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 MATERIALS FOR THE STUDY 
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 READINGS IN 
 THE ECONOMICS OF WAR
 
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 SHANGHAI
 
 READINGS 
 
 IN 
 
 THE ECONOMICS OF WAR 
 
 EDITED BY 
 
 J. MAURICE CLARK 
 
 WALTON H. HAMILTON 
 
 HAROLD G. MOULTON 
 
 THE UNIVERSITY OF CHICAGO PRESS 
 CHICAGO, ILLINOIS
 
 COPYRIGHT 1918 Bv 
 THE UNIVERSITY OF CHICAGO 
 
 All Rights Reserved 
 
 Published September 1918 
 
 Composed and Printed By 
 
 The University of Chicago Press 
 
 Chicago, Illinois. U.S.A.
 
 TO 
 
 M 
 W 
 
 & 
 F
 
 FOREWORD 
 
 When this war comes to be reviewed in proper per- 
 spective its social and economic aspects will be found at 
 least as remarkable as the military events, and perhaps more 
 instructive. And among them the influence of war on 
 industry and the converse influence of industry on war will 
 take a prominent place. We are indeed witnessing a phe- 
 nomenon so extraordinary and unexpected that we can see 
 only its surface as we pass, and are hardly able to comprehend 
 even that. There has not been time to look beneath and try 
 to read the deeper meaning of it all. But some lessons 
 present themselves which he who runs may read. Never 
 before has the supreme concerted effort demanded by war 
 been so fully brought out and the inscrutable mystery of 
 human conduct been so clearly posed as in this prodigious 
 conflict of industrial nations. 
 
 SHADWELL
 
 PREFACE 
 
 This volume aims to throw light upon the various economic 
 questions which arise in connection with the war. It falls roughly 
 into three divisions, which are concerned with the economic back- 
 ground of war in general, the economic reorganization required in view 
 of the necessities of a world-war, and the economic questions involved 
 in the reorganization of the industrial system at the end of the present 
 conflict. 
 
 The first of these three divisions grows out of the necessity for a 
 proper understanding of what is involved 'in the struggle. The 
 theory of "the economic interpretation of history" has lost vogue and 
 no longer suffices to give a full explanation . Yet however numerous 
 and complicated are the factors that merge themselves into the 
 psychological matrix out of which war springs, few indeed would deny 
 that commercial rivalry, concessions, imperial exploitation, and a 
 conviction on the part of certain political groups that war is a sound 
 business venture, are, factors of the first magnitude in explaining 
 the present struggle. A consideration of questions such as these is of 
 use, not only in answering the question of what the struggle is about, 
 but also in pointing to the economic factors which deserve special 
 consideration in the peace which is some time to come. 
 
 The second of these divisions that concerned with the proper 
 organization of the industrial system for war is of primary impor- 
 tance. While military efficiency depends upon generalship, upon 
 the numbers and quality of our troops and other factors, primarily 
 military, these are inefficient unless the industrial system is made 
 subservient to the military purpose. Trie importance of this cannot 
 be overstated. Here it deserves even more than a word of 
 explanation. 
 
 In their readiness to meet an armed enemy nations may be divided 
 into two groups those whose governments, industrial systems, and 
 habits and customs have been arranged into a unified and coherent 
 whole directed largely to military ends, and those which without 
 thought for military strength have allowed these things to develop to
 
 xii PREFACE 
 
 meet the needs of a people at peace. Germany belongs to the first 
 group, the United States to the second. 
 
 In Germany the whole industrial system farms, mines, factories, 
 banks, railroads, commercial agencies, what not had been arranged 
 so that the whole could very quickly be converted into a gigantic 
 engine of war. Railroads, for instance, were placed with a view to 
 their strategic importance, phonograph factories were built with an 
 eye to their conversion into munition plants, and science was whipped 
 into subservience to the requirements of war. Care was had that the 
 country should be able to produce as nearly as possible everything 
 necessary to the successful prosecution of war and that the volume of 
 national production should be large enough for war-time needs. The 
 concentration of all wealth upon a single objective the avoidance of 
 great loss through duplication of effort and the waste which attaches 
 to individuals or governmental departments working at cross-purposes 
 was achieved only by the elaboration in time of peace of a unified 
 and far-reaching scheme of control. The latter not only attempted to 
 regulate industry, government, and individual conduct by actual 
 interference, but also, through a careful direction of the edu- 
 cational system, the church, and the press it attempted to create 
 a single public opinion bent upon the accomplishment of military 
 purposes. 
 
 The United States, on the contrary, had attempted to read no 
 such end into its political system, its industrial organization, or its 
 social life. The yield of farm, factory, and mine was devoted either 
 to securing a larger productive equipment or to raising standards of 
 living. The surplus produced over and above the demand of the 
 population for necessities was allowed to find its way into individual 
 incomes, where it appeared as comforts or vanities. Plants were not 
 established with a view to a quick conversion to military uses, nor 
 were they grouped with a view to their complementary character. 
 The sprawling conglomerate net of the railroads of the country had no 
 military design woven into its pattern. There was nowhere, either 
 in the design of the industrial system or in national thought, the idea 
 of a surplus of wealth as large as possible to be devoted to military 
 ends. The system as a whole was little controlled by the government 
 and responded to the. many and varied desires of many men. The 
 agencies through which opinion is organized school, church, press, 
 etc. were left uncontrolled, and there was at the beginning of the war 
 little appreciation of its nature and cost and less of the sweeping
 
 PREFACE xiii 
 
 transformations in industry, its control, and its organization necessary 
 to make national wealth effective in war. A nation without prepara- 
 tion was required to get its house ^in readiness for war. 
 
 The problem with which the nation was confronted at the begin- 
 ning of the war was an economic one. It can be very simply stated. 
 It was to use our limited resources in national wealth, industrial 
 equipment, and man power in the creation and equipment of an army 
 as large as possible; to organize the whole into its component and 
 complementary parts; and to hurl the mass most effectively upon the 
 enemy. But this simplicity is in striking contrast with the changes 
 in the economic organization necessary to secure its solution. The 
 organization of establishments into trades and these into an industrial 
 system had to be changed. The production of many goods had to 
 cease and the production of many others to be greatly diminished. A 
 scheme of control had to be set up which made radical departures 
 from the business principles upon which we formerly relied. This 
 has been responsible for such novel devices as the fixing of competitive 
 prices, priority in the distribution of supplies, authority in regulation 
 of food distribution, and even a compulsory recognition of unionism. 
 And not only has the whole scheme of control been changed, but even 
 the lives and habits and the thought of the people have had to be 
 remade to fit these circumstances. To find the many ramifications 
 of the change one has but to touch any single aspect of industrial life. 
 A study of this reorganization involves a study of all economic motives, 
 activities, and organization. 
 
 The third division of the volume is concerned with the changes 
 which have come in the wake of the war and with the problems of 
 reorganization and group welfare which will hare to be met when it 
 is over. Were the question only one of a return to the economic order 
 existing before the war, the mechanical readjustments necessary 
 thereto would make it extremely difficult. But it is no mere question 
 of a return. The number of laborers, the amount of capital, and the 
 state of natural resources have been too much affected; the scheme 
 of industrial relations, the control of the government over industry, 
 and the domain of direction and guidance have been too greatly 
 changed; and the habits, thoughts, and ideals of the people have been 
 too much modified for that. There is no definite program for recon- 
 struction, as there is a program for war; but the complexity and 
 variety of the problems and their intimate connection with welfare 
 demand that they be given careful consideration.
 
 xiv PREFACE 
 
 One thing alone is enough to make the reorganization after the 
 war more difficult than organization for war. Reorganization calls 
 for a permanent structure where war called, so to speak, only for a 
 temporary scaffolding. In place of an organization which men fired 
 with patriotism will find it possible to use, we must have one which 
 men under an ordinary mixture of motives and incentives will not 
 find it too easy to abuse. It is nothing less than a permanent 
 overhauling of our economic institutions which war has thrust 
 upon us. 
 
 Hence this book is the expression, not merely of the economic side 
 of the war, taken as a detached event, but rather of the part the war 
 plays in the evolution of our economic institutions. It is the out- 
 growth, not merely of interest in the war, but of an enterprise of longer 
 standing namely, the attempt to vitalize economics for college 
 students (and others as well) by making it relevant to the absorbing 
 tasks of the present generation. In these tasks the war has come to 
 take a central place. 
 
 Some critics may feel that the tone of the book is unduly favorable 
 to the scheme of control which the war has brought into being. It 
 is far too soon, in fact, to attempt a final estimate of success or 
 failure in our actual performance, and hence the effort here has 
 been rather to show the principles that must underly such control. 
 Emphasis is laid on the need for change in our system, the opportu- 
 nities for improvement, and the dangers attending such experiments, 
 but no attempt is made to pass judgment on the inevitable mistakes 
 or to weigh the effectiveness or ineffectiveness with which the needs 
 have been met and the opportunities utilized. Many economists 
 will feel that certain, topics that have been omitted from the volume 
 should have found a place, and others will wish that more detailed 
 analysis and criticism had been given in numerous connections. 
 With reference to the former the editors must plead limitations of 
 space. The latter is to be explained only in terms of the point of 
 view. The book is not primarily designed for the specialist in 
 isolated fields of inquiry; its main purpose is to reveal to under- 
 graduate students and to the general reader the larger aspects of the 
 problem of economic organization as it is conditioned by war. 
 
 It is hoped that this study of war conditions and problems may 
 be of some service, however small, in connection with the waging of 
 the war itself. Its primary function is a clear presentation of the 
 relationship of economic organization to efficiency in war. If the
 
 PREFACE XV 
 
 volume makes clearer this relationship and reveals the many elements 
 of an economic program necessary to military success, and thereby 
 develops a more enlightened public and governmental attitude, the 
 work involved in its preparation will not have been in vain. It is 
 hoped that the book will meet three uses: First, it should be of value 
 in connection with courses in the economics of war, whether such 
 courses be designed as a part of the training of the Student Army 
 Training Corps or to give an appreciation to other students of the 
 larger economic issues related to the war; second, it should do much 
 to make the introductory course in economics of real significance in 
 understanding the changing world in which we live; third, it should 
 prove of interest to the general reader who is interested in the eco- 
 nomic background of war, the economic basis of military efficiency, 
 and the economic problems that will follow in the wake of the war. 
 
 J. M. C. 
 H. G. M. 
 
 University of Chicago 
 W. H. H. 
 
 Amherst College 
 SEPTEMBER 2, 1918
 
 TABLE OF CONTENTS 
 I. ECONOMIC BACKGROUND OF WAR 
 
 PAGE 
 
 INTRODUCTION i 
 
 I. THE NATION AS AN ECONOMIC UNIT 
 
 1. The Nation Stands First. Friedrich List .... 4 
 
 2. National Economic Unity. Gustav Schmoller ... 6 
 
 3. National Economic Rivalry an Illusion. Norman 
 Angell 9 
 
 II. THE PRESSURE OF POPULATION 
 
 1. Birth-rates and International Rivalry. Edward Als- 
 worth Ross 14 
 
 2. Population Limits and Social Decay. William S. 
 Rossiter 17 
 
 3. A Stationary Population and Prosperity. Warren S. 
 Thompson . 20 
 
 III. ECONOMIC IMPERIALISM 
 
 1. A Summary View of Machtpolitik. F. von Bernhardi 22 
 
 2. Industrial Penetration. Henri Hauser 26 
 
 3. The Theory of the White Man's Burden., Abbott 
 Payson Usher / . . 34 
 
 4. A British View of Mesopotamia. Canon Parfit ... 39 
 
 5. Immediate Antecedents in the Near East. George 
 Young 41 
 
 \ 
 
 IV. COMMERCIAL RIVALRY AND SPECIAL INTERESTS 
 
 1. Diminishing Causes of Hostility. Alvin Johnson . . 43 
 
 2. Concessionary Investors: A Powerful Special Interest. 
 Alvin Johnson 47
 
 xviii TABLE OF CONTENTS 
 
 PAGE 
 
 3. Tariff Walls and International Friction. The Earl of 
 Cromer 52 
 
 4. The "Open Door" Does Not Settle Everything. 
 Walter Lippmann 54 
 
 II. WAR AS A BUSINESS VENTURE 
 INTRODUCTION 57 
 
 V. THE NEGATIVE SIDE 
 
 1. Conquest Does Not Pay. Norman Angett ... 58 
 
 2. Permanent Subjugation Impossible. Norman Angett. 61 
 
 3. A German Socialist View 63 
 
 4. Trade Will Flow Back to Its Natural Channels. 
 L.W.S 64 
 
 5. Limits Imposed in the Hague Conventions. ... 66 
 
 VI. THE PROFIT SIDE 
 
 1. Germany Ready to Administer Captured Wealth. 
 
 K. A. Fischer 67 
 
 2. Systematic Exploitation : The "Rathenau Plan" . 69 
 
 3. German Gains in the East 74 
 
 VII. HUMAN ATTITUDES, RATIONAL OR OTHERWISE 
 
 1. Why War Persists Despite Its Irrational Character. 
 Norman Angett 82 
 
 2. Patriotism and Selfishness Cannot Be Isolated. 
 Waller Lippmann 85 
 
 3. Plans of the Financial Interests. H. N. Brailsford . 87 
 
 t 
 
 III. THE NATURE OF MODERN WAR 
 INTRODUCTION : 93 
 
 VIII. WAR UNDER MODERN INDUSTRIAL -CONDITIONS 
 
 1. War and the State of the Industrial Arts. Adam 
 Smith 94 
 
 2. The Dependence of War upon Economic Organization. 
 
 C. E. Ayres 99
 
 TABLE OF CONTENTS xix 
 
 PAGE 
 
 3. It Takes Time to Develop Specialized Machinery . 103 
 
 4. The Insatiable Demand for Murlitions. Edwin 
 Montagu 104 
 
 5. A Morning's Work in the Ministry of Munitions. 
 Edwin Montagu 106 
 
 IX. THE RELATION or SCIENCE AND INDUSTRY TO WAR 
 
 1. The Scientific Basis of War Technique. George K. 
 Burgess 107 
 
 2. The Utilization of Industry. Georges Blanchon . . 112 
 
 3. The Military Use of Railways. Georges Blanchon . 116 
 
 4. Industrial Energy as a Military Weapon. James R. 
 Finlay 118 
 
 X. THE LARGER ECONOMIC STRATEGY. An editorial . . 120 
 
 \ 
 
 IV. RESOURCES OF THE BELLIGERENTS 
 j 
 INTRODUCTION - . 126 
 
 XI. THE VALUE OF GEOGRAPHIC POSITION 
 
 1. Assets and Liabilities of the Germanic Position. An 
 editorial 127 
 
 2. Assets and Liabilities of the Allied Position. An 
 editorial 131 
 
 XII. THE INDUSTRIAL RESOURCES OF THE BELLIGERENTS 
 
 1. Map Showing Locations of European Ore and Coal 
 Deposits 135 
 
 2. Charts Showing Resources and Production in Coal, 
 Iron, Steel, Copper, Petroleum, Timber, and Cotton 136-141 
 
 3. Chart Showing Railway Mileage 141 
 
 XIII. SOME ECONOMIC ASSETS OF GERMANY 
 
 1. Germany's Resources in Coal and Iron. Karl Helf- 
 ferich . ' 142 
 
 2. Utilization of Power in Germany. Karl Heifer ich . 145 
 
 3. Correlated Industrial Processes 148 
 
 4. Germany's Strategic Railways 
 
 A. In General. William L. Park 149 
 
 B. In Particular. Walter Littlefield ..... 150 
 
 5. German Discipline. Samuel P. Orth 152
 
 xx TABLE OF CONTENTS 
 
 PAGE 
 
 XIV. SOME ECONOMIC LIABILITIES OF THE ALLIES 
 
 1 . The Theory of Laissez-Faire. Piercy Ravenstone . . 154 
 
 2. Social Customs and Efficiency in War. An editorial . 155 
 
 3. The Penalty of Taking the Lead in Industry. Thor- 
 stein Veblen 157 
 
 XV. THE ECONOMIC ISOLATION OF GERMANY. Gustane Cassel 160 
 
 V. THE PROBLEM OF INDUSTRIAL MOBILIZATION 
 
 INTRODUCTION 164 
 
 XVI. THE NATURE OF THE PROBLEM 
 
 1. Conversion 'of Industries to War Production. Howard 
 Earle Coffin 166 
 
 2. The Fundamental Requirements of War. Harold G. 
 Moidton . . . . 168 
 
 3. The Size of the Job. Frank A. Vanderlip . . . . 172 
 
 4. The Diversion of Energy Required. An editorial . 175 
 
 XVII. METHODS OF INDUSTRIAL MOBILIZATION 
 
 1. Voluntary Enlistment of Factories. Harold G. 
 Moulton 177 
 
 2. Voluntary Industrial Mobilization of Labor. L. C. 
 Marshall 180 
 
 3. Industrial Consequences of Voluntary Army Recruit- 
 ing. Andre Chevrillon 182 
 
 4. Selective Military Conscription 183 
 
 5. Work or Fight. General Crowder 184 
 
 6. Priority Method. Alvin Johnson 185 
 
 7. Industrial Conscription for War Service. Harold G. 
 Moulton 186 
 
 XVIII. LESSONS FROM EUROPEAN EXPERIENCE 
 
 1. France's Industrial Situation in the Autumn of 1914. 
 Raoul Blanchard 188 
 
 2. Industrial Mobilization in England. R. H. Brand . 191 
 
 3. Germany's Mobilization of Natural Resources. 
 
 A. In 1914. Walter Rathenau 197 
 
 B. Compulsory Civilian Service, 1916 198 
 
 C. Germany's "Organization for Victory," 1916. 
 General Groner 199
 
 TABLE OF CONTENTS xxi 
 
 PAGE 
 
 4. The Economic Breakdown of Russia 
 
 A. How Russia Neglected Economic Organization. 
 Samuel N. Harper 202 
 
 B. A Warning of Impending Economic Collapse. 
 Prince Lvov 204 
 
 C. The Situation in the Third Year of the War. A. I. 
 Konovalov 206 
 
 VI. OBSTACLES TO RAPID MOBILIZATION IN LIBERAL 
 COUNTRIES 
 
 INTRODUCTION 208 
 
 XIX. THE ORGANIZATION OF PUBLIC OPINION IN ENGLAND. 
 
 Andre Chewillon 209 
 
 XX. THE POSITION OF THE PRESS. An editorial . . . . 216 
 
 XXI. WORKING AT CROSS PURPOSES 
 
 1. Why America Lags. Alvin Johnson . . . . . 218 
 
 2. A Nation of Economic Amateurs. L. C. Marshall . 221 
 
 3. The Need for Co-ordination. William Hard . . . 224 
 
 XXII. CONCRETE ILLUSTRATIONS OF THE PROBLEMS INVOLVED 
 
 \ 
 
 1. Developing the Machinery for the Administration of 
 Labor. L. C. Marshall 230 
 
 2. The History of the War Industries Board. Curtice N. 
 Hitchcock 245 
 
 VII. WAR-TIME REGULATION OF TRADE AND 
 INDUSTRY 
 
 INTRODUCTION 254 
 
 XXIII. TRADE DISLOCATIONS 
 
 1. The Nature of Trade Disorganization. An editorial 255 
 
 2. The War's Effects in Neutral Scandinavia. Fin Lund 256 
 
 3 . German Foreign Trade in War Time. Chauncey Depew 
 Snow and J. J. Krai 258
 
 xxii TABLE OF CONTENTS 
 
 PAGE 
 
 XXIV. THE INTERNATIONAL EXCHANGES 
 
 1. Great Britain's Foreign Exchange Problem. R. H. 
 Brand 259 
 
 2. Trade and "Financial" Balance of the United States. 
 Abraham Berglund 262 
 
 3. Allied Control of Exchanges and German Trade . . 267 
 
 4. Problems in the Control of Foreign Exchange . . . 268 
 
 XXV. SHIFTING THE WORLD'S GOLD SUPPLY 
 
 1. Gold Holdings of the Nations, 1914-1917. John E. 
 Rovensky 270 
 
 2. Effects of the Shifting of the World's Gold Supply. 
 John E. Rovensky 271 
 
 XXVI. BRITISH CONTROL OF TRADE AND INDUSTRY 
 
 1. The Regulation of Trade in Great Britain. Robert 
 Donald 272 
 
 > 
 
 2. The Development of the British Ministry of Muni- 
 tions. Jules Destree 276 
 
 3. England's Machinery for Industrial Control . . . 281 
 
 XXVII. UNITED STATES REGULATIONS 
 
 1. How the Neutrals Help Germany. James Louis 
 Moore 285 
 
 2. General Policies of the War Trade Board . . . .286 
 
 3. Exports in Time of War. Woodrow Wilson^ . . . 288 
 
 4. Purpose of Restricting Imports 290 
 
 5. Problems of the Ordnance Department. Samuel 
 McRoberts 292 
 
 6. The Priority System at Work. An editorial . . . 296 
 
 7. The Regional Organization of Industry. Harold G. 
 Moulton 300
 
 I 
 
 TABLE OF CONTENTS xxiii 
 
 VIII. FOOD AND FUEL 
 
 PAGE 
 
 INTRODUCTION 304 
 
 XXVIII. WHERE HUNGER PINCHES 
 
 1. The Scarcity of Fish in Berlin 305 
 
 2. Control of Eggs in Berlin 306 
 
 3. Food Excursions 306 
 
 4. "Mass Feeding" in Germany 307 
 
 5. The Food-Card System 307 
 
 6. Food in Bohemia 309 
 
 7. The "Kit-Bag" Trade . . . 310 
 
 8. Thus Fares the Turk 311 
 
 XXIX. THE REQUISITES or A NATIONAL FOOD POLICY. Walton 
 
 H. Hamilton 311 
 
 XXX. THE WORLD'S COAL SITUATION. William Notz . . .323 
 
 XXXI. COAL PROBLEMS OF THE UNITED STATES 
 
 1. Our Heatless "Holidays". . 330 
 
 2. The Zoning System of the United States. William 
 Notz . 334 
 
 3. The Outlook for 1918-1919 336 
 
 XXXII. COMPETITION VERSUS EFFICIENCY IN MINING COAL. 
 
 Chester G. Gilbert and Joseph E. Pogue 337 
 
 XXXIII. COAL AND ELECTRICITY IN DOUBLE HARNESS . . . 340 
 
 IX. TRANSPORTATION 
 
 INTRODUCTION 343 
 
 XXXIV. GREAT BRITAIN'S EXAMPLE. F.A.McKenzie . . . 345 
 XXXV. THE TASK OF AMERICAN RAILROADS. An editorial . . 347 
 
 XXXVI. THE ROADS IN PRIVATE HANDS 
 
 1. Under the Railroads' War Board. Max Thelen . . 348 
 
 2. Accomplishments under Private Ownership . . . 348 
 
 3. Reasons for a Change 349
 
 xxiv TABLE OF CONTENTS 
 
 I 
 
 PAGE 
 
 XXXVII. THE FEDERAL ORGANIZATION ESTABLISHED 
 
 1. Phases in the Development of Federal Railroad 
 Control '...."... 350 
 
 2. Outline of the Railroad Control Bill 351 
 
 XXXVIII. WHAT FEDERAL CONTROL HAS ACCOMPLISHED 
 
 1. General Policy. William G. McAdoo 354 
 
 2. Some Results. An editorial .355 
 
 3. Prevention of Traffic Concentration 359 
 
 XXXIX. THE EXPRESS COMPANIES 360 
 
 XL. THE OUTCOME 
 
 1. Unified Regulation Required. T. W. Van Metre . . 363 
 
 2. Some Inferences. An editorial 365 
 
 XLI. THE SHIPPING PROBLEM 
 
 1. The War and World- Shipping 368 
 
 2. Great Britain's Shipping Problem, 1917. David 
 Lloyd George 368 
 
 3. The Shipping Problem of the United States. An 
 editorial , 370 
 
 XLIL QUESTIONS OF METHOD 
 
 1. Shipbuilding Strategy. An editorial 371 
 
 2. A Ship Built in Twenty-seven Days 375 
 
 XLIII. THE RACE BETWEEN BUILDING AND SINKING 
 
 1. A Year's Decline in Shipping Losses 376 
 
 2. Our Great Shipbuilding Victory 377 
 
 3. Results of Shipping Program, July, 1918 .... 377 
 
 XLIV. How THE ALLIES CONTROL INTERNATIONAL SHIPPING . 378
 
 TABLE OF CONTENTS xxv 
 X. WAR FINANCE 
 
 PAGE 
 
 INTRODUCTION 380 
 
 XLV. THE FUNCTION OF WAR FINANCE 
 
 1. Population, Wealth, Income, and Debts of Belligerent 
 Countries. R. R. McEhare and Louis Gottlieb. . . 382 
 
 2. Can Capital Be Conscripted ? 382 
 
 3. The Place of Money in War Finance. R. H. Brand . 384 
 
 4. How the Government Uses the Money. An editorial 385 
 
 5. Relation of Bank Credit to War Finance .... 386 
 
 XL VI. CAN" THE COST OF THE WAR BE POSTPONED ? 
 
 1. The Burden Should Be Shifted to the Future. George 
 
 M. Reynolds 387 
 
 2. The Burden Cannot Be Postponed. E. Dana Durand . 388 
 
 XLVII. BONDS OR TAXES IN WHAT PROPORTION ? 
 
 1. Conscription of Income. 0. M. W. Sprague . . . 392 
 
 2. Tax Policy Is Most Equitable. E. Dana Durand . . 393 
 
 3. A Criticism of Heavy Taxation. Charles J. Bullock . 396 
 
 4. Destruction of Capital: A Business View .... 399 
 
 5. The Crux of the Problem Is Large Production . . 400 
 
 6. War Finance and War Production. An editorial . . 401 
 
 \ 
 XL VIII. WAR FINANCE AND CURRENCY INFLATION 
 
 1. The Meaning of Inflation . . . . . . . . 403 
 
 2. Inflation through Borrowing on Bonds. F. A. Delano 404 
 
 3. The Evils of Inflation. A. C. Miller 407 
 
 XLIX. TAXATION POLICY 
 
 1. The First Year of War Taxation. Edwin R. A. Selig- 
 man 409 
 
 2. The Treasury Program for 1918-19 418 
 
 3. Criticism of Program for 1918-19. Henry C. Adams . 422 
 
 4. Excess Profits and Industrial Mobilization. An 
 editorial 424 
 
 5. Argument for Taxes on Luxuries 425
 
 xxvi TABLE OF CONTENTS 
 
 PAGk 
 
 L. THE THRIFT PROBLEM, OR THE CONSUMER'S DILEMMA 
 
 1 . The Appeal to Spend 
 
 A. Sample Advertisement. Sinclair Kennedy . . 427 
 
 B. Are Your Economics on Straight? E. LeRoy 
 Pelletier 428 
 
 C. Individual versus National Welfare. Harry 
 Qordon Self ridge 430 
 
 D. Keep Business Normal 431 
 
 2. The Appeal to Save 
 
 ., V 
 
 A. Luxuries and Extravagance Is Treachery . . .432 
 
 B. Consumptive Slackers. Thomas Nixon Carver . 432 
 
 C. The Function of War Savings. Dwight W. Morrow 433 
 
 i 
 
 LI. THE WAR FINANCE CORPORATION 
 
 1. Reasons for Organization of War Finance Corporation 435 
 
 2. War Finance Corporation Unimportant . . . .437 
 
 XI. PRICES AND PRICE CONTROL 
 
 INTRODUCTION 439 
 
 LII. THE REVOLUTION IN PRICES 
 
 1. The Rising Price Level. An editorial 441 
 
 2. Fundamental Causes and Effects of tKe Rise . . . 442 
 
 3. Aggravating Factors. Charles R. Van Hise . . . 445 
 
 4. Increasing Pay to Balance Increased Prices . . . 446 
 
 LIII. THE NEED FOR CONTROL 
 
 1. The Necessity for Price Control. Harold G. Moulton 448 
 
 2. Where Prices Are Uncontrolled 450 
 
 3. British Experience. Sidney Webb 451 
 
 4. Do Big Prices Get the Most Work Done ? An editorial 453
 
 TABLE OF CONTENTS xxvil 
 
 PAGE 
 
 LIV. THE CASE AGAINST CONTROL 
 
 1. Price Control and Industrial Mobilization. Harold G. 
 Moulton 455 
 
 2. Price-Fixing by. Government. David MacGregor 
 Means . . . . 457 
 
 LV. GENERAL ESTIMATES OF AMERICAN POLICY 
 
 1. Government Price-Fixing in the United States. 
 
 B. M. Anderson, Jr 461 
 
 2. A Year of Food Administration. Thomas H. Dickin- 
 son 462 
 
 LVI. SIGNIFICANT PHASES OF CONTROL 
 
 1. Control of Meat Packing 465 
 
 2. Live Stock and Feed Prices . 467 
 
 3. Some Cases of Price Control. Charles R. Van Hise . 469 
 
 4. Forms of Contracts . v 474 
 
 XII. LABOR AND THE WAR 
 
 INTRODUCTION 480 
 
 LVII. ATTITUDE OF LABOR TOWARD THE WAR 
 
 1. The Real Pacifism before the War. Gustave Herve . 481 
 
 2. Attitude on the Eve of Hostilities. G. D. H. Cole . 484 
 
 A. Manifesto to the British People 484 
 
 B. The Voice of the Crowd 485 
 
 C. Labor Officially Speaks . . 486 
 
 D. The War Must Be Fought 487 
 
 E. Manifesto to the Trade Unionists of the Country . 488 
 
 F. The Acceptance of War 489 
 
 3. The Attitude of American Labor 
 
 A. The War a Laborer's War. William B. Wilson . 491 
 
 B. A Declaration of Principles . . . . . . . 494
 
 xxviii TABLE OF CONTENTS 
 
 
 
 PAGE 
 
 LVIII. PROBLEMS IN THE MOBILIZATION OF AMERICAN LABOR 
 
 1. The Challenge to American Labor 
 
 A. Great Britain. Hon. James H. Thomas . . . 497 
 
 B. France 497 
 
 C. Italy. Dr. Francesco Saverio Nitti 498 
 
 2. Conserve Our Industrial Army 498 
 
 3. The Organization of Man Power. Mark Sullivan . 500 
 
 4. Immigration and Man Power 505 
 
 5. What Organization of the Labor Market Can Do. 
 William M. Leiserson 506 
 
 6. United States Employment Service. Woodrow Wilson 508 
 
 7. The Need of Housing 
 
 A. A Shipbuilder Speaks. Thomas C. Desmond . . 510 
 
 B. Conditions in New Orleans. Roland Otis . . . 510 
 
 LIX. WAR-TIME LABOR CONDITIONS AND POLICIES 
 
 1. Industrial Unrest in Great Britain. Rt. Hon. G. N. 
 Barnes, M. P 512 
 
 2. The Effects of the War upon British Labor. Sidney 
 Webb 514 
 
 3. Labor Working Conditions and Efficiency. John 
 
 B. Andrews 521 
 
 4. Extent of the Employment of Women and Children 
 
 in Europe. Anna Rochester 524 
 
 5. Mediation in War Time. Felix Frankfurter . . . 530 
 I 6. A War-Time Labor Policy 535 
 
 XIII. THE COSTS OF THE WAR 
 
 INTRODUCTION 539 
 
 LX. QUANTITATIVE MEASUREMENT OF WAR COSTS 
 
 1. What Do We Mean by War Costs? Edwin R. A. 
 *Seligman 541 
 
 2. Pecuniary Costs of the European War. Ernest L. . 
 Bogart 542 
 
 3. Costs in Men . . '. 544
 
 TABLE OF CONTENTS xxix 
 
 PAGE 
 
 LXI. WAR DEBTS AND WAR COSTS 
 
 1. Germany on the Verge of Bankruptcy. William C. 
 Dreher 545 
 
 2. Germany's War Debts Not What They Seem. An 
 editorial 547 
 
 LXII. THE SOCIAL COSTS OF THE WAR 
 
 1. Fallacies about the Cost of War. F. W. Hirst . . 548 
 
 2. Some Economic Considerations. J.A.Hobson . . 552 
 
 3. War and Population. James A. Field 555 
 
 4. Ultimate Considerations. An editorial . . . .556 
 
 XIV. WAR'S LESSONS IN THE PRINCIPLES OF NATIONAL 
 EFFICIENCY 
 
 INTRODUCTION . 560 
 
 LXIII. Industrial Gains from War 560 
 
 LXIV. Some Economic Gains from the War. /. A. Hobson . 562 
 
 LXV. The Theory of National Efficiency in War and Peace. 
 
 /. Maurice Clark 566 
 
 
 
 XV. ECONOMIC FACTORS IN AN ENDURING PEACE 
 
 INTRODUCTION r 588 
 
 LXVI. THE RAW-MATERIALS QUESTION 
 
 1. Germany's Need of Raw Materials. Prince du Loewen- 
 stein Wertheim Fretiderburg 589 
 
 2. The Paris Economic Conference 590 
 
 3. The Organization of Raw Materials. "Atticus." . . 593 
 
 4. An Economic Association of Nations. Lord Roberts . 595
 
 
 
 xxx TABLE OF CONTENTS 
 
 PAG 
 
 5. A German View of the Raw-Materials Boycott. Herr 
 Dernburg 597 
 
 6. International Control of Raw Materials. An editorial 600 
 
 LXVII. STRUGGLE FOR FOREIGN MARKETS 
 
 1. Germany's Foreign Trade Preparations. P. Harvey 
 Middleton 601 
 
 2. Great Britain's Imperialistic Plans 605 
 
 3. Needed: An Allied Economic Agreement .... 606 
 
 LXVIII. TERRITORIAL PROBLEMS 
 
 1. Germany's Position in the East 608 
 
 2. Germany 's Colonial Aims . . . . : . . . . 612 
 
 3. Summary of British War Aims. David Lloyd George . 613 
 
 4. Radical (?) Views on Territorial Questions 
 
 A. Inter-allied Labor and Socialist Conference . . 614 
 
 B. French Socialist Views on Colonial Policy . . . 616 
 
 XVI. AFTER-THE-WAR PROBLEMS 
 INTRODUCTION 617 
 
 LXIX. THE NATURE OF THE PROBLEM 
 
 1. Reasons for Reconstruction Proposals in Great Britain. 
 Ordway Tead 619 
 
 2. The Factors in the Problem. An editorial . . .620 
 
 3. England's Ministry of Reconstruction 628 
 
 LXX. THE PROBLEM OF DEMOBILIZATION 
 
 1. The Task of Demobilization 634 
 
 2. Will There Be a Sex War in Industry ? Mary Stocks 639
 
 TABLE OF CONTENTS xxxi 
 
 FACE 
 
 LXXI. SOME PROGRAMS OF SOCIAL REFORM 
 
 1. The War Aims of American Unionists 643 
 
 2. British Labor and the New Social Order 646 
 
 3. Program of the World's Peace. Woodrow Wilson . 666
 
 ECONOMIC BACKGROUND OF WAR 
 
 Introduction 
 
 From earliest ages animals have fought for food, savages have 
 killed rival claimants to their hunting-grounds, and barbarians have 
 waged war for plunder, making slaves of the conquered and taking 
 their lands and other possessions. Rome supported her magnificence 
 by the tribute of a subjugated world and perished largely from eco- 
 nomic sterility and demoralization. 
 
 Modern wars are still matters of economic rivalry, though in more 
 and more refined forms. Indeed, some think that these dilute 
 economic antagonisms of today are not in themselves adequate to 
 motive nations to fight (selection IV, i), but rather pretexts for 
 unleashing the tribal fighting impulses left over from earlier ages 
 when tribal wars for the very means of life were a grim biological 
 necessity. Be that as it may, war is not merely a product of economic 
 rivalry but of that part of economic rivalry which is felt, rightly or 
 wrongly, to be rivalry between sovereign social groups rather than 
 between individuals. It must also be felt, rightly or wrongly, by 
 the whole people to be worth fighting over or at least by the influ- 
 ential or ruling classes. 
 
 War rests then, in the first place, on the idea of the nation as an 
 economic unit, with economic rivalries involving the common national 
 interest. Whether this idea be true, as List and Schmoller (selections 
 I, i and 2) maintain, or false, as Norman Angell (selection V, 3) argues 
 (cf. also Alvin Johnson on class interests), a belief in it makes 
 for militarism, and disbelief for pacifism. The nation does undoubt- 
 edly perform some very important functions of an economic sort 
 which make it better to belong to a large than to a small nation. 
 It assists in production, and it restricts foreign competition and favors 
 its own citizens above foreigners in the matter of access to productive 
 opportunities. In both these kinds of assistance, which may be 
 broadly classed as productive and discriminatory, much of the benefit 
 comes without definite state action, as a natural by-product of a 
 community of language and laws, and of the sense of solidarity felt
 
 2 ECONOMICS OF WAR 
 
 by private individuals that leads them to look first to their com- 
 patriots in buying and selling, or in organizing to buy or sell. Perhaps 
 the chief productive services of nations from our present point of view 
 can be grouped under the head of furthering, conserving, disseminat- 
 ing, and unifying the knowledge which is at the basis of economic 
 efficiency, a fact which List and Schmoller both emphasize. A 
 common system of laws and trade customs is extremely important 
 from this point of view, and a foreign system is a genuine obstacle. 
 The consular service is the branch of this system which (selection 
 IV, i) has most to do with the causes of war, and it is, curiously 
 enough, just because this particular service is on a competitive, not 
 on a purely co-operative, basis that it is inimical to peace. 
 
 But the national solidarity that breeds war springs chiefly, not 
 from these productive services, but from the discriminatory policies 
 of protectionism, concession-granting, etc. (See readings on " Com- 
 mercial Rivalry.") These solidarities are real, as the German 
 writers contend, though they need not be always so arrayed as to 
 provoke wars. A universal state could render all the productive 
 services better than the present nations, and its existence would 
 render the discriminatory services superfluous. The reader will note, 
 in the two selections from German writers which open this chapter, 
 the prophecy of larger and larger economic units, growing by free 
 union as well as by conquest. Norman Angell may be regarded as 
 going one step farther in that he finds the present national-economic 
 units already obsolete and reaches out to grasp what the earlier 
 German writers merely dreamed of. 
 
 Pressure of population has apparently not caused an actual 
 decrease in national well-being, but it has caused a cramped feeling. 
 For the world as a whole, the ultimate answer must be the limitation 
 of increase, but as long as a strong race can increase at the expense of 
 other races, it will not submit to this unwelcome alternative, which 
 carries with it things that seem to many to bear the stigma of 
 degeneracy (selection II, 2). 
 
