due to the successive Liberty loans and the Victory loan, which are internal obligations the interest and amortization charges of which are being carried in our national budget. ”

“ We agree with him that Russia might be puzzled to carry on two vigorous campaigns without a loan; but we should be glad to know what country in Europe is not in the same predicament? War, as everybody knows, is a very costly matter—not much cheaper than revolution, though a good deal more speedy in its results—and every nation which engages in it must, perforce, liquidate the expense. Great Britain could not, any more than Russia, go to war without a loan. ”

“ It is my duty to confide to you, that if the war is continued in this country, it must be in a great measure at the expense of France. If peace is made, a loan will be absolutely necessary to enable us to discharge the army, that will not easily separate without pay. ”

“ The relying on future taxes is holding up to the people a succession of distresses and burthens which are not to cease even with the war itself, whereas could they have a prospect of paying the expenses of the war at the close of it, and enjoying the remainder of their fortunes clear of incumberance, it must greatly encourage and animate both the public and private spirit in pushing it on with vigor. A loan of six or eight millions, or a debt of that amount, will probably enable you to finish the war. ”

“ Section 6.—If, however, in the event of expected war, or war already broken out, the funds in our Treasury, and other reserve funds, are insufficient for the requisite purpose, extraordinary supplies and loans must therefore be raised; and if urgent political circumstances should not admit of our appeal to the United Diet, the said loan shall be raised with the concurrence of the deputation for the national debt, which concurrence shall stand in lieu of the co-operation of the States. ”

“ We decided that each of the great allied countries should contribute a portion of every loan made to the small States who were either in with us now or prepared to come in later on, that the responsibility should be divided between the three countries, and that at an opportune moment a joint loan should be floated to cover the advances either already made, or to be made, to these countries outside the three great allied countries. ”

“ Then came the war with a short sharp spell of financial chaos followed by a halcyon period for young countries, which enabled them to sell their products at greatly increased prices to the warring powers and so to meet their debt charges with an ease that they had never dreamt of, and even to find themselves lending, out of the abundance of their war profits, money to their creditors. America has led the way with a loan of £100 millions to France and England, and Canada has placed 10 millions of credit at the disposal of the Mother Country. ”

“ For the extraordinary expenses of the war it was necessary to depend upon loans, and the authority to be granted for this purpose the Secretary left 'to the better judgment of Congress,' only suggesting that the rate of interest should be regulated by law, and that the time had come when the government might properly claim a part, at least, of the advantage of the paper circulation, then constituting a loan without interest from the people to the banks. ”

“ The second group included obligations of Australia, Union of South Africa, New Zealand, Argentina, Chili, Cuba, Japan, Egypt, India and a group of English Railway Companies. I enumerate this collateral to show the inroads upon British securities that increasing war cost is making. This collateral must always show a market value margin of twenty per cent above the amount of the loan. It means that should there be any slump the English Government must supply additional security. ”

“ It has already been seen that, whenever a war is one of long continuance, the British Government may at first borrow at par, and ends by being compelled to sell its stock at the rate of fifty per cent of its nominal value; which gives for the whole of the war loans an average of about 75 per cent. ”

“ But this can only be done if the warring country is able to ship goods to the foreigner in payment for what it buys, or if it is able to obtain a loan from the foreigner, or some other foreign country, in order to pay for its purchases abroad, or again, if, as in our case, it holds a large accumulation of securities which foreign countries are prepared to take in exchange for goods that they send for the purposes of the war. ”

“ This means that if it is a French bond it is in terms of francs: if English it calls for pay [Pg 176] ment in pounds sterling: if Russian, in roubles: if German, in marks. An external loan, on the other hand, is issued in the money of the country in which it is floated. The Anglo-French loan is an example of this kind because both principal and interest are to be paid in United States gold coin. These internal and external loans may be direct obligations of the issuing governments or may be secured by collateral.
There is still a third medium for the employment of American money in the war. ”

“ If France could see her way clear to put out a long-term loan at 5 per cent instead of short-term loans at this rate, there should be a good investment field for it in America.
Russia is an unconquerable country, and her securities at a good rate should be attractive for some American capital.
There is no reason why the 3 per cent bonds of Germany should not soon be investigated for investment purposes in America. The German debt is very small and, however long the war may continue, German bonds will ultimately be paid. ”

“ Men see in this instance that whatever reduces the buying and consuming capacity of one nation will probably reduce also the producing and selling capacity of other nations; and that the gains of commerce and trade are normally mutual, and not one-sided.
All the contending nations have issued huge loans which will impose heavy burdens on future generations; and the yield of the first loans has already been spent or pledged. The first loan issued by the British Government was nearly twice the national debt of the United States ”

“ It will not diminish the amount of available capital, but may even rather increase it by gathering into the hands of the debt-holders—who are ex-hypothesi folk with an inclination for saving—money that might, if left in the hands of those from whom it is collected, have been squandered. The payment of the debt charge merely means that those who came forward with their money when they were asked to subscribe to war loans, have, according to the extent of the effort that they then made, a set-off against the subsequent taxation involved by the war debt. ”

“ The soldiers and sailors risk their lives for a pittance during the war, while their brothers and sisters and cousins and uncles and aunts, left at home in security and comfort, earn bloated profits and wages, and put them, or part of them, into War Loans; then when the fighters come back, very likely with their business and connection ruined or lost, they are expected to contribute to the taxation that goes into the pockets of debt-holders. ”

“ It is the method that produces least immediate friction in the State; it employs all the savings of surplus income that the unrest of civil enterprise leaves idle; it has an effect of creating property by a process that destroys the substance of the community. In Germany an enormous bulk of property has been mortgaged to supply the subscriptions to the war loans, and those holdings have again been hypothecated to subscribe to subsequent loans. The Pledged Allies with longer stockings have not yet got to this pitch of overlapping. ”

“ For several years past the revenues of the government have been unequal to its expenditures, and consequently loan after loan, sometimes direct and sometimes indirect in form, has been resorted to. By this means a new national debt has been created, and is still growing on us with a rapidity fearful to contemplate—a rapidity only reasonably to be expected in time of war. This state of things has been produced by a prevailing unwillingness either to increase the tariff or resort to direct taxation. But the one or the other must come. ”