 The entire subject of ''Economic Imperialism" is one that is 
 humanly impossible to treat without bias, and this bias is in itself 
 one of the data in the problem. The readings do not prove that trade 
 in peaceful times does or does not depend on a navy, riches on colonies, 
 world-progress on British development of Mesopotamia or on German 
 development of Mesopotamia, but they do prove that people believe 
 these things, and will go to war over these beliefs. Each side believes
 
 the good of humanity demands the triumph of that side. The 
 British writers on Mesopotamia and India believe this because the 
 British are a more humane and liberal people than others, their 
 empire having been almost forced on them as a by-product of trade. 
 General von Bernhardi (selection III, i) believes it because the 
 Germans are the strongest race by the test of war, and hence should 
 people the world of the future, under the national organization which 
 is the secret of their strength. Accordingly it would seem that 
 weaker races must give ground, and comfort themselves with ultimate 
 benefits derived from an existence in the same world with a higher 
 civilization than any they could attain by themselves. Canon Parfit 
 (selection III, 4) tells us how Germany's control of the Turkish govern- 
 ment looks to an Englishmen. But how did Great Britain's attempts 
 to "introduce reforms" into Turkey look to Germany? Simply a 
 rival attempt to gain control, under color of self-righteous claims to 
 superior virtue which the German did not for a moment believe and 
 which could only serve to convince him that the British are a nation of 
 hypocrites. Talk about the "white man's burden" has the same effect. 
 
 The relation between war and economic imperialism is one of the 
 most sinister of the many vicious circles within which humanity is 
 bound. Protective tariffs lead to war, and the prospect of future 
 wars is the principal reason, other than selfish class interests, for 
 continuing a protective tariff. A nation must be self-sufficient and 
 hence must expand till it commands a well-rounded complement of 
 economic resources. But the principal reason why this seems neces- 
 sary is to insure the economic life of the nation when trade is cut off 
 by wars, blockades, or protective tariffs. And the process of expand- 
 ing so as to achieve self-sufficiency is precisely what makes war 
 inevitable. The German feels that it is intolerable for his trade to 
 pass under British guns, though the trade is not damaged as long as 
 the guns do not shoot. Is it worth while, then, to bring on a war, 
 and give the guns their chance to shoot, chiefly in order to gain a 
 position such that in some future war his trade may not suffer as 
 much from the shooting of the guns as it has suffered in this one ? 
 
 It is significant that the immediate cause of the present war, 
 namely the Balkan crisis, is hardly touched upon in this chapter. It 
 is an incident in a far larger game. The present trouble was pre- 
 cipitated, however, by the Balkan wars, which made the Balkan 
 states strong and put a check on Austrian ambitions to dominate 
 this region a check which appeared final to the English diplomatist
 
 4 ECONOMICS OF WAR 
 
 (selection III, 5) but which only served to rouse the Central Powers 
 to a determination to make good their position at any cost. 
 
 I. The Nation as an Economic Unit 
 i. THE NATION STANDS FIRST 1 
 
 Between each individual and entire humanity, now stands the 
 nation, with its special language and literature, with its peculiar 
 origin and history, with its special manners and customs, laws and 
 institutions, with the claims of all these for existence, independence, 
 perfection, and continuance for the future, and with its separate 
 territory; a society which, united by a thousand ties of mind and 
 of interests, combines itself into one independent whole which recog- 
 nizes the law of right for and within itself, and in its united char- 
 acter is still opposed to other societies of a similar kind in their 
 national liberty, and consequently, under the existing conditions of 
 the world, can maintain self-existence and independence only by its 
 own power and resources. As the individual chiefly obtains by 
 means of the nation mental culture, power of production, security, and 
 prosperity, so is the civilization of the human race conceivable and 
 possible only by means of the civilization and development of the 
 individual nations. 
 
 Meanwhile, however, an infinite difference exists in the condition 
 and circumstances of the various nations; we observe among them 
 giants and dwarfs, well-formed bodies and cripples, civilized, half- 
 civilized, and barbarous nations; but in all of them, as in the individ- 
 ual human being, exists the impulse of self-preservation, the striving 
 for improvement which is implanted by nature. It is the task of 
 politics to civilize the barbarous nationalities, to make the small and 
 weak ones great and strong, but, above all, to secure to them existence 
 and continuance. It is the task of national economy to accomplish 
 the economical development of the nation, and to prepare it for admis- 
 sion into the universal society of the future. 
 
 1 By Friedrich List. Adapted from The National System of Political Economy, 
 pp. 141-43. Lloyd's Translation. Copyright by Longmans, Green & Co., 1904. 
 
 ED. NOTE. Friedrich List (1789-1846) was perhaps the most vigorous 
 German economic thinker of his day, a forerunner of the later German historical 
 school, and actively concerned with the customs union which paved the way for 
 the creation of the present German Empire by welding the German states into 
 an economic unit. His National System was first published in 1841.
 
 ECONOMIC BACKGROUND OF WAR 5 
 
 A nation in its normal state possesses one common language and 
 literature, a territory endowed with manifold natural resources, 
 extensive, and with convenient frontiers and a numerous population. 
 Agriculture, manufactures, commerce, and navigation must all be 
 developed in it proportionately; arts and sciences, educational 
 establishments, and universal cultivation must stand in it on an equal 
 footing with material production. Its constitution, laws, and insti- 
 tutions must afford to those who belong to it a high degree of security 
 and liberty, and must promote religion, morality, and prosperity; 
 in a word, must have the well-being of its citizens as its object. It 
 must possess sufficient power on land and at sea to defend its inde- 
 pendence and to protect its foreign commerce. It will possess the 
 power of beneficially affecting the civilization of less advanced nations, 
 and by means of its own surplus population and of their mental and 
 material capital to found colonies and beget new nations. 
 
 A large population and an extensive territory endowed with 
 manifold national resources are essential requirements of the normal 
 nationality; they are the fundamental conditions of mental cultivation 
 as well as of material development and political power. A nation 
 restricted in the number of its population and in territory, especially 
 if it has a separate language, can possess only a crippled literature, 
 crippled institutions for promoting art and science. A small state 
 can never bring to complete perfection within its territory the various 
 branches of production. In it all protection becomes mere private 
 monopoly. Only through alliances with more powerful nations, by 
 partly sacrificing the advantages of nationality, and by excessive 
 energy, can it maintain with difficulty its independence. 
 
 A nation which possesses no coasts, mercantile marine, or naval 
 power, or has not under its dominion and control the mouths of its 
 rivers, is in its foreign commerce dependent on other countries; it 
 can neither establish colonies of its own nor form new nations; all 
 surplus population, mental and material means, which flows from 
 such a nation to uncultivated countries is lost to its own literature, 
 civilization, and industry, and goes to the benefit of other nationalities. 
 
 Territorial deficiencies of the nation can be remedied either by 
 means of hereditary succession, as in the case of England and Scot- 
 land; or by purchase, as in the case of Florida and Louisiana; or by 
 conquests, as in the case of Great Britain and Ireland. 
 
 In modern times a fourth means has been adopted, which leads 
 to this object in a manner much more in accordance with justice and
 
 6 ECONOMICS OF WAR 
 
 with the prosperity of nations than conquest, and which is not so 
 dependent on accidents as hereditary succession, namely, the union 
 of the interests of various states by means of free conventions. By 
 its tariff union, the German nation first obtained one of the most 
 important attributes of its nationality. 
 
 2. NATIONAL ECONOMIC UNITY 1 , 
 
 What, to each in its time, gave riches and superiority first to 
 Milan, Venice, Florence, and Genoa; then later to Spain and Portugal; 
 and now to Holland, France, and England, and to some extent to 
 Denmark and Sweden, was a state policy in economic matters as 
 superior to the territorial as that had been to the municipal. Those 
 states began to weave the great economic improvement of the time 
 into their political institutions and policy, and to bring about an 
 intimate relation between the one and the other. States arose, 
 forming united and therefore strong and wealthy economic bodies, 
 quite different from earlier conditions. It was not only a question of 
 state armies, fleets, and civil services; it was a question rather of 
 unifying systems of finance and economy which should encompass the 
 forces of millions and whole countries and give unity to their social 
 life. There had always been great states; but they had been bound 
 together neither by traffic nor by the organization of labour nor by 
 any other like forces. The whole internal history of the seventeenth 
 and eighteenth centuries, not only in Germany but everywhere else, 
 is summed up in the opposition of the economic policy of the state 
 to that of the town, the district, and the several estates; the whole 
 foreign history is summed up in the opposition to one another of the 
 separate interests of the newly rising states, each of which sought to 
 obtain and retain its place in the circle of European nations and in 
 that foreign trade which now included America and India. Questions 
 of political power were at issue, which were, at the same time, 
 questions of economic organization. What was at stake was the 
 creation of real political organizations, the centre of which should be, 
 not merely a state policy reaching out in all directions, but rather 
 the living heartbeat of a united sentiment. 
 
 By Gustav Schmoller. Adapted from The Mercantile System, pp. 48-79. 
 Copyright by Macmillan & Co., 189 5$ The original was published in 1884. 
 
 ED. NOTE. Gustav Schmoller (1838 ) is a professor at the University of 
 Berlin, member of the Prussian Herrenhaus, and one of the foremost German 
 economists.
 
 ECONOMIC BACKGROUND OF WAR 7 
 
 Only he who thus conceives of mercantilism will understand it; 
 in its innermost kernel it is nothing but state making not state 
 making in a narrow sense, but state making and national-economy 
 making at the same time; state making in the modern sense, which 
 creates out of the political community an economic community, and 
 so gives it a heightened meaning. The essence of the system lies, not in 
 some doctrine of money or of the balance of trade; not in tariff bar- 
 riers, protective duties, or navigation laws; but in something far 
 greater namely, in the total transformation of society and its organi- 
 zation, as well as of the state and its institutions in the replacing 
 of a local and territorial economic policy by that of the national state. 
 
 In proportion as the economic interests of whole states, after 
 much agitation of public opinion, found a rallying point in certain 
 generally accepted postulates, there could not fail to arise the thought 
 of a national policy, of protection by the state against the outside 
 world, and of the support by the state of great national interests in 
 their struggle with foreign countries. The conception of a national 
 agriculture, of a national industry, of national shipping and fisheries, 
 of national currency and banking systems, of a national division of 
 labour, and of a national trade must have arisen before the need was 
 felt of transforming old municipal and territorial institutions into 
 national and state ones. But as soon as that had taken place it must 
 have seemed a matter of course that the whole power of the state, in 
 relation to other countries as well as at home, should be placed at the 
 service of these collective interests, just as the political power of the 
 towns and territories had served their municipal and district interests. 
 The struggle for existence, in economic life in particular as in social 
 life in general, is necessarily carried on at all times by smaller or 
 larger groups and communities. That will also be the case in all time 
 to come. And the practice and theory of those times, answering, as 
 they did, to this universal tendency, were nearer reality than the theory 
 of Adam Smith; and so also were the main ideas of Friedrich List. 
 
 All economic and political life rests upon physical mass-move- 
 ments, mass-sentiments, and mass-conceptions gravitating around 
 certain centres. That age could begin to think and act in the spirit 
 of free trade, which had left so far behind it the toilsome work of 
 national development that it regarded its best results as matters of 
 course and forgot the struggle they had cost; an age which, with 
 cosmopolitan sentiments, with great institutions and interests of 
 international traffic, with a humanise,d international law, and an
 
 8 ECONOMICS OF WAR 
 
 individualist literature everywhere diffused was already beginning to 
 live in the ideas and tendencies of a world-economy. 
 
 The long wars, each lasting several years or even decades, which 
 fill the whole period from 1600 to 1800 and have economic objects as 
 their main aim; the open declaration by the Grand Alliance of 1689 
 that their object was the destruction of French commerce; the 
 prohibition by the Allies of all trade, even by neutrals, with France, 
 without the slightest regard to international law; all this shows the 
 spirit of the time in its true light. The national passion of economic 
 rivalry had been raised to such a height that it was only in wars like 
 these that it could find its full expression and satisfaction. To be 
 content, in the intermediate years of peace, to carry on the conflict 
 with prohibition, tariffs, and navigation laws instead of with sea 
 fights; to give, as they did in these years of peace, somewhat more 
 attention to the infant voice of international law than in time of war 
 this was in itself a moderating of international passion. 
 
 In spite of the fact that it is the individual and the family that 
 labour, produce, trade, and consume, it is the larger social bodies 
 which, by their common attitude and action, intellectual as well as 
 practical, create all those economic arrangements of society, in 
 relation both to those within and to those without, upon which 
 depend the economic policy of every age in general and its com- 
 mercial policy in particular. We saw that the feeling and recognition 
 of economic solidarity, in regard alike to those within and those 
 without, necessarily created at the same time a corporate egoism. 
 From this egoism the commercial policy of every age receives its 
 impulse. 
 
 We have, in the next place, laid emphasis on the proposition that 
 historical progress has consisted mainly in the establishment of ever 
 larger and larger communities as the controllers of economic policy 
 in place of small. The seventeenth and eighteenth centuries seemed 
 to us the birth hour of modern states and modern national economies, 
 and therefore to have been necessarily characterized by a selfish 
 national commercial policy of a harsh and rude kind. Whether 
 such a policy was rightly directed in details depended on the informa- 
 tion and sagacity of the personages who guided the state; whether it 
 was to be justified as a whole, whether as a whole it had a probability 
 of success, that depended, -then as ever, on the question whether it 
 accompanied a great upward-moving stream of national and economic 
 life.
 
 ECONOMIC BACKGROUND OF WAR 9 
 
 The progress of the nineteenth century beyond the mercantilist 
 policy of the eighteenth depends keeping to this thought of a succes- 
 sion of ever-larger social communities on the creation of leagues of 
 states, on alliances in the matter of customs and trade, on the moral 
 and legal community of all civilised states, such as modern inter- 
 national law is more and more bringing into existence by means 
 of a network of international treaties. 
 
 But, of course, by the side of this stands another and not less 
 important chain of connected phenomena, which also helps to explain 
 the contrast between the nineteenth century on the one side and the 
 seventeenth and eighteenth on the other. The struggle of social 
 bodies with one another, which is at times military, at other times 
 merely economic, has a tendency, with the progress of civilization, to 
 assume a higher character and to abandon its coarsest and most 
 brutal weapons. The instinct becomes stronger of a certain solidarity 
 of interests, of a beneficent interaction, of an exchange of goods from 
 which both rivals gain. It was in this way that the strife of towns and 
 territories had been softened and moderated with time until, on the 
 foundation of still greater social bodies, the states, it had passed into 
 a moral influence and obligation to educate and assist the weaker 
 members within the larger community. 
 
 So the eighteenth-century ideas of a human cosmopolitanism 
 began to instil into men the thought of a change of policy in the 
 economic struggles of European states at the very time when the 
 international rivalry had reached its highest point. 
 
 3. NATIONAL ECONOMIC RIVALRY AN ILLUSION 
 
 A. 1 MISCONCEPTIONS AS TO THE NATURE OF GOVERNMENT AND 
 THE PLACE OF POLITICAL AUTHORITY 
 
 No less a person than Admiral Mahan assures us that the struggle 
 for territory between nations is justified economically by the fact that 
 just as a steel trust has an advantage in owning its own ore fields, its 
 stores of raw material, so a country has an advantage in owning 
 colonies and conquered provinces. We see at once the idea: the 
 nation is a commercial corporation like a steel trust. 
 
 1 By Norman Angell. Adapted from The Problems of the War and the Peace, 
 pp. 58-62. Copyright by William Heinemann, London. 
 
 ED. NOTE. Norman Angell (Norman Angell Lane) (1874 ) is a prominent 
 British journalist and author of a number of books on subjects connected with mili- 
 tarism, representing the cosmopolitan and anti-militarist wing of British thought.
 
 10 ECONOMICS OF WAR 
 
 Well, of course, a moment's reflection shows us that the analogy 
 is an absolutely false one; that these pictures of nations as rival units 
 competing one against the other bear no sort of resemblance to the 
 facts. To begin with, the nations, except in so far as the carrying of 
 letters and in some cases the manufacture of matches and tobacco are 
 concerned, are not commercial corporations at all, but political and 
 administrative ones, with functions of a like kind to those possessed 
 by our villages, towns, or counties; and Germany no more competes 
 with Britain than Birmingham does with Sheffield. It is not the 
 state which owns and exploits the ore fields or farms or factories in 
 the way that the steel trust owns its sources of raw material. The 
 state merely polices and guarantees possession to the real owners, 
 the shareholders, who may be foreigners. The mere fact that the 
 area of political administration would be enlarged or contracted by 
 the process which we call conquest has little more direct bearing upon 
 such economic questions as the ownership of raw material by the 
 populations concerned than the enlargement of a town's area by the 
 inclusion of outlying suburbs would have upon the trading of the citi- 
 zens of such towns. It is of course conceivable that they, or some, 
 might incidentally gain or incidentally lose; but an increase of 
 wealth. is no necessary consequence of the increase of municipal 
 territory. 
 
 Not merely is it untrue to represent the nation as carrying on 
 trade against other nations, untrue to represent the state as a cor- 
 poration carrying on the trade of its people, but it is just as untrue 
 to represent the nations as economic units in the field of international 
 trade. We talk and think of ''German" trade as competing in the 
 world with "British" trade, and we have in our mind that what is 
 the gain of Germany is the loss of Britain, or vice versa. It is 
 absolutely untrue. There is no such national conflict, no such thing 
 as "British" trade or "German" trade in this sense. An ironmaster 
 in Birmingham may have his trade taken away by the competition 
 of an ironmaster in Essen, just as he may have it taken away by one in 
 Glasgow, or Belfast, or Pittsburgh, but in the present condition of 
 the division of labour in the world it would be about as true to speak 
 of Britain suffering by the competition of Germany as it would be to 
 talk of light-haired people suffering by the competition of the dark- 
 haired people, or of the fact that those who live in houses with even 
 numbers are being driven out of business by those who live in odd- 
 numbered houses. Such delimitations do not mark the economic
 
 ECONOMIC BACKGROUND OF WAR II 
 
 delimitations; the economic function cuts athwart them; the frontiers 
 of the two do not coincide; and though we may quite legitimately pre- 
 fer to see a British house beat a German one in trade, that victory will 
 not necessarily help our group as a whole against his group as a whole. 
 
 When we talk of ''German" trade in the international field, what 
 do we mean? Here is an ironmaster in Essen making locomotives 
 for a light railway in an Argentine province (the capital for which has 
 been subscribed in Paris) , which has become necessary because of the 
 exporf of wool to Bradford, where the trade has developed owing to 
 the sales in the United States, due to high prices produced by the 
 destruction of sheep runs owing to the agricultural development of 
 the West. But for the money found in Paris (due perhaps to good 
 crops in wine and olives sold mainly in London and New York) and 
 the wool needed by the Bradford manufacturer (who has found a 
 market for blankets among miners in Montana, who are smelting 
 copper for a cable in China, which is needed because the encourage- 
 ment given to education by the Chinese Republic has caused Chinese 
 newspapers to print cable news from Europe) but for such factors 
 as these and a whole chain of equally interdependent ones throughout 
 the world, the ironmaster in Essen would not have been able to sell 
 his locomotives. How, therefore, can you describe it as part of the 
 trade of "Germany" which is in competition with the trade of 
 "Britain," or "France," or "America"? But for the British, 
 French, and American trade it could not have existed at all. You 
 may say that if the Essen ironmaster could have been prevented from 
 selling his locomotives the trade would have gone to a British one. 
 But this community of German workmen, called into existence by the 
 Argentine trade, maintains by its consumption of coffee a plantation 
 in Brazil, which buys its machinery in Sheffield. The destruction, 
 therefore, of the Essen trade, while it might have given business to 
 the British locomotive maker, would have taken it from, say, a British 
 agricultural implement maker. The economic interests involved sort 
 themselves irrespectively of the national groupings. 
 
 What, of course, we fail to realise in this connection is that trade is 
 necessarily exchange; if we are to sell anything to anyone the buyer 
 must have money. Roughly, and largely in the European nations, 
 he is a customer to the extent that he is a competitor. It is a note- 
 worthy fact, the full significance of which I have not space to deal 
 with now, that it is occasionally those nations which most resemble 
 one another in their industrial make-up that are mutually the best
 
 12 ECONOMICS OF WAR 
 
 customers. Great Britain sells more per head of population to Bel- 
 gium, a highly industrialised nation, than to Canada or Russia, 
 mainly agricultural nations. 
 
 What, I am dealing with here is not an ignorance of certain 
 statistical facts, or a failure to understand certain obscure points" 
 in economics; not the use of mere loose language, but a funda- 
 mentally untrue conception, a false picture of the state in its relation 
 to the economic activities of its people. 
 
 B. 1 POLITICAL VERSUS ECONOMIC UNITS 
 
 Co-operation between nations has become essential for the very 
 life of their peoples. But that co-operation does not take place as 
 between states at all. A trading corporation "Britain" does not buy 
 cotton from another corporation "America." A manufacturer in 
 Manchester strikes a bargain with a merchant in Louisiana in order 
 to keep a bargain with a dyer in Germany, and three or a much larger 
 number of parties enter into virtual, or perhaps actual, contract and 
 form a mutually dependent economic community (numbering, it may 
 be, with the work people in the groups of industries involved, some 
 millions of individuals) an economic entity so far as one can exist 
 which does not include all organized society. The special interests 
 of such a community may become hostile to those of another com- 
 munity, but it will almost certainly not be a "national" one, but one 
 of a like nature, say a shipping ring or groups of international bankers 
 or stock-exchange speculators. The frontiers of such communities 
 do not coincide with the areas in which operate the functions of the 
 state. How could a state, say Britain, act on behalf of an economic 
 entity such as that just indicated ? By pressure against America or 
 Germany? But the community against which the British manu- 
 facturer in this case wants pressure exercised is not "America" or 
 "Germany" both Americans and Germans are his partners in the 
 matter. He wants it exercised against the shipping ring, or the 
 speculators, or the bankers, who in part are British. If Britain 
 injures America and Germany as a whole she injures necessarily the 
 economic entity which it was her object to protect. 
 
 This establishes two things, therefore: the fact that the political 
 and economic units do not coincide and the fact, which follows as a 
 consequence, that action by political authorities designed to control 
 
 1 By Norman Angell (see p. 9). Adapted from Arms and Industry, pp. xviii- 
 xxvi. Published by G. P. Putnam's Sons, 1914.
 
 ECONOMIC BACKGROUND OF WAR 13 
 
 economic activities which take no account of the limits of political 
 jurisdiction is necessarily irrelevant and ineffective. The assumption 
 that states are economically rivals and that economic advantage 
 accrues to the possession of political power based on military force 
 postulates communities capable of political and geographical limita- 
 tion that are self-contained, and postulates also the effective control 
 of the social and economic activities of other similar communities by 
 the military force of our own. The great nations of modern Europe 
 have passed out of that stage of development in which such a con- 
 ception bears even a distant relation to the facts. This condition 
 carries with it the intangibility of wealth so far as foreign state action 
 is concerned, because any state destroying wealth in another must 
 destroy wealth in its own, since the unit intersects the two areas. 
 
 On the economic side this development is relatively modern its 
 vital form belongs to our generation. The prime factor therein has, 
 of course, been the improvement of communication and the cheapen- 
 ing of transport, setting up a division of labour, with its consequent 
 interdependence and solidarity of interest, between groups situated 
 in different nations, thus rendering hostility based on the lines of 
 political geography irrelevant to real collision of interest and moral 
 conflict. It is by the fact of having set up this process, and not by the 
 fact of having brought people of different nations into touch, that 
 improved communication is transforming the character of inter- 
 national relations. 
 
 The weight of an unexamined and obsolete political terminology 
 is, though extremely subtle, powerful. A professor of history and 
 a student of constitutional law in a great university once thought 
 to score a point by asking, "Were those who believed that possession 
 of extended territory did not enrich a people prepared to see Great 
 Britain give away Canada?" He was asked how he supposed Great 
 Britain could "give away" the inhabitants of Canada, and what 
 proprietary right she possessed in those eight million human 
 beings ? 
 
 Both the phrases and the pictures which they imply are of course 
 an historical survival from a time when a colonial "plantation" was 
 really somebody's possession (the monopoly of some company of 
 trading adventurers or a Court favourite) ; or from a still earlier time 
 when political "ownership" was a quite real thing from the point of 
 view of some reigning family to whom a country was an estate; or 
 from the period in Europe when the trade of "government" was as
 
 14 ECONOMICS OF WAR 
 
 much the professional interest of an oligarchic group as banking or 
 cotton-spinning are definite industrial interests of our day. 
 
 We have here then two factors: the general currency of words 
 and pictures that were created to indicate conditions that have 
 passed away, and the interpretation of these words and pictures by 
 people compelled by the inevitable circumstances of their lives to 
 form their political conceptions hurriedly and superficially from 
 the newspaper headline or the vague chatter of smoking-room leisure. 
 
 II. The Pressure of Population 
 i. BIRTH-RATES AND INTERNATIONAL RIVALRY 1 
 
 A century ago Malthus startled the world by demonstrating that 
 our race naturally multiplies faster than it can increase its food 
 supply, with the result that population tends ever to press painfully 
 upon the means of subsistence. So long as mankind reproduces 
 freely, numbers can be adjusted to resources only by the grinding of 
 destructive agencies, such as war, famine, poverty, and disease. To 
 be sure, this ghastly train of ills may be escaped if only people will 
 prudently postpone marriage. Since, however, late marriage calls 
 for the exercise of more foresight and self-control than can be looked 
 for in the masses, Malthus painted the future of humanity with a 
 somberness that gave political economy its early nickname of the 
 "dismal science." 
 
 Malthus is not in the least "refuted" by the fact that during his 
 century the inhabitants of Europe leaped in number from one hundred 
 and eighty-seven millions to four hundred millions, with no increase, 
 but rather diminution, of misery. It is true, unprecedented successes 
 in augmenting the food supply have staved off the overpopulation 
 danger. Within a lifetime, not only have- the arts of food raising 
 made giant strides, but, at the world's rim, great virgin tracts have 
 been brought under the plow, while steam hurries to the larders of the 
 Old World their surplus produce. But such a bounty of the gods is 
 not rashly to be capitalized. While there is no limit to be set to the 
 progress of scientific agriculture, no one can show where our century 
 is to find its Mississippi Valley, Argentina, Canada, or New Zealand 
 
 1 By Edward Alsworth Ross. Adapted from Changing America, pp. 32-49. 
 Copyright by Century Co., 1912. 
 
 ED. NOTE. E. A. Ross (1866 ) is professor of sociology at the University 
 of Wisconsin and one of the most prominent American sociologists.
 
 ECONOMIC BACKGROUND OF WAR 15 
 
 to fill with herds or farms. The vaunted plenty of our time adjourns 
 but does not dispel the haunting vision of a starving race on a crowded 
 planet. 
 
 Nevertheless the clouds that hung low about the future are 
 breaking. The terrible Malthus failed to anticipate certain influences 
 which in some places have already so far checked multiplication as to 
 ameliorate the lot of even the lower and broader social layers. The 
 sagging of the national birth-rate made its first appearance about 
 fifty years ago in France, thereby giving the other peoples a chance 
 to thank God they were not as these decadent French. But the thing 
 has become so general that today no people dares to point the finger 
 of scorn. In 1878 the fall of the birth-rate began in England. During 
 the eighties it invaded Belgium, Holland, and Switzerland. In 1889 
 it seized with great virulence upon Australia. Just before the close 
 of the century Finland, Italy, and Hungary fell into line. In Germany 
 and Austria it is only within four or five years that the economists 
 have begun to discuss "our diminishing fecundity." In all Christen- 
 dom only Russia, the Balkan States, and French Canada show 
 the old-fashioned birth-rates of forty, fifty, or even fifty-five per 
 thousand. The tendency in the United States is best revealed in the 
 diminishing number of children under five years to each thousand 
 women of child-bearing age. The decline from 1860 to 1890 is 
 24 per cent. 
 
 Owing to the fact that the death-rate has been falling even faster 
 than the birth-rate there is, so far, no slackening in the growth of 
 numbers. Indeed, part of the fall in the birth-rate merely reflects the 
 increasing proportion of aged. 
 
 The supreme service of forethoughted parenthood is that it bids 
 fair to deliver us from the overpopulation horror, which was becoming 
 more imminent with every stride in medicine or public hygiene. 
 Most of the Western peoples have now an excess of births over deaths 
 of i per cent a year. If even a third of this increase should find a 
 footing oversea, then home expansion would still be such that at a 
 future date, no more remote from us than the founding of Jamestown, 
 Europe would groan under a population of three billions, while the 
 United States of that day, with twice as many people as Europe now 
 has, would be to China what China is to the present United States. 
 Besides its attendant misery and degradation, population pressure 
 sharpens every form of struggle among men competition, class strife, 
 and war and the dream of a moral redemption of our race would
 
 1 6 ECONOMICS OF WAR 
 
 vanish into thin air if the enlightened peoples had failed to meet the 
 crisis created by the reduction of mortality. 
 
 Now that cheap travel stirs the social deeps and far-beckoning 
 opportunity fills the steerages, immigration becomes ever more 
 serious to the people that hopes to rid itself at least of slums, " masses," 
 and "submerged.'' What is the good of practising prudence in the 
 family if hungry strangers may crowd in and occupy at the banquet 
 table of life the places reserved for its children ? Shall it, in order to 
 relieve the teeming lands of their unemployed, abide in the pit of 
 wolfish competition and renounce the fair prospect of a growth in 
 suavity, comfort, and refinement? If not, then the low-pressure 
 society must not only slam its doors upon the indraught, but must 
 double-lock them with forts and ironclads lest they be burst open by 
 assault from some quarter where "cannon food" is cheap. 
 
 The rush of developments makes it certain that the vision of a 
 globe "lapt in universal law" is premature. If the seers of the mid- 
 century who looked for the speedy triumph of free trade had read 
 their Malthus aright, they might have anticipated the tariff barriers 
 that have risen on all hands within the last thirty years. So today 
 one needs no prophet's mantle to foresee that presently the world will 
 be cut up with immigration barriers which will never be leveled until 
 the intelligent accommodation of numbers to resources has greatly 
 equalized population pressure all over the globe. The French resent 
 the million and a third aliens that have been squeezed into hollow and 
 prosperous France by pressure in the neighbor lands. The English 
 restrict immigration from the Continent. The Germans feel the 
 thrust from the overstocked Slavic areas. The United States, 
 Canada, Australia, and South Africa are barring out the Asiatic. 
 Dams against the colored races, with spillways of course for students, 
 merchants, and travelers, will presently enclose the white man's 
 world. Within this area minor dams will protect the high wages of 
 the less prolific peoples against the surplus labor of the more 
 prolific. 
 
 Assuredly every small-family nation will try to raise such a dam 
 and every big-family nation will try to break it down. The outlook 
 for peace and disarmament is therefore far from bright. One needs 
 but compare the population pressures in France, Germany, Russia, 
 and Japan to realize that even today the real enemy of the dove of 
 peace is not the eagle of pride or the vulture of greed, but the 
 stork!
 
 ECONOMIC BACKGROUND OF WAR , 17 
 
 2. POPULATION LIMITS AND SOCIAL DECAY 1 
 
 Thus far attention has been especially invited to these facts : 
 
 1. The population of the world prior to 1800 was comparatively 
 small. 
 
 2. The increase from age to age was exceedingly slow, and the 
 general tendency of humanity to maintain rather small numbers 
 showed no striking change. 
 
 3. During the century from 1800 to 1900 the hindrances to the 
 increase of human beings, in general the same as those established by 
 nature to limit the increase of other living creatures, were largely 
 overcome by civilized man; and in addition entirely new industrial 
 conditions developed which offered means of support for many 
 millions of people. 
 
 4. In consequence the number of human beings on the globe 
 increased to an extraordinary degree, and at the close of the nine- 
 teenth century the population of the world exceeded a billion and 
 a half. 
 
 5. Principally, under the influence of industrial activity, mankind 
 has tended more and more to concentrate in large cities. 
 
 But if a variety of causes have contributed to invite very large 
 human increase in a comparatively brief period, does it also follow 
 that these influences will never spend themselves, and that a liberal 
 increase of world-population will continue indefinitely ? An affirma- 
 tive answer to this question does not appear to be reasonable. If, for 
 example, the increase of world-population should continue at the 
 nineteenth-century rate, five hundred years later, in 2400, the world 
 would be supporting thirteen and one half billions of human beings. 
 
 It must be remembered that as increase of population progresses 
 the mere fact of increase creates new conditions. These in turn may 
 check or destroy earlier tendencies. Thus out of the great increase 
 in population in our time has come already at least one significant fact. 
 This may be termed " the pressure of population." It is the general, 
 instinctive, realization of large numhers. Expression of this realiza- 
 tion appears in the decreasing belief that personal responsibility rests 
 on the individual to rear a large family, or even, in many cases, to 
 become a parent. Mere numbers the pressure of humanity on all 
 
 1 By William S. Rossiter. Adapted from "The Pressure of Population," 
 Atlantic Monthly, CVIII (1911), 838-43. Copyright by the Riverside Press. 
 
 ED. NOTE. William S. Rossiter (1861 ) is an American publisher and author 
 whose works include two volumes on population statistics.
 
 l8 ECONOMICS OF WAR 
 
 sides, especially in the large cities constitute ever-present evidence 
 to the average man and woman that there are people enough and that 
 the struggle for existence is too severe already to be increased by 
 unnecessary burdens. In consequence there has arisen a rather 
 remarkable and widespread tendency, now clearly evident in most 
 of the large communities of Europe, voluntarily to limit the family. 
 The effect of this tendency is most marked in France, where it has 
 produced a present state of equilibrium of population liable to be 
 changed at any time into a positive national decrease. Limitation 
 of family has also appeared in other parts of the world, and has 
 caused much concern in Australia, where a very small total white 
 population is shown. It should not be overlooked, however, in con- 
 nection with the apparently exceptional problem presented by 
 Australia, that the southern Continent seems never to have sustained 
 a large population. The aborigines of Australia, New Zealand, 
 and Tasmania were not numerous, and those that remain are 
 dying out so rapidly as to suggest a very frail racial grasp upon 
 existence. 
 
 In the United States the conditions have tended more and more 
 to approximate those of Europe. From the pioneer stage which 
 prevailed when Malthus called attention to the phenomenal fertility 
 of many American communities the nation has advanced so far and 
 with such rapidity that the change constitutes one of the marvels of 
 the age. By a sort of forced draught, secured with the assistance of 
 all Europe, the United States has attained an eigh teen-fold increase 
 in population in one hundred years. The national policy during 
 this era of feverish development may be summed up as a continuous 
 and successful attempt to compress the normal national growth of a 
 long period into a few decades. 
 
 In consequence of a century of such increase of numbers, accom- 
 panied by an ever-increasing congestion in urban centers, it is not 
 strange that in the United States also has appeared the modern 
 tendency to limit the family. It has become so general, indeed, in 
 many sections that the effect upon the states and the nation in all 
 probability would be more evident even than it is in France if it were 
 not concealed by immigration. Substantially all the national increase 
 is now contributed by the later stock, by persons born in other 
 countries and by their children. 
 
 The conditions and practice here alluded to have been aggressively 
 and very justly assailed as being destructive to domestic happiness,
 
 ECONOMIC BACKGROUND OF WAR 19 
 
 character-building, and national stability. To these assertions there 
 can be no effective reply. 
 
 The large family has been and is one of the principal sources of the 
 finer elements of American character. The United States is what it 
 is today because of large families. Their decrease should be a cause 
 of much concern. It is useless, however, to ignore world-tendencies. 
 If, in response to a conscientious conviction that larger families were 
 proper and necessary for the welfare of the nation, the American 
 people should increase the proportion of children to that which 
 prevailed in 1790, there would be added nearly 16,000,000 to the total 
 population. The continuation of this rate of increase added to the 
 present actual increase (derived largely from external sources) would 
 advance the population of the United States by leaps and bounds. 
 Without radical change in the wants and consumption of each individ- 
 ual in other words, without an economic revolution such increase 
 obviously could not long continue. 
 
 But if, as thus suggested, the race is now becoming obedient to 
 new population influences, whither do they lead us ? In the past the 
 crude limitations of population incidentally tended to strengthen the 
 character and increase the endeavor of those who survived. In this 
 age, by wonderful invention and achievement, we have directly 
 stimulated increase in numbers; but if in so doing we have brought 
 into operation new forces or influences which in turn war insidiously 
 against further pronounced increase, we may have entailed much 
 ultimate injury upon society by affecting one of the main sources of 
 human strength and progress. When individuals of both sexes, 
 oppressed by the density of population on all sides and convinced 
 that the race is increasing without their aid, or that it already is too 
 numerous without increase, feel themselves absolved from the per- 
 formance of the supreme natural function, society is confronted with 
 a problem of the gravest importance. The avoidance of having 
 children has become already so general that the man of intelligence 
 and influence who rears a large family is now both exceptional and 
 courageous. Thus the age-old instinct, for the quickening of which 
 far-sighted statesmen in this and other countries are pleading, seems 
 to have been dulled. The energy which under the old conditions 
 was devoted to the rearing of children is now largely turned in 
 other directions. It seldom benefits the state and society, but is 
 generally expended upon some form, however innocent, of self- 
 gratification.
 
 20 ECONOMICS OF WAR 
 
 If the large family is the most wholesome state for society, then 
 its decline must be a distinct loss. Moreover this loss comes at a 
 period of time when more and better men are needed than in any 
 previous period. Never before has the race been called upon to 
 administer and increase such a vast accumulation of knowledge or 
 to deal with such a complexity in the social order. 
 
 These considerations suggest that perhaps the human race, in 
 its magnificent endeavor in this age, has in reality overreached itself 
 and sown the seeds of decay. It is possible to imagine stationary, and 
 then decreasing, population as becoming at length world-wide, and 
 finally a distinct downward movement of the race, as though humanity 
 were burnt out by overexcitement, wealth, and excess. Mankind is 
 no longer young; is the race to be always virile ? 
 
 3. A STATIONARY POPULATION AND PROSPERITY 1 
 
 In the United States we have seen that the workingman is already 
 being compelled to take smaller wages, measured in terms of food, 
 than he received a few years ago. The pressure upon food has begun 
 to be felt in this country, where conditions have been very good until 
 the last few years. Is this also the case with the European countries ? 
 For the United Kingdom we can answer this question definitely. 
 Wages will purchase about 8.0 per cent less food in 1910 than in 
 1900. The decrease is not quite so large as in the United States, but 
 it is more significant, because the English laborer was nearer the sub- 
 sistence level in 1900 than the American laborer. That the pressure 
 is being felt in the United Kingdom is also attested by the fact that 
 immigration was much larger in the decade 1900-1910 than in the 
 previous decade. There can be no doubt that the British laborer is 
 being affected by the fact that a larger and larger proportion of his 
 food comes from foreign lands and is increasingly difficult to obtain. 
 
 In France we find that the situation is not so serious as in these 
 other countries. Prices have increased in the last decade, but not 
 as much as in the United States and Germany, and just about the 
 same as in the United Kingdom. Wages have increased faster than 
 prices for most of this decade. Thus it is evident that the situation 
 
 1 By Warren S. Thompson. Adapted from .Columbia University Studies in 
 Political Science, Vol. LXIII, No. 3, Population: A Study in Malthusianism, 
 pp. 156-64. Copyright by Warren S. Thompson, 1915. 
 
 ED. NOTE. Mr. Thompson is a member of the department of sociology at 
 the University of Michigan.
 
 ECONOMIC BACKGROUND OF WAR 21 
 
 of the French workingman is better today than it has been in the past. 
 As far as our data permit of generalization we can say that France 
 is the only country in which wages have kept ahead of prices since 
 1900. What are the differences between France and these other 
 countries which will account for this relatively better situation of the 
 French workingman? 
 
 In addition to the restriction of population, the fact that a larger 
 proportion of the population of France than of most of the great 
 industrial countries is engaged in agriculture will help to account for 
 the state of general well-being among the masses of the French people. 
 France has not attempted to compete for industrial and commercial 
 supremacy and therefore has avoided the costs of this competition. 
 It is only within a few years that these costs have come to be felt 
 keenly in the United States and Germany; they have been felt for a 
 longer time in Great Britain. 
 
 Because population is about stationary and because living condi- 
 tions are relatively good many of the French economists view the 
 position of France with great apprehension. The reasons for this 
 apprehension are not far to seek. In the first place, they fear that 
 immigration of peoples with lower standards of living from surround- 
 ing countries will take place on a large scale, and that these immigrants 
 will multiply so rapidly that they will denationalize the French. In 
 the second place, they fear that the nations to the east of them will 
 soon be able to conquer them because their populations are increasing 
 so rapidly. 
 
 Another conclusion which seems to me to be warranted is that 
 population cannot continue to increase at its present rate without 
 being more and more subjected to the actual want of food, provided 
 the distribution of labor between agriculture and the non-agricultural 
 industries continues in its present trend (the trend found in the more 
 highly developed 'countries). Nor can a greater and greater propor- 
 tion of the population be devoted to agriculture and the present rate 
 of increase continue without checking a progressive standard of living. 
 The non-agricultural industries are not yielding increasing returns in 
 such ratio that they can furnish the necessary material means for a 
 progressive standard to such a rapidly increasing population. Thus, 
 whatever the direction of development, a progressive standard of 
 life and a population increasing from 1.5 per cent to 2.0 per 
 cent a year cannot go on together for long in a large part of the 
 world.
 
 22 ECONOMICS OF WAR 
 
 III. Economic Imperialism 
 i. A SUMMARY VIEW OF MACHTPOLITIK* 
 
 War is a biological necessity of the first importance, a regulative 
 element in the life of mankind which cannot be dispensed with, since 
 without it an unhealthy development will follow which excludes every 
 advancement of the race and therefore all real civilization. 
 
 The nation is made up of individuals, the state of communities. 
 The motive which influences each member is prominent in the whole 
 body. It is a persistent struggle for possessions, power, and sover- 
 eignty which primarily governs the relations of one nation to another, 
 and right is respected so far only as it is compatible with advantage. 
 So long as there are men who have human feelings and aspirations, so 
 long as there are nations who strive for an enlarged sphere of activity, 
 so long will conflicting interests come into being and occasions for 
 making war arise. 
 
 The natural law, to which all laws of nature can be reduced, is the 
 law of struggle. All intra-social property, all thoughts, inventions, 
 and institutions, as indeed the social system itself, are a result of the 
 intra-social struggle, in which one survives and another is cast out. 
 The extra-social, the super-social, struggle which guides the external 
 development of 'societies, nations, and races, is war. 
 
 That social system in which the most efficient personalities possess 
 the greatest influence will show the greatest vitality in the intra- 
 social struggle. In the extra-social struggle, in war, that nation will 
 conquer which can throw into the scale the greatest physical, mental, 
 moral, material, and political power and is therefore the best able to 
 defend itself. War will furnish such a nation with favourable vital 
 conditions, enlarged possibilities of expansion, and widened influence, 
 and thus promote the progress of mankind; for it is clear that those 
 intellectual and moral factors which insure superiority in war are also 
 those which render possible a general progressive development. They 
 confer victory because the elements of progress are latent in them. 
 Without war inferior or decaying races would easily choke the growth 
 of healthy, budding elements, and a universal decadence would follow. 
 
 1 By F. von Bernhardi. Adapted from Germany and the Nexi War, pp. 18-108. 
 Published by Longmans, Green & Co., 1914. 
 
 ED. NOTE. General von Bernhardi (1849 ) is an authority on cavalry 
 tactics, and the book from which this extract is made is an attempt to arouse 
 German opinion to the most extreme militarist point of view.
 
 ECONOMIC BACKGROUND OF WAR 23 
 
 Strong, healthy, and flourishing nations increase in population. 
 From a given moment they require a continual expansion of their 
 frontiers; they require new territory for the accommodation of their 
 surplus population. Since almost every part of the globe is inhabited, 
 new territory must, as a rule, be obtained at the cost of its possessors 
 that is to say, by conquest, which thus becomes a law of necessity. 
 
 In America, England, and Germany, to mention only the chief 
 commercial countries, industries offer remunerative work to great 
 masses of the population. The native population cannot consume all 
 the products of this work. The industries depend, therefore, mainly 
 on exportation. Work and employment are secured so long as they 
 find markets which gladly accept their products, since they are paid 
 for by the foreign country. But this foreign country is intensely 
 interested in liberating itself from such tribute and in producing itself 
 all that it requires. We find, therefore, a general endeavor to call 
 home industries into existence and to protect them by tariff barriers; 
 and on the other hand the foreign country tries to keep the markets 
 open to itself, to crush or cripple competing industries, and thus to 
 retain the consumers for itself or win fresh ones. It is an embittered 
 struggle which rages in the markets of the world. It has already often 
 assumed definite hostile forms in tariff wars, and the future will 
 certainly intensify this struggle. Great commercial countries will, on 
 the one hand, shut their doors more closely to outsiders, and countries 
 hitherto on the downgrade will develop home industries, which, under 
 more favorable conditions of labour and production, will be able to 
 supply goods cheaper than those imported from the old industrial 
 states. These latter will see their position in the world-markets 
 endangered, and thus it may well happen that an export country 
 can no longer offer satisfactory conditions of life to its workers. Such 
 a state runs the danger, not only of losing a valuable part of its 
 population by emigration, but also of gradually falling from its 
 supremacy in the civilized and political world through diminishing 
 production and lessened profits. 
 
 In this respect we stand to-day at the threshold of a develop- 
 ment. We cannot reject the possibility that a state, under the 
 necessity of providing remunerative work for its population, may 
 be driven into war. 
 
 Under these conditions the position of Germany is extraordinarily 
 difficult. We not only require for the full material development of 
 our nation, on a scale corresponding to its intellectual importance,
 
 24 ECONOMICS OF WAR 
 
 an extended political basis, but, as has just been explained, we are 
 compelled to obtain space for our increasing population and markets 
 for our growing industries. But at every step which we take in 
 this direction England will resolutely oppose us. English policy 
 may not yet have made the definite decision to attack us; but it 
 doubtless wishes, by all and every means, even the most extreme, to 
 hinder every further expansion of German international influence 
 and of German maritime power. 
 
 Since the struggle is, as appears on a thorough investigation of the 
 international question, necessary and inevitable, we must fight it out, 
 cost what it may. Indeed, we are carrying it on at the present 
 moment, though not with drawn swords, and only by peaceful means 
 so far. On the one hand, it is being waged by the competition in 
 trade, industries, and warlike preparations; on the other hand, by 
 diplomatic methods with which the rival states are fighting each other 
 in every region where their interests clash. With these methods it 
 has been possible to maintain peace hitherto, but not without con- 
 siderable loss of power and prestige. This apparently peaceful state 
 of things must not deceive us; we are facing a hidden, but none the 
 less formidable, crisis perhaps the most momentous crisis in the 
 history of the German nation. We have fought in the last great 
 wars for our national union and our position among the Powers of 
 Europe; we now must decide whether we wish to develop into and 
 maintain a World Empire and procure for German spirit and German 
 ideas that fit recognition which has been hitherto withheld from them. 
 Have we the energy to aspire to that great goal ? Are we prepared 
 to make the sacrifices which such an effort will doubtless cost us? 
 Or are we willing to recoil before the hostile forces and sink step by 
 step lower in our economic, political, and national importance? 
 That is what is involved in our decision. 
 
 There is no standing still in the world's history. All is growth and 
 development. We must make it quite clear to ourselves that there 
 can be no standing still, no being satisfied, for us, but only progress or 
 retrogression, and that it is tantamount to retrogression when we are 
 contented with our present place among the nations of Europe while 
 all our rivals are straining with desperate energy, even at the cost of 
 our rights, to extend their power. The process of our decay would 
 set in gradually and advance slowly so long as the struggle against us 
 was waged with peaceful weapons; the living generation would 
 perhaps be able to continue to exist in peace and comfort. But
 
 ECONOMIC BACKGROUND OF WAR 25 
 
 should a war be forced upon us by stronger enemies under conditions 
 unfavourable to us, then, if our arms met with disaster, our political 
 downfall would not be delayed and we should rapidly sink down. 
 The future of German nationality would be sacrificed, an independent 
 German civilization would not long exist, and the blessings for which 
 German blood has flowed in streams spiritual and moral liberty 
 and the profound and lofty aspirations of German thought would 
 for long ages be lost to mankind. 
 
 If, as is right, we do not wish to assume the responsibility for such 
 a catastrophe we must have the courage to strive with every means to 
 attain that increase of power which we are entitled to claim, even at 
 the risk of a war with numerically superior foes. 
 
 We must employ means also for the widening of our colonial 
 territory, so that it may be able to receive the overflow of our popula- 
 tion. Very recent events have shown that under certain circum- 
 stances it is possible to obtain districts in equatorial Africa by pacific 
 negotiations. If necessary they must be obtained as the result of a 
 successful European war. In all these possible acquisitions of ter- 
 ritory the point must be strictly borne in mind that we require 
 countries which are climatically suited to German settlers. Now 
 there are, even in Central Africa, large regions which are adapted to 
 the settlement of German farmers and stock-breeders, and part of 
 our overflow population might be diverted to. those parts. But, 
 generally speaking, we can only obtain in tropical colonies markets 
 for our industrial products and wide stretches of cultivated ground 
 for the growth of the raw materials which our industries require. 
 This represents in itself a considerable advantage, but does not 
 release us from the obligation to acquire land for actual colonization. 
 
 A part of our surplus population indeed so far as present con- 
 ditions point will always be driven to seek a livelihood outside the 
 borders of the German Empire. Measures must be taken to the extent 
 at least of providing that the German element is not split up in the 
 world, but remains united in compact blocks and thus forms, even in 
 foreign countries, political centres of gravity in our favour, markets 
 for our exports, and centres for the diffusion of German culture. 
 
 An intensive colonial policy is for us especially an absolute 
 necessity. It has often been asserted that a "policy of the open door" 
 can replace the want of colonies of our own and must constitute our 
 programme for the future just because we do not possess sufficient 
 colonies. This notion is justified only in a certain sense. In the
 
 26 ECONOMICS OF WAR 
 
 first place, such a policy does not off er the possibility of finding homes 
 for the overflow population in a territory of our own ; next, it does not 
 guarantee the certainty of an open and unrestricted trade competi- 
 tion. It secures to all trading nations equal tariffs, but this does not 
 imply by any means competition under equal conditions. On the 
 contrary, the political power which is exercised in such a country is 
 the determining factor in the economic relations. The principle of 
 the open door prevails everywhere in Egypt, in Manchuria, in the 
 Congo State, in Morocco and everywhere the politically dominant 
 power controls the commerce: in Manchuria, Japan; in Egypt, 
 England; in the Congo State, Belgium; and in Morocco, France. 
 The reason is plain. All state concessions fall naturally to that state 
 which is practically dominant; its products are bought by all the 
 consumers who are in any way dependent on the power of the state, 
 quite apart from the fact that by reduced tariffs and similar advan- 
 tages for the favoured wares the concession of the open door can be 
 evaded in various ways. A "policy of open door" must at best be 
 regarded as a makeshift and as a complement of a vigorous colonial 
 policy. The essential point is for a country to have colonies of its 
 own and a predominant political influence in the spheres where its 
 markets lie. Our German world-policy must be guided by these 
 considerations. 
 
 2. INDUSTRIAL PENETRATION 1 
 
 Certain thinkers tell us: "It is not true that economic causes 
 played a preponderant part in the explosion of last July. Germany 
 was not threatened by overpopulation, she had no urgent need of 
 colonies." But the truth is, that what counts in the history of 
 humanity is not the actual facts but the form in which men picture 
 them to their minds. Political economy and history are in their 
 essence psychological sciences. What we are concerned to know is 
 not whether Germany was actually suffocating; Germany thought 
 she was suffocating, she yielded to use the very words of one of 
 those who contradict us to the haunting fear of aggressive "encircle- 
 
 1 By Henri Hauser. Adapted from "Economic Germany," a lecture given 
 on April 10, 1915. Printed by Thomas Nelson & Sons, 1915. 
 
 ED. NOTE. Henri Hauser (1866 ) is professor of modern history and geog- 
 raphy at the University of Clermont and author of numerous works, including a 
 study of American imperialism.
 
 ECONOMIC BACKGROUND OF WAR 27 
 
 ment," which she felt bound to shatter at all costs. It is this "patho- 
 logical phenomenon of collective psychology" which we must attempt 
 to explain. 
 
 I. THE EVOLUTION OF GERMAN INDUSTRY 
 
 What strikes us at the very outset in the evolution of German 
 industry is the actual greatness of the phenomenon. There is some- 
 thing impressive in the spectacle of this people, which forty years ago 
 scarcely counted at all in economic geography, and yet had become 
 on the eve of the war one of the great forces of the world. With her 
 900 to 1,000 millions of foreign commerce Germany reckoned in the 
 second rank of mercantile nations, after England. Outstripping 
 England herself she had achieved the second place in the smelting and 
 production of iron and the second also in the manufacture of steel. 
 Her mercantile marine, inferior to ours [the French] in 1870, was in 
 1913 surpassed only by those of England and the United States. 
 
 All this won our admiration We do not hesitate to recog- 
 nize that the German people, since the foundation of the Empire, have 
 given proof of remarkable qualities. First and foremost they have 
 worked with intense energy, not with the feverish excitement which 
 raises mountains in a few days, but with persistent and patient every- 
 day labour, regular and methodical. Ostwald is right when he attrib- 
 utes to the Germans the faculty and genius for organization. They 
 have carried to perfection the art of making use of men, of putting 
 every man in his place, and of getting the maximum of output from 
 each individual. If the genius for great discoveries seems in recent 
 times to have deserted Germany, the Germans are past masters in the 
 application of the discoveries of science to industry. The statement 
 has often enough been made : It is the union of the laboratory and the 
 workshop which is the foundation of German wealth. This truth 
 was emphasized in 1897 by M. Raphael- Georges Levy. In an 
 article in the Revue des deux mondes, which was a revelation to many 
 Frenchmen, he wrote: 
 
 The sphere in which science wins its triumphs is that of industry. It 
 is difficult to find a more striking demonstration of this truth than that 
 furnished by the chemical industry of Germany. That industry came from 
 the laboratories of great men of science, such as Liebig and Hoffman, and 
 its continued prosperity is due to the incessant co-operation of hundreds 
 
 of chemists who come every year from the Universities Germany is 
 
 covered with laboratories, several of which have cost 25,000, and the 
 yearly upkeep of which requires hundreds of thousands.
 
 28 ECONOMICS OF WAR 
 
 Side by side with the union between laboratory and workshop it 
 is necessary to call attention to the union between the office of 
 the business director and the library of the economist, the geo- 
 grapher and the historian. For the method which the Germans 
 applied to the production of a new aniline colour they also carried 
 into their search for commercial outlets and their organization of 
 channels of commerce. The German chemist and the German com- 
 mercial traveller marched in step to the conquest of the globe. 
 
 This rise of Germany was a great and, we are prepared to say, in a 
 certain sense a fine spectacle; but its very rapidity contained an 
 element which gave some ground for anxiety. 
 
 The evolution of Germany has borne a startling and almost 
 catastrophic character. From the complex of agricultural states, 
 dotted with industrial patches, which constituted the Zollverein in 
 1870, the industrial Empire has sprung up in a few years by a sort of 
 historical "right-about-face," without any of that slow and secular 
 preparation which marked the rise, for instance, of the English power. 
 
 Time has had no share in producing industrial Germany In 
 
 1895 the income from the fortunes of the Empire was estimated at 21 
 milliards; in 1913 the estimate varied from 40 to 50 milliards, while 
 the wealth of Germany was estimated at 320 milliards, of which 
 nearly 9.5 consisted of deposits in banks and 18 in savings banks. 
 Such are the figures proudly produced by Dr. Helfferich, director of 
 the Deutsche Bank, the present minister of finance of the King of 
 Prussia, at the twenty-fifth anniversary of the accession of William II. 
 
 This sudden increase in German wealth had very serious conse- 
 quences for the character and distribution of the population of 
 Germany. The two most notable results were the progressive dis- 
 appearance of the rural population and the abrupt cessation of 
 emigration. It is repeatedly stated that the Germans were forced 
 into a policy of expansion and conquest by the increase of their 
 population. This was indeed the excuse they put forward to justify 
 their attempts to create colonies of settlement in Morocco and Asia 
 Minor. A pitiless Malthusian law had forced them, it was said, to 
 find for themselves a "place in the sun." Now there could be no idea 
 more false than this of Germany as an overpopulated country. It is 
 quite true that since 1871 the population of the Empire has increased 
 from 40 to nearly 70 millions. It is quite true that in spite of a decline 
 in the birth-rate the increase in the population of Germany was 
 800,000 a year: that is, 800,000 more births than deaths, 800,000
 
 ECONOMIC BACKGROUND OF WAR 29 
 
 more mouths to feed. But this increase was far from being excessive, 
 for every year 700,000 Slav labourers came in to work on the great 
 estates of the East, not to mention the Italian, Croatian, Polish, etc., 
 labour employed in towns, mines, and works. 
 
 As for German emigration it is no longer more than a memory. 
 Between 1880 and 1883 it exceeded 200,000 a year; to-day it does not 
 reach 20,000, very much the same figure as our own, and the French 
 are regarded as a people who emigrate very little. The number of 
 arrivals far exceeds that of departures. Germany has ceased to be a 
 country of emigration and is becoming a country of immigration. 
 
 Out of 67 million Germans scarcely 17 millions are agricultural 
 or live on agriculture. Every year an enormous number of peasants 
 quit the land and rush into colossal factories. Germany has definitely 
 passed from the type of the agricultural state to that of the industrial 
 state, from the Agrarstaat to the Industriestaat. The equilibrium 
 between the land and the workshop has been upset. 
 
 II. THE INDUSTRIAL STATE AND ITS NEEDS 
 
 The industrial state has very imperious needs and requirements 
 which are not shared by the agricultural state; the agricultural state 
 lives on itself and for itself and can live within its own limits. The 
 industrial state, to use the phrase of Lamprecht, is a "tentacular" 
 state. 
 
 To begin with, it has need of supplies of food. It is calculated 
 that 20 millions of the 67 millions of Germany depend for their 
 maintenance on foreign harvests and foreign cattle. A dangerous 
 position, since it compels Germany to secure for herself at all times 
 not only free passage over her land frontiers, but, above all, freedom 
 of communication by sea. We know what it costs Germany to-day 
 to be cut off from receiving the wheat of Russia, America, and 
 Argentina. 
 
 The industrial state is in pressing need not only of capital but of 
 raw material. Germany, when she entered the lists, was regarded 
 as a country rich in coal and iron. She has remained rich in coal, 
 but by working her iron mines intensively I do not say she has 
 exhausted them, but she can no longer extract from them the total 
 amount of ore required by her metallurgical works. Krupp is more 
 and more dependent on Sweden, Spain, North Africa, and France. 
 In the same way the spinning and weaving factories of Saxony and 
 Silesia are dependent on Texas and Louisiana. If Sweden, which has
 
 30 ECONOMICS OF WAR 
 
 nationalised her mines, puts barriers on the export of her ores, or the 
 price of corn undergoes an abnormal rise in the market of New Orleans, 
 it means famine for the crowds which throng into the Westphalia 
 district or to the north of the Bohemian mountains. 
 
 Raw cotton bulks larger than any other article imported into 
 Germany, to the amount of considerably more than 25,000,000. 
 The cotton industry employs more than i| millions of work-people 
 and manufactures goods to the value of more than 50,000,000. 
 Now two-thirds of the raw cotton consumed in the world is supplied 
 by a single country, the United States. In 1894 a syndicate, the 
 "Sully cotton corner," took advantage of this situation to produce 
 an enormous rise of prices and to reserve the cotton for the American 
 factories. On the Bremen exchange, in February, the price paid for 
 cotton was 85 pfennige a pound, while in December, when the corner 
 had been broken up, it fell to 35. Germany lost in the operation 
 5,850,000 paid to the foreigner. A reduction in the production of 
 cotton textiles and widespread dismissal of workmen were the results 
 of this veritable cotton famine, which at the same time disastrously 
 affected our own industries in the Vosges and in Normandy as well 
 as those of Lancashire. 
 
 Customers are necessary to Germany even more than capital. 
 In spite of their power of increase, in spite of their rapid advance in 
 wealth, in spite of their appetite for enjoyment, the German people 
 cannot by themselves alone absorb the enormous output of the 
 German factories. They are bound to turn more and more to the 
 outside world and to become an exporting nation. 
 
 All causes then combine to make Germany a tentacular state 
 spreading out in every direction over the world. The general staff 
 of the industrial world needs a "world-policy" to find interest for its 
 capital and to pay the wage of its workmen. The proletariat have 
 need of it to give them a full day's work and save them from starvation. 
 That is why German Socialism is imperialist. Even as early as 1900 
 the defenders of the Naval Law wrote: "The freedom of the seas and 
 vigorous competition in the markets of the world are therefore 
 questions of life and death for the nation, questions in which the 
 working classes are most deeply interested." Only yesterday the 
 Social Democrat Konrad Hoenisch, ex-member of the Reichstag, 
 exclaimed, "The social interests of the German proletariat even 
 more than political considerations make victory for Germany 
 necessary."
 
 ECONOMIC BACKGROUND OF WAR 31 
 
 III. INDUSTRY AND WORLD-POLICY (" WELTPOLITIK ") 
 
 Thus we see the industrial state condemned to world-policy. 
 Its first business is to find means to develop its policy of exports. 
 The first means adopted is the system of bounties. As German 
 industry is working less for the home market than for foreign markets 
 it is logical to sell cheap, sometimes even to sell at a loss, beyond the 
 frontier in order to win new markets and to discourage all competition. 
 Thanks to the system by which the chief economic forces are grouped 
 in cartels, the process is easy enough. In 1902 the coke syndicate 
 compelled the German consumer to pay 155. a ton, while at the same 
 time it agreed to sell large quantities abroad at us. In the second 
 half of 1900 the iron-wire syndicate had sold abroad at 145. per 100 
 kg., while the home price was 255. It thus made a minus profit on 
 the foreign market, that is, a loss of 42,950, and on the home market 
 a profit of 58,850. This gave a balance on the right side. But this 
 time the trick was overdone, for the result was that German iron was 
 bought up abroad to be re-exported to Germany at a profit. Next to 
 the system of bounties comes that of treaties of commerce, which 
 favour the importation of provisions and of labourers (Slavs, for 
 example), and which secure a moderate tariff for German goods 
 abroad. Such is the basis of the Russo-German Treaty of 1904, the 
 tendency of which was to make Russia an economic colony of 
 Germany. 
 
 In order to meet the want of iron, Germany had to conquer new 
 supplies of iron ore. Peaceful conquest to begin with. The expert 
 adviser attached to the commissioners of delimitation in 1871 allowed 
 the iron-ore strata of the Woevre to escape, from ignorance of their 
 real importance, and also because he thought them inaccessible by 
 reason of their depth, unworkable because of their high percentage of 
 phosphorus. But the application of the Thomas process in 1878 
 converted the Briey Basin into the most important iron field at present 
 being worked in the world. With the iron of Lorraine and Normandy 
 and the coal of Westphalia, Germany would be the mistress of the 
 world. To make sure of this supremacy it was of importance to 
 remove all competition ,and establish German industry in the very 
 heart of the country of her rivals. A description was given before the 
 war of the extraordinary control acquired by German manufacturers 
 over French works producing chemical materials, electricity, etc. At 
 Neuville-sur-Saone it was the Badische Sodafabrik which, under a 
 French name, provided the madder dye for the red trousers of the
 
 32 ECONOMICS OF WAR 
 
 French army. The Parisian Aniline Dye Company was nothing but 
 a branch of Meister, Lucius and Bruning, of Hoechst. We have been 
 told how a Darmstadt company for producing pharmaceutical goods 
 came and established a branch at Montereau in order to destroy a 
 French factory which was there before, and how the General Electric 
 Company got hold of Rouen, Nantes, Algiers, Oran, and Chateauroux. 
 
 The same conquests were won at Seville, Granada, Buenos Aires, 
 Montevideo, Mendoza, Santiago, and Valparaiso, while the other 
 great electric company of Germany, the Siemens-Schuckert, estab- 
 lished itself at Creil. Turkey, Russia, Italy, and Switzerland 
 shared the fate of France. "The money of the Swiss debenture 
 holder serves to support German undertakings competing with 
 Swiss manufacturers in our own country." 
 
 A remarkable study of the same subject in Italy has beeri made by 
 M. Giovanni Preziosi in some articles which appeared in 1914 under 
 the significant title, Germany 's Plan for the Conquest of Italy. It was 
 indeed a war of conquest conducted with admirable organizing faculty. 
 At its centre was a financial staff constituted by the "Banca com- 
 mercialle .... italiana," which naturally is called "Italian" just 
 as the companies in France are called "French" or "Parisian." This 
 product of German finance is described as a "Germanic octopus," 
 the very image of the tentacular state before described. Establishing 
 itself within the directing'boards and, by means of a system of secret 
 cards, employing a regular system of commercial espionage to ruin 
 all who resist it, it succeeded in gradually absorbing the economic 
 energies of an entire people establishments of credit, shipping com- 
 panies, manufacturing firms; it was even able to corrupt political 
 life, overthrow ministries, and control elections. Here, as in Switzer- 
 land, the pseudo-Italian German banks "act as a pump which pumps 
 out of Italy and pumps into Germany." Italy, which is considered 
 a poor country, provides capital for rich Germany. 
 
 IV. THE PAST PLAYED BY THE STATE 
 
 To back up this policy of economic conquest the prestige and the 
 strength of the Empire must be put at the service of the manufacturers. 
 To make the state, as the Germans understand it, the instrument of 
 German expansion this is the meaning of what the Germans have 
 well named the policy of "business and power" (Handels- und Macht- 
 politik). 
 
 This fusion of Weltpolitik and business policy was peculiarly 
 dangerous for the peace of the world. If imperialism, if the tentacular
 
 ECONOMIC BACKGROUND OF WAR 33 
 
 state, puts its strength at the disposal of manufacturing interests, the 
 temptation is strong and constant to use this strength to break down 
 any resistance which stands in the way of the triumph of these inter- 
 ests. If a crisis comes which causes a stoppage of work (there are 
 sometimes 100,000 unemployed in Berlin), the neighboring nation 
 which may be held responsible for the crisis has reason to be on its 
 guard. " Be my customer or I kill you " seems to be the motto of this 
 industrial system continually revolving in its diabolical circle: always 
 producing more in order to sell more, always selling more in order to 
 meet the necessities of a production always growing more intensive. 
 
 Russia is for Germany both a reservoir of labour .and a market. 
 Should Russia in 1917 refuse to renew the disastrous treaty forced 
 upon her in the unlucky days of the Japanese war, should she put an 
 end to the system of passports for agricultural labourers, what would 
 become of German capitalist agriculture, which has been more and 
 more industrialized and is more and more in the hands of the banks: 
 the farming of the great estates of Brandenburg, Pomerania, and 
 Prussia ? 
 
 France is for Germany a bank and a purveyor of minerals. What 
 a temptation to dip deep into the jealously guarded stocking and fill 
 both hands! What a temptation too to repair the blunder made in 
 the delimitation of 1871! Even in 1911 the Gazette du Rhin et de 
 Westphalie put forward the view that the iron ores of Lorraine and 
 Luxembourg ought to be under the same control as those of West- 
 phalia and the Saar. And I am told that the great journals of Paris, 
 when informed of this campaign, refused to take this "provincial 
 journal" seriously, being blind to the fact that it was the organ of 
 .the great manufacturers of the Rhineland and of the Prussian staff. 
 What a temptation again to take the port of Cherbourg in the rear 
 from Dielette! 
 
 As for England, the direct competitor of Germany in all the 
 markets of the world and manufacturing the same goods, she is the 
 enemy to be crushed. Has she not acquired the habit, and has 
 she not taught it to France, of refusing to lend money to poor states 
 except in return for good orders? The time is beginning to go by 
 when it was possible to do German business in Turkey with French or 
 English gold. Germany's rivals have learnt from her the lesson of 
 Handels- und Machtpolitik. But what is to become of Essen, Gelsen- 
 kirchen, and all that immense industrial city of which Westphalia 
 consists, if Rumanians, Greeks, Serbians, order their guns and their 
 ironclads, their rails, or their locomotives at Glasgow or at Le Creusot ?
 
 34 ECONOMICS OF WAR 
 
 Germany thought war preferable to this economic encirclement, and 
 the velvet glove gave place to the mailed gauntlet. 
 
 Little by little the idea of war as necessary, of war as almost a 
 thing to wish for, laid hold on the industrial classes. The proof is 
 to be found as early as 1908 in a popular book by Professor Paul 
 Arndt one of those small shilling books which served to instruct the 
 German mind. All of us, even the best informed, must reproach 
 ourselves for not having studied or studied closely enough these small 
 books which would have made the danger clear to us. In this volume 
 the author, after a paean to German greatness, begins a chapter " On 
 the Dangers of Germany's Participation in World-Wide Trade." 
 He shows that this participation increases Germany's dependence on 
 the foreigner and makes her vulnerable by sea as well as by land. If 
 international relations are disturbed there will be "many workmen 
 without food and much depreciation of capital," and that from causes 
 "in great measure beyond the control of Germany" in countries 
 which may seize the opportunity to weaken Germany. And in a 
 hypothesis which is prophetic he describes the effects of the blockade. 
 
 But he accepts without hesitation these risks of the world-policy. 
 "No doubt, if we wish to be and to remain a great people, a world- 
 power, we expose ourselves to serious struggles. But this must not 
 alarm us. There is profound truth in the dictum that man degener- 
 ates in peace time. The call to arms is often needed to rouse a world 
 benumbed with apathy and indolence. Those who can look far and 
 deeply into things see that warfare is often a blessing to humanity." 
 
 I have shown that the over-rapid industrialisation of Germany 
 has led by a mechanical and fatal process to the German war. If any 
 doubt were felt on the part played by economic causes in this war, it 
 would be enough to look at the picture of German victory as imagined 
 by the Germans in their dreams during the last seven months. It is 
 an industrial victory, 9. forced marriage between German coal and 
 foreign iron, the reduction of nations into vassals who are to play the 
 part of perpetual customers of the German workshops. 
 
 3. THE THEORY OF THE WHITE MAN'S BURDEN 1 
 
 Many assume that trade follows the flag, that dominion is worth 
 while because it stimulates trade. But such is not the actual course 
 
 1 By Abbott Payson Usher. Adapted from "England's Place in the Sun," 
 Unpopular Review, VI (July-December, 1916), 313-21. Copyright by Henry 
 Holt & Co., New York. 
 
 ED. NOTE. Mr. Usher is a member of the department of political economy 
 at Cornell University.
 
 ECONOMIC BACKGROUND OF WAR 3*5 
 
 of empire. The place in the sun was not deliberately chosen by 
 statesmen, appropriated, and then opened to the trader. England's 
 empire is the result rather than the cause of her industrial and com- 
 mercial expansion. Sovereignty has been acquired and protectorates 
 declared when commercial contact has created legal and social diffi- 
 culties that could best be solved through an assumption of power. 
 Few colonies, least of all tropical colonies, are actually sources of net 
 profit. Even if the gains of the traders are large, the administrative 
 expenditure, in most cases, exceeds any possible income. Since the 
 American Revolution the reluctance of the English government to 
 accept colonial responsibilities has been largely due to the keen 
 realization of the cost. When adventurers in India or Africa thought 
 only of the "glorious" imperial future, the secretaries of state in 
 England thought of the burden that must be incurred for administra- 
 tion and defense. "'. 
 
 It is not difficult to realize the need of European control in regions 
 whose inhabitants have not progressed beyond the looser forms of 
 tribal government. The need of control in tropical countries which 
 possess organized governments is not so clear. There is much to 
 suggest that it is a work of supererogation. The natives do not 
 always accept the foreign authority with acquiescence, and the 
 subjection of an entire people possessing an organized government is 
 apparently inconsistent with the principles of international law as 
 applied in Europe. Until the present war, at least, we had come to 
 feel that national existence was guaranteed even to the small states. 
 The difference of principle with reference to tropical countries must 
 needs be admitted. It is in part an outcome of the medieval distinc- 
 tion between Christian and non-Christian states. Throughout the 
 period of the expansion of commerce in the East Indies this funda- 
 mental assumption dominated political thought. The rights of 
 native rulers were recognized after a fashion, but they were not placed 
 upon a par with the rights of Christian nations. The forms of nego- 
 tiation and treaty-making were observed, but the substance of treaties 
 with these native rulers was different, usually involving the grant by 
 them of privileges which would never be granted by any European 
 country. Such a distinction would hardly arise to-day on these same 
 grounds, but there are racial and cultural reasons for treating these 
 non-Christians in a different manner. Contact with Europeans 
 almost of necessity involved some grant to them of sovereign powers, 
 because the European traders could not be subjected to native law.
 
 36 ECONOMICS OF WAR 
 
 In Europe and the Americas there is sufficient similarity of social 
 organization to make it possible to adopt the idea that every individual 
 must recognize the law of the state within which he is resident. In 
 India and Northern Africa this theory cannot be applied. As in the 
 days of the Germanic invasions of the Roman Empire, each race must 
 be governed by its own laws. Contact with Europeans thus involved 
 the establishment of an imperium in imperio. By a process of purely 
 spontaneous growth the European jurisdiction has ultimately absorbed 
 all the functions of government, administering European laws for 
 Europeans and native laws for natives. 
 
 Because the goods of the East India Company could not properly 
 enter into the local trade of India, the native princes had granted 
 almost complete exemption from customs. The officials of the Com- 
 pany bought goods on their own account, passed them by the customs 
 barriers as goods of the Company, and then offered them for sale in 
 the local markets at prices far below any figure that could be set by a 
 native trader who had paid heavy duties. It will be evident that the 
 law could be enforced against the officials of the Company only by 
 some English authority, though the chief offense was committed 
 against the laws of the native state. The inevitable complexities of 
 this dual jurisdiction could not be successfully met by officials accus- 
 tomed to the laxity and corruption common in all oriental states. 
 The maintenance of any substantial government required courts and 
 administrative officials inspired by the highest ideals of honor and 
 capable of exercising effective control over Europeans. It may well 
 be that the English have made many mistakes in India, but there is 
 evidence in plenty to show that the native prince^ could not have 
 carried on any organized government in the face of the difficulties 
 created by commercial contact with Europe. 
 
 The acquisition of dominion is most evidently justified when rights 
 are assumed by Europeans only as a necessary result of long- 
 established commercial contact. English power has developed in such 
 a manner, slowly, and under evident pressure of circumstances. 
 England has frequently avoided assumption of sovereignty and 
 undertaken merely to direct the foreign policy of the native state. 
 This slow growth toward dominion has been due to the absence of 
 rivalries among European nations and to physical and economic 
 obstacles that made it impossible rapidly to develop extensive com- 
 merce with the remote interior of the lands open to European influence. 
 Within fifty years the underlying conditions of economic expansion
 
 ECONOMIC BACKGROUND OF WAR 37 
 
 have changed. The industries of Europe have developed so rapidly 
 that new markets are now eagerly sought. The development of large 
 steam freighters has so lowered rates that distant markets are open 
 to many types of merchandise whose shipment was formerly restricted 
 by cost of carriage. It has become possible to construct railroads 
 without undue expenditure, even in the most remote regions, so that 
 the volume of trade with the interior districts can expand without 
 encountering serious physical obstacles. The only limit to expansion 
 is the purchasing power of the population, and as this is frequently 
 diminished by oppressive taxation or civil disorder, there is an added 
 motive to make an end of native misrule. 
 
 In Africa, even if Continental Europe had remained relatively 
 indifferent to commercial expansion, the changed conditions of contact 
 between Europeans and natives would have led to the rapid extension 
 of European dominion. The so-called "partition" of Africa is no 
 doubt largely a result of these new economic conditions. But neither 
 France nor Germany has been indifferent. Their ambitions have 
 created keen political rivalries. The economic basis of expansion 
 can easily be misunderstood, and the incidental character of acquisi- 
 tion of dominion is obscured. There seems to be a lust for power, 
 sometimes as an end in itself, sometimes as a means to commercial 
 development. The boundaries of spheres of influence become a 
 perennial source of political tension, and intrigue to secure favored 
 positions creates an atmosphere of suspicion. Northern Africa and 
 the Persian Gulf have thus become important regions in world- 
 politics. Economic interests have been obscured by the struggle for 
 power, which can be compared only to the struggles of the Dutch, 
 French, and English in the East Indies. At such times political 
 power seems the fundamental basis of commercial development, but 
 the history of the English colonies points unmistakably to the opposite 
 conclusion. Neither in the Spice Islands nor in India did England 
 display much capacity in intrigue or in imperial politics. Her ulti- 
 mate successes were largely due to the staying powers derived from 
 the economic strength of the English East India Company. 
 
 German colonial policy has been different in principle. The 
 acquisition of dominion, or of political privileges just short of actual 
 dominion, has preceded economic development. German imperialism 
 is thus attempting to create an imperial domain by means which have 
 never as yet been successfully employed. In Northern Africa, in 
 Turkey, and on the Persian Gulf, Germany is seeking to secure a
 
 38 ECONOMICS OF WAR 
 
 "place in the sun," not because her trade naturally carries her to such 
 markets, but because dominion over tropical lands is presumed to be 
 valuable in and of itself a means to commercial expansion and a 
 present evidence of power. In each region Germany is discovered to 
 have "economic interests," actual or contingent. 
 
 In Morocco, German interests were most substantial, and the 
 entire situation is undoubtedly complex. In Turkey, German com- 
 merce could hardly have created any necessity for the thorough 
 penetration of German influence in the government that was revealed 
 by the present war. The Bagdad Railway was, of course, in form 
 an economic enterprise, but the details of the scheme suggest that the 
 most immediate purposes in view were military. The great wheat 
 fields of the foothills north of the Syrian desert were not touched by 
 the railway, because it was cheaper to build the line across the desert, 
 and the Turkish government had guaranteed interest payments on 
 the investment. Similarly in Mesopotamia the line is located where 
 it will be of least immediate economic advantage. The military 
 value of the main line is of course unimpaired by these details of 
 location. One might argue too that the great energy displayed in 
 building the line towards the Egyptian border by way of Jerusalem 
 was indicative of military rather than economic aims. 
 
 The economic interests of Germany in the Near East are so 
 largely prospective that it requires much imagination to appreciate 
 the iniquity of England's alleged conspiracy to "throttle German 
 commerce." One is reminded of the famous occasion in the Irish 
 Parliament before the Union, when an enthusiastic orator charged 
 Great Britain with the "murder of ten thousand children that have 
 never been born." 
 
 To German statesmen, however, these ulterior economic purposes 
 are definite enough, and those statesmen's conceptions of the economic 
 significance of the Near East are comprehensible enough in the light 
 of current events. Once connection with Turkey is assured through 
 Balkan alliances, the great league of Central Empires would have at 
 their command such varied resources that there could be little possi- 
 bility of injuring them by maritime blockade. They would not only 
 separate Russia from her European Allies, but would have at their 
 command the products of every climate in substantial abundance. 
 The general character of the entire plan is now evident, but it is also 
 clear that the development of Turkey's economic resources is still a 
 project to be realized only in a distant future.
 
 ECONOMIC BACKGROUND OF WAR 39 
 
 4. A BRITISH VIEW OF MESOPOTAMIA 1 
 
 MESOPOTAMIA ITS FUTURE PROSPECTS 
 
 Germany claims to be credited with the greatest discovery of 
 modern times. One of her newspapers declared that "the year 1492, 
 when America was discovered, and 1916, when the colossal idea of 
 the new road to India was born, are dates which generations to come 
 will regard as co-equal and epoch-making." It is probably true that 
 the reopening of this old highway will prove to be of equal importance 
 to the world as the discovery of America by Columbus; but the 
 credit of the so-called discovery belongs to Great Britian, who pub- 
 lished plans for the opening up of the Euphrates Valley before unified 
 Germany was born. 
 
 It is common knowledge that in 1851 we held concessions for the 
 Euphrates Valley Railway. The time, however, was not ripe for the 
 development of this important route, for the retrograde Ottoman 
 Empire blocked the way. We did our utmost to introduce reforms 
 into Turkey, hoping that she would fall into line with European 
 standards and co-operate with civilised nations in the development 
 of an important area of the earth's surface. Germany's evil counsels, 
 however, have tended to frustrate our efforts to secure the reform of 
 Turkish administration, and with the aid of her Bagdad Railway 
 schemes Germany made a deliberate attempt to establish in the most 
 strategic centre of the earth a formidable coalition of irresponsible 
 despotic monarchies from the banks of the Elbe to the banks of the 
 Indus. In spite of her attempts to wreck modern civilisation the 
 world still will be able to make a rapid recovery on one essential 
 condition that the new highways from West to East shall be kept 
 free from the influence of despotisms that defy the rights of humanity 
 and ignore the fundamental principles of our twentieth-century civ- 
 ilisation. 
 
 If the Turks are permitted to govern anybody but themselves, if 
 they continue to command the world's important highways, then 
 humanity will suffer and military despotism may once more regain 
 the ascendant. The maintenance of peace in the East, as well as 
 the progress of Western peoples, depends mainly upon the permanent 
 expulsion of the Turk from the world's highways and the grant of a 
 charter of freedom for the dwellers in Mesopotamia. 
 
 1 By Canon Parfit. Adapted from Mesopotamia The Key to the Future, 
 pp. 28-41. Copyright by Hodder & Stoughton, 1917.
 
 40 ECONOMICS OF WAR 
 
 Since the outbreak of war the Germans have completed a new 
 line of railway through Palestine to the Egyptian frontier, and we 
 also have constructed a railway across the Sinai tic Desert to Palestine. 
 There is no doubt, therefore, that the Cape-to-Cairo Railway will soon 
 be connected with the great European and Asiatic systems by a line 
 running through Palestine to Aleppo. Then the old "Silk Street" 
 route from Pekin to the Mediterranean will doubtless be covered more 
 or less with a railway system; and we may consequently anticipate 
 the joining up of rapid communications over these many ancient 
 highways, in practically a straight line from London to India and 
 Australia, from Paris to Pekin, and from Petrograd to the Cape. All 
 these will pass through Aleppo, now the headquarters of Germany's 
 Bagdad Railway schemes, which makes it a matter of vital interest 
 and concern to the millions of the British Empire that Germany's 
 attempts to destroy our shipping coincide with her effort to grasp by 
 force of arms the most important lines of overland communications. 
 It must not be forgotten that these direct overland routes will assume 
 still greater importance with the establishment of aviation stations. 
 We are making wondrous strides in aerial navigation, and when recent 
 inventions are diverted to peaceful purposes, it will be possible, we 
 are told, to send mails and passengers from London to India in three 
 days by aerial navigation in practically a straight line. Lord Montagu 
 suggested a route across Russia to the Punjab, but it is more probable 
 that aviation stations will be established across the continent of 
 Europe and down the Euphrates Valley. If the journey will take 
 but three days from London to India, with plenty of time for rest and 
 sleep on the way, may it not soon be possible for our colonial repre- 
 sentatives of the contemplated imperial parliament to come within a 
 week from the shores of Australia to the portals of Westminster? 
 These tremendous changes which are now taking place amongst 
 civilised peoples make it certain that the central portion of the Eastern 
 Hemisphere, which forms a natural connecting link between the three 
 continents of Europe, Asia, and Africa, will undoubtedly become one 
 of the most important portions of the earth's surface. These changes 
 will facilitate the opening up of enormous countries hitherto largely 
 closed to modern commercial enterprise or exploited only by a few 
 adventurous Europeans. The vast populations of Asia and Africa 
 will be able to play a better part in the development of the continents 
 and the progress of humanity. There is plenty of room for every- 
 body; and what a difference it may make to Europe, with the
 
 ECONOMIC BACKGROUND OF WAR 41 
 
 new facilities afforded to emigration and colonisation, when the 
 Antipodes can be brought so near to the congested areas of European 
 lands! 
 
 5. IMMEDIATE ANTECEDENTS IN THE NEAR EAST 1 
 
 We have in the Near East two main lines of politico-economic 
 development, both antecedent in origin to the Balkan wars of 1912-13, 
 but both greatly accelerated by their result. One is the gradual 
 subordination of Turkish nationality to European and principally 
 German economic enterprise; the other is the effort of the Triple 
 Agreement to encircle and neutralize the German economic sphere 
 by joining up their competitive spheres and heading it off from 
 further expansion eastward, with Franco-Russian railway schemes 
 cutting across it near its western end and Anglo-Russian railway 
 projects in Persia blocking its eastern end. The question which the 
 Balkan wars have brought within'sight is whether the Bagdad railway 
 and the economic development it imports will assure to Germany 
 such control of Asia Minor as was secured over Manchuria by the 
 Russian railway, or whether this economic control will be so countered 
 and crossed by national "democratic" movements and international 
 "diplomatic" moves that it will lead to no more than did the similar 
 economic control over the Balkan Peninsula secured a half-century 
 ago by Austria in the construction of the Oriental Railway to Con- 
 stantinople. Austria has had to allow Anglo-Russian support of 
 Balkan nationality movements to expel Austrian economic penetra- 
 tion finally 2 from the Balkan Peninsula in this recent War of Coalition. 
 Will Germany be in a similar situation in Asia Minor, say a century 
 hence, and be suffering similar expulsion before an Armenian-Turkish- 
 Arab coalition ? 
 
 It was the eagerness of the capitalists and concessionaires in the 
 great lending Powers to exploit the situation created by the war that 
 confused and falsified the lines on which the belligerents might other- 
 wise have worked out a more permanent peace. It was the "dip- 
 lomatic" interventions of imperialist interests, either military or 
 
 1 By George Young. Adapted from Nationalism and War in the Near East, 
 pp. 334 ff. Carnegie Endowment for International Peace. 
 
 ED. NOTE. George Young, M.V.O. (1872 ), was in the British diplomatic 
 service or in positions of kindred character from 1896 to 1915 and has served 
 at Athens, Constantinople, and Belgrade. 
 
 2 This was written before the present world-war. ED.
 
 42 ECONOMICS OF WAR 
 
 monetary, that displaced or diverted the "democratic" influences 
 that were directing the course of events into an equitable equilibrium. 
 The cost of these interventions has in some cases equaled that of war, 
 and their economic and political effects have been no less striking 
 than if war had been declared. To choose two only as examples: 
 it was Austrian military opposition that drove Serbia out of Scutari 
 and into Monastir, and it was French monetary support that brought 
 Turkey back into Thrace. The economic effect on the Austrian 
 Empire of the mobilization required for this purpose was more 
 disastrous than the effect of active participation in the wars on any 
 of the Allies. The Austrian budget estimated the cost of this mobili- 
 zation at 16,500,000 pounds, or about what it cost Greece to double 
 its territory and population, while the loss to the national economy of 
 the financial crisis through which Vienna passed as a consequence of 
 this intervention can only be guessed at. The list of bankruptcies 
 alone shows that a war scare and a financial stringency may be 
 more economically expensive to a modern capital than a six 
 months' campaign, ending with an invasion, to such a primitive 
 community as Bulgaria. Then, taking the case of France, we 
 find the Balkan commitments of Paris contributing to a financial 
 crisis there which is none the less severe for having been success- 
 fully survived, but which by the time it is liquidated will probably 
 have caused as heavy a drain on French thrift as a campaign on 
 Morocco. 
 
 The amount of material and mental capital now invested in the 
 manufacture and marketing of armaments makes this interest one 
 of the most powerful political influences in the world. Though the 
 business is even more international in character than most of the great 
 industries of the world, unlike them it depends for its profits, like any 
 other insurance business, on the prospect of warlike disturbance and 
 not on the promise of peaceful development. Therefore, unlike other 
 industries, it is found in international relations associating with the 
 militarist faction and always ready to use its very considerable con- 
 trol of parties and of the press in order to exploit the alarmist and 
 chauvinist possibilities of any new political development. It does 
 not indeed seem probable that without the alarmist agitation 
 fomented by armament interests and militarist influences the politi- 
 cal changes in the Balkan Peninsula would have caused the general 
 augmentation of armaments in Europe that followed the Balkan 
 wars.
 
 ECONOMIC BACKGROUND OF WAR 43 
 
 IV. Commercial Rivalry and Special Interests 
 i. DIMINISHING CAUSES OF HOSTILITY 1 
 
 Alongside of the optimistic view that increasing foreign trade is a 
 force making for world-peace, we must place the pessimistic view that 
 all modern wars are essentially commercial, and that war is, in fact, 
 an inevitable concomitant of trade expansion. The latter view 
 appears, indeed, to have the better support from history. 
 
 If we wish to understand the relation between foreign commerce 
 and war, we must inquire first of all whether we are justified in treating 
 commerce purely in quantitative terms. Foreign trade manifests 
 a wide variety, both in the objects that enter into it and in the cir- 
 cumstances under which it is conducted. In either respect it under- 
 goes marked changes from generation to generation changes that a 
 purely quantitative study does not reveal. And even a very super- 
 ficial examination of international relations indicates that it is the 
 character rather than the quantity of trade that bears upon the 
 question of war or peace. England and Germany compete in the ex- 
 port of textiles to the United States; the trade is an important one, 
 yet it is never enumerated among the causes of the alleged hostility 
 existing between the two nations. Both countries are competitors 
 in the purchase of American cotton, but this competition excites no 
 international animosity whatever. For a number of years Canadian 
 competition in the supplying of wheat to the British market has 
 threatened to confine our own wheat growers to the national market; 
 but it would be difficult to find anywhere in the United States a trace 
 of jealousy of Canadian agricultural development. For the United 
 States, as for many other countries, England is by far the greatest 
 market for exports and imports as well. Yet it has never occurred 
 to our enemies to devise plans for excluding us from the British market, 
 nor has it occurred to us that we might ever have to fight for it. 
 
 The markets of North China, on the other hand, are relatively 
 unimportant if measured quantitatively. Yet there are nations that 
 endeavor to exclude other nations from them; and such exclusion 
 would be regarded as proper ground for serious diplomatic representa- 
 tions, if not for war. Central Africa is worth scarcely anything to the 
 
 1 By Alvin Johnson. Adapted from "Commerce and War," Political Science 
 Quarterly, XXIX, No. i, March, 1914. Copyright by Ginn & Co. 
 
 ED. NOTE. Alvin Johnson is on the editorial staff of the New Republic and 
 was formerly professor of economics at Cornell, Leland Stanford Junior, and 
 other American universities.
 
 44 ECONOMICS OF WAR 
 
 white races except as a market. And as a market its power of supply- 
 ing and absorbing products is low. Nevertheless great powers have 
 recently been brought to the verge of war by the question of the control 
 of this region. 
 
 As the foregoing contrast indicates, there is a kind of trade which 
 involves no warlike element and another kind that is a natural cause 
 of strife. In what does the difference fundamentally consist? Not 
 in the kind of objects entering into trade, but in conditions arising 
 in the field of values and determining the possibilities of profit. 
 
 Among nations in the same plane of civilization, already closely 
 related through trade, there exists a fairly uniform scale of values. 
 With due allowance for costs of transportation and customs duties, 
 all movable goods command about the same price in the United 
 States as in England, France, or Germany. The American wheat 
 exporter can just afford to send wheat to the British market. The 
 price he receives pays him for his labor and risk and gives him ordi- 
 narily a reasonable profit besides. It gives him no surplus on which 
 to finance a campaign of exclusion against Canadian or Russian wheat 
 exporters. The latter also are forced to content themselves with 
 moderate rewards. There are no startling profits to excite inter- 
 national jealousies. Accordingly there is nothing in a trade of this 
 character that could by any chance lead to international strife. Some 
 ill-feeling may occasionally be produced by what appear to be unfair 
 competitive methods, such as "dumping." But this is essentially a 
 matter of industrial rather than commercial competition and hence 
 falls outside of the range of the present inquiry. 
 
 The trade between regions differing widely in civilization, espe- 
 cially if it is a new trade, stands on another footing. Here the most 
 striking fact is discrepancy in the scale of values. In Oregon, one 
 hundred years ago, four leaves of tobacco could command a beaver 
 skin. On the African Gold Coast, in the early eighteenth century, a 
 lucky trader might occasionally exchange a handful of salt for a 
 handful of gold dust. There was a time when the Japanese ratio of 
 gold to silver was one to four, while that of the Occident was one to 
 fifteen. From such instances, chosen, it is significant to note, from the 
 more or less remote past, it is easy to reconstruct for ourselves the 
 conditions under which, the foreign trader worked. A fortune was 
 easily to be had through the exploitation of existing differences in 
 value scales. In the nature of the case, however, profits of such 
 character could not be permanent.
 
 ECONOMIC BACKGROUND OF WAR 45 
 
 Monopoly was a normal characteristic of trade between regions 
 with widely varying scales of value. The East India companies of 
 Portugal, Holland, and England could not tolerate "interlopers" 
 their own nationals not authorized to trade under the laws of the 
 companies. No more welcome were the interlopers in the American 
 fur trade or in the African slave trade. And if a chartered company 
 could not tolerate the competition of its nationals, what must have 
 been its attitude toward the citizens of other nations that attempted 
 to trade in the territory which it had marked out for itself ? History 
 affords us an abundance of information bearing upon this question. 
 Always the foreign trader was regarded with detestation. To mislead 
 him by false information, to place him in the hands of corrupt guides 
 who would conduct him out of the track of profitable trade or even 
 into positive dangers were among the mildest measures employed. 
 If the foreigner manifested the determination to force himself into the 
 forbidden trade, distrust and ill-will ripened into implacable hostility. 
 The history of trade with so-called barbarous races is red with "fac- 
 tories" burned and massacres perpetrated. The nations to which 
 the traders owed allegiance might be at peace; but between the 
 traders themselves there could be no lasting peace. There is scarcely 
 anything in history more barbarous than those wars of trading-posts 
 on the coast of India or Africa or in the forests of America. It was 
 a warfare without rules, having for its object not subjugation but 
 utter extermination. 
 
 It was inevitable that the bitterness arising from such conflicts 
 should extend, in ever-widening circles, until they colored the whole 
 national consciousness. Spanish cruelty, French chicanery, British 
 perfidy, and the cold greed of the Dutch were popular concepts 
 originating in the contest for trade on the fringe of occidental civiliza- 
 tion, or, in economic terms, on the fringe of the occidental value 
 system. And these concepts, if they did not lead directly to inter- 
 national war, none the less afforded a basis for the warlike fervor upon 
 which the statesman relied in his schemes of national aggrandizement. 
 
 For upward of a thousand years trade has been carried on between 
 the commercialized Occident and regions under different scales of 
 values. And in all this period the trader has provided causes of war 
 or contributed substantially to any other causes that might arise. In 
 this millennium, however, the occidental value system has gradually 
 extended its borders. At the beginning of the period it included only 
 the central European part of the Mediterranean basin. Trade with
 
 46 ECONOMICS OF WAR 
 
 Syria, Africa, and North Europe was worth fighting for. At the close 
 of the epoch of discovery most of Europe was under one value system ; 
 nations could afford to fight only for the trade of other continents. 
 At the opening of the nineteenth century the cream of the exploitative 
 trade of America and the East Indies had been skimmed; yet much 
 remained worth monopolizing even there, and Eastern Asia and the 
 greater part of Africa were virgin soil. At present, what remains? 
 Parts of China and Central Asia, the heart of Africa, a few remote 
 districts like the headwaters of the Amazon, and the territory around 
 Hudson Bay. For the rest the world is under a uniform scale of 
 values. Exploitative trade, which for ten centuries incited the 
 nations to war, has practically completed its mission. 
 
 Although the era of exploitative trade is almost at an end, it 
 would be rash to assume that its political influence has vanished. 
 Political systems are constantly adapting themselves to economic 
 conditions, but always lag behind. In this sense politics is past 
 economics. Especially is this true -of international policies, where 
 tradition necessarily plays an exceedingly important part. Domestic 
 policies may change with the rise to power of a new political party; 
 but a nation's foreign policy is expected to remain consistent. What- 
 ever party controls our government, we may be sure that it will 
 cherish the Monroe Doctrine with traditional zeal. The British 
 government, whether conservative, liberal, or radical, must fix a 
 watchful eye upon the trade routes to India. Russia, whether an 
 absolute monarchy or a constitutional government, must keep alive 
 its traditional yearning for Constantinople and British India. These 
 and similar policies are in large measure the outgrowth of the exploita- 
 tive trade that is now vanishing from the earth. The trading advan- 
 tages to be derived from the occupation of India are no longer worth 
 fighting for. With India under British rule the Russian trader finds 
 no obstacles placed in his path ; and if India were under Russian rule, 
 its trade with England would not be seriously affected. One hundred 
 years ago India was a rich prize, commercially; it is now merely a 
 region in which men may buy and sell at moderate profits. Russia 
 and Great Britain may yet fight over India, but if they do it will be 
 chiefly on account of memories of economic relations now obsolete. 
 
 The trade between regions of the same order of civilization has 
 itself undergone noteworthy changes in character. In early modern 
 times the commodities entering most generally into international 
 trade were luxuries. With the improvement of ocean and land
 
 ECONOMIC BACKGROUND OF WAR 47 
 
 carriage a vast commerce in staples grew up. Along with the com- 
 merce in staples has arisen what in default of a better name we may 
 call a specialty trade, of which the automobile and the typewriter 
 may be given as representative objects. The trade in specialties is 
 of course still greatly inferior to the. staple trade, but it is steadily 
 increasing in relative importance. 
 
 More than any other branch of commerce the specialty trades 
 stand in need of stable and harmonious international relations. We 
 cannot establish a foreign market for our automobiles or farm machin- 
 ery without a considerable expense in building up a marketing organi- 
 zation. A severe customs duty directed against us virtually destroys 
 a capital invested. It is not so with a staple trade. The British may 
 levy a duty upon our wheat and curtail our market in some measure. 
 But we have no capital invested in a wheat-marketing organization 
 that the duty could destroy. It follows then that, whereas exporters 
 of staples may regard the commercial policy of foreign nations as 
 something with which they need not be greatly concerned, specialty 
 exporters are intimately interested in every change in commercial 
 policy. Of all traders they are least able to survive a customs war or 
 other serious disturbance of international business. 
 
 To summarize: One of the two great branches into which trade 
 is divisible, typified by commerce with colonials, barbarians, and 
 infidels, naturally breeds war. This branch of trade has very nearly 
 disappeared through the extension of the occidental value system to 
 the ends of the world. Of the other great branch, one form, the trade 
 in luxuries, once predominant but now relatively insignificant, has 
 served in its time to produce international discord. The great staple 
 trade of modern times has had nothing to gain from international 
 animosities, and the growing specialty trade has everything to lose 
 from them. We are therefore justified in asserting that war and 
 commerce, united through a thousand years, are now in fact divorced, 
 except perhaps in the eyes of the international politician, who still 
 premises his action upon their ancient relation. 
 
 2. CONCESSIONARY INVESTORS: A POWERFUL 
 
 SPECIAL INTEREST 1 
 
 No one will dispute the fact that certain individuals in positions 
 of power worked actively to bring on the present crisis, nor that acts 
 
 1 By Alvin Johnson (see p. 43). Adapted from "The War: By an Econo- 
 mist," Unpopular Review, II (July-December, 1914), 41 1-29. Copyright by Henry 
 Holt & Co., 1914.
 
 48 ECONOMICS OF WAR 
 
 were committed that deserve the execration of mankind. It will not 
 be denied that ancient political and cultural antagonisms essentially 
 conditioned the present war; but for such antagonisms the peace 
 would have remained unbroken. Still these forces are, in a sense, 
 static and hence not adequate to explain change. The Russian is not 
 more aggressive, the German not more arrogant, nor the Englishman 
 more intent upon naval dominance than they were twenty years ago. 
 Pride of race and intolerance of religion have been with us always, 
 and there is no evidence of their recent intensification. What chiefly 
 needs explanation is that for a generation the consciousness of Europe 
 has been filling up with fighting concepts. The fact has been noted 
 by all serious students of European international relations. It is 
 forcibly demonstrated by the enthusiasm with which the several 
 nations, each with a reason of its own, have entered the present conflict. 
 Desperate efforts have been making, for years, to prepare for the 
 struggle that was regarded as inevitable. Accordingly we can impute 
 to the acts of particular persons little more than the choice of time 
 and occasion for the outbreak of hostilities. The time may have been 
 inauspicious ; the occasion may have been one that will not look well 
 in history. For the underlying forces working cumulatively toward 
 an issue we must, however, look elsewhere than to personal volition. 
 
 The greed of the armament industries and the incessant playing 
 upon popular opinion by their subsidized organs have often been 
 assigned to a chief role in the drama of international discord. Com- 
 petitive military preparations, drawing to themselves an increasing 
 share of the intellectual energies of a nation, have long been regarded 
 as a menace to the peace of the world. Every organ seeks to exercise 
 a function. The Crown Prince of Germany, in his panegyric of 
 militarism, expresses poignant regret that all the splendid military 
 forces of the Empire should be expended futilely in peaceful show. 
 Professional warriors want war and will work to bring it abou^t. The 
 future historian will doubtless give weight to the above-mentioned 
 forces as well as to many others that cannot here be touched upon. 
 But he will assign vastly more importance than we of today to the 
 national antipathies engendered by the scramble for colonial pos- 
 sessions and to the motives giving rise to it. It may be worth our 
 while, even now, to fix our attention upon this aspect of the question. 
 
 What did Germany want with the "Land of the Morning"? 
 What does the Eastern Mediterranean mean to Russia ? And what 
 would it signify to England if either dream were realized? Is it a 
 matter of sentiment, of " historic mission," or is it a matter of practical
 
 ECONOMIC BACKGROUND OF WAR 49 
 
 interest ? And if a matter of practical interest, whose interest weighs 
 so heavily that it must be bought with cities in ruins and provinces 
 devastated, with hundreds of thousands of the best and most useful 
 lives sent down to dusty death ? Manifestly, not the interest of the 
 mass of humanity. 
 
 The Morgenland, be it understood, is only one of the rotten stones 
 in the arch of civilization. Mexico is another. India, China, Africa 
 are of similar character. But the Morgenland may serve as a type 
 for our study, and we may profitably confine our analysis to the 
 German yearnings for the Morgenland, not because they are in any 
 way unique, but because they are typical. 
 
 The colonial trader was once the chief cause of wars, and he still 
 contributes his quota to international misunderstanding and hostility. 
 But there is another interest that has grown to far greater importance 
 in the colonial domain. This we may describe as the concessionary 
 interest. Vast fortunes have been accumulated, in the semibarbarous 
 belt, by the exploitation of natural resources and works of public 
 utility. The "Land of the Morning" would be exceptionally rich 
 in concessions to the nationals of any imperial state. There are oil 
 fields and mines to open, railways and irrigation works to construct. 
 Some of these opportunities are already in German possession; their 
 security, however, depends upon continued exercise, by Germany, of 
 influence upon the Ottoman government. That government is 
 notoriously shifty, and the interests involved will never be wholly 
 safe until the Levant is a German colony. The concessionary 
 interest, like the colonial trading interest, offers chances of sudden 
 wealth. The former, however, is far more vulnerable than the latter. 
 The fixed investment of the concessionary is far greater than that of 
 the trader. Hence, while the colonial trading interest thrives best 
 with the support of the home government, to the concessionary interest 
 such support is indispensable. Politics is a necessary part of the con- 
 cessionary business. 
 
 How far is the concessionary interest identical with the national 
 interest? Let us consider what difference it makes to you and me 
 whether the Pearson interests or the Waters-Pierce interests control 
 the oil fields of Mexico. If the Pearson interests, several great 
 fortunes will be constituted in England; if the Waters-Pierce, similar 
 fortunes will be .constituted here. In either case the money will lie 
 at an infinite distance from you and me. Still we are patriots and 
 would rather have it here than in England. Patriotism aside, the 
 great fortune here will pay income tax to our own treasury. Its
 
 50 ECONOMICS OF WAR 
 
 spending will afford many golden crumbs to fellow-citizens of ours. 
 The exploitation of the oil fields will require much machinery, for 
 which, under Waters-Pierce control, the first bid would be offered to 
 our own industry. Many young men of our nationality would find 
 employment as engineers, foremen, superintendents. Undoubtedly 
 it is better for the national interest to have the concession in national 
 hands. But what is the magnitude of the concessionary interest and 
 how many votes should it have on questions of peace and war ? Of 
 the whole capital of Great Britain not one-fifth consists in foreign 
 investments, and of that fifth scarcely a quarter can be concessionary. 
 One-tenth of Germany's capital is invested abroad, and probably not 
 a fifth of that is concessionary. Of our own capital one part in a 
 hundred is in foreign investments, of which one-half is in Mexico. 
 Not nearly all of that half is concessionary. It did not prove to be 
 enough to go to war over. 
 
 Capital, it is often said, is cosmopolitan; capital knows no such 
 thing as patriotism. This may be true of the cautious, colorless 
 capital of ordinary finance and industry. It is not true of the capital 
 upon which speculative enterprise is based. It was an intense 
 patriotism that was avowed by Jay Gould and Harriman; intense 
 is the patriotism of J. J. Hill, the duPonts, and the Guggenheims. 
 Even Mellen is, or was, patriotic in his feelings toward New England. 
 But most intense of all is the patriotism of the capitalist whose 
 interests lie in the twilight zone of the barbaric belt. Purer expres- 
 sions of devotion to America, of deep concern for her future, than 
 those issuing from the lips of American concessionaries in Mexico you 
 never hear. We were all moved by the grandiose African dream of 
 Cecil Rhodes. "All red" i.e., British a British heart within every 
 black skin from the Cape to Cairo. The case is typical of the capi- 
 talist speculator abroad. He is a patriot through thick and thin, 
 not a white-blooded "cit" like you and me, who before volunteering 
 support for our country's acts would presume to pass judgment upon 
 them. He is a patriot who would knock a chip off the shoulder of the 
 meanest upstart of a barbarian dictator without regard to the cost 
 of doing it; not a calculator like you and me. 
 
 By interest the concessionary capitalist is a patriot. He needs 
 his country in his business. But this is by no means the whole 
 explanation of his patriotism. His type is reckless and therefore 
 generous and idealistic. He must love and admire great things, and 
 what thing is greater than the imperial dominion of his country ? 
 One must have a mean opinion of human nature to suspect the purity
 
 ECONOMIC BACKGROUND OF WAR 51 
 
 of the motives of Cecil Rhodes. Doubtless Rhodes began with 
 selfish motives, but his private interests were soon submerged in his 
 imperial ambitions. We may not be justified in assuming that 
 selfish interest operates to the utter exclusion of all patriotic motives. 
 Patriotism has always burned more brightly in border provinces than 
 in the heart of the national territory. It is natural then that patriot- 
 ism should be still more intense in those extensions of the national 
 domain represented by permanent interests abroad. 
 
 In an ideal scheme of things love of one's own country would not 
 involve hatred and contempt for other countries. But patriotism 
 compounded with financial interest does usually produce detestation 
 for the corresponding alien compound. We who meet the Germans 
 in America, in England, in Germany, engaged in the common labor 
 of advancing man's control over nature, respect them and, if we see 
 much of them, love them. Our capitalist speculators in South 
 America and in the Orient, meeting their similars of German nation- 
 ality, hate them heartily. Those speculators are the nerve ends of 
 modern industrial nationalism, and they are specialized to the work 
 of conveying sensations of hate. For the present we have few nerves 
 of the kind, and all they have succeeded in conveying to us'is a vague 
 feeling of uneasiness over the German advance in the colonial field. 
 Far more powerful must have been the reaction upon nations like 
 England and France that are serious competitors in the same field. 
 And German capitalist speculators, thwarted in their designs by the 
 English and the French, have contributed to the popular feeling that 
 Germany must fight for what she gets. 
 
 The capitalistic speculator, even when operating at home where 
 his action may be directed against us, enjoys a power over the popular 
 imagination and a political influence quite incommensurate with the 
 extent of his interests. When the seat of his operations is a foreign 
 territory whence flow back reports of his great achievements achieve- 
 ments that cost us nothing and bring home fortunes to be taxed and 
 spent among us his social and political influence attains even more 
 exaggerated proportions. And this is the more significant in view 
 of the fact that his relations with government now even a more 
 important part of his business are concentrated upon that most 
 sensitive of governmental organs, the foreign office. 
 
 When diplomatic questions concerning the non-industrial belt 
 arise, and most modern diplomatic questions concern this belt, the 
 voice of the concessionaries is heard in the councils of state. This 
 voice is the more convincing because of the patriotism that colors
 
 52 ECONOMICS OF WAR 
 
 f 
 its expression of interest. What is perhaps more important, the 
 
 ordinary conduct of exploitative business in an undeveloped state 
 keeps the concessionary in constant relation with the consular and 
 diplomatic officers established there. In a sense such officers are the 
 concessionary's agents, yet their communications to the home office 
 are the material out of which diplomatic situations are created. It 
 is accordingly idle to suppose that exploitative capital in foreign 
 investments weighs in foreign policy only as an equal capital at home. 
 
 It is the interest of exploitative capital that makes the "Morning 
 Land," Mexico, China, and Africa rotten stones in the arch of civili- 
 zation. But for exploitative capital those regions might remain 
 backward, socially and politically; this would not greatly concern 
 any industrial nation except in so far as it responded to a missionary 
 impulse. The backward states afford, however, possibilities of sudden 
 wealth; and since this is the case, they must attract exploiters, who 
 must seek and obtain the backing of their home governments, with 
 resultant international rivalry, hostility, war. 
 
 If we could confidently predict the industrialization of the back- 
 ward countries, we should be able to foresee an end of this one most 
 fruitful of all sources of international strife. But China will not be 
 industrialized for a generation at least; and many generations must 
 elapse before the tropics are concessionproof. Accordingly the one 
 hope for universal peace would appear to lie in the possibility of 
 divorcing, in the popular consciousness, the concessionary interest 
 from the national interest. 
 
 The concession and the closed trade are the fault lines in the crust 
 of civilization. Solve the problems of the concession and the closed 
 trade and the earth-hunger will have lost its strongest stimulus, and 
 peace, when restored, may abide throughout the world. 
 
 3. TARIFF WALLS AND INTERNATIONAL FRICTION 1 
 
 From the dawn of history uncontrolled commercialism has been 
 one of the principal causes of misgovernment, and more especially of 
 
 1 By the Earl of Cromer. Adapted from " Free Trade in Its Relation to Peace 
 and War," Nineteenth Century, LXVIII (July-December, 1910), 386-88. Copy- 
 right by Leonard Scott Publication Co. 
 
 Evelyn Baring, first Earl of Cromer (1841 ), was British agent and consul- 
 general in Egypt, 1883-1907. He has had a distinguished career in the army and 
 in the government of India and Egypt and has written numerous books military, 
 political, and literary. This paper was read before the International Free Trade 
 Congress, held at Antwerp in August, 1910.
 
 ECONOMIC BACKGROUND OF WAR 53 
 
 the misgovernment of subject races. The early history of the Span- 
 iards in South and Central America, as well as the more recent history 
 of other states, testifies to the truth of this generalization. Similarly 
 trade that is to say, exclusive trade far from tending to promote 
 peace, has not infrequently been accompanied by aggression and has 
 rather tended to promote war. Tariff wars, which are the natural 
 outcome of the protective system, have been of frequent occurrence, 
 and, although I am not at all prepared to admit that under no circum- 
 stances is a policy of retaliation justifiable, it is certain that that 
 policy, carried to excess, has at times endangered European peace. 
 There is ample proof that the tariff war between Russia and Germany 
 in 1893 "was regarded by both responsible parties as likely to lead 
 to a state of things dangerous to the peace of Europe." Professor 
 Dietzel in his very remarkable and exhaustive work on Retaliatory 
 Duties shows very clearly that the example of tariff wars is highly 
 contagious. Speaking of events which occurred in 1902 and sub- 
 sequent years he says that Germany set the bad example. Russia', 
 Austria-Hungary, Roumania, Switzerland, Portugal, Holland, Servia, 
 followed suit. An international arming epidemic broke out. Every- 
 where indeed it was said: " We are not at all desirous of a tariff war. 
 We are acting only on the maxim so often proclaimed among us, Si 
 vis pacem, para bellum." 
 
 Can it be doubted that there is a distinct connection between 
 these tariff wars and the huge armaments which are now maintained 
 by every European state? The connection is, in fact, very close. 
 Tariff wars engender the belief that wars carried on by shot and shell 
 may not improbably follow. They thus encourage and even neces- 
 sitate the costly preparations for war which weigh so heavily, not 
 only on the industries, but also on the moral and intellectual progress 
 of the world. 
 
 To sum up all I have to say on this subject, I do not for a moment 
 suppose that universal free trade even if the adoption of such a 
 policy were conceivable would inaugurate an era of universal and 
 permanent peace. Whatever fiscal policy be adopted by the great 
 commercial nations of the world, it is wholly illusory to suppose that 
 the risk of war can be altogether avoided in the future any more than 
 has been the case in the past. But I am equally certain that, whereas 
 exclusive trade tends to exacerbate international relations, free trade, 
 by mutually enlisting a number of influential material interests in the 
 cause of peace, tends to ameliorate those relations, and thus, pro
 
 54 ECONOMICS OF WAR 
 
 tanto, to diminish the probability of war. No nation has, of course, 
 the least right to dictate the fiscal policy of its neighbors; neither has 
 it any legitimate cause to complain when its neighbors exercise their 
 unquestionable right to make whatever fiscal arrangements they 
 consider conducive to their own interests. But the real and ostensible 
 causes of war are not always identical. When once irritation begins 
 to rankle and rival interests clash to an excessive degree, the guns are 
 apt to go off by themselves, and an adroit diplomacy may confidently 
 be trusted to discover some plausible pretext for their explosion. 
 
 Some twelve years ago the British flag was hoisted in the Soudan 
 side by side with the Egyptian. Europe tacitly acquiesced. Why 
 did it do so? It was because a clause was introduced into the 
 Anglo-Egyptian Convention of 1899 under which no trade prefer- 
 ence was to be accorded to any nation. All were placed on a foot- 
 ing of perfect equality. Indeed the whole fiscal policy adopted in 
 Egypt since the British occupation in 1883 has been based on distinctly 
 free-trade principles. Indirect taxes have been in some instances 
 reduced. Those that remain in force are imposed, not for protective, 
 but for revenue, purposes, whilst in one important instancethat of 
 cotton goods an excise duty has been imposed in order to avoid the 
 risk of the customs duties acting protectively. 
 
 Free trade mitigates, though it is powerless to remove, inter- 
 national animosities. Exclusive trade stimulates and aggravates 
 those animosities. I do not by any means maintain that this argu- 
 ment is by itself conclusive against the adoption of a policy of pro- 
 tection, if on other grounds the adoption of such a policy is. deemed 
 desirable; but it is one aspect of the question which, when the whole 
 issue is under consideration, should not be left out of account. 
 
 4. THE 
 
 The whole situation might be summed up by saying that the 
 commercial development of the world will not wait until each territory 
 has created for itself a stable and fairly modern political system. By 
 some means or other the weak states have to be brought within the 
 
 1 By Walter Lippmann. Adapted from The Stakes of Diplomacy, pp. 98-125. 
 Copyright by Henry Holt & Co., 1915. Cf. the final paragraph from Bernhardi, 
 pp. 25-26 above. 
 
 ED. NOTE. Walter Lippmann (1889 ) is a prominent young American 
 writer on political subjects. He has been one of the editors of the New Republic 
 and is now serving the government in a confidential capacity.
 
 ECONOMIC BACKGROUND OF WAR $$ 
 
 framework of commercial administration. Their independence and 
 integrity, so called, are dependent upon their creating conditions under 
 which world-wide business can be conducted. The pressure to organ- 
 ize the globe is enormous. 
 
 The formula of modern imperialism seems to be that financial 
 groups enter a weak state and create "national interests," which then 
 evoke national feeling. The corruption and inefficiency of the weak 
 state "endanger" the interests; patriotism rises to defend them, and 
 political control follows. 
 
 The diplomats have even had a programme for the peaceful organi- 
 zation of backward countries. Their formula has been " the preser- 
 vation of their integrity and the open door to the commerce of all 
 nations." Almost every recent diplomatic document dealing with 
 Asia or Africa contains some such announcement. The doctrine is 
 intended to allay suspicion, but it does more than that. In a half- 
 hearted way it grasps at a solution of the world-problem. For if 
 you can preserve the integrity of a country, and you can keep the 
 door open, then you preclude any one nation from monopoly, you 
 give all nations an interest in preventing aggression, and you remove 
 the prime source of friction, which is the attempt of traders to secure 
 control of the territory and discriminate against their competitors. 
 The diplomats diagnosed the malady. They saw that the weakness 
 of these countries invited aggressive competition, so they proclaimed 
 territorial integrity. They saw that the chief interest of all nations 
 was trade, so they proclaimed the open door. They saw that only 
 one nation could gain by imperial control and special economic 
 privilege, and they hoped that the interests of all the others would 
 prevent the absorption of weaker states. The ideal they stood for 
 was international. Taken at its face value, it meant that modern 
 commerce was to penetrate, without destroying, the life of the natives 
 and without pre-empting the territory for the business men of any one 
 nationality. 
 
 The only trouble with the ideal was that it could not be taken 
 at its face value. Integrity and the open door have almost never been 
 realized, and the phrases of treaties have frequently remained an 
 empty aspiration. Americans ought to have no difficulty in under- 
 standing this result. We too have an ideal of the open door to all 
 comers, and we know how hard it has been to make our government 
 live up to that ideal. We know how railroads have discriminated in 
 their rates, how officials have given special privileges to special interests.
 
 56 ECONOMICS OF WAR 
 
 We have fought a long fight against it. Well, the same kinds of 
 forces which have so often shut the open door in the United States 
 are at work in these weak countries where governments extend their 
 imperial control. Groups of business men tend to secure political 
 power in the vassal territory, and after that integrity and the open 
 door are likely to be a good deal of a mockery. 
 
 A rough formula of what happens may be drawn up. A govern- 
 ment for one reason or another acquires dominion over a backward 
 people. Nowadays it almost always does so with the consent of the 
 other Powers. The act is proclaimed to be a European stewardship, 
 a disinterested piece of international policing; all nations are promised 
 equal rights, the "protected" people are promised a benevolent 
 guardian. This work is done, not by angels, but by colonial officials. 
 These human, all- too-human, beings become associated with con- 
 tractors, concessionaires, bankers, traders. The officials have big 
 favors to give franchises, mining rights, docking privileges, land 
 laws, taxation, customs administration, public works. The colonial 
 officials must give them to somebody, and they have to translate the 
 phrase "open door" into these concrete matters. If they are French 
 officials knowing French business men, what is more natural than that 
 these decisions should go against- the German competitors ? With 
 the best intentions in the world it would be hard to maintain equal 
 rights. And their intentions are not always the best in the world. 
 
 Let me make myself clear: I do not think Europe is fighting about 
 any particular privilege in the Balkans or in Africa. I think she is 
 fighting because Europe had been divided into two groups which 
 clashed again and again over the organization of the backward parts of 
 the world. Those clashes involved prestige, called forth national 
 suspicions, created the armaments, and after a while no question 
 could be settled on its merits. Each question involved the standing 
 of the Powers, each question was a test of relative strength. Since no 
 question could be settled, every question continued to pour its poison 
 into the European mind and made European diplomacy incapable of 
 preserving the peace.
 
 II 
 
 WAR AS A BUSINESS VENTURE 
 
 Introduction 
 
 Does successful war pay ? In the first place, as Norman Angell 
 (selection VI, i) is careful to point out, 'and as Brailsford (Selection 
 VII, 3) further emphasizes, it does not require gains for the people as a 
 whole to explain war. It is enough if influential classes have a mis- 
 taken hope of gains. Moreover, a defensive war is not expected 
 to show a profit in measurable terms, and it is a curious fact that 
 modern wars appear to both sides as defensive conflicts. A nation 
 that cannot protect itself against small encroachments may suffer 
 large ones, and this includes encroachments on national prestige that 
 infinitely elastic national asset. From the point of view of sheer 
 rivalry in prestige, a loss to the conquered may be felt as in itself a 
 gain to the conqueror regardless of whether it leaves them both better 
 or worse off than before, in absolute terms. The proposals and 
 measures, mentioned below, that look toward crippling foreign com- 
 petition, are probably of this sort. But there is a dilemma here. The 
 conqueror has his choice between ruining the industries that compete 
 with his own and making them productive in order to exploit them for 
 his own gain, but, as Mr. Brailsford indicates, he cannot do both. 
 
 The case for the unprofitableness of conquest (see selections from 
 Norman Angell) rests on the fact that the field for exploitation is 
 being more and more limited: first, by international law (see extracts 
 from the Hague Convention), and second, by the very complexity 
 and mutuality of the economic system of today. Plundering which 
 wrecks the efficiency of the conquered territory would soon recoil on 
 the plunderers, for they could not gain by trade with bankrupts nor 
 sell to those who have no goods to pay with. Plundering which 
 would not wreck the efficiency of the conquered territory means 
 nothing less than the reorganization of the economic system of a 
 nation under new ownership and control and in the face of the unwill- 
 ingness of the people to lend themselves to such a program. Only 
 the Germans would conceive such an undertaking, and it is doubtful 
 if even they could carry it through successfully. 
 
 57
 
 58 ECONOMICS OF WAR 
 
 Their projects, however, reveal a readiness to undertake a more 
 sweeping transfer of ownership and reorganization of work in con- 
 quered areas than Norman Angell takes into consideration in his view 
 of the case. Germany has dug her trenches, harvested her crops, and 
 woven her uniforms with the labor of occupied territories, has fed her 
 soldiers with their wheat and her guns with their iron. This increases 
 Germany's fighting power enormously, but not necessarily her finan- 
 cial profits, unless she withholds fair compensation from private 
 owners. To work these resources permanently to the financial profit 
 of German citizens is another matter, and it remains to be seen how 
 far this can be accomplished. 
 
 V. The Negative Side 
 i. CONQUEST DOES NOT PAY 1 
 
 The series of Bourse crises on the Berlin Stock Exchange by which 
 German bankers, merchants, and manufacturers suffered heavily as a 
 direct result of an act of political aggression on the part of the German 
 government is a fact which illustrates and confirms in a sufficiently 
 striking fashion the thesis which I have attempted to outline in " The 
 Great Illusion." 
 
 What, in two words, is this thesis ? It is this : that it has in the 
 modern world become impossible, by successful war between civilized 
 nations, to derive any profit whatsoever. This involves of course a 
 complete repudiation of the axioms which have heretofore dominated 
 and still to a large extent dominate European statecraft. The naval 
 rivalry between Great Britain and Germany is part of that struggle 
 for commercial and industrial predominance which is going on between 
 two countries, and moreover the Mahans, von Stengels, Homer Leas, 
 and Roosevelts defend these ''axioms" by what is presumed to be a 
 very profound philosophy. It is all, we are told, in keeping with the 
 great laws of life in the world with all that we know of the evolution- 
 ary process: throughout nature the law of fight and struggle is 
 supreme; so must it be with nations. 
 
 Well, it's all wrong. It considers only one half of the facts, and 
 the other fcalf, perhaps the larger, certainly the dominating half in 
 the general process of human development, is left out. And the 
 
 1 By Norman Angell (see p. 9). Adapted from "Recent International Events 
 and The Great Illusion," World's Work, XXIII (1911-12), 149-54- Cf. also 
 p. 42, above.
 
 WAR AS A BUSINESS VENTURE 59 
 
 evolutionary analogy at which I have hinted and which is accepted 
 almost universally as a true analogy, is an absolutely false one, and 
 there again the dominating factor, as we shall see presently, has not 
 been considered. 
 
 The illusion is a double one. Struggle is only one half of the law 
 of life. The other half, without which life would be impossible, is 
 known as the law of mutual aid, co-operation. This process, which 
 throughout all the higher forms of life runs parallel with the law of 
 struggle, is seen even in the earliest organism. Its simplest form is 
 the co-operation of male and female. If struggle in its completest 
 form prevented that co-operation, life would never have developed 
 beyond the first organism that possessed a sex; and it will be found 
 that in the process of development every added factor of co-operation 
 diminishes the proportional importance of the factor of conflict. For 
 this reason in the domain of sociology the relative roles of these two 
 factors are constantly changing. Let us illustrate as concretely 
 as possible. 
 
 When Olaf, the viking king, descended on the coast of Northum- 
 bria he hammered his way into a Saxon stronghold, seized all the gold, 
 and silver, and hides, and corn, and cattle, and women, and slaves 
 that he could lay hand on, sailed back home, and was the richer by 
 just the amount of loot he could safely land on his own shores. As 
 against the profit of such an expedition he had to set on the debit side 
 of the account practically nothing at all. 
 
 But imagine a modern Olaf landed in London at the head of a 
 victorious army making straight for the cellars of the Bank of England 
 and looting them in the fashion in which one distressed correspondent 
 of a London paper foresees would the position be the same ? The 
 position would be absolutely different; for the day that he looted the 
 Bank of England, the Bank of Germany would suspend payment and 
 his own balance therein disappear. For every sovereign that he took 
 from English merchants in this way, German merchants would 
 probably pay a hundred. Every time that he brought an English 
 bank or insurance company or commercial house to ruin he would 
 know with absolute and mathematical certainty that he would by 
 the same blow bring a German bank, a German insurance company, 
 and a German house to ruin also. Can we pretend, therefore, that 
 conditions have not altered ? Of course they have altered. The factor 
 of co-operation which our credit system every day and every hour is 
 intensifying has modified profoundly the weight of the factor of
 
 60 ECONOMICS OF WAR 
 
 conflict; to such a degree indeed that confiscation, in the rude form 
 in which the nervous correspondent I have cited suggests, has become 
 a practical impossibility. The series of recent financial crises in 
 Berlin have given this abundant illustration. What happened? 
 The German government took an action which threatened the peace 
 of Europe and which was aimed specifically at France. The first 
 tangible result of such an action was that German industrial securities 
 lost value to the extent of some scores of millions, and the whole 
 incident has cost German commerce and industry a great deal more 
 than it has cost any of the other nations, although they too have, of 
 course, suffered badly. It will not take many more "black Satur- 
 days" to show even the German public that to disorganize the trade 
 of some hundreds of millions for the purpose of securing dubious 
 exclusive advantages in a territory which at present provides a 
 market of something less than half a million is not to throw away a 
 sprat in order to catch a whale, but to throw away a whale in order 
 to catch a sprat and then not catch it! 
 
 The old notion that, as between nations or large communities, 
 A can use military force to obtain from B advantages which he could 
 not obtain otherwise; that military force can be used in a modern 
 world as a means of predatory exploitation; that by means of military 
 force a people can live as parasites by the exaction of tribute in some 
 form from other peoples, is at last being recognized as not justified 
 by the facts of the case. The commercial and financial operations 
 of the modern world are essentially mutual. If a nation is to find 
 a market, that market must be a trading and producing people, which 
 means that the market must be a competitor in some sense. If a 
 nation is to have sound credit, it must not disturb the credit of other 
 nations. If it is to exact its own half of the economic contract, it 
 must fulfil its own half. If it is to have a field for its investments, it 
 must not place the territories in which it hopes to find that investment 
 at any financial or economic disadvantage. 
 
 These propositions are not new. They have always represented 
 the ideal conditions of human society. But they were never prac- 
 tically operative while distance and difficulties of communication and 
 ideas shut off one people from another. But the conditions to-day 
 differ from the conditions even as we knew them thirty years ago by 
 this fact, that the telegraph has made us financially one, and that 
 what was originally merely a moral fact that we are all members one 
 of another has become a very patent and intrusive financial fact,
 
 WAR AS A BUSINESS VENTURE 61 
 
 demonstrated to the densest of us by the simple figures of the bank 
 rate. 
 
 Never was it so possible to present this truth in the simple and 
 dramatic form as now, when every time that a loan is contracted, 
 every time that a German industrial concern sells its debentures in 
 London or establishes a factory in South America, there is an inten- 
 sification of it. My claim is not that these facts are new so much as 
 that they have reached a condition of weight in the practical daily affairs 
 of our life which can no longer be ignored in our practical politics, as 
 the recent Berlin crisis so abundantly shows. When they are realized, 
 a diplomatic revolution to the advantage of all becomes inevitable. 
 
 The need for expressing a thing in headlines has, of course, 
 distorted the principles which I have attempted to elaborate: "'War 
 Now Impossible,' says the author of 'The Great Illusion'" is the sort 
 of headline that is turning my hair gray. I have never said, of course, 
 that war is impossible. On the contrary, given the prevailing con- 
 dition of ignorance concerning the elementary economic facts of the 
 world, war is even likely. 
 
 But, it will be asked, why, if victory can be of no possible 
 advantage, do we stand in danger of war, since in every war someone 
 must be the .aggressor, and aggression will be committed only in the 
 hope of obtaining advantage thereby? For this reason: not neces- 
 sarily his real interest, but what, with all the distortion of short sight 
 and temper, he deems his interest is where we must look for the 
 motives of a man's conduct. The futility of war will not stop war 
 until general opinion has recognized the futility. And European 
 statecraft, still mumbling the obsolete formulae that have come down 
 to us from conditions that long since ceased to exist, seems still to be 
 in sublime ignorance of even the very simple facts which make the 
 conclusion just indicated inevitable. So long as European public 
 opinion as a whole is thus ignorant, war is quite possible. Europe 
 may make the enormous, the all but incalculable, sacrifices she would 
 certainly have to make in order not for the first time, be it said 
 to fight for an illusion. 
 
 2. PERMANENT SUBJUGATION IMPOSSIBLE 1 
 
 The sheer military subservience of a strong people can be only 
 temporary, because (a) of the recuperative capacity shown by such 
 
 1 By Norman Angell. Adapted from America and the New World-State, 
 pp. 268-72. Published by G. P. Putnam's Sons, 1915.
 
 62 ECONOMICS OF WAR 
 
 conquered states in the past, and (b) of the extreme mutability of 
 alliances it being a possibly temporary alliance which gives the 
 preponderance of power against them. 
 
 The merely temporary effect upon a virile people of the destruction 
 of their armies and political machinery, the artificial and unreal 
 character of the apparent" wiping off the map" that follows, has been 
 dramatically demonstrated in the case of Germany within the memory 
 of the fathers of men still living. In the first few years of the nine- 
 teenth century Prussia was annihilated as a military force. The 
 army was destroyed at Jena and Auerstadt, and the whole country was 
 overrun by the French. By the Peace of Tilsit, Prussia was deprived 
 of all territory west of the Elbe and all her Polish provinces, of the 
 southern part of West Prussia, of Dantzig, thus losing nearly half her 
 population and area: the French army remained in occupation until 
 heavy contributions demanded by France were paid and by the 
 subsequent treaty the Prussian army was limited to not more than 
 42,000 men, and she was forbidden to create a militia. She was 
 broken, apparently, so completely that even some five years later she 
 was compelled to furnish, at Napoleon's command, a contingent for 
 the invasion of Russia. The German states were weakened and 
 divided by all the statecraft that Napoleon could employ. He played 
 upon their mutual jealousies, brought some of them into alliance with 
 himself, created a buffer state of Westphalia, Frenchified many of 
 the German courts, endowed them with the code Napoleon. Germany 
 seemed so shattered that she was not even a "geographical 
 expression." It seemed, indeed, as though the very soul of the people 
 had been crushed, and that the moral resistance to the invader had 
 been stamped out, for, as one writer has said, it was the peculiar 
 feature of the Germany which Napoleon overran that her greatest 
 men were either indifferent, like Goethe, or else gave a certain 
 welcome to the ideas which the French invaders represented. Yet 
 with this unpromising material the workmen of the German national 
 renaissance laboured to such good purpose that within a little 
 more than five years of the humiliation of the Peace of Tilsit, 
 the last French army in Germany had been destroyed and Prussia 
 was able finally to take the major part in the destruction of the 
 Napoleonic, and in the restoration of the German, Empire. It was 
 from the crushing of Prussia after Jena that dates the revival 
 of German national consciousness and the desire for German 
 unity.
 
 WAR AS A BUSINESS VENTURE 63 
 
 Now take the case of France in 1870. The German armies, drawn 
 from states which within the memory of men then living had been 
 mere appanages of Napoleon, which as a matter of fact had furnished 
 some of the soldiers of his armies, had crushed the armies of Louis 
 Napoleon. Not merely was France prostrated, her territory in the 
 occupation of German soldiers, the French Empire overthrown and 
 replaced by an unstable republic, but frightful civil conflicts like the 
 Commune had divided France against herself. So distraught, indeed, 
 was she that Bismarck had almost to create a French government with 
 which to treat at all. What was at the time an immense indemnity 
 had been imposed upon her, and it was generally believed that not for 
 generations could she become a considerable military or political 
 factor in Europe again. Her increase of population was feeble 
 tending to stagnation; her political institutions were unstable; she 
 was torn by internal dissensions; and yet, as we know, within five 
 years of the conclusion of peace France had already sufficiently 
 recuperated to become a cause of anxiety to Bismarck, who believed 
 that the work of "destruction" would have to be begun all over again. 
 And if one goes back to earlier centuries, to the France of Louis XIV 
 and her recovery after her defeat in the War of the Austrian Succes- 
 sion, to the incredible exhaustion of Prussia in wars like the Thirty 
 Years' War, when her population was cut in half, or the Seven Years' 
 War, it is the same story; a virile people cannot be "wiped from the 
 map." 
 
 3. A GERMAN SOCIALIST VIEW 1 
 
 ANNEXATIONS AND FOREIGN TRADE 
 
 In the struggle for the restoration of peace and of world-economics 
 the propaganda for a "Peace without Annexation" encounters one 
 main objection. A state, it is argued, cannot live unless it possesses 
 the territories necessary for its supply of raw material. This argument 
 is used by the annexationists of Germany, whose lust of conquest 
 extends to the iron-ore fields of French Lorraine and the coal fields of 
 Russian Poland. Such an argument rests in the last resort upon the 
 idea of "autarchy" or self-sufficiency the idea that state frontiers 
 must be drawn so that the economic areas within them can meet their 
 
 1 Adapted from an article which the New Europe (III [1917], 48) publishes 
 with all the necessary reservations as an important Socialist contribution to 
 international commerce. The article first appeared in the Arbeiter-Zeitung, June 19, 
 1917.
 
 64 ECONOMICS OF WAR 
 
 own demand for raw material and be independent of other countries. 
 As we cannot now exist without the products of southern climes, an 
 ideal state of this kind would to-day have to extend from the Pole 
 to the Equator. Autarchy is unrealisable unless the whole world is to 
 be measured out anew. It is obviously an advantage to any state 
 to possess as much raw material as possible, but every economic area, 
 however richly endowed by nature, still requires to import from 
 abroad. It is therefore a question whether the annexation of a few 
 more sources of supply could ever make up for the permanent enmity 
 of all neighbours which this would evoke. 
 
 We would prefer a situation in which neighboring peoples could 
 use their national mineral wealth for mutual exchange and the 
 extension of culture. Hue draws the conclusion that when we see 
 in all belligerent countries the group of private capitalists who exploit 
 the national mineral resources demanding a "peace imposed by force 
 of arms," we must recognize that the most effective means of finally 
 ending such intrigues is the general nationalisation of mines and of the 
 armament industries which depend so closely upon them. But in 
 reality the nations need nothing save the establishment of complete 
 freedom of intercourse between all economic territories in the world. 
 
 4. TRADE WILL FLOW BACK TO ITS NATURAL 
 CHANNELS 1 
 
 Before the war Germany was producing about 28,000,000 tons of 
 iron ore a year. Of this, about 21,000,000 tons came from Lorraine. 
 Germany also imported ore from her immediate neighbors and lately 
 from Sweden as well. 
 
 Suppose she loses Lorraine at the end of the war. She will lose 
 about three-fourths of her annual production of iron ore. How will 
 the deficiency be supplied ? Partly by a better use of the remaining 
 resources in the Rhineland and elsewhere, but largely, very largely, 
 by increased imports. Assume for the moment that Germany 
 becomes unable to buy iron from a restored French Lorraine ; the ore 
 or metal will most likely have to come from Sweden, perhaps even 
 from South America. Thus we should have Germany buying ore 
 and iron, at competitive prices, in markets which have hitherto helped 
 to relieve the shortage in other countries. England would feel the 
 
 1 By L. W. S. Adapted from "Lorraine, Coal and Iron," in New Republic 
 (September 8, 1917), pp. 153-54-
 
 WAR AS A BUSINESS VENTURE ' 65 
 
 pressure of these German orders, and so would Belgium. Even the 
 United States might be affected by this forced reorganization of 
 the world's iron market. 
 
 Suppose further that France, regaining Alsace-Lorraine at the end 
 of the war, either cannot get or will not take coal from Germany. 
 Before the war France was just able to make the best economic use 
 of her iron ore. She was producing about 40,000,000 tons of coal a 
 year in normal times. To this will be added not more than 3,500,000 
 a year from the mines of Lorraine. How will she manage to handle 
 the additional 21,000,000 tons of Lorraine iron? 
 
 By getting coal from England? Until the war came England 
 and Germany were both supplying coal to the furnaces of Northern 
 France. England was supplying many places on the Continent, but 
 not Lorraine, not Meurthe-et-Moselle, or Meuse. 
 
 How can this coal, which before the war did not compete success- 
 fully with German coal in Lorraine, Meurthe-et-Moselle, or Meuse, 
 be brought to this region after the war at prices which will make the 
 iron industry profitable? Only by lowering coal-transportation 
 costs, or by devising a system of shipping Lorraine iron ore, at low 
 cost, northward to meet English coal so near home that its price is 
 still low. No doubt such a system of transporting coal and ore can 
 finally be evolved and made to work satisfactorily. How long would 
 this take ? At least ten years. At present the economist, studying 
 the problem of iron in Lorraine and the two departments, must 
 deal first with conditions as they are, not as they may be in the 
 future. 
 
 Suppose we nevertheless look into the future and assume that 
 these difficulties have been overcome. There remains the fact that 
 France would have to find a market for her iron outside her frontiers. 
 What country could make use of the iron gained by smelting the 
 21,000,000 tons of ore thrown suddenly into the furnaces of France? 
 Would England take this iron in exchange for her coal ? Before the 
 war the English iron industry was consuming every year about 
 23,000,000 tons of ore, of which nearly 16,000,000 tons were mined in 
 England and approximately 7,000,000 were imported. Even if 
 England were in future to take all her imported ore from France, 
 France would still have on her hands a surplus of 14,000,000 tons, 
 either to be smelted and used at home or exported. 
 
 Where could French iron ore go ? To those countries which will 
 lose part of their ore supplies when Germany outbuys them in their
 
 66 ECONOMICS OF WAR 
 
 former markets ? It is doubtful whether this is a satisfactory answer, 
 for the simple reason that Lorraine iron may be either unsuitable for 
 the particular purposes of this demand, or else, as is more likely, too 
 expensive because of transportation cost. 
 
 The only natural market where the Lorraine iron ore or the product 
 of it can be disposed of cheaply and quickly will be Germany. In 
 case she loses Lorraine, Germany also may soon realize the force of 
 this truth and be willing to go to Lorraine for her iron ore. She may 
 be willing to give in exchange the coal needed by France. A com- 
 mercial arrangement providing for this exchange, giving Lorraine, 
 Meurthe-et-Moselle, and Meuse a market for their iron ore and 
 Germany a market for her coal must result from the transfer of 
 Alsace-Lorraine from the German Empire to the French Republic. 
 What other solution is possible, except the creation of an independent 
 economic unit out of the two provinces ? 
 
 5. LIMITS IMPOSED IN THE HAGUE CONVENTIONS 
 
 Article XL VI. Family honor and rights, the lives of persons, 
 and private property, as well as religious convictions and practice, 
 must be respected. Private property cannot be confiscated. 
 
 Article LII. Requisitions in kind "and services shall not be 
 demanded from municipalities or inhabitants except for the needs 
 of the army of occupation. They shall be in proportion to the 
 resources of the country, and of such a nature as not to involve the 
 inhabitants in the obligation of taking part in military operations 
 against their own country. Such requisitions and services shall only 
 be demanded on the authority of the commander in the locality 
 occupied. Contributions in kind shall as far as possible be paid for 
 in cash; if not, a receipt shall be given, and the payment of the 
 amount due shall be made as soon as possible. 
 
 Article LIII. An army of occupation can only take possession 
 of cash, funds, and realizable securities which are strictly the property 
 of the State, depots of arms, means of transport, stores and supplies, 
 and, generally, all movable property belonging to the State which 
 may be used for military operations. All appliances, whether on land , 
 at sea, or in the air, adapted for the transmission of news or for the . 
 transport of persons or things, exclusive of cases governed by naval 
 law, depots of arms, and, generally, all kinds of ammunition of war, 
 may be seized, even if they belong to private individuals, but must 
 be restored and compensation fixed when peace is made.
 
 WAR AS A BUSINESS VENTURE 67 
 
 VI. The Profit Side 
 
 i. GERMANY READY TO ADMINISTER CAPTURED 
 WEALTH 1 
 
 I. THE ENEMY BEARS THE WHOLE BURDEN 2 
 
 In the event of a peace favourable to Germany our enemies will 
 have to pay: 
 
 a) The war expenditure, including federal and local expendi- 
 
 ture, about $30,000,000,000 
 
 b) The expenditure on pensions and armaments, viz., about 
 
 $500,000,000 annually for about 40 years, represent- 
 ing a capital value of about 11,000,000,000 
 
 c) Losses in the colonies 1,250,000,000 
 
 d) Private losses 7,500,000,000 
 
 Grand total $49,750,000,000 
 
 This is equivalent to a service of about $3,250,000,000 per annum. 
 
 Such enormous sums, the author observes, cannot, of course, be 
 paid cash down, nor would it be desirable if they could. Germany 
 would have to obtain her indemnities by the exploitation of the 
 conquered territory, principally by taking possession of all public and 
 private property, which can be profitably administered by the state, 
 as follows: A. Railways, canals, ports, warehouses, etc. B. Natural 
 resources, such as coal, ore, salt, petroleum, etc. C. Land (forests)* 
 estates, and all land suitable for the settlement of German farmers. 
 
 On this basis Germany would be interested in the following: 
 
 a) Belgium: railways, coal mines, and deposits, other 
 
 mines, state land, etc., total $ 6,000,000,000 
 
 b) France: railways, coal mines, etc., iron fields in Lorraine 
 
 (Briey and Longwy), total 5,000,000,000 
 
 c) Courland and Lithuania: railways (one-fifth), forest 
 
 land and land fit for settlement (four-fifths), total . . . 250,000,000 
 
 1 By K. A. Fischer. Adapted from Germany's Future as the Result of a Good 
 or a Bad Peace. This selection is from a pamphlet written by four Prussian 
 officials and distributed by order of the War Office among the German troops. 
 Printed in the New Europe, V, 87-89. 
 
 2 The sums mentioned are stated in the original in round numbers (one or 
 two digits) indicating rough estimates. In translating them into American money 
 the editors have kept the figures round instead of translating accurately the sums 
 given in the original.
 
 68 ECONOMICS OF WAR 
 
 d) Roumania: oil wells, which could be pledged to and 
 
 administered by Germany, at least in part 1,250,000,000 
 
 e) Poland : (no " property suitable for state administration " 
 
 is specified in the case of Poland, but as two lines are 
 given to the heading, something appears to have 
 been taken out of the text on second thoughts) i ,500,000,000 
 
 Grand total $14,000,000,000 
 
 To the above may be added: 
 
 /) Livonia and Esthonia: railways (one-third) forest land 
 
 and land for settlements (two-thirds) $ 240,000,000 
 
 II. COLONIAL BOOTY 
 
 The property specified above thus accounts for only about 
 $14,000,000,000 of the required $50,750,000,000, leaving $36,000,000,- 
 ooo, more to be covered. In view of the great demand for cargo space 
 which may be expected after the war, the value of the part of the 
 enemy merchant navies ceded to us may be estimated at about 
 $1,000,000,000. If the Suez Canal, where shipping dues are high, 
 is put under German administration, this will mean a further $240,- 
 000,000. Moreover, in the event of a favourable peace, the addition 
 to Germany's African colonies of the Portuguese and Belgian colonial 
 possessions, as well as of large sections of the British and French, and 
 conceivably the Italian also, will be a necessity (a) from the military 
 point of view, France having so far sent about 350,000-400,000 
 coloured troops from North and West Africa against us; (6) from the 
 naval point of view, as Germany would then have new naval bases; 
 (c) from the economic point of view, to safeguard our supply of raw 
 materials. This extension of our African colonial empire may be 
 estimated at about $2,400,000,000. The 33 billions still required 
 must be paid for primarily by the import of raw material, half- 
 products, and foodstuffs required by our national economy. In 1913 
 Germany imported $2,142,700,000 worth of these things, and in 
 consequence of the great destruction of stocks our requirements after 
 the war will be much greater and may well be put at $3,000,000,000- 
 $3,800,000,000 for a number of years. Before the war England, 
 France, and Russia, with their colonies, supplied us with about one- 
 third of what we needed, and they will have to give us about a quarter 
 in future also. The remainder of our imports must be procured from 
 other countries and paid for with enemy money.
 
 WAR AS A BUSINESS VENTURE 69 
 
 III. PLUNDER FOR GERMANY'S ALLIES 
 
 It must be borne in mind that the figures given above refer to the 
 war expenditures of the German Empire only; the war expenditures 
 and losses of our Allies amount to far more than $38,000,000,000, in 
 addition, and will also have to be met by the enemy. Austria-Hungary 
 will look principally to Italy and Serbia, and Bulgaria to Serbia and 
 Roumania, for this purpose, while Turkey will insist in the first 
 instance on the restoration of Egypt and Tripoli, which belong 
 to her. 
 
 A peace by which we are made to bear our own burdens condemns 
 us to an inevitable decline and to a permanent inferiority to America, 
 Japan, England, and Russia. England will still continue in a position 
 to exploit half the world in the shape of her colonies; she will make 
 good all her losses from this inexhaustible source of supply; she will 
 oust us from every market by every possible device; she will continue 
 to rule the seas and live freely in them. Russia, again, whose strength 
 is founded entirely on her dominion over vast areas and their increas- 
 ing colonization by the peasantry, is in such a primitive stage of 
 economic development that she cannot be shaken at all so long as she 
 remains in possession of these areas; she will very rapidly develop 
 her industry, her agriculture, and her means of communication, 
 exploit her natural resources, and in a few decades herself grow and 
 work up almost all classes of raw material, including cotton. At all 
 this Germany will be compelled to look impotently on. 
 
 2. SYSTEMATIC EXPLOITATION: THE 
 "RATHENAU PLAN" 1 
 
 The German authorities have systematically exploited Belgium 
 and the other lands conquered by them. This exploitation for the 
 benefit of German industry has been going on from the very first 
 days of the occupation in each of the conquered territories. It is 
 an outgrowth from the "Rathenau Plan," which has made it possible 
 for Germany to continue the war. 
 
 This plan, which was suggested early in August, 1914, by Dr. 
 Walter Rathenau, president of the General Electric Company of 
 Germany, was to establish a Bureau of Raw Materials for the War. 
 
 1 Adapted from German Treatment of Conquered Territory. This was a 
 pamphlet issued by the United States Committee on Public Information, March, 
 1918.
 
 70 ECONOMICS OF WAR 
 
 It was made a part of the Ministry of War, and one of its problems 
 was as follows: 
 
 The occupation of Belgium, of the most valuable industrial parts of 
 France, as well as of parts of Russia, made a new task for the organization. 
 It was necessary to make use of the stocks of raw material of these three 
 territories for the domestic economy of the war, to use, especially, the stores 
 of wool found at the centers of the continental wool market. Valuable 
 stocks of rubber and of saltpeter were to be used for the profit of the manu- 
 facturer at home. The difficulties that are met with in keeping to the rules 
 of war while making these requisitions have been overcome. A system 
 of collecting stations, of depots, and of organizations for distribution was 
 arranged which solved the difficulties of transportation, infused new blood 
 into industry at home, and gave it a firmer and more secure basis. [This 
 quotation is from the report of a lecture by Dr. Rathenau published in the 
 Zeitschrift des oesterreichischen Ingenieur- und Architektenvereines of April 21, 
 1916.] 
 
 For the conduct of the war and for her manufactures Germany 
 needs vast stocks of metal. The Rathenau Plan, under the direc- 
 tion of the President of the General Electric Company, was directed 
 especially toward supplying this need. Every scrap of metal in the 
 conquered countries that could possibly be seized has been con- 
 fiscated. The ordinance below is given here as an example of the 
 thoroughness of the system of requisitions. The prices to be paid 
 were entirely too low and the sixth section shows that the German 
 authorities did not expect that the owners of the property would be 
 satisfied with the price that was to be paid. 
 
 The following ordinance was issued at Brussels under date of 
 December 13, 1916: 
 
 Section i. The following designated objects are hereby seized and 
 must be delivered. 
 
 Section 2. Movable and fixed household articles made of copper, tin, 
 nickel, brass, bronze, or tombac, whatever their state: 
 
 1. Kitchen utensils, metal ware, and household utensils, except cutlery. 
 
 2. Wash basins, bathtubs, warm-water heaters, and reservoirs. 
 
 3. Individual or firm name-plates in and on the houses, door-knobs, 
 knockers, and metal decorations on doors and carriages not necessary for 
 locking. 
 
 4. Curtain rods and holders and stair-carpet fixtures. 
 .5. Scales. 
 
 6. Ah" other household articles or adornments made of tin.
 
 WAR AS A BUSINESS VENTURE 71 
 
 The articles included under the numerals 1-6 are subject to seizure and 
 delivery even when not contained in households in the narrow sense, but 
 in other inhabited or uninhabited buildings and rooms (e.g., offices of 
 authorities, office rooms in factories, and entries). 
 
 Section 3. Exempt from seizure and delivery: 
 
 1 . Articles on and in churches and other buildings and rooms dedicated 
 to religious services. 
 
 2. Articles in hospitals and clinics, as well as in the private offices of 
 physicians, apothecaries, and healers, so far as these articles are essential 
 to the care of the sick or the practise of medicine and cannot be replaced. 
 
 3. Articles in public buildings. 
 
 4. Articles which are part of commercial or industrial stores either 
 designated for sale or useful in the business. For these articles a special 
 decree is enacted. 
 
 Section 5. Obligation to deliver. Articles of artistic or historic value, 
 if so recognized by the Bureau of Delivery, need not be delivered. 
 
 The Bureau of Delivery may for unusual cause grant exemption from 
 delivery. 
 
 Section 6. Indemnity. The following prices will be paid for the 
 delivered articles: 
 
 Copper, per kilo. . . 4 francs Brass 3 francs 
 
 Tin 7 . 50 " Bronze 3 u 
 
 Nickel 13 " Tombac 3 " 
 
 The payment will take place on the basis of the estimate made by the 
 Bureau of Delivery. Payment will be made to the deliverer without 
 question of his ownership. 
 
 Section 7. Refers to persons and corporations affected by this decree. 
 
 Section 8. Confiscation. [Failure to comply with the provisions of 
 the decree entails confiscation.] 
 
 Section 9. Co-operation of communities. [Local authorities ordered 
 to co-operate in execution of this order.] 
 
 A list of articles acquired by confiscation or forced sale in Belgium, 
 compiled from the official ordinances, includes: 
 I. Minerals and Metals (48 items) 
 II. Chemicals (19 items) 
 
 III. Machinery, etc. (18 items) 
 
 IV. Food (9 items, including all bread grains as one item) 
 V. Clothing (18 items) 
 
 VI. Textiles (37 items) 
 
 VII. Household articles (when made of copper, bronze, brass, 
 tombac, nickel, or tin, 34 items)
 
 72 ECONOMICS OF WAR 
 
 VIII. Old material (20 items) 
 IX. Oils and explosives (n items) 
 
 X. Metal products for industrial establishments (33 items) 
 XI. Medical supplies (6 items) 
 XII. Miscellaneous (24 items) 
 
 (Total, 277 items) 
 
 In addition, the German authorities regulate and control the sale 
 of most of the wares which have not been confiscated by them. 
 
 Some industries which were not directly useful to the Germans 
 had been allowed to resume work in whole or in part. In doing this 
 the German officials in Belgium had aroused anger in Germany, as 
 the Belgian industries competed with German manufacturers. The 
 latter are not willing to permit any competition on the part of the 
 conquered peoples, as is shown by the comment on the attempt to 
 renew the making of glass in Belgium. 
 
 To quote Dr. Goetze, head of the union of glassmakers in Ger- 
 many: 
 
 It had become vital before the war to the German manufacturers of 
 glasswares that the Belgian manufactures should be stopped from going to 
 neutral markets, and it must be admitted that the German Civil Adminis- 
 tration has fully recognized the necessity of arranging this matter according 
 to the demands of the German industry, and that it has taken suitable 
 action. 
 
 In spite of this some Belgian shops were able to do some exporting 
 and had affected the market price. "Measures must be taken to 
 stop this." 
 
 Because of the attitude of the German manufacturers the Ger- 
 man authorities in Belgium were in a very difficult situation. The 
 German government felt that they must make an explanation to 
 the German public and accordingly the following "inspired" article 
 was published in a paper. 
 
 The opinion seems to be widespread in many circles at home that the 
 scepter was wielded too mildly in the conquered country; voices have been 
 heard which cry, "Become harsh," which raise the reproach that the 
 enemy's country is being treated as if it were our own; voices which blame 
 the German Government in Belgium for troubling itself about the revival 
 of trade and industry, instead of decimating the whole country economically 
 and giving the death-blow to its power of competition. Such criticisms 
 exhibit a shortsighted judgment of the tasks which are to be carried out in 
 Belgium and of what has been accomplished hitherto. All exaggerated
 
 WAR AS A BUSINESS VENTURE 73 
 
 mildness, all sentimentality, must be avoided and are being avoided, but 
 true strength will always be just; severe at need, but not unnecessarily 
 harsh. With such a principle the conqueror only pursues his own deepest 
 interests. Or should he, perchance, by vexatious and arbitrary treatment, 
 drive the already grievously incensed nation, in the rear of his own army, to 
 despair? The German Government in Belgium does all it possibly can 
 to set trade and traffic going again and to provide earnings and bread for 
 the working classes, not in order to pay Belgium loving services thereby, 
 but in order to prevent famine and disease behind the front of our army from 
 endangering their safety and health. It has therefore willingly lent its hand 
 to the procuring of food for the distressed population from neutral countries 
 in order to spare our home supplies and to save our own troops from priva- 
 tions. It has permitted the needful supplies of coal to be forwarded. 
 Competition against our home production cannot arise thereby, for only so 
 much can be forwarded to Belgium as is necessary for the bare needs of its 
 freezing people and of its industry, which is prolonging a painful existence. 
 With farsighted understanding the Government is also endeavoring to 
 introduce institutions for social amelioration, which the Belgian Govern- 
 ment perhaps out of regard for the increase of the costs of production 
 which would have resulted therefrom had hitherto neglected. If the labor 
 and productivity in the country is thus gradually increased again by this 
 means, ^hen the occupying troops, as well as the country, get the advantage 
 of this, for they also have to resort to the products of the country for their 
 needs. And then, how is Belgium to provide the financial payments which 
 are imposed upon her if her vital energy is sapped ? [From the Nord- 
 deutsche allgemeine Zeitung, December 29, 1914.] 
 
 The success of the Rathenau Plan can also be seen in the following 
 quotations from other papers: 
 
 There have been great difficulties, as far as raw material, copper, tin, 
 etc., are concerned, in keeping up manufacturing in the German shops for 
 making machine tools. Thanks to the confiscations, the army adminis- 
 tration is certain not to run out of the necessary metals before the end of 
 the war. [From Der praktische Machinenkonstrukter, October 24, 1915; 
 quoted in Informations Beiges, No. 488.] 
 
 After the war the French and the Belgian competition will no longer 
 be dangerous because of the destruction brought about by the war. [From 
 Exports, December 28, 1915; quoted in Informations Beiges, No. 488.] 
 
 Most instructive is part of an article by Herr Ganghofer, con- 
 taining some frank statements which he was not allowed to reprint 
 in his book Journey to the German Front, which he published later: 
 
 All the work is done there on the principle that as little as possible 
 of what the army needs is to be brought from Germany, that as much as
 
 74 ECONOMICS OF WAR 
 
 possible is to be got from the conquered enemy country, and that everything 
 that is necessary for the army or useful to Germany is to be taken to 
 Germany. For three months about four-fifths of the army's needs were 
 supplied by the conquered country. Even now, although the exhausted 
 sources in the land occupied by us are beginning to yield less abundantly, 
 the conquered territory is still supplying two-thirds of the needs of the 
 German army in the West. Because of this, for the last four months the 
 German Empire has saved an average of 3,500,000 to 4,000,000 marks a day. 
 This profit which the Germans have secured by their victory is very greatly 
 increased by another means. That is the economic war which, in accordance 
 with the rules of international law, is being carried on against the conquered 
 land by the exhaustion of the goods which belong to the State, which are 
 being carried to Germany from Belgium and Northern France. What 
 Germany saves and gains by this economic war, carried on in a business-like 
 way, can be reckoned at a further 6,000,000 to 7,000,000 marks a day. 
 Thus the entire profit which the German Empire has made behind its 
 Western Front since the beginning of the war can be estimated at about 
 2,000,000,000 marks. [From the Miinchner neueste Nachrichten, February 
 26, 1915.] 
 
 3. GERMAN GAINS IN THE EAST 1 
 
 Germany, through her conquests in the East, is endeavoring, 
 under the leadership of her economists and industrialists, to build up 
 a great economic empire, which will be eventually, as far as possible, 
 self-sufficient. She is aiming to acquire control over sources of raw 
 material so that in the end her industries may not be forced to rely 
 on foreign sources for their supplies. In other words, she is trying 
 to weld into a solid block of territory an empire similar to that now 
 possessed by England in the form of scattered possessions held 
 together by her fleet. The acquisition of Western Russia and a large 
 part of the Balkans, which has already been practically accomplished, 
 is in reality only the beginning of the German plan. Nevertheless the 
 control of these regions brings to Germany very important economic 
 advantages, which it is interesting to examine in detail. 
 
 I. UKRAINIA 
 
 By far the most valuable region of Russia from an economic 
 standpoint is that lying between Poland and the Sea of Azov, com- 
 prising the valleys of the rivers flowing into the Black Sea. This is 
 
 1 Adapted from "The Resources of an Industrial Empire in Mittel-Europa," 
 The Americas, IV, No. 7, pp. 1-7. Copyright by the National City Bank of New 
 York, 1918.
 
 WAR AS A BUSINESS VENTURE 75 
 
 the region recently erected into the new state of Ukrainia, nominally 
 independent. German troops are now in control of practically the 
 whole of this region, and under the treaty of peace signed between 
 the Teutonic powers and the Ukrainian representatives, Ukrainian 
 products are to be exported freely to Germany and her Allies. 
 
 The Ukraine region includes agricultural, industrial, and mining 
 districts, and includes among its products foodstuffs such as grain, 
 sugar, grapes, and tobacco; textile materials such as hemp and wool; 
 ores such as iron, manganese, and phosphates, as well as coal, both 
 anthracite and bituminous. The industries include iron and steel 
 manufacture, textile spinning and weaving, and sugar refining. 
 Ukrainia is one of the most densely populated parts of Russia, avera- 
 ging between 150 and 200 inhabitants to the square mile, and contains 
 a number of large cities. 
 
 The four provinces of Kiev, Podolia, Poltava, and Kharkov before 
 the war furnished also a large part of the surplus wheat which was 
 exported from Odessa and the other Black Sea ports. Phosphate 
 rock, it is to be noted, one of the necessary ingredients of fertilizers, 
 is found in quantity in Podolia, Bessarabia, and Kursk. 
 
 Should German enterprise undertake to develop this region, 
 applying scientific methods, it might be possible to increase the crops 
 so as to go far toward supplying the needs of Germany. German 
 imports of wheat before the war (in 1913) were 73,766,000 bushels. 
 The exports of all Russia in 1913 were 122,336,000 bushels, of which a 
 considerable part came from the Ukrainian provinces. With the 
 disorganization of the revolution the output has declined greatly, and 
 it is not believed that it will be possible for Germany to obtain large 
 supplies from the 1917-18 crop. Reorganization must be a process of 
 several years. 
 
 The black-earth region also produces a large exportable surplus 
 of beet sugar, the total area planted in beets normally being nearly 
 2,000,000 acres. Sugar factories in the provinces of Kiev, Podolia, 
 and Volhynia produced in 1914-15 about 1,060,000 tons of sugar. 
 Recently, owing to the breakdown of the transportation system and 
 the difficulty of obtaining oil, the factories have been forced to shut 
 down. The surplus stocks of sugar are believed largely to have been 
 used up. The sugar crop represents a large item in the wealth of this 
 part of Russia and in its exports. Germany, however, has herself 
 normally a surplus production of sugar and hence would be unlikely 
 to import any of the Ukrainian crop.
 
 76 ECONOMICS OF WAR 
 
 In the more southerly part of this region, in the provinces of 
 Bessarabia and Kherson, corn is raised. The climate is mild and vast 
 areas are covered with vineyards and fruit orchards. Market 
 gardening is" also carried on by Bulgarians, while a fine grade of 
 tobacco is raised in Poltava and in Taurida on the Black Sea. Ger- 
 many before the war raised only a fraction of the tobacco she con- 
 sumed, and imported 91,385 tons, in 1913. Some of this was imported 
 from Austria-Hungary, but the Austrian production also fell short of 
 supplying home demands. 
 
 The annual crop of hemp in the Ukraine area approximates 
 80,000 tons of fiber. For years the greater part of this was exported 
 to Germany. German factories are equipped to manufacture hemp 
 yarn, which is made into cordage, bagging, netting, etc. Hemp will 
 presumably play a large part in German economics in case the supply 
 of jute is permanently cut off. 
 
 The mineral resources of the Ukraine are also of very great 
 economic importance. The iron mines of Krivoi Rog, in the provinces 
 of Ekaterinoslav and Kherson, are among the richest in Europe, and 
 are strategically situated within a short distance of the great coal- 
 mining area of the Donetz basin. They are also within easy reach of 
 the Black Sea. A large iron and steel industry, supplying before the 
 war 70 per cent of the entire Russian production, has been developed 
 at Ekaterinoslav and Kiev. British, French, and Belgian capital was 
 largely instrumental in building up this industry. To place the 
 output back at the point it had reached before the war would neces- 
 sitate a reorganization of the mills and especially of the railroads 
 supplying the coal, and a complete stabilization of the government 
 in this district, where affairs have been very chaotic. 
 
 The Donetz coal mines, east of the Krivoi Rog district, have for 
 some years been the chief source of supply for all Russia. The 
 Donetz mines, with intensive development, are also believed to "be 
 capable of greatly increased production, thus permitting of a con- 
 siderable exportation to the Central Powers. The reserves are 
 enormous and have been estimated as greater than those of the 
 United States. Another estimate puts the total contents of the fields 
 at 70 billion tons. The control of this great supply of coal would 
 undoubtedly be of great strategic and commercial advantage to the 
 Germans. 
 
 It is not unlikely that one of the most important resources of the 
 entire Ukraine from the German standpoint will prove to be her
 
 WAR AS A BUSINESS VENTURE 77 
 
 deposits of manganese. This rare metal, which is a necessity to any 
 nation developing an independent steel industry, is found only in a 
 few places scattered over the world. Germany, as far as is known, 
 has within her borders no sources capable of supplying anything like 
 the quantity her steel foundries require. During the war she is 
 believed to have existed largely on reserves laid up in time of peace. 
 The leaders of the German Steel Trust have long looked forward to 
 the day when an adequate supply of manganese might come under 
 direct German control. Germany's imports before the war were 
 about 500,000 tons annually, in the shape of ore, of which the greater 
 part came from Russia. The largest Russian output is from the 
 Caucasus, in the region to be annexed to Turkey, according to the 
 peace treaty, but the second most important mines are near Nikopol, 
 on the Dnieper River, about 60 miles southwest of the Krivoi Rog 
 iron mines. 
 
 II. THE CAUCASUS 
 
 A scarcely less valuable region than the Ukraine from the stand- 
 point of the planners of a Mittel-Europa economic empire is that 
 assigned to Turkey as her share of the spoils, which includes a large 
 part of the Caucasus and the peninsula of the Crimea. The Cau- 
 casian Mountain chain is rich in minerals and oil, while the valleys 
 of Trans-Caucasia, along the shores of the Black Sea, have a climate 
 mild enough for certain semitropical agricultural products. 
 
 The oil wells of the Caucasus are world-famous. Oil is one of 
 Germany's greatest needs. The wells in Galicia and Roumania are 
 almost the only large sources within the present boundaries of Teutonic 
 power, as the native German production is small. The Caspian Sea 
 region, however, could supply many times the amount needed by the 
 Central Powers, even without further development. 
 
 Trans-Caucasia also produces very large quantities of manganese; 
 in fact, before the war it was one of the chief sources of supply for the 
 entire world. 
 
 The hills near the Black Sea shore southwest of Batum are known 
 to contain copper ore, and near Batum a British company has a 
 large mine. The abundant water-power of the region is favorable 
 to a much greater growth of the electrolytic method of refining. The 
 production of copper in the Caucasus in 1913 was 9,900 tons, and 
 could eventually be largely increased, although the mines have been 
 shut down for three years. The need of Germany for adequate
 
 78 ECONOMICS OF WAR 
 
 supplies of copper is well known. Her imports before the war were 
 in the vicinity of 200,000 tons annually. 
 
 Zinc and lead are found in considerable deposits in various 
 parts of the Caucasus and are mined near Vladikavkaz, on the 
 northern side of the Caucasian Mountain chain. Pyrites from 
 which sulphur is produced is mined to the extent of 5,000 
 tons a year. Bituminous coal is also mined in relatively small 
 quantities. Other valuable mineral products are asbestos and 
 asphalt. 
 
 Of the agricultural products of the Caucasus probably the one 
 most coveted by the Teutons is cotton. The immense cotton industry 
 of the Central Powers is entirely dependent on imported cotton, 
 which came before the war from the United States and the British 
 possessions of Egypt and India. A supply of cotton after the war is 
 vitally necessary to the economic life of Germany and Austria. They 
 could therefore be expected to make as much use as possible of the 
 Russian output, although as at present developed it can do very little 
 toward supplying their needs. Germany in 1912 imported 457,784 
 tons of raw cotton. The entire production of all Russia in 1914 was 
 677,299 tons, but this was wholly used in native Russian factories. 
 In fact, until within a year or two the Russian production has been 
 considerably less than enough to supply the domestic demand. The 
 main Russian cotton-growing section is in Central Asia, in the prov- 
 inces of Ferghana, Syr-Daria, and Samarkand, far beyond the present 
 limits of penetration by the German armies. Russian disorganiza- 
 tion, however, might allow of German economic penetration even as 
 far as this. The cotton production of the Caucasus was increasing 
 rapidly up to the time when military events checked it, and in 1914 
 amounted to 133,400 tons. 
 
 The cotton lands of the Caucasus stretch across the isthmus 
 from Batum to the Caspian, and southward in patches as far as 
 Mt. Ararat, where the old frontiers of Turkey, Persia, and Russia 
 met. Cotton is also raised in Northern Persia and in various parts 
 of Turkey. The extension of the area is dependent on the con- 
 struction of irrigation systems leading from the rivers in whose valleys 
 the best grade of cotton grows. The imperial Russian government, 
 previous to 1914, had been very active hi promoting this industry 
 through irrigation and colonization. A very great expansion is 
 believed to be possible, although it would probably require several 
 years to get results.
 
 WAR AS A BUSINESS VENTURE 79 
 
 Silk culture had only been recently developed in the Caucasus 
 when the war broke out, but was proving very successful. However, 
 compared to Germany's requirements, the output is small. 
 
 The Caucasus is also the only tea-growing region in Europe or 
 Western Asia. In scattered plantations along the Black Sea coast 
 are produced over 1,000,000 Ibs. annually of a very good quality of 
 tea. The same district produces the tobacco from which most 
 Russian cigarettes are made. In addition, many kinds of semitropical 
 fruits are grown, such as oranges, lemons, olives, pomegranates, etc. 
 
 Turkey is claiming in addition to the Caucasus, as her part of 
 the spoils, the peninsula of the Crimea. The Kerch district of the 
 Crimea contains iron mines second only in importance to those of 
 Krivoi Rog. 
 
 The economic importance of these regions assigned to Turkey by 
 the builders of Mittel-Europa is very great. They fill out the portion 
 of the shores of the Black Sea not occupied by Ukraine or the members 
 of the Teutonic alliance, and thus complete the transformation of that 
 body of water into a German lake. 
 
 III. POLAND AND NORTH RUSSIAN PROVINCES 
 
 It remains to speak of the frontier provinces north of Ukrainia, 
 which are apparently in process of being either annexed or absorbed 
 by the Germans. Directly bordering on Ukrainia to the north is 
 Poland, now theoretically an independent nation under Teutonic 
 protection. Poland is an industrial and manufacturing region, with* 
 a relatively dense population and several large cities. The Germans 
 have been in possession of Poland since 1915, and so have been taking 
 advantage of its resources for two and a half years. Its organization 
 under German rule was made easier by the large Teutonic influence 
 already existing there the factories were in many cases owned by 
 German capital, the workmen were in part Germans, and many of the 
 owners of the large agricultural estates were Germans. 
 
 The advantages which would accrue to Germany from the 
 possession, actual or practical, of this industrious and normally 
 prosperous region, over which the war has exercised a temporarily 
 destructive effect, rest perhaps chiefly on the fact that the German 
 industrialists and agriculturalists, who have long had a strong hold 
 on the country, would then be enabled to make complete their domi- 
 nation. Many Germans would be repatriated, and their labors added 
 to the sum total of the Empire.
 
 80 ECONOMICS OF WAR 
 
 The remaining region of Russia in danger of coming under German 
 rule is that of the Baltic provinces Lithuania, Livonia, Courland, 
 Esthonia, and perhaps Petrograd. The population is sparser than 
 in the regions to the southward, and there are few large cities. Their 
 outlet is to the Baltic, which appears to be marked out for another 
 German lake by the militarists. They are in the main agricultural 
 districts, with industrial growth in the various centers. Petrograd 
 is the business and commercial center. The main agricultural product 
 of value in many parts is flax, a textile material which the Germans 
 may utilize to some extent to make up for their lack of cotton and 
 wool. Russia is the world's chief flax-producing country, and the 
 districts where it is raised include all of North Central Russia as 
 well as the Baltic provinces. Germany's imports of flax in 1912 were 
 50,539 tons of fibre, almost all of which came from Russia. Possession 
 of the flax-growing regions would enable the Germans better to 
 organize this trade. 
 
 Finland, to the north and west of Petrograd, is also a region of 
 vast water-power, resembling Norway in that respect. The so-called 
 Imatra water-power project, in which German capital was interested 
 before the war, is believed capable of producing sufficient power for 
 the entire Finnish railway system, as well as for the city of Petrograd 
 and near-by cities in Finland. Finland exports normally some 
 120,000 tons of paper and even larger quantities of cellulose. The 
 lumber resources are very large. 
 
 IV. ROUMANIA 
 
 In addition to Russia, the Mittel-Europa scheme appears to include 
 more or less of German control over Roumania, the only one of the 
 Balkan States possessing economic resources of world-importance. 
 Roumania's main exports are petroleum and grain, both very valuable 
 to Germany. The petroleum production is about 1,800,000 tons 
 a year, or practically sufficient to supply the entire demands of the 
 Central Powers. Under the treaty of peace recently signed the entire 
 exploitation of petroleum in Roumania is to be under Austro-German 
 control. Together with the wells in Galicia, it would appear that 
 with this supply it would not be necessary for Germany to acquire the 
 wells of the Caucasus. The control of the latter, however, would 
 be a powerful weapon in the hands of the Germans for use against 
 other nations desiring the Russian oil.
 
 WAR AS A BUSINESS VENTURE 
 
 81 
 
 The cereals produced for export by Roumania are wheat, corn, 
 oats, barley, and rye. The following table indicates how far 
 Roumania alone can go to supply the cereal needs of the Central 
 Powers. 
 
 
 ROUMANIA'S 
 EXPORTS IN 1913 
 
 NET IMPORTS OF GERMANY AND 
 AUSTRIA IN 1913 
 
 
 Bushels 
 
 Bushels 
 
 Wheat.... 
 Corn 
 
 50,406,000 
 42.72 i ;,OOO 
 
 73,766,000 
 61 970 ooo 
 
 Oats 
 
 2,000 ooo 
 
 (Exported) 8 953 ooo 
 
 Barley .... 
 Rye. . 
 
 10,928,000 
 
 2,481,000 
 
 140,258,000 
 (Exported) 51 947 ooo 
 
 
 
 
 V. ECONOMIC LIMITATIONS OF MITTEL-EUROPA 
 
 The main lack of the economic empire as at present developed 
 by Germany appears to be that it nowhere enters the tropics, and 
 that therefore Germany is entirely cut off from tropical products. 
 One of the most important groups of these products is that of the gums 
 and resins, including rubber, gutta-percha, gutta-joolatong, and other 
 kindred juices. Germany in 1912 imported 15,632 tons of rubber 
 alone, and 104,860 tons of resins. Synthetic rubber would appear 
 to be the only possible source of this commodity within the German 
 Empire. 
 
 Another great group of products not adequately produced in the 
 Empire is that of oils and fats. The exhaustion of flocks, due to their 
 killing off for meat, has reduced the output of animal fats, and the 
 vegetable oils are derived largely from tropical products like copra, 
 from the cocoanut, and palm fruit. The imports of linseed and flax- 
 seed oil from Russia help the situation in some degree, but the cutting 
 off of the supplies of cottonseed oil from America cannot easily be 
 remedied. The extent to which fish oil can be used as a substitute is 
 problematical. 
 
 In the textiles also Germany is weak. The Russian and Turkish 
 cotton fields can hardly support the Empire until after a number of 
 years, if they can ever do so. The loss of the Australian and Argentine 
 wool can be made up only in small measure by the Russian and 
 Turkish supplies. 
 
 As to silk, Germany's imports in 1912 were 15,740,000 Ibs., while 
 the combined production of Austria-Hungary, the Balkans, Turkey,
 
 82 ECONOMICS OF WAR 
 
 the Caucasus, and Persia was only 4,802,000 Ibs. How much the lack 
 of these materials could be made up by the importation of flax from 
 Russia is also problematical. The hemp production of the Ukraine, 
 however, may go far toward replacing the lack of jute. 
 
 The lack of tropical territory, of course, entails a loss of a vast 
 number of minor food products, such as bananas, coffee, cocoa, rice, 
 spices, etc. On the other hand, the main food elements, including 
 cereals and fruits, appear to be present or capable of being developed 
 in sufficient quantities in the Empire. In time the supply of meat 
 could, in all probability, be made sufficient. 
 
 Among the minerals, the most serious lack outside of that of 
 nitrates, which will be replaced very largely by the artificial nitrate 
 industry that has grown up during the war, seems to be of nickel and 
 aluminum. There may also be a shortage of tungsten for high-speed 
 steel, as it is not known to what extent this rare metal has recently 
 been discovered in Germany. The supplies of aluminum are likewise 
 uncertain, although in 1912 Germany imported 16,038 tons of this 
 metal. It is to be noted that there are large mines of aluminum ore 
 in Switzerland. Nickel is not mined in European Russia, and the 
 German production falls far short of the demand. 
 
 It is thus obvious that a German Empire comprising only the 
 regions already under German control falls short in several respects 
 of being economically self-sufficient. There is a direction, however, 
 in which German effort already shows signs of turning, which might 
 lead to a completion of the economic structure. This is the road to 
 India, which leads to supplies of cotton, wool, vegetable oils, rubber, 
 hides and skins, and many other products now lacking in the German 
 scheme. 
 
 VII. Human Attitudes, Rational or Otherwise 
 
 i. WHY WAR PERSISTS DESPITE ITS IRRATIONAL 
 CHARACTER 1 
 
 Now to these outworn notions of economic nationalism add 
 another factor one which the pro-military critic seems to imagine 
 the civilist overlooks, though it is in reality the basis of the whole 
 case, the most important fact in all this discussion namely, that the 
 element in man which makes him capable, however feebly, of choice 
 
 1 By Norman Angell (see p. 9). Adapted from Arms and Industry, pp. xxiii- 
 xxxvii. Published by G. P. Putnam's Sons, 1914. Cf. also "Industrial Penetra- 
 tion," p. 26, above.
 
 WAR AS A BUSINESS VENTURE 83 
 
 in the matter of conduct, the one fact distinguishing him from that 
 vast multitude of living things which act unreflectingly, is something 
 not deeply rooted, since it is the latest addition of all to our nature. 
 The really deeply rooted motives of conduct, those having by far the 
 greatest biological momentum, are naturally the " motives" of the 
 plant and the animal, the kind that marks in the main the acts of all 
 living things save man, the unreflecting motives, those containing no 
 element of ratiocination and free volition, that almost mechanical 
 reaction to external forces which draw the leaves towards the sun rays 
 and makes the tiger tear its living food limb from limb. 
 
 To make plain what that really means in human conduct, we must 
 recall the character of that process by which man turns the forces of 
 nature to his service instead of allowing them to overwhelm him. 
 We saw that its essence was a union of individual forces against the 
 common enemy, the forces of nature. Where men in isolated action 
 would have been powerless and would have been destroyed, union, 
 association, co-operation, enabled them to survive. Survival was 
 contingent upon the cessation of struggle between them, and the 
 substitution therefor of common action. Now the process both in 
 the beginning and in the subsequent development of this device of 
 co-operation is important. It was born of a failure of force. If the 
 isolated force had sufficed, the union of force would not have been 
 resorted to. But such union is not a mere mechanical multiplication 
 of blind energies; it is a combination involving will, intelligence. If 
 mere multiplication of physical energy had determined the result of 
 man's struggles he would have been destroyed or be the helpless slave 
 of the animals of which he makes his food. He has overcome them 
 as he has overcome the flood and the storm by quite another 
 order of action. Intelligence only emerges where physical force is 
 ineffective. 
 
 I have already in this summary touched upon, and in the pages 
 that follow more fully described, the almost mechanical process by 
 which, as the complexity of co-operation grows, the element of 
 physical compulsion declines in effectiveness and is replaced by agree- 
 ment based on mutual recognition of advantage. There is through 
 every step of the development the same phenomenon: intelligence 
 and agreement only emerge as force becomes ineffective. In human 
 relations it generally becomes ineffective through resistance. The 
 early (and purely illustrative) slave owner, who spent his days seeing 
 that his slave did not run away and compelling him to work, realized
 
 84 ECONOMICS OF WAR 
 
 the economic defect of the arrangement; most of the effort, physical 
 and intellectual, of the slave was devoted to trying to escape; that 
 of the owner, to trying to prevent him. The force of the one, intel- 
 lectual or physical, cancelled the force of the other, and the energies 
 of both were lost so far as productive value was concerned, and the 
 needed task, the building of the shelter or the catching of the fish, was 
 not done or badly done, and both went short as to food and shelter. 
 But from the moment that they struck a bargain as to the division 
 of labour and of spoils and adhered to it, the full energies of both were 
 liberated for direct production, and the economic effectiveness of the 
 arrangement was not merely doubled, but probably multiplied many 
 times. But this substitution of free agreement for coercion, with all 
 that it implied of contract, of "what is fair," and all that followed of 
 mutual reliance in the fulfilment of the agreement, was based upon 
 mutual recognition of advantages. Now that recognition, without 
 which the arrangement could not exist at all, required relatively a 
 considerable mental effort due in the first instance to the failure of force. 
 If the slave owner had had more effective means of physical coercion, 
 and had been able to subdue his slave, he would not have bothered 
 about agreement, and this embryo of human society and justice would 
 not have been brought into being. And in history, as soon as one 
 party or the other obtained such preponderance of strength as prom- 
 ised to be effective, he showed a tendency to drop free agreement and 
 use force; this of course immediately provoked the resistance of the 
 other, with a reversion to the earlier profitless condition. 
 
 This perpetual tendency to abandon the social arrangement and 
 resort to physical coercion is, of course, easily explainable by the 
 biological fact just touched on. To realize at each turn and per- 
 mutation of the division of labour that the social arrangement was, 
 after all, the best, demanded on the part of the two characters in our 
 sketch, not merely control of instinctive actions, but a relatively 
 large ratiocinative effort for which the biological history of early man 
 had not fitted him. The physical act of compulsion required only a 
 stone axe and a quickness of purely physical movement for which his 
 biological history had afforded infinitely long training. The more 
 mentally motived action, that of social conduct, demanding reflection 
 as to its effect on others and the effect of that reaction upon our own 
 position and a conscious control of physical acts, is of modern growth ; 
 it is but skin deep; its biological momentum is feeble. Yet on that 
 feeble structure has been built all civilization.
 
 WAR AS A BUSINESS VENTURE 85 
 
 2. PATRIOTISM AND SELFISHNESS CANNOT BE 
 ISOLATED 1 
 
 If you look at a human being as he lives in the world, instead of 
 treating him as an abstraction, there is simply no way of isolating 
 what is called the economic from the patriotic motive. They are both 
 aspects of the business of life, the business of getting on. The fixing 
 of frontiers is a real estate operation. Because real estate is involved, 
 you can call the patriotism which surrounds it a masquerade. 
 
 But the truer thing to say, it seems to me, is that patriotism 
 envelops the real estate because the real estate nourishes the lives 
 and careers of the patriots. And the local patriots will fight for their 
 real estate, and some of them will die that others may keep it. That 
 is the riddle about patriotism in its relation to economics. 
 
 The riddle, I fancy, may perhaps be read in some such way as this : 
 Out of our childhood rises a stream of appetite colored by our earliest 
 attachments. It seeks to satisfy itself, to magnify its importance, to 
 protect what statesmen call its prestige and satirists call its vanity. 
 This stream flows into the channels of business opportunity. By 
 real estate or selling shoes our appetites search for their food. But 
 in the process the forms of business are overlaid with our emotion. 
 We wrap ourselves around our money-making and transfigure it. 
 It is identified then with all that is most precious. The export of 
 bicycles or steel rails is no longer the cold-blooded thing it looks like 
 in statistical reports of commerce. It is integrated with our passion. 
 It is wife and children and being respected. So when trade is 
 attacked, we are attacked. The thing which was a means to an end 
 has become part of ourselves. We are ready to fight and die for it 
 because it taps the loyalties which are what we are. 
 
 Passion seems to be able to feed upon almost anything from the 
 thinnest dreams to the export of copper. But whatever it does feed 
 upon is for the time being the passion itself. When copper exports 
 are attacked, it isn't reasoned calculation alone which makes the 
 decision for action. It is the feeling of the people whose passion is 
 fused with the copper trade. 
 
 How does it happen, though, that the people not concerned in a 
 special interest are so ready to defend it against the world ? Plain 
 men who have no financial interest in copper will feel aggrieved if 
 
 1 By Walter Lippmann (see p. 54). Adapted from The Stakes of Diplomacy, 
 pp. 74-81. Copyright by Henry Holt & Co., 1915.
 
 86 ECONOMICS OF WAR 
 
 American copper interests in a foreign land are attacked. The 
 German people felt "humiliated" because German trade was thwarted 
 in Morocco. 
 
 The most obvious reason for this is that the private citizens are 
 in the main abysmally ignorant of what the real stakes of diplomacy 
 are. They do not think in terms of railroad concessions, mines, 
 banking, and trade. When they envisage Morocco they do not think 
 of the Mannesmann Brothers, but of " German prestige " and " French 
 influence." When the Triple Entente compelled Germany to recede 
 in the Moroccan affair of 1911, the rage of the German people was 
 not due to a counting of their economic losses. They were furious, 
 not that they had lost Morocco, but that they had lost the dispute. 
 There is small doubt that the masses of people in no country would 
 risk war to secure mining concessions in Africa. But the choice is 
 never presented to them that way. Each contest for economic 
 privileges appears to the public as a kind of sporting event with 
 loaded weapons. The people wish their team, that is, their country, 
 to win. Just as strong men will weep because the second baseman 
 fumbles at the crucial moment, so they will go into tantrums of rage 
 because corporations of their own nationality are thwarted in a 
 commercial ambition. 
 
 They may have nothing tangible to gain or lose by the trans- 
 action; certainly they do not know whether they have. But they 
 feel that "our" trade is their own, and though they share few of its 
 profits they watch its career with tender solicitude. Above all, they 
 feel that if "our" German traders are beaten in Morocco, the whole 
 value of being a German has been somewhat lessened. Trade-marks 
 like "Made in Germany" were a constant humiliation to Englishmen, 
 even though they were glad to buy the goods because they were 
 cheaper and better. But when from all over the world Englishmen 
 came home beaten by a greater vitality and more modern organization, 
 their damaged pocketbooks were only the smallest part of their loss. 
 The real wound was the wound of self-respect, the lurking fear that 
 there has been a depreciation in Englishmen. The fear is emphasized 
 by the public opinion of the world which judges by trade efficiency and 
 asks heartrending questions like: Is England decadent? Friendly 
 critics rub salt into the wound by commenting on the obsolete machin- 
 ery of British manufacture, the archaic habits of British merchants. 
 Is it any wonder that what starts as a loss of dollars and cents is soon 
 transfigured into a loss of the Englishman's importance in the world ?
 
 WAR AS A BUSINESS VENTURE 87 
 
 But when you attack that you attack the sources of his patriotism, 
 and when he starts to reassert his importance, the proceeding has 
 ceased to appear as a commercial enterprise. It has become a defense 
 of British civilization. 
 
 This is the mood for a strong foreign policy, which means a policy 
 that uses political power to increase national prestige. The way to 
 increase national prestige is to win economic victories by diplomatic 
 methods. British diplomacy has been winning them for fifteen years 
 in Egypt, Persia, Africa. While Germany was capturing trade, 
 Great Britain was scoring the diplomatic victories the greatest of 
 them being that in Morocco. 
 
 The actual trade of Morocco was insignificant in the melee. 
 Morocco became the bone on which Germany and England tested 
 the sharpness of their teeth. The two populations cared very little 
 for any particular iron mine, but they cared enormously about the 
 standing of Englishmen and Germans in settling world-problems. 
 National feeling was unloosened which overflowed the original dispute. 
 Morocco meant not money but bad will, suspicion, fear, resentment. 
 To the British it was evidence of German aggression; to the German 
 it represented the tightening of the iron ring, the policy of encircle- 
 ment. The strongest passions of defense in both countries were called 
 into the European arena, and when both sides claim to be defensive I 
 see no reason for questioning their sincerity. It is perfectly possible 
 for two nations to feel attacked at the same time. In some such way 
 as this patriotism becomes involved in business. 
 
 3. PLANS OF THE FINANCIAL INTERESTS 1 
 
 The play of motives in war makes a baffling study of psychology. 
 Nothing seemed clearer when this war broke out than that Germany 
 invaded Belgium for purely strategic reasons. Her armies were 
 turning the fortifications of the eastern frontiers of France and seeking 
 an easy though roundabout way to Paris. As the war went on one 
 began to doubt this obvious and relatively charitable explanation. 
 In the first place, the military strategy was questionable. A strategy 
 appropriate to Germany's avowed purpose would have sought a 
 
 1 By H. N. Brailsford. Adapted from "The Age of Iron," New Republic, V 
 (November, 1915, to January, 1916), 164-66. Copyright by the Republic Pub- 
 lishing Co. 
 
 ED. NOTE. H. N. Brailsford is one of the most brilliant of present-day 
 English writers on social and economic subjects.
 
 88 ECONOMICS OF WAR 
 
 prompt and crushing military decision against Russia. France might 
 have been held with relatively small forces on the line of the Vosges, 
 Belgium need never have been invaded, and the German armies 
 might have reached the Vistula as rapidly as they reached the Marne. 
 In a war conducted on these lines Great Britain would not have 
 intervened promptly, and had she intervened the country would 
 have been as sharply divided as it was during the Boer War, though 
 Sir Edward Grey, Mr. Lloyd George, and Mr. Churchill would 
 probably have succeeded in the end in creating a coalition party 
 for war. 
 
 Why was this natural and obvious strategy rejected ? Through 
 Belgium lay the natural road to Calais, and Calais means the ability 
 to operate in the Atlantic and the power to compete with Britain for 
 a colonial empire. The apparent stupidity involved in the occupation 
 of Belgium vanishes when one realizes that the naval-colonial party 
 was really acquiring a strategic point for a greater world-struggle in 
 the future. But there was another and even simpler reason for the 
 occupation of Belgium, and this was not strategical but economic. 
 Belgium contains a rich coal field, and the north of France has not 
 only coal fields but invaluable mines of iron ore. These mineral 
 riches are advanced to-day by German industrialists as a reason why 
 Belgium and the north of France must be permanently annexed. 
 It is probable enough that in the desire to possess these great sources 
 lay the real motive for the march through Belgium. For years the 
 general staff had prepared its projects of invasion. When we ask 
 why none of the middle-class parties in Germany protested during the 
 calm years of peace against these plans as the Socialists did, the answer 
 may very well be that they reckoned coldly on something more 
 permanent than a momentary strategical advantage. 
 
 It is impossible to read the confidential memorandum which six 
 of the most powerful industrial and agrarian leagues addressed to the 
 German Chancellor last May without harboring this suspicion. The 
 full text as it appeared in L'Humanite for August n, 1915, is a startling 
 self-revelation of the predatory mind. These people, be it remem- 
 bered, are not soldiers, and their state of mind is not militarism but 
 capitalism. They have pondered maturely on the question, Does 
 conquest pay? and they think they have found the answer. Their 
 program is the annexation of all Belgium, the French departments of 
 Calais and the north, and French Lorraine. But that is not all.
 
 WAR AS A BUSINESS VENTURE 89 
 
 They insist that all the great industrial undertakings of this large 
 and populous region must pass into the actual ownership of Germans 
 the railways, canals, mines, and even the landed estates. They do 
 not go so far as to suggest that the conquerors should expropriate the 
 present owners without compensation, but they have an ingenious 
 scheme for shifting the burden to the enemy's shoulders. The 
 compensation must be paid, not by Germany which acquires this 
 territory, but by France which loses it. 
 
 It has always seemed to me that Mr. Norman Angell, in spite of 
 the brilliant illumination which he has thrown on the economics of 
 war and peace, ignored the vast gains which the propertied classes 
 draw from war, imperialism, and the armed peace. Their investments 
 in the tropics, their economic tribute from India and Egypt, their 
 exploitation of concession areas and spheres of influence, represent 
 a direct return from the accumulation and use of naval and military 
 power. About one-fourth of the income of the British propertied 
 class is derived from investments overseas, and for these investments 
 our navy is the indispensable insurance. A little war which wins 
 Egypt or Burmah means direct profit to the contractors, the bond- 
 holders, the land syndicates, and oil trusts which exploit these regions. 
 Mr. Angell is profoundly in the right when he argues that such 
 conquests do not enrich a nation, but undoubtedly they may enrich 
 a nation's propertied and governing class. In one sphere, however, 
 socialistic critics were not inclined to dispute Mr. AngelFs doctrine. 
 I myself used to argue that his doctrine was absolutely true in its 
 application to any completely developed area with an old civilization. 
 It would not pay to conquer Lancashire or the Rhine district, because 
 they are already fully capitalized. The conqueror could not invest 
 in them and could not exploit them. An imperialistic capitalism 
 turns to undeveloped countries, to cities without banks and routes 
 without railways, partly because they are easier to conquer, but 
 chiefly because they can absorb capital. In the face of this German 
 program we must all revise our theories. If a conquering Germany 
 could expropriate the capitalists of a conquered Belgium and France 
 and take over all their organized industry at the cost of the 
 vanquished, the adventure would be vastly more profitable to the 
 German middle classes than any conceivable expansion in China, 
 Africa, or Turkey. The German masses would have paid the price 
 in blood and taxation, nor would they ever share in the wage-list of
 
 QO ECONOMICS OF WAR 
 
 the stolen mines. But German capitalists might indeed reckon on 
 "wealth beyond the dreams of avarice." 
 
 The critical reader may at this point enter certain objections: the 
 military power of Germany is not equal to the accomplishment of 
 such a program; the world would never tolerate such naked robbery; 
 France, if she were utterly crushed, would be unable to pay the 
 indemnity; the cost of holding down this country would more than 
 eat up the profits of exploiting it; finally, the German government is 
 neither so ruthless nor so unwise as these capitalist leagues, and the 
 Socialists (not to mention the Delbriick-Dernburg school) may be 
 trusted to oppose them. All these objections are sound. The 
 program cannot be realized, and for my part I am sure that the 
 German Chancellor never entertained it. The fact remains that this 
 project did and does inspire the dreams of the German capitalistic 
 world. This project and others like it have formed their policy, 
 shaped their dreams of world-power, and governed their unflinching 
 support of a policy of great armaments. For a year past the whole 
 English-speaking world has been discussing Prussian militarism and 
 tracing it to the professors. Its real backing came rather from the 
 conscious organized force of these capitalistic associations. For them 
 militarism meant business, and they are now demanding the profits 
 on their investment. When Prince Billow challenged the German 
 Socialists to the direct test of an election on the straight issues of 
 militarism and imperialism, the funds for the electoral operations 
 of his Liberal-Conservative coalition were openly found by the big 
 metallurgical trade organizations (cartels). They assessed their 
 members so that each employer contributed a mark for every work- 
 man he employed. The workman might vote for Bebel, but his 
 master's shilling balanced his vote. 
 
 In all this capitalistic organization of German militarism and 
 imperialism it was the industrialists of the metal trades that led. 
 They form the backbone of the National Liberal party, which from 
 the black country of the lower Rhine has dominated German foreign 
 policy from the days of Bismarck downwards. One reason was that 
 their industry made a great profit from armaments, but that was not 
 the only reason. Once before the German iron industry all but 
 involved Europe in war. It wanted Morocco, because Morocco 
 contains a great store of admirable iron ore; and here of course the 
 motives of the French colonial party were the same and their morals
 
 WAR AS A BUSINESS VENTURE 91 
 
 no better. To-day it demands Belgium as yesterday it demanded 
 Morocco. I do not want to exaggerate. It would be absurd to say 
 that the Kaiser made his declaration of war because the Rhine trusts 
 want French and Belgian coal and iron. But it is the sober truth 
 that on the German side the whole policy which set Europe in two 
 armed camps and so exasperated the struggle for a balance of power 
 that it flamed into war was motived by the expectation of German 
 capitalists that war would bring them concrete gains. Without the 
 support of these National Liberal capitalists von Tirpitz could not 
 have made his navy, and it was only the concessions of the Mannes- 
 mann Brothers which kept alive the German interest in Morocco. 
 The driving motive of modern militarism is economic. Ours is the 
 age of iron. 
 
 Lest it should seem that this article points a one-sided moral, it is 
 necessary to indicate that the capitalistic strategy of the Allied 
 countries is also busy with the problem, How can victory be made to 
 pay? The wilder extremists in France have talked of conquering 
 the German Rhine country. Our own imperialists reckon on retain- 
 ing the German colonies and on acquiring Mesopotamia. But these 
 are small gains. The real answer is to be sought in the various pro- 
 jects for destroying or laming the competition of German industry in 
 the world's markets. Comprehensive schemes have been published 
 by the Italian review, Nuova Antologia; Dr. Dillon and even Mr. Wells 
 have made suggestions. If an ambition to secure coal and iron fields 
 lay beneath German chauvinism and subconsciously prepared the 
 middle classes for war, the parallel motive in this country and in 
 Russia was trade jealousy. The anti-German feeling in England 
 was in its origins little more than a phase of our protectionist move- 
 ment. Even in Russia the simple old-world Pan-Slavist motive, 
 which aspires to the domination of the Balkans and the conquest of 
 Constantinople, and the allied Slavophil motive, which sees in 
 Germany the home of Western progress and free thought, were 
 reinforced by an economic motive. Apart altogether from the 
 Balkan tangle, Russo-German relations were overshadowed last year 
 by the imminence of a great tariff dispute. The commercial treaties 
 fell to be renewed before 1916, and the small but influential world of 
 Russian industrialism was already agitating for "liberation" from 
 German domination, by which it meant the closing of the frontier to 
 German goods, with which the artificial, immature industry of Russia
 
 92 ECONOMICS OF WAR 
 
 could not compete. The struggle had lasted only a few weeks when 
 M. Bark, the Russian Minister of Finance, proposed in an interview 
 in the Paris Matin that after the peace all the Allied nations should 
 continue the war against Germany on the economic plane by penal 
 tariffs and international boycotts. The predatory ambitions and 
 commercial jealousies which cloak themselves during peace find in war 
 their unashamed expression. War brings us our chance to see in its 
 nakedness the world in which we live. European militarism is a 
 savage survival which modern capitalism has adapted to its own 
 purpose.
 
 Ill 
 
 THE NATURE OF MODERN WAR 
 
 Introduction 
 
 The art of war has its basis in the industrial system, the social 
 organization, and the conventions and traditions of a people. The 
 military organization which is evident is the visible part of a complex 
 organization of materials, men, and ideas which comprehends the 
 social order. The army which engages the enemy three thousand 
 miles from home is the cutting edge of a great and complex machine 
 which ramifies into the utmost confines of the land, includes the 
 activities of all sorts and conditions of men, and depends for its speed 
 and efficiency upon the every-day habits and activities of ordinary 
 people. All the aspects of the economic order, the medley of arrange- 
 ments and relations which make it up, and the scheme of motives, 
 ideals, and ends which give life to it can be assessed in. terms of 
 advancing or impairing military efficiency. It is the object of this 
 section to show as definitely and concretely as possible the complex of 
 economic forces which lies at the basis of military practice. To that 
 end it is resolved into three parts. 
 
 The first of these divisions is concerned with the dependence of 
 warfare upon the state of the industrial arts. Our notions about 
 warfare and the values which we set upon it are largely fixed in our 
 thought, being inheritances from feudal times, when it was largely a 
 sporting event and battles resolved themselves into a series of single 
 combats wherein personal alertness, strength, and valor counted for 
 everything. Yet since that time warfare itself has changed radically. 
 In fact, as Adam Smith shows (selection VIII, I), the length of the 
 struggle, the character of the combat, the plan of organization, the 
 larger strategy, are all dependent upon the nature of the industrial 
 system and vary as that system varies. Adam Smith wrote too early 
 to see the dependence of modern warfare upon the machine technique 
 and the close interdependence of modern industries. But the other 
 readings in this section indicate how profoundly warfare has been 
 modified by the changes which have transformed a simple craft 
 society into the industrial, pecuniary, and urban one which we know. 
 
 93
 
 94 ECONOMICS OF WAR 
 
 The second of these divisions is concerned with the utilization in 
 war of industries, activities, and institutions which make up our 
 industrial organization. How the whole range of science is made 
 subservient to the exigencies of warfare, how railroad systems have 
 military necessity written into their networks, and how "industrial 
 energy" is appropriated and hurled upon an enemy are typical 
 instances of the dependence of warfare upon the whole matrix of 
 industrial life. These are but a few typical instances serving to give 
 current reality and definiteness to the general principles of the 
 preceding division. 
 
 The third of the divisions raises what may be called the problem 
 of the larger economic strategy of war. It concerns the agencies, 
 materials, and institutions mentioned above in their relation to each 
 other and to military efficiency. In its simplest terms it raises two 
 important questions. The first is, How can the largest surplus of our 
 limited productive energy be taken away from the production of 
 goods which satisfy civilian uses and be devoted to the production 
 of the materials of war ? The second is how to secure the greatest 
 military effect; that is, how to apportion productive powers between 
 the military organization and the production of the complementary 
 goods required by the military program. These questions of economic 
 strategy, which set the limits of military strategy, can be stated simply. 
 But since their proper answer involves an adjustment of each indus- 
 trial resource to every other industrial resource under a complex 
 scheme of control and is contingent upon national tradition and 
 personal habit, it is not easily forthcoming. Most of the work at 
 Washington since the beginning of the war has aimed at finding an 
 answer to these problems. A perspective of this problem and some 
 of the larger problems involved in it are the subjects of discussion in 
 the twelve chapters which follow. 
 
 VIII. War under Modern Industrial Conditions 
 i. WAR AND THE STATE OF THE INDUSTRIAL ARTS 1 
 
 Among nations of hunters, the lowest and rudest state of society, 
 such as we find among the native tribes of North America, every man 
 is a warrior as well as a hunter. When he goes to war, either to defend 
 
 1 By Adam Smith. Adapted from An Inquiry into the Nature and Causes of the 
 Wealth of Nations (Wakefield edition), Book V, chap, i, pp. 1-12.
 
 NATURE OF MODERN WAR 95 
 
 his society or to revenge the injuries which have been done to it by 
 other societies, he maintains himself by his own labour in the same 
 manner as when he lives at home. His society is at no sort of expense 
 either to prepare him for the field or to maintain him while he is in it. 
 
 Among nations of shepherds, a more advanced state of society, 
 such as we find among the Tartars and Arabs, every man is, in the 
 same manner, a warrior. When a nomadic nation goes to war, the 
 warriors will not trust their herds and flocks to the feeble defence of 
 their old men, their women and children; and their old men, their 
 women and children will not be left behind without defence and 
 without subsistence. The whole nation takes the field in time of war. 
 Whether it marches as an army or moves about as a company of 
 herdsmen, the way of life is nearly the same, though the object 
 proposed by it be very different. 
 
 The ordinary life, the ordinary exercises, of a Tartar or Arab, 
 prepare him sufficiently for war. Running, wrestling, cudgel-playing, 
 throwing the javelin, drawing the bow, etc., are the common pastimes 
 of those who live in the open air, and are all of them the images of war. 
 When a Tartar or Arab actually goes to war he is maintained by his 
 own herds and flocks which he carries with him, in the same manner 
 as in peace. Hence his chief or sovereign is at no sort of expense in 
 preparing him for the field; and when he is in it the chance of plunder 
 is the only pay which he either expects or requires. 
 
 In a yet more advanced state of society, among those nations of 
 husbandmen who have little foreign commerce and no other manu- 
 factures but those coarse and household ones which almost every 
 private family prepares for its own use, every man, in the same 
 manner, either is a warrior or easily becomes such. They who live 
 by agriculture generally pass the whole day in the open air, exposed 
 to all the inclemencies of the seasons. The hardiness of their ordinary 
 life prepares them for the fatigues of war, to some of which their 
 necessary occupations bear a great analogy. The necessary occupa- 
 tion of a ditcher prepares him to work in the trenches and to fortify 
 a camp as well as to enclose a field. The ordinary pastimes of such 
 husbandmen are the same as those of shepherds, and are in the same 
 manner the images of war. But as husbandmen have less leisure 
 than shepherds they are not so frequently employed in those pastimes. 
 They are soldiers, but soldiers not quite so much masters of their 
 exercise. Such as they are, however, it seldoms costs the sovereign 
 or commonwealth any expense to prepare them for the field.
 
 Q6 ECONOMICS OF WAR 
 
 Agriculture, even in its rudest and lowest state, supposes a settle- 
 ment; some sort of fixed habitation which cannot be abandoned 
 without great loss. When a nation of mere husbandmen, therefore, 
 goes to war, the whole people cannot take the field together. The 
 old men, the women and children, at least, must remain at home to 
 take care of the habitation. All the men of military age, however, 
 may take the field and, in small nations of this kind, have frequently 
 done so. In every nation the men of military age are supposed to- 
 amount to about a fourth or a fifth of the whole body of the people. 
 If the campaign too should begin after seedtime and end before 
 harvest, both the husbandman and his principal labourers can be 
 spared from the farm without much loss. He trusts that the work 
 which must be done in the meantime can be well enough executed by 
 the old men, the women, and the children. He is not unwilling, 
 therefore, to serve without pay during a short campaign, and it 
 frequently costs the sovereign or commonwealth as little to maintain 
 him in the field as to prepare him for it. In the European monarchies, 
 which were founded upon the ruins of the Roman Empire, both before 
 and for some time after the establishment of what is properly called 
 the feudal law, the great lords, with all their immediate dependents, 
 used to serve the crown at their own expense. In the field, in the 
 same manner as at home, they maintained themselves by their own 
 revenue, and not by any stipend or pay which they received from the 
 king upon that particular occasion. 
 
 In a more advanced state of society two different causes contribute 
 to render it altogether impossible that they who take the field should 
 maintain themselves at their own expense. Those two causes are 
 the progress of manufacturers and the improvement in the art 
 of war. 
 
 Though a husbandman should be employed in an expedition, 
 provided it begins after seedtime and ends before harvest, the inter- 
 ruption of his business will not always occasion any considerable 
 diminution of his revenue. Without the intervention of his labour, 
 nature herself does the greater part of the work which remains to be 
 done. But the moment that an artificer, a smith, a carpenter, or a 
 weaver, for example, quits his workhouse, the sole source of his 
 revenue is completely dried up. Nature does nothing for him, he does 
 all for himself. When he takes the field, therefore, in defence of the 
 public, as he has no revenue to maintain himself he must necessarily 
 be maintained by the public. But in a country of which a great part
 
 NATURE OF MODERN WAR 97 
 
 of the inhabitants are artificers and manufacturers, a great part of 
 the people who go to war must be 'drawn from those classes, and must 
 therefore be maintained by the public as long as they are employed 
 in its service. 
 
 When the art of war too has gradually grown up to be a very 
 intricate and complicated science, when the event of war ceases to be 
 determined, as in the first ages of society, by a single irregular skirmish 
 or battle, but when the contest is generally spun out through several 
 different campaigns, each of which lasts during the greater part of the 
 year, it becomes universally necessary that the public should main- 
 tain those who serve the public in war, at least while they are 
 employed in that service. Whatever in time of peace might be 
 the ordinary occupation of those who go to war, so very tedious 
 and expensive a service would otherwise be by far too heavy a 
 burden upon them. Under the feudal governments the military 
 service both of the great lords and of their immediate dependents 
 was, after a certain period, universally exchanged for a payment in 
 money, which was employed to maintain those who served in their 
 stead. 
 
 The expense of preparing the army for the field seems not to have 
 become considerable in any nation till long after that of maintaining 
 it in the field had devolved entirely upon the sovereign or common- 
 wealth. Under the feudal governments the many public ordinances 
 that the citizens of every district should practice archery, as well as 
 several other military exercises, were intended for promoting the same 
 purpose, but do not seem to have promoted it so well. Either from 
 want of interest in the officers entrusted with the execution of those 
 ordinances, or from some other cause, they appear to have been 
 universally neglected; and in the progress of all those governments 
 military exercises seem to have gone gradually into disuse among the 
 great body of the people. 
 
 The art of war, however, as it is certainly the noblest of all arts, 
 so in the progress of improvement it necessarily becomes one of the 
 most complicated among them. The state of the mechanical, as 
 well as of some other arts, with which it is necessarily connected, 
 determines the degree of perfection to which it is capable of being 
 carried at any particular time. But hi order to carry it to this degree 
 of perfection it is necessary that it should become the sole or principal 
 occupation of a particular class of citizens, and the division of labour 
 (employments) is as necessary for the improvement of this as of every
 
 98 ECONOMICS OF WAR 
 
 other art. It is the wisdom of the state only which can render the 
 trade of a soldier a particular trade separate and distinct from all 
 others. A private citizen who in time of profound peace and without 
 any particular encouragement from the public should spend the 
 greater part of his time in military exercises might, no doubt, both 
 improve himself very much in them and amuse himself very well; 
 but he certainly would not promote his own interest. It is the wisdom 
 of the state only which can render it for his interest to give up the 
 greater part of his time to this peculiar occupation. 
 
 A shepherd has a great deal of leisure; a husbandman, in the rude 
 state of husbandry, has some; an artificer or manufacturer has none 
 at all. The first may, without any loss, employ a great deal of his 
 time in martial exercises; the second may employ some part of it; 
 but the last cannot employ a single hour in them without some loss, 
 and his attention to his own interest naturally leads him to neglect 
 them altogether. Those improvements in husbandry, too, which 
 the progress of arts and manufactures necessarily introduces, leave 
 the husbandman as little leisure as the artificer. Military exercises 
 come to be as much neglected by the inhabitants of the country as by 
 those of the town, and the great body of the people becomes altogether 
 unwarlike. That wealth, at the same time, which always follows the 
 improvements of agriculture and manufactures, and which in reality 
 is no more than the accumulated produce of those improvements, 
 provokes the invasion of all their neighbors. An industrious and 
 upon that account a wealthy nation is of all nations the most likely 
 to be attacked; and unless the state takes some new measures for 
 the public defence the natural habits of the people render them alto- 
 gether incapable of defending themselves. 
 
 In these circumstances there seem to be but two methods by which 
 the state can make any tolerable provision for the public defence. 
 
 It may either, first, by means of a very rigorous police, and in spite 
 of the whole bent of the interest, genius, and inclinations of the people, 
 enforce the practice of military exercises and oblige either all the 
 citizens of the military age, or a certain number of them, to join in 
 some measure the trade of a soldier to whatever other trade or pro- 
 fession they may happen to carry on. 
 
 Or, secondly, by maintaining and employing a certain number of 
 citizens in the constant practice of military exercises it may render the 
 trade of a soldier a particular trade, separate and distinct from all 
 others.
 
 NATURE OF MODERN WAR 99 
 
 2. THE DEPENDENCE OF WAR UPON ECONOMIC 
 ORGANIZATION 1 
 
 Before one can form an adequate conception of modern warfare 
 one must get rid of two misconceptions which have been very prevalent 
 in America. The first of these is the natural result of the habit of 
 thinking of war only as a series of physical combats between the 
 armed forces of opposing nations. Our predilection to this obviously 
 fragmentary notion is due in part to the influence of the military men 
 who, true to their training, describe war as the manipulation of armies 
 in the field, as a matter of strategy and tactics. It is also due in part 
 to man's innate propensity to look for the picturesque, rather than 
 for the humdrum, workaday machinery behind the panoply of war. 
 The second misconception from which it is necessary to free one's self 
 is the illusion of dollars and cents. We are an excessively business- 
 like people; that is, we are very prone to calculate everything in 
 pecuniary terms. We take to the intricacies of war finance with 
 relish, and the men whose opinions on the war we value highest are 
 bankers and brokers and big-business men in general. Consequently 
 we reckon victories by the flotation of war loans and defeats in the 
 language of inflation. 
 
 A year's disillusioning experience in the work of war, however, has 
 served to teach us that war is neither wholly nor even largely a matter 
 of valor in the field and sound financial tone at home. Modern war 
 is almost wholly a matter of industrial technique. It is an affair of 
 office and factory. 
 
 Under modern conditions of transportation and large-scale 
 machine production it is possible for a nation to throw its entire 
 productive energy into the fight. The victory depends not only upon 
 placing in the field soldiers who are most valorous, but also upon 
 turning out the most destructive shells in quantities sufficient to 
 deluge any or all parts of the enemy's line at will, the largest quantity 
 of railroad equipment and auto trucks with which to make its artil- 
 lery and infantry more mobile than those of the enemy, the largest 
 quantity of airplanes with which to observe the enemy's movements, 
 to bomb him behind his lines,, and to bring down the planes which 
 serve him for similar purposes. The world-supply of coal and metals 
 is concentrated upon these tasks; therefore one must add the building 
 
 1 By C. E. Ayres. From an unpublished essay. 
 
 ED. NOTE. Mr. Ayres is an instructor in philosophy in the University of 
 Chicago and a frequent writer on economic as well as philosophical questions.
 
 ioo ECONOMICS OF WAR 
 
 of merchant ships, transports, and a navy as instruments required for 
 the transportation of raw materials and the finished products of 
 munitions industries as well as men from all parts of the world. The 
 successful accomplishment of this portion of the military program 
 demands the diversion to munitions industries, including shipping, of 
 millions of workers and of great quantities of all sorts of raw materials 
 and products in the early stages of manufacture which would other- 
 wise have been consumed in various ways by the civilian population. 
 At the same time the transfer of men to the army and to munitions 
 industries, the diversion of materials from the manufacture of farming 
 implements to munitions, the devastation of fertile lands by the 
 armies, and the exigencies of the shipping situation all serve to make 
 the problems of feeding and clothing the civilian population which 
 is manning the munitions industries of paramount importance. 
 
 Under modern conditions, therefore, war becomes a problem in 
 the organization of a nation, so that the proportion of men engaged in 
 holding the lines compared with the proportion of men assigned to 
 making guns and shells, airplanes, transportation equipment, mer- 
 chant and battle ships, and all other strictly military supplies, com- 
 pared with the proportion of men who are engaged in raising and 
 manufacturing just the amount of food and other necessities that is 
 required to maintain the civilian population as well as the armies at 
 maximum efficiency, shall be calculated to bring to realization the 
 full strength of the nation. 
 
 Among the infinite variety of difficulties which this problem of 
 organization presents three main types can be clearly discerned. An 
 enumeration of them will serve to illustrate further the nature of 
 modern war. First there is the difficulty of bringing the whole 
 population into line with the requirements of the military situation 
 the difficulty of inducing men not only to allow themselves to be 
 enlisted freely into the army and into military industries but, a rather 
 more delicate thing, to permit their property to be used, and used up, if 
 necessary, by the government. This is not a mere matter of investiga- 
 tion and decision. The human animal is very unplastic material 
 particularly where he has been habituated to the exercise of the 
 prerogative of self-direction that is, in so far as he has lived under 
 democratic institutions. The remark has frequently been made by 
 farsighted persons in this country as well as in Germany that the 
 American scheme of training men to military service in one summer 
 vacation at Plattsburg overlooks the fact that no soldier is truly
 
 NATURE OF MODERN WAR IOI 
 
 effective who has not been habituated to soldierly ways of thinking 
 from childhood up. The same thing is true of the civilian population. 
 No people is sufficiently plastic in the hands of its military organizers 
 which has not been trained for more than a generation to submit 
 readily to an indefinite number of things verboten and to look to 
 superior authority for the properly authenticated version of every 
 man's duty. 1 If a nation is to be successful in war it must look well 
 to the scheme of highly centralized paternalism and feudal subservi- 
 ence to authority. Lacking a people trained to such a fine temper of 
 obedience it must devise some means to induce its people to give over 
 for the time being at least their supposed rights of self-direction and 
 fit themselves as well as may be into that scheme of industrial organi- 
 zation which is the first prerequisite to victory. 
 
 Yet the temper of the people and the degree of their susceptibility 
 to the appeal of the war lords is only one of the problems of the 
 military organizer of a nation. A second resides in the fact that an 
 organization itself cannot be brought into existence overnight. The 
 industrial order is so complex that no one knows exactly how complex 
 it is. It is so delicate that it cannot be completely reconstructed on 
 the basis of any a priori plan no matter how skilfully that plan may 
 have been constructed. If it is to be adapted to war, that adaptation 
 must inevitably occupy a considerable time even under conditions of 
 perfect wisdom on the part of the military organizers. Obviously it 
 makes all the difference in the world what the industrial situation 
 is to begin with. If there is no labor organization which commands 
 the loyalty of all the laborers in a certain trade or industry, or if there 
 is no central national labor exchange through which the demands for 
 laborers in all parts of the nation take effect, if all the important war 
 industries are broken up into a large number of small competing 
 concerns which are bound together by no stronger tie than voluntary 
 membership in trade associations, then the nature of the military 
 situation clearly demands the institution of more highly centralized 
 types of organization, such as will fall in more readily with the war- 
 time policy of commanding whole trades. In distinguishing between 
 reasonable and unreasonable restraint of trade a military government 
 must bear in mind the services to be rendered by the combination in 
 time of war; it must weigh the military need for a close-knit, central- 
 ized organization of each industry, readily convertible to war uses, 
 against considerations of equity and justice to the consumer. If the 
 
 1 ED. NOTE. Section XIX.
 
 102 ECONOMICS OF WAR 
 
 nation depends upon imports for important military supplies it must 
 encourage the production of such military necessities at home by the 
 offer of bounties and the levy of protective tariffs, thus holding out 
 substantial pecuniary rewards to those business men who assist it 
 in this task of perfecting the organization of the industrial structure 
 for war. 
 
 One thing, however, industrial organization itself will not provide. 
 Technical genius comes from other sources this third difficulty must 
 be met in other ways. Modern war is peculiarly a war of weapons; 
 that is to say, the technique of fighting changes so rapidly under 
 modern conditions that it is not sufficient to be able to produce and 
 wield a given set of military paraphernalia. The successful nation is 
 the one which can invent new weapons of offense faster than the 
 enemy can devise means of defense and at the same time protect itself 
 not too tardily from the new offensive weapons of the enemy. But 
 this technical capacity is not a matter of sheer inventive genius; 
 it depends upon the amount of technical knowledge which the nation 
 can command in its scientific men and upon the readiness with which 
 that knowledge can be turned to account. The military organizer is 
 presented with the problem of seizing upon the whole available stock 
 of scientific knowledge, of increasing it if there be time, and of divert- 
 ing it from its function as an instrument for the discovery of further 
 truth to those industrial channels in which it will best serve the mili- 
 tary purpose. So far as the needs of modern war are concerned 
 chemistry is the mine from which gas bombs and synthetic nitrates 
 are extracted; history is the raw material out of which national prop- 
 aganda may be manufactured. Victory casts her laurels upon the 
 nation whose scientific genius invents the most atrocious weapons and 
 the most convincing propaganda. 
 
 It must be clear from all this that modern war is no longer exclu- 
 sively heroic. It is no longer decided entirely, or perhaps even 
 primarily, by individual valor in the clash of arms. It has become a 
 sordid affair of the machine process in which the real hero is as likely 
 to be an engineer or a physicist as a dashing general. Its problems 
 are the problems of the adaptability of the whole people to the 
 discipline of war, of the organization of industrial monopolies and 
 the creation of non-indigenous industries, of the utilization to the 
 fullest extent of the scientific genius of a people. The game is 
 played on the farm and in the factory; the armies merely tally up 
 the score.
 
 NATURE OF MODERN WAR 103 
 
 3. IT TAKES TIME TO DEVELOP SPECIALIZED 
 MACHINERY' 
 
 It was on or about May 25 [1917] that the idea of an American 
 motor was born. On the 28th Messrs. Hall and Vincent began their 
 historic session. On June 4 the draft of the general design was 
 complete and was submitted to a joint meeting of the Aircraft Board 
 and the Army and Navy technical board. It was for an eight- 
 cylinder engine that was to develop somewhere around 300 horse- 
 power. 
 
 The joint board approved the design and forthwith orders were 
 telegraphed to various shops to make the different parts instanter. 
 Draftsmen worked feverishly over drawings, and there was much 
 rushing back and forth. 
 
 Then, on July 3, twenty-eight days later, the parts were brought 
 together from far and near and assembled into a motor that worked 
 like a charm. 
 
 However, on foreign advice it was decided to increase the motor's 
 power and make it a twelve-cylinder type. The twelve-cylinder 
 model passed all tests with flying colors on August 25. A trip to 
 Pike's Peak gave it an altitude experience. There were more draw- 
 ings and more consultations and more changes, and finally, after 
 August 25, the motor was ordered into quantity production. On 
 October 29 the first motor that could be roughly called the result of 
 quantity production was tried in a De Haviland 4, at Dayton, Ohio. 
 The result was so satisfactory that everybody thought it was all over 
 but the shouting for both plane and engine. 
 
 But presently troubles began to develop. Howard Coffin, chair- 
 man of the Aircraft Board, then appointed a committee of engineers 
 to find out what the trouble was. This committee soon found that 
 various parts of the motor were not strong enough and that others 
 were not well adapted to it. The connecting-rods were found to be 
 weak. The lubrication system worked splendidly on the ground but 
 was inefficient in the air. The crankshaft was not strong enough, 
 and so on. 
 
 This committee insisted on changes. Program or no program, 
 they said, America could not afford to have anything but the best. 
 It would never do to let a motor of exceptional design be ruined by 
 mistakes in the parts. There was, of course, some trouble in getting 
 
 1 Adapted from the Literary Digest, July 13, 1918, pp. 21-22.
 
 104 ECONOMICS OF WAR 
 
 the right amount of radiation. There always is in motors, and always 
 will be. Sufficient radiation for the ground is too much for 12,000 
 feet. You must have too much or too little at some time. Finally, 
 however, a satisfactory compromise was arranged in radiation. 
 
 It was not until April 28 that the committee of engineers made 
 its final fifty-hour tests on motors with all the essential changes and 
 improvements installed. Besides these basic changes there were a 
 great many lesser alterations suggested, chiefly by the manufacturers, 
 who kept in touch with each other through an unofficial committee 
 and passed on all changes as they were suggested. The strengthening 
 of the connecting-rods was, however, the chief cause of delay. That 
 set back real quantity production at least seventy-five days. 
 
 In April the motors began to come out at the rate of fifteen or 
 twenty a day. Production now fifty a day increases in volume 
 weekly. 
 
 Testimony to the value of this motor was given in London on 
 June 26 by Sir William Weir, new Secretary to the Air Ministry. 
 
 The results of the experiments so far obtained have placed the 
 engine in the very first line of aeromotors. It is well understood that 
 some criticism will be directed against the slowness of production of 
 these motors during the last three or four months, but I would like 
 to point out that a considerable interval will, and always must, elapse 
 between the experimental and commercial production of any new 
 motor. 
 
 Every engine, even the best designed and in a country with the 
 greatest resources and facilities, cannot escape a period of what may 
 be called 'teething troubles' before the motors can be produced on 
 anything like a large scale. 1 
 
 4. THE INSATIABLE DEMAND FOR MUNITIONS 2 
 
 When an attack is planned against a securely entrenched enemy, 
 with barbed wire everywhere, with elaborate communication trenches, 
 and powerful long-range supporting artillery, the first necessity is to 
 break down the wire and smash his first line of trenches. This 
 means a heavy expenditure of field artillery, shrapnel, and trench 
 
 1 As the report of the Thomas committee shows, delays have in part been 
 due to mismanagement and favoritism. ED. 
 
 2 By the Right Hon. Edwin Montagu. From a speech delivered before the 
 House of Commons, August 15, 1916. 
 
 ED. NOTE. Mr. Montagu is director of the British Ministry of Munitions.
 
 NATURE OF MODERN WAR 105 
 
 mortar bombs for wire cutting, and heavy howitzer shells for trench 
 destruction. If this task is inadequately performed, if the wire 
 checks the infantry, if machine-gun emplacements remain intact, the 
 attack fails, and fails with horrible results. When the bombardment 
 has disclosed to the enemy an impending attack, the enemy tries to 
 stop it by curtain fire. During the bombardment the enemy, from 
 his observation posts, is constantly watching for the infantry assault. 
 He concentrates a converging fire from hundreds of long-range guns 
 upon the trench area from which the infantry must debouch. That 
 fire has got to be subdued, or the attack takes place under a perfect 
 tornado of projectiles; hence the necessity for counter-battery work. 
 An immense expenditure of shells from long-range guns, controlled 
 from the air, whence alone the fire can be directed at the enemy's 
 guns, goes on whenever aerial observation is possible. The guns are 
 well entrenched, and this runs away with an enormous amount of 
 heavy and medium ammunition. Next the attack takes place. Its 
 flanks have got to be protected, and while the infantry is engaged in 
 facing the parapet of the captured trenches the other way they have 
 got to be protected from counterattack. A counterattack begins 
 by the enemy's bombers coming down the communication trenches 
 and bombing the captured trenches. They cannot be seen cannot 
 be spotted from the artillery observation posts. The only means of 
 dealing with them is to direct a barrage fire which sweeps every com- 
 munication trench, leaving nothing to chance. Later the enemy's 
 more formidable counterattack comes along. It is organised under 
 cover of concentrated artillery fire by means of massed infantry from 
 the support trenches. The success of these attacks has not only got 
 to be prevented, but the enemy must not be allowed to formulate 
 them. So the successful infantry must be protected on its flanks 
 and front by barrage fire of shrapnel and high explosives directed 
 against the enemy's support trenches, where the infantry, unseen, are 
 organizing for the counterattack. 
 
 Finally, to be able to press on successfully from one attack to the 
 next, the resisting power of the enemy must be worn down by want 
 of rest, of relief, of food. All day and all night the approaches to his 
 trenches must be kept under fire to prevent relief coming to his men, 
 to prevent the replenishment of ammunition supplies, and to prevent 
 his obtaining food and rest. If you add one more detail, what I 
 believe the French call tire de demolition, which is directed by the 
 very heaviest howitzer guns against especially fortified nodes which
 
 106 ECONOMICS OF WAR 
 
 are dotted about the area of the German lines, and consider all the 
 operations which I have described, wonder ceases that you want so 
 much ammunition. The only marvel that remains is that you can 
 ever produce enough to sustain the attack which goes on week after 
 week, day and night, with varying, but always with sustained, 
 intensity. 
 
 5. A MORNING'S WORK IN THE MINISTRY OF 
 MUNITIONS 1 
 
 I want to give the House a trivial illustration, if I may, of the 
 variety of matters with which the Ministry deals. When I was told 
 that I had to make a statement on the Munitions Department, I cast 
 my thoughts back over the matters with which I had to deal on that 
 particular day. I began with a friendly controversy with a govern- 
 ment office about the transport from near the Arctic Circle to a 
 neutral country of a mineral the name of which was unknown to me, 
 but which I was assured was the limiting factor in the output of 
 certain indispensable munitions. I went on to discuss the question 
 as to. whether we should press the India office, in the interests of the 
 munitions supply, to construct a certain railway line in a remote 
 part of India. There was a question of certain measures affecting 
 the output of gold in South Africa. There was a discussion as to the 
 allocation of a certain chemical, very limited in quantity, to meet the 
 competing needs of the Army, the Navy, and the Air-Service. There 
 was a deputation from an important educational institution asking 
 to be allowed to continue certain building operations. There was a 
 discussion about the men deported from the Clyde. There was a dis- 
 cussion on certain contracts in America valued at over 10,000,000 
 pounds sterling. In the course of the morning the Munitions Inven- 
 tions Department brought to see me some walking specimens of 
 exceedingly ingenious artificial legs. There was a conference on the 
 allocation of highly skilled workmen of a particular class amongst 
 competing firms. There was a discussion as to the quickest means of 
 manufacturing gun carriages. There were a hundred and one topics 
 which must confront any body of men who spend their whole days 
 watching curves which ought to go up and figures which ought always 
 to swell; reading reports from all parts of the world, and confronted 
 
 1 By the Right Hon. Edwin Montagu (see p. 104). From a speech delivered 
 before the House of Commons, August 15, 1916.
 
 NATURE OF MODERN WAR 107 
 
 always with the cry: "More, more, more!" and "Better, better, 
 better!" 
 
 IX. The Relation of Science and Industry to War 
 i. THE SCIENTIFIC BASIS OF WAR TECHNIQUE 1 
 
 The chemists say this is the chemists' war, the engineers claim it 
 as theirs, while a distinguished French physicist calls the struggle 
 "a grandiose physical phenomenon," and the medical and surgical 
 fraternity demonstrate that prevention from epidemics and rendering 
 possible the return to the front some three-fourths or more of all 
 invalided and wounded has made the continuance of trench warfare 
 possible. 
 
 Verdun has been named "the metallurgical battle" and also "the 
 battle of the trucks," referring in the first case to the importance of 
 the iron-ore deposits of the Briey region located a few miles to the 
 northeast, and in the second to the vast numbers of automobile 
 trucks employed by the French on the only highway open at the 
 outbreak of the battle. 
 
 The meteorologist is listened to with attention by the Great 
 Headquarters, as was the astrologer of yore, before an extensive 
 offensive is undertaken ; and the geologist is consulted for information 
 as to where to halt and dig in, where shelters may be safely built, and 
 as to the probability of underground waters. Even the astronomer's 
 services are considered of great importance, for example, in the 
 preparation of new artillery tables and maps, the improvement and 
 invention of instruments which differ but slightly in principle, how- 
 ever much they may differ in the nature of their use, from those 
 with which he is familiar. Again, the statistician is a most valu- 
 able person when an offensive is being planned. Also France, 
 at least, has found the mathematician indispensable, for in the 
 person of M. Painleve he sits at the head of them all as Minister 
 of War, whose civil, technical staff is largely made up of eminent 
 members of the same profession. Is this then a mathematicians' 
 war? 
 
 1 By George K. Burgess. Adapted from "Applications of Science to Warfare 
 in France," Scientific Monthly, V, 289-97. 
 
 ED. NOTE. George K. Burgess (1874 ) is a prominent physicist, now chief 
 of the Division of Metallurgy in Washington. He is an author and translator 
 of many metallurgical works.
 
 io8 ECONOMICS OF WAR 
 
 In truth, chemistry, physics, hygiene, mathematics, engineering, 
 geography and geodesy, metallurgy, geology, bacteriology, mete- 
 orology, or pretty much the whole curriculum of physical and natural 
 sciences and their applications are each of them fundamentally essen- 
 tial in modern warfare, some of course more apparently so than 
 others, but almost none could be spared and the war carried on 
 successfully. 
 
 Two most important corollaries immediately suggest themselves: 
 
 First, the war can not be successfully prosecuted if there is lacking 
 any of the necessary raw materials, including chemical, physical, and 
 metallurgical supplies such as nitrates, optical glass, coal, and steel, 
 to name but a few. The operations of modern warfare are so complex 
 and interrelated that the want of crucial supplies in one domain may 
 seriously hamper all; hence the phenomenon of which there are 
 instances innumerable, of intensive scientific research in the develop- 
 ment of substitutes as one or another essential material becomes scarce. 
 
 Second, modern warfare can be waged successfully only by the 
 proper organization of these diverse scientific elements in addition to, 
 and coordinated with, or incorporated in, the military establishments. 
 
 In a completely mobilized country, such as France, it is essential 
 that each man in the community, which is nearly identical with the 
 military establishment, be assigned to the task for which he is best 
 fitted or there must be scientific organization and management to 
 secure the country's greatest possible efficiency. 
 
 What is this organization? How and to what extent are 
 the sciences used in warfare? And how are the scientific men 
 mobilized or otherwise made use of ? A brief statement of some of 
 the impressions gained during a three months' stay in England and 
 France may not be without interest. 
 
 The most striking impression brought home is one of unity of 
 purpose, perfect adaptation and coordination of the several branches; 
 a harmonious whole, in fact, made up of separate and often highly 
 intricate parts constituting an organization in which all the sciences 
 and their applications blend into one, which is focused by the admir- 
 ably trained technical and staff officers on the sole object of destroying 
 the enemy. The French traits of individuality, initiative, and self- 
 reliance, are, however, in no sense lessened or dulled by this coopera- 
 tion. 
 
 What are some of the component parts of this unity in scientific 
 warfare? We shall mention but a few in illustration of the whole.
 
 NATURE OF MODERN WAR 109 
 
 Let us first consider examples of the applications of physics to warfare, 
 some of which owe much of their efficacy to the relative immobility 
 of the front. 
 
 Of all the branches of this science the one that had in recent years 
 been lagging behind the others and to whose development the least 
 attention was being paid, was acoustics; yet it is not an exaggeration 
 to say that the application of the principles of acoustics, or sound, is 
 of the greatest importance at the front. 
 
 One of the most highly developed is the location of enemy guns, 
 concerning the details of which a volume could be written; suffice 
 it to say that in the French armies there are several systems in use, 
 all of which will locate to within a few yards an enemy battery at ten 
 or twenty kilometers, indicate the caliber of the guns, differentiate 
 between the sounds of discharge, flight through the air, and bursting, 
 and record each and every separate shot; and the spot from which the 
 shot was fired may, under certain conditions, be located before the 
 shell bursts. There have been developed several ingenious listening 
 devices built on entirely different acoustical principles for use in mine 
 warfare, by means of which enemy mining operations may be exactly 
 located. Again, for the location of sounds in the air, especially useful, 
 for example, in locating airplanes at night, several new types of sound 
 apparatus of extreme sensitiveness are in use. For submarine 
 detection some of the most promising methods for further improve- 
 ment are based on the use of still other sound-detecting devices. 
 Wonderfully powerful megaphones for use in battle have also been 
 developed. Acoustics as an active branch of physics has most 
 decidedly come into its own. 
 
 In photography and the technique of photographic map making 
 there have been great improvements, brought about directly by 
 military necessity, especially in aerial photography, apparatus, and 
 interpretation. One of our most interesting visits at the front was 
 to the photographic headquarters of a French army corps, where we 
 listened to an admirably delivered, illustrated lecture on the taking 
 and interpretation of aerial photographs. The art of map making 
 from photographs, as carried out at the front, is practically a new 
 branch requiring great skill, and is evidently of the first importance, 
 as oftentimes the success of an offensive is largely dependent upon 
 the quality of this work. 
 
 As would be expected, there have been not a few advances made 
 in applications of electricity, especially wireless apparatus and
 
 no f ECONOMICS OF WAR 
 
 methods, signalling and listening devices. There may be, for example, 
 during a battle more than 1,500 separate wireless stations sending 
 messages simultaneously; provision is successfully made for prevent- 
 ing interference and sorting out this great mass of signals so as to 
 avoid confusion. Portable wireless outfits are supplied by the tens 
 of thousands requiring for the construction of these instruments 
 alone a veritable army of skilled mechanics. 
 
 The reading public is perhaps more familiar with some of the 
 applications of chemistry to warfare, such as the asphyxiating, tear- 
 producing, and other noxious gases used in waves or clouds and lately 
 more and more in shells; and the importance of nitric acid, toluol, 
 and the like has been impressed on everyone. The stupendous scale 
 on which such substances must be produced to keep up with the 
 demands of the armies is perhaps not sufficiently realized, nor is there 
 any adequate appreciation of the amount of scientific investigation 
 being carried out. In France I understand there are some twenty- 
 five distinct laboratories engaged in nitrogen-fixation research alone. 
 
 Turning now to meteorology, what has the weather man to do 
 with war ? He too plays a capital role. With his sounding balloons 
 he keeps the troops informed as to when a gas attack may be expected 
 and when it would be profitable to start one; the artillery depends on 
 him for data to calculate important corrections, as for wind, humidity, 
 pressure, and temperature and upper-air conditions in sighting their 
 guns; the aviators as to prevailing winds, especially high up, and for 
 general weather conditions; the balloon men keep in close touch with 
 him, and even the transport service depends upon him for advance 
 information as to muddy roads; headquarters relies upon him for 
 knowledge of impending fog or rain and other changes the weather 
 man has a very heavy responsibility in helping to decide the most 
 propitious moment for an attack on a grand scale, and if his forecast 
 is erroneous, disaster may result. 
 
 An impressive sight on the French front was the firing of a battery 
 of 320-mm. (i3-inch) cannon, mounted on railway trucks, at an 
 invisible target 19 . 5 kilometers distant. It took four shots to accom- 
 plish the end sought, which was demolishing an enemy battery that 
 had been located the day before by " sound ranging " and photography. 
 
 What does such an operation mean in preparation and execution, 
 viewed as a scientific experiment ? 
 
 In the first place, it presupposes an exact knowledge of the region 
 expressed in accurate maps, including of course territory in possession
 
 NATURE OF MODERN WAR III 
 
 of the enemy. The preparation of these maps is one of the most 
 elaborate of the technical geographical services of the army; this 
 service is usually supplemented when possible by triangulation from 
 fixed observatories and photographic mapping from airplanes or 
 balloons. It assumes further that the cannon of the battery have, as 
 we might say, been calibrated, that is, the characteristics of their 
 firing determined by shooting at a recognized and exactly located 
 object of about the same range and making a known angle with the 
 target. The relative positions of battery and target and their exact 
 distance apart should also be known. A big gun is displaced some- 
 what with every shot fired and is brought back to position by refer- 
 ence to a fixed base by means of a series of optical measurements. 
 Some of the allowances and corrections that have to be made in firing 
 are: variations in weight of projectiles showing the need of uni- 
 formity, homogeneity, and geometrical exactness in their manu- 
 facture not a simple matter; weight, quality, age, and temperature 
 of the firing charge which gives but a hint as to a most elaborate 
 series of researches in the physical chemistry of ballistics; the age, 
 state of erosion, and temperature of the gun another series of 
 unsolved problems; the numerous atmospheric corrections, such as 
 direction and force of the wind at the various levels of the trajectory; 
 the temperature, pressure, and humidity of the air, all of which 
 produce disturbances that vary with the distance of the target, or, 
 what is the same, muzzle velocity of the shot as well as the shape of 
 the shell. 
 
 There have been prepared elaborate tables containing these 
 corrections and others which are constantly being improved by 
 further research. The theory of probabilities is also made use of in an 
 elaborate way for each caliber to control the inevitable dispersion of 
 the shots after all known corrections are made. With all these data, 
 how does the artillery officer know the accuracy of his fire at a target 
 invisible to him and 20 kilometers away ? If he has the local mastery 
 of the air, use is made of airplanes which signal the location of each 
 shot; otherwise he must depend on stationary balloons, special ob- 
 servatories, or even on his calculations alone if the weather be bad. 
 
 Finally, it is not necessary merely for the shot to strike the target; 
 it must explode at the right instant and have a suitable " fragmenta- 
 tion" here is opportunity for more research in mechanics, chemistry, 
 and metallurgy. Such in brief is the mechanism of artillery fire, for 
 the accomplishment of which many of the sciences collaborate, and
 
 112 ECONOMICS OF WAR 
 
 for the rendering it more exact there is still room for considerable 
 research in astronomy, geodesy, metallurgy, chemistry, physics, and 
 meteorology. 
 
 We have not touched upon the applications of science in the 
 various branches of military engineering, some of which are new in 
 this war, requiring the highest directing, technical talent, and thou- 
 sands of workmen; the advances in medicine, sanitation, and surgery 
 have not been treated, nor have we mentioned trench warfare with 
 its manifold engines, appliances, and materials, necessitating the 
 creation of new industries accompanied in all cases by elaborate 
 scientific research. Gas warfare alone is based on what is literally 
 a stupendous industry requiring the employment of chemists and 
 other scientifically trained men on a great scale. Again there are 
 large and very active laboratories maintained for the examination of 
 enemy munitions and appliances of all kinds, and for the development 
 of new and improved types. 
 
 Examples enough have been given to impress upon the reader, 
 I hope, the tremendous magnitude, enormous scope, and far-reaching 
 extent of the problem of modern warfare looked at from the point of 
 view of the applications of science -and the employment of scientific 
 and technical men. 
 
 The wonderful organization was not all built up in a day, neither 
 were mistakes avoided, nor could all the developments that have 
 taken place been foreseen. In the early days of the war men were 
 sent to the front, whose brains to-day would be an invaluable asset; 
 national laboratories were almost depopulated; the military author- 
 ities were indifferent to advice from civilian specialists. To-day one 
 would be embarrassed to decide whether an officer, in one of the 
 specialized services was an officer before the war or, let us say, a 
 professor of chemistry. The national laboratories have been multi- 
 plied tenfold ; and such care is now taken to protect productive brains 
 that it may happen that the inventor of a new device is not allowed 
 to go to the front to try it out. 
 
 2. THE UTILIZATION OF INDUSTRY 1 
 
 We must ask the reader to take us quite literally when we state 
 that the whole of the living forces of the country are absorbed in war. 
 
 1 By Georges Blanchon. Adapted from The New Warfare, pp. 43-54. 
 Translated by Fred Rothwell. Published by Thomas Y. Crowell Co. 
 
 ED. NOTE. Georges Blanchon is an eminent French authority on naval war- 
 fare and the development of the submarine.
 
 NATURE OF MODERN WAR 113 
 
 Youths are recruited at the age of eighteen, and men up to forty-seven 
 or forty-eight, in Austria perhaps even up to fifty. Within a few 
 months a total of about thirty million Europeans were summoned to 
 arms. This figure alone shows us that the expression "a nation in 
 arms" is no longer an extravagant figure of speech it is nothing but 
 the strict truth. 
 
 This, however, is but a part of the forces employed in war, though 
 indeed the part most in evidence. Formerly the army, with its 
 military personnel, was almost self-sufficient; at the present time 
 huge public departments have been militarized and organized for war 
 purposes. 
 
 First, the railways the initial concentration and mobilization of 
 our troops alone have necessitated thousands of trains. They are 
 needed for every advance, withdrawal, or lateral movement. The 
 services in the rear supplies, munitions, reinforcements, wounded 
 men keep the lines permanently busy not only at the front but right 
 back to the very heart of the country. Consequently there is an 
 entire staff attached to the army for purposes of transport by rail. 
 
 Analogous are the sanitary and medical services. Controlled by 
 the army doctors, this department finds employment not only for a 
 strictly military, but also for a semicivilian, personnel: a large and 
 effective force, especially in auxiliary hospitals. Thus we have non- 
 mobilized local surgeons, voluntary nurses and orderlies, Red Cross 
 ladies, Boy Scouts, etc. 
 
 A third class is engaged in munition work. The public arsenals 
 employ workmen who are sometimes under military rule and whose 
 numbers are largely increased in war-time. Arsenals, however, are 
 insufficient; in every belligerent country the widest appeal has been 
 made to private industry. An article which appeared in the Thur- 
 gauer Zeitung at the end of 1914 stated that the number of Krupp's 
 workmen at Essen had risen from forty-two thousand to sixty thou- 
 sand since the opening of hostilities. Everything in the form of a 
 machine workshop or a chemical works, or that could be transformed 
 into either of these, has been either requisitioned or invited to take 
 a share in the manufacture of munitions. All over the country are 
 being made firearms, projectiles, trench-digging tools, barbed wire, 
 motor-cars, aeroplanes, uniforms, tinned food for the army, etc. 
 
 Thus we find, along with those who are mobilized, great numbers 
 of workers not only paid but frequently controlled by the war, 
 indispensable to its success and devoted to the national task. Those
 
 114 ECONOMICS OF WAR 
 
 exempt from military claims, either by reason of age or of ill health, 
 are invited, as also are foreigners, to collaborate voluntarily in the 
 defence of the country. Nor do the public powers officially, and 
 corporate bodies in their private capacity, fail to put the requisite 
 pressure on shirkers. 
 
 England had to organize intensive recruiting of the ''industrial 
 army," with the help of the trade unions. In London hundreds of 
 offices were opened in town halls and labour exchanges. Those who 
 enrolled themselves undertook to work for a period of six months 
 under the control of the government, wherever the latter might send 
 them; and, if the conditions of engagement were broken, to recognize 
 the jurisdiction of a special court. Moreover, another law ordered 
 the preparation of a national register, so that all who were fit might be 
 called on either to bear arms or to help in the production of war 
 material. 
 
 Thus along with compulsory military service to the age of forty, 
 which has now become law, compulsory industrial service is implied, 
 potentially at all events, in the British organization. 
 
 Indeed a threatened nation may be compelled to requisition 
 labour, for huge production becomes a public necessity. The question 
 is perfectly simple and clear in the case of workmen already mobilized, 
 who from the front have been sent back to their workshops. On 
 resuming work at their trade they remain under military law; they 
 do not cease to be soldiers; they are soldiers in a latent state, to adopt 
 a medical term. 
 
 In fact, those who have technical experience in the various 
 branches of activity indispensable to warfare engineers, managers 
 of works, foremen, specialists in some particular industry, private 
 surgeons, radiographers, etc. are now more usefully employed in 
 carrying on their own work than on the battle-field. 
 
 Things do not stop here. However desirous we may be of 
 preventing it, innumerable business transactions are bound to become 
 more or less intimately concerned with warfare. Only by an intense 
 flow of importation does the state maintain its stock of provisions 
 and raw material. The majority of its orders are given private 
 dealers, with whom it generally draws up long-period contracts. It 
 is to the interest of the state to leave at their disposal the men they 
 need to serve it. 
 
 Thus, in France, conscripted seamen engaged in commercial 
 navigation have not been summoned back to the flag. Not content
 
 NATURE OF MODERN WAR . 115 
 
 with facilitating the recruiting of the personnel and actually supplying 
 it in case of need, the state, by means of its navy, assures the protection 
 of the mercantile fleet even outside home waters. After giving its 
 orders and deciding upon freight and route, it dictates to the owners 
 the safeguards to be adopted in order to avoid danger. In France and 
 England alike it supplies ships with anti-submarine guns. It exercises 
 all the more detailed and careful supervision over ship-building, be- 
 cause the merchant fleet is a most important instrument for the direct 
 supply of national needs. Briefly, the fact that civil populations 
 have to be supplied with food gives the mercantile marine an alto- 
 gether special importance. As we see, maritime transport is very 
 largely devoted to the public service; almost everywhere it bears the 
 stamp of this in the status of its staff. 
 
 We shall be led to deal in a like manner with other industries, 
 such as mining. The state, by assuming control of their productive 
 effort, which conditions the operations of its armies, makes them, so 
 to speak, an expansion of military activities. 
 
 Even now we see that German submarines no longer distinguish 
 between war vessels and merchantmen; the destruction too of coal 
 mines and manufactories is clearly an integral part of the new strategy, 
 for which it becomes an end in itself. Everywhere attempts are made 
 to destroy the crops or to raid the provisions of the invaded countries. 
 
 Thus the peaceful occupations of commerce and industry are 
 voluntarily torn from the sphere of private interests, once respected 
 in war, to be flung, as human life and property have been, into the 
 devastating whirlwind. 
 
 Everything keeps alive a state of confusion; there is nothing 
 strictly private nowadays. As both soldiers and civilians have to 
 be fed and clothed, warmed and kept under cover, all sources of 
 production, one after another, become national concerns. In order 
 to carry on the struggle longer than the adversary, it is important to 
 retain in their occupations a certain number of fishermen, cattle- 
 breeders, farmers, and agricultural labourers, etc. Consequently the 
 various tasks ought to be distinctly assigned beforehand, each man, in 
 all essential trades, having his allotted part and his instructions, as 
 in the mobilized army. On the day when one of the belligerents shall 
 have thus completely organized the arrangement and disposition of 
 its human resources, it will derive thereby such power of resistance 
 that its rivals will be compelled either to imitate it or to lapse into a 
 fatal inferiority.
 
 Il6 ECONOMICS OF WAR 
 
 3. THE MILITARY USE OF RAILWAYS 1 
 
 It is now quite clear that future wars will be very different from 
 those of the past. What we see at present warrants the conclusion 
 that they will effect a profound transformation in the life of the 
 nations. The social aspect of war is something quite new ; its material 
 aspect will be no less so. 
 
 In this new warfare means of transport have assumed a supremely 
 important place. The first of these is the railway. A single train is 
 capable of carrying an infantry battalion or a battery of field artillery; 
 and to transport an army corps thirty thousand combatants fifty 
 or a hundred trains are required, according as the fighting units only 
 are taken or the entire convoy of departments in the rear accompanies 
 them. 
 
 The entraining takes some hours from two to three on an average. 
 This, however, depends largely on the material to be loaded and the 
 advantages offered by the station, such as platforms and various other 
 contrivances. The same length of time is required for unloading. 
 Military trains move at regulation speeds which do not vary: from 
 twenty to twenty-eight miles an hour. They follow one another at 
 regular intervals: a single track allows of the passage of a score of 
 trains in each direction every twenty-four hours; a double track 
 allows of fifty, sixty, one hundred, or even more, according to the 
 sidings and the good working of the block system. On some days and 
 over certain lines the total has reached two hundred and twenty. 
 Thus we see that a double line might carry, on an average, an entire 
 army corps per day. But there are many things to take into con- 
 sideration, especially junction lines, and it is manifestly of the highest 
 importance to have large numbers of parallel tracks. 2 In this respect 
 the French "Nord" system and the German frontier systems offer 
 facilities which cannot be found on the Russian railways, for instance. 
 
 At first the entire mobilization and concentration was effected by 
 means of the railways: In France we required four thousand seven 
 hundred and fifty trains. Everything was carried through with the 
 utmost order. The army still has a permanent need of railways for 
 two purposes: its communications with the rear and its movements 
 from place to place. The former are fairly regular, the latter essen- 
 
 1 By Georges Blanchon (see p. 112). Adapted from The New Warfare, 
 pp. 102-112. Translated by Fred Rothwell. Published by Thomas Y. Crowell Co. 
 
 2 See selection XIII, 4, for a description of Germany's strategic railways.
 
 NATURE OF MODERN WAR 117 
 
 tially irregular; but since sudden necessities must be met without 
 delay, a considerable stock of material is kept always ready, and thus 
 mobilized.' 
 
 For the supply of one army corps alone, it was calculated, before 
 war broke out, that train loads aggregating one hundred and twenty 
 tons per day would be needed; experience has shown that as the 
 stationary condition of the fronts causes the immediate exhaustion of 
 all local resources, this figure must be raised to two hundred tons. 
 
 It was Napoleon who said, "The-strength of an army, like momen- 
 tum in mechanics, is the product of the mass and the velocity." 
 Now the railway is a means of communicating great velocity to great 
 masses. In a single day a train can travel to a distance of six hundred 
 kilometres; on foot, we cannot go more than thirty. 
 
 Enemy-surrounded countries have the advantage of interior 
 lines which enable them to transfer in succession almost the whole of 
 their forces against each of the army groups threatening them. This 
 was the great art of Napoleon. Railways facilitate these changes of 
 position. Frequently too they supply means of warding off attacks, 
 since they offer considerable opportunities for movements along 
 exterior lines. For instance, it is possible to make the circuit of such 
 a country as Poland in a very few days, and so to counterbalance the 
 efforts of hostile reinforcements which have crossed it as the crow flies. 
 
 The gain in time obtained by using interior lines is only the excess 
 of the one journey over the other. This gain in time manifestly 
 decreases as transport becomes more rapid. But to obtain the same 
 results as in the past, it would need to be greater, because battles last 
 longer nowadays. An army was formerly put out of action in a few 
 days it had no time to obtain assistance; to-day weeks are required. 
 
 In this respect, the march of progress restricts the advantages of 
 interior lines, as well as the importance of most strategic artifices 
 and probably also the predominant role played by the great military 
 leaders. It makes more certain the consequences of an all-round 
 superiority of moral and material forces. Victory is more the reward 
 of a people, less the success of one man. 
 
 The preparation of railways for war uses is not confined to the 
 planning of the system itself. It extends to the provision and adap- 
 tation of stations, to the duplication of the lines, to the defence of 
 bridges and other structures, to the provision of rolling-stock. Con- 
 siderable extension may be looked for in all these directions. How- 
 ever important the motor-car and the aeroplane may be in military
 
 Ii8 ECONOMICS OF WAR 
 
 transport, it is probable that the railways will always be the most 
 satisfactory means of conveying heavy material. 
 
 The railway carriage itself can be adapted for military uses. We 
 have tank cars, cold-storage cars, hospital trains; above all, we have 
 armoured trains and truck gun-carriages. 
 
 Railways will perhaps render more effective service than ever in 
 the matter of bringing to the required spot huge guns too heavy to 
 be transported in any other way. These will be fired without leaving 
 the rails. The truck gun-carriage is so arranged as to withstand the 
 recoil; this result is obtained by placing on the ground, once the 
 carriage is stationary, supports which take the load off the wheels. 
 The recoil is transferred to the ground, so that the rails do not suffer. 
 
 Whether the object is to organize a supply line, to transfer rein- 
 forcements, or to carry heavy material to its destination, it may be of 
 service to provide for the absence of normal lines by laying down rails 
 along the road. Both the Germans and ourselves have done this very 
 frequently. A narrow gauge of sixty centimetres is generally used. 
 A team of skilled sappers takes about three hours to lay down about 
 one kilometre of railway. 
 
 All great armies have in reserve stocks of rails, along with their 
 sleepers. It may be possible to carry preparations further by per- 
 manently fitting up along the roads themselves whatever would not 
 interfere with their normal use, and more particularly by laying tracks 
 on the footpath on one side of the road, and simply overlaying them 
 with a footboard. This system might be applied even to* broad- 
 gauge lines. Stores of material might be kept at various distances 
 along the line and the necessary sidings be provided. A great number 
 of auxiliary lines thus fitted out in the rear of an army would prove 
 extremely useful. 
 
 4. INDUSTRIAL ENERGY AS A MILITARY WEAPON 1 
 
 Why has Germany, with only the aid of her feeble Austrian ally, 
 been able so far to withstand the rest of Europe ? It is because she 
 is twenty years ahead of the average of her opponents in industrial 
 energy and the use of machinery. Suppose, for the sake of illustration, 
 that the states of the Union should once more engage in civil war, and 
 
 1 By James R. Finlay. Adapted from an address before the Mining and 
 Metallurgical Society, of America. Printed in its Bulletin No. 86. 
 
 James R. Finlay (1869 ) is a prominent mining engineer and has written 
 extensively on mining problems.
 
 NATURE OF MODERN WAR 119 
 
 that Illinois, Indiana, Michigan, Ohio, Pennsylvania, New York, 
 Connecticut, and New Jersey should form a combination to resist the 
 rest. Suppose for full measure we throw in Mexico and South America 
 as opponents of this bit of territory. We would then have a popula- 
 tion of 40,000,000 in a territory of 285,000 square miles fighting a 
 population of 150,000,000 occupying a territory of 15,000,000 square 
 miles. Which would be likely to win ? I may be foolish, but it seems 
 to me that the group of states between New York and Chicago would 
 probably win decisively. Why? Because in that area, producing 
 75 per cent of the coal and making 87 per cent of the iron of the 
 country, there is almost a monopoly of the organized manufacturing 
 and engineering energy of the Western Hemisphere. The area 
 contains practically all the plants capable of manufacturing arms, 
 munitions, and special devices. In this territory we have not only 
 the plants but the trained population, the trained leaders and organ- 
 izers. If we permit ourselves to imagine that this group of states 
 was organized under one efficient corporation which had the control 
 of every citizen for the purpose of carrying on war, we should have in 
 America something like the situation In Germany today. We could 
 well reject the idea that the New Yorker or the Pennsylvanian was 
 in the least superior to the Canadian or the Texan, but that would 
 not alter the fact that the superiority of our group of states in the 
 production of munitions, the transportation of supplies, the organiza- 
 tion of effective effort, and its ability to strike quickly would be very 
 great indeed. If this group of states should make as its first move the 
 occupation of West Virginia and of Missouri, it would add to its pre- 
 ponderance much as the Germans have added to theirs by the occupa- 
 tion of Belgium and Poland. 
 
 The idea is abroad that Germany may be conquered by the Allies 
 if the latter will buy enough copper and other munitions. The reality 
 is that buying of supplies is a comparatively insignificant part of the 
 problem. To take an industrial comparison, let us suppose that the 
 plants of the United States Steel Corporation were supplied, complete, 
 to Russia, without the organization as it exists to day. What use 
 could Russia make of them ? 
 
 I do not mean to imply that the individual Russian is necessarily 
 inferior as a workman, or as a man, to the individual American. That 
 is one of the difficulties in understanding this present situation. Each 
 of the great nations and races of mankind is able to furnish human 
 material that can compete on even terms with that of any other
 
 120 ECONOMICS OF WAR 
 
 nation. But I think you will recognize quickly that it would take the 
 Russians many years to make any adequate use of the plants of the 
 United States Steel Corporation. 
 
 It is hardly worth while to go into details. The operation of those 
 plants, including mines, steamships, railroads, rolling mills, and 
 factories of all kinds, requires the development of a deal more than 
 that, namely, a slowly evolved and highly organized control. The 
 plans and the execution of them must be tested by competition with 
 rivals. The organization must know the fields in which the products, 
 when made, can be sold and utilized. 
 
 It would be easy to dwell on this subject a long time, but I think 
 you will soon conclude that the plants of the United States Steel 
 Corporation would never reach anything like the effectiveness in 
 Russia which they have in this country, until the Russian nation is 
 developed industrially to such an extent that it can meet such an 
 organization on even terms. In other words, other industries all of 
 the industries in the country, in fact would have to be developed in a 
 substantially equivalent manner. This certainly can not be accom- 
 plished overnight, nor during the probable continuance of any war. 
 It is a matter that requires nothing short of the industrial organization 
 and development of the nation. A generation, or even two 
 generations, is a short time for such an accomplishment. 
 
 It is a fact not generally recognized that today there are only 
 three nations in which mechanical industry is widespread, namely, the 
 United States, the British Empire, and Germany. It is not fair of 
 course to say that industry has not been developed in other countries, 
 but these nations are so far ahead of any rivals that they are very 
 distinctly in a class by themselves. These three nations produce 
 about 90 per cent of the coal of the world and undoubtedly operate 
 90 per cent of its machinery. 
 
 It happens that one of these nations is the most highly developed 
 military nation in the world. The other two, while developed 
 industrially quite as highly as Germany industrially, happen to be 
 about the least military nations of the world. 
 
 X. The Larger Economic Strategy 1 
 
 The larger strategy of war calls for the solution of complicated 
 and baffling problems in industrial organization and involves the 
 thought and efforts of all the people of the warring nation. Single 
 
 'An editorial.
 
 NATURE OF MODERN WAR 1 21 
 
 military campaigns may aim at the taking of supplies, the capture of 
 men, or the occupation of territory. But these immediate objects 
 are part of a larger purpose, of a destruction of the armed resistance 
 of the enemy, and in terms of this event their success or failure is to 
 be judged. To this end it is necessary that eventually, as campaign 
 follows campaign, an army sufficient in numbers, equipped with an 
 adequate amount of devices, and supplied with the requisite volume 
 of materials be hurled upon the opposition. Antecedent to the strictly 
 military problem this larger strategy involves the two problems of 
 securing the requisite men and materials and of distributing and 
 utilizing them in complementary branches of service. 
 
 It is evident that the first of these problems depends upon the 
 nature and intensity of the struggle. If the enemy is vastly inferior 
 in man power and in economic resources, or if serious deficiencies in 
 industrial organization make it impossible for it effectively to bring 
 its strength into play, the strategy of supply involves no difficulties. 
 If, for example, the United States were seriously bent upon the 
 conquest of Mexico, an army large enough for the purpose and an 
 adequate supply of materials might be obtained with little difficulty. 
 An army might easily and quickly be recruited by calling for vol- 
 unteers who could leave their positions or their leisure with little 
 difficulty. The material might be obtained simply by taking up the 
 slack in the industrial system, which is not running at full speed. 
 But if the enemy is strong in men and resources, well organized, and 
 willing to pay the necessary price for military success, the problem is 
 greatly changed. It is suicide to meet an enemy with a million men 
 with an army of only half a million. Gas shells by the tens of thou- 
 sands are not a match for gas shells by the hundreds of thousands, and 
 rifles are ineffective against machine guns. Furthermore, if the 
 opponents be evenly matched, the struggle becomes a competitive one. 
 A surplus of men and machines gives one side an advantage for 
 attack, and every effort is made to secure it. But this calls for similar 
 exertion by the other. It is the competitor who is willing to plunge 
 most heavily who determines the plane of competition. If the 
 enemy's effective forces are not matched, the victory is lost. They 
 must be overmatched if effective victory is to be won. 
 
 In view of this really cut-throat competition, the securing of a 
 surplus of men, machines, and materials becomes alike of the greatest 
 importance and of the gravest difficulty. However simply it may be 
 stated, it involves great precision in estimating the strength of the
 
 122 ECONOMICS OF WAR 
 
 enemy and in anticipating the course of events, nice calculations 
 and careful judgments about the use in a complementary way of many 
 groups of men and a bewildering variety of industrial equipment. It 
 involves a reconciliation between three sets of interests. First, men 
 and means must be left at their appointed tasks to turn out food, 
 clothing, and other necessities sufficient to insure health and pro- 
 ductive efficiency to the population. Secondly, a force must be sent 
 to the front sufficient to prove effective there. And thirdly, men and 
 materials must be kept back of the line adequate to produce the large 
 and varied supplies which the army requires. Too many men and 
 materials in the first or third of these groups is at the expense of 
 the second. Too few rob the second of a part of their fighting 
 efficiency. In short, the problem is to make the fighting force, which 
 is the cutting edge of the industrial machine, as large and as efficient 
 as is necessary, without weakening the supply service enough to 
 decrease its efficiency. It is evident* that the problem requires the 
 utmost delicacy to be manifested in a series of careful judgments. To 
 cite examples of its importance, examples now quite familiar, England 
 suffered during the earlier years of the war from not having men and 
 materials enough at the front, and one of the causes which led to the 
 disorganization of the Russian industrial structure, so evident after 
 the revolution, was the withdrawal of too many men from the economic 
 system for use in the armies. 
 
 Under most favorable conditions the solution of the problem is 
 attended with difficulty. In democratic nations like Great Britain, 
 France, and the United States the difficulties are particularly baffling. 
 One problem is in adjusting to the unified demands of war an industrial 
 system which has been contrived with no such end in view. Laborers 
 are specialized to particular tasks, capital has been stereotyped into 
 buildings and equipment which know not war, trade has cut deep and 
 peaceful grooves for itself, and personal habits have become unwarlike 
 and rigid. Although the nation may be willing, it is hard for rational 
 thought to displace the habits and conventions of generations, and 
 for the newer rationalized thought to create a belligerent industrial 
 system in its own likeness. A kindred obstacle lies in the great 
 difficulty of securing the surplus for war use in a society as intricate 
 and complicated as ours. One runs the risk of failing to secure a 
 surplus large enough to put an adequate army at the front and yet of 
 imposing upon certain groups of society burdens heavier than they 
 can bear and still retain their efficiency. In short, there may be much
 
 NATURE OF MODERN WAR 123 
 
 waste which might be converted into necessary war materials. From 
 this it is evident that the problem of securing the surplus is a strategic 
 one which ramifies throughout the industrial system and in its solution 
 calls for the co-operation of all the people of the country. 
 
 At this point an illustration may serve to point the nature of this 
 problem of strategy. It is now a commonplace that the army which 
 has the offensive is at an advantage, and that superior numbers of 
 men and materials give the chance for the offensive. Each of the 
 warring nations has been trying to get to the front as many men as 
 possible. To do this all of them have utilized the services of children, 
 the aged, the infirm, and the leisured in industry. Above all, they 
 have attempted to draw women into industrial occupations to release 
 men for the front. In this connection it may be remarked that at 
 present American women are just beginning to awaken to their part 
 in the strategy of the war surplus. For months they used a large 
 supply of labor in turning out a very small product by knitting for 
 the Red Cross. Of course this little was better than nothing. But 
 it cannot be remarked too often that a nation which uses the machine 
 system exclusively possesses an enormous advantage over one which 
 employs in considerable measure the technique of handicraft. 
 
 But the problem of securing an economic surplus large enough to 
 be effective leads to a second strategical problem of an economic 
 nature. The men and materials freed from the industrial tasks of 
 peace times are a fluid mass. The men have to be separated into 
 groups, such as infantry, aeroplane, munitions, etc., and these have 
 to be specialized for tasks which in the great art of war are comple- 
 mentary. And each of these larger groups has to be divided into a 
 myriad of subgroups. Likewise the materials have to be specialized 
 to particular services. This separation has to be carefully made and 
 the correlation carefully effected in view of a larger program of military 
 operations. It is manifest that this separation and correlation is a 
 problem in the organization of men and materials. 
 
 Complementary to this and conditioning it is the third problem 
 of the larger strategy, that of hurling it most efficiently upon the enemy 
 so as to secure the disorganization of armed resistance. This resolves 
 itself into the kindred problems of concentration. The object is to 
 concentrate one's effective strength and to cause the enemy to dissi- 
 pate his, or, more properly, to fall upon an enemy who has been forced 
 to dissipate his forces with a military establishment organized against 
 his weakest point. Such a problem involves conserving the economic
 
 124 ECONOMICS OF WAR 
 
 resources of men and materials and causing the enemy to waste as 
 many men and as- much of his limited materials as possible. To cite 
 an example, the object, or at least one of the objects, of the Gallipoli 
 campaign, was to cause a "diversion" of the resources of the Central 
 Empires from the Eastern and Western fronts. Italy's entrance into 
 the war was premised upon no expectation of being able immediately 
 to break the strength of Austria by crossing the Alps, but to weaken 
 the German lines on the Western front. And, in a way, the dissipation 
 of the resources of the Central Powers and their inability to strike a 
 conclusive blow was the chief result of Russia's participation in the 
 war. How the costs of these ventures compare with the results is a 
 question which does not now concern us. The point is that the object 
 is to cause the enemy to use as many men and materials as possible 
 by the expenditure of a minimum of energy on the part of the 
 aggressor. 
 
 Perhaps the clearest example of an attempt to force a great waste 
 of men and resources upon the enemy with little expenditure is the use 
 of the submarine by Germany. The casual reader, who has no 
 interest in the larger problems of strategy, has been taught by the 
 newspapers that the success of the submarine is to be measured by its 
 ability to bring the Allies to their knees by disorganizing their com- 
 munications and forcing starvation upon the people of England. 
 Those responsible for submarine activity doubtless had some thought 
 of such a happy outcome and would not be seriously disappointed in 
 such an event. But its success or failure is not to be appraised by so 
 obvious a method as its ability or disability to bring England to 
 terms. Its destruction of ships has added to the cost of carriage of 
 cargoes the cost of the ships destroyed as well as the cost of the 
 cargoes which have gone to the bottom. One can see also that if the 
 average ship makes twenty, or even forty or fifty, trips before it 
 goes to the bottom, the cost of carriage, which is in the last analysis 
 nothing else but labor and economic resources, has been multiplied 
 many fold because of submarine dangers. But to this must be added 
 the labor of men and materials embodied in convoys, destroyers, 
 mine-sweepers, aeroplane observation, and the development and 
 manufacture of the thousand and one devices which are used in sub- 
 marine chasing. In addition, the scarcity of ships interposes an 
 obstacle between the manufacture of munitions in America and their 
 use three thousand miles away. The small neck of the bottle inter- 
 feres in ways too subtle and too numerous to be mentioned here with
 
 NATURE OF MODERN WAR 125 
 
 the production of supplies in the proportions to each other which those 
 responsible for the military program deems necessary. What these 
 costs in the aggregate are, and what the items would be as an over- 
 head charge for the protection of shipping in any larger scheme of 
 national accountancy, is not definitely known and it would be idle to 
 try to compute it from the meager evidence at hand. But it is appar- 
 ent to any candid mind which wishes to face the facts, that the men 
 and materials required to meet the submarine menace are only a 
 fraction of those required to maintain it. In short, by the use of a 
 certain amount of limited resources Germany is able to force upon 
 her enemies the expenditure of many times that amount of resources. 
 Together, these problems the organization of men and materials 
 between necessary civilian production, war supplies, and the opera- 
 tions of the front, the apportionment of men and materials between 
 various military and semi-military demands, and the problem of 
 concentration of resources against an enemy dissipating his, constitute 
 the larger problem of strategy. Aspects of this problem are neces- 
 sarily antecedent to the military problem ; others are complementary 
 to it; but all are intimately associated with it, and the problem of 
 purely military strategy can be solved only in terms of, and in the 
 light of, the solution of the larger problem of the economic strategy 
 of war. 1 
 
 'An article by Lieutenant-Colonel Charles fa Court Repington in the 
 Atlantic Monthly for August, 1918, makes many pertinent suggestions as to the 
 relation of economics to military and political strategy. It is an answer, largely 
 in economic terms, to the contentions of M. Cheradame and others of the 
 "Eastern school" of strategists.
 
 IV 
 
 RESOURCES OF THE BELLIGERENTS 
 
 Introduction 
 
 A consideration of the question of the larger economic strategy 
 of war, which it was the purpose of the last chapter to raise, may 
 properly begin with an enumeration and comparison of the resources 
 of the various belligerent countries. These are the physical funds out 
 of which armies must be supplied with the vast array of equipment and 
 munitions which constitute the sinews of modern war. The aggregate 
 of these, too, is the maximum which limits the size of armament and 
 the effective participation of a nation in war. 
 
 The first economic asset or liability mentioned below is that of 
 geographical position. Perhaps in its strictest sense geography is to 
 be excluded from the list of economic factors in war. But indirectly 
 it is of great economic importance because of its influence upon the 
 effective utilization of material resources. The matter of favorable 
 geographical position permits the effective manipulation of men and 
 supplies with little waste. Proximity to the battle front means that 
 little of the limited resources of a nation are used in getting forces and 
 materials there, and most of them can be hurled directly upon the 
 enemy. On the contrary, distance means alike a drain and the waste 
 incident to a more complex organization back of the lines. It means 
 that a large part of the nation's productive energy is used up in 
 getting to the scene of action and that there is less to expend when 
 troops and supplies are there. In these and like ways geography is of 
 importance in its influence upon the organization of men and materials. 
 
 The next economic factor (asset or liability, according as it is 
 plentiful or scarce) is that of "industrial resources." More broadly 
 these include man power, technique, organization, etc. More 
 narrowly the term is limited to the raw materials out of which are 
 made the goods which the modern art of war requires. In particular 
 it includes coal, iron, steel, petroleum, cotton, lumber, and other staple 
 commodities. The technique of modern war, with its dependence 
 upon the machine process, requires in the largest quantities materials 
 
 126
 
 RESOURCES OF THE BELLIGERENTS 127 
 
 of which these are the raw elements. An enumeration and com- 
 parison of these is therefore of value in determining in relative terms 
 the economic strength of the several belligerents. 
 
 But this reckoning is not sufficient. It indicates a tremendous 
 advantage of the allied nations over the central empires, an advantage 
 which the course of the war has not made explicit. It remains to add 
 that these resources indicate only the limit of possible strength, not the 
 extent of effective participation. To be used they have to be con- 
 verted into the actual materials of war. This process is dependent 
 upon technique, industrial organization, a singleness of aim in govern- 
 mental control, national ideals, and the habits and customs of the 
 people. Largely because of its late adoption of the machine technique 
 by a government which subordinated the new industrial system to 
 military ends, Germany was able to utilize more effectively its 
 resources than were the Allies. In addition a scheme of individualism, 
 written into the institutions and habits of allied people, has seriously 
 interfered with the effective utilization for war of the productive 
 resources. 
 
 XI. The Value of Geographic Position 
 
 i. ASSETS AND LIABILITIES OF THE GERMANIC 1 
 POSITION 
 
 I. RELATIVE AREAS OF THE BELLIGERENTS 
 
 In attempting to appraise the significance of geography in relation 
 to the military power of the belligerents, it will be of interest to note 
 first the relative areas of the contending powers. At the outbreak 
 of the war the alignment of nations was Germany, Austria, and Turkey 
 against Great Britain, France, Belgium, and Russia. Exclusive of 
 Asiatic Turkey, Asiatic Russia, and colonies, the area of the Central 
 Powers was 461,203 square miles, and of the Entente 2,337,370 square 
 miles. In the year 1917 and the first half of 1918 (before America's 
 power could manifest itself) the geographic areas involved were as 
 follows: the Central Powers, including at this time Bulgaria, Servia, 
 Roumania, Belgium, and Poland, 634,249 square miles (this is exclu- 
 sive of the Ukraine and the North Baltic Russian provinces). The 
 area of the allied nations at this time (that is, the British Isles, France, 
 Italy, and Portugal) was 474,827 square miles. In this alignment we 
 are considering Russia as out of it, Japan as (practically) neutral, and 
 the United States as not yet effectively in. We are also excluding the 
 
 1 An editorial.
 
 128 ECONOMICS OF WAR 
 
 British and French colonial possessions because their great distance 
 and sparse population render a direct comparison of little value. As 
 an offset at this time against these colonial areas may be set down 
 Asiatic Turkey, 699,342 square miles, a considerable area of France 
 in the possession of Germany, and a relatively free hand for Germany 
 in a large portion of Russia. It need only be added that with the 
 United States involved the allied area is again in the ascendancy. 
 
 II. DISADVANTAGES OF THE GERMANIC POSITION 
 
 The chief disadvantage of the Teutonic position, as has often been 
 pointed out, lies in the necessity, imposed by its central Continental 
 location, of fighting on both fronts that is to say, this was a dis- 
 advantage so long as Russia was a serious contender. In the early 
 days of the war it was necessary for the Germans and Austrians to 
 plan and carry out two separate campaigns, and to co-ordinate them 
 as well as might be under the conditions imposed by geographic 
 factors. Should they strike France first with the hope of reaching 
 Paris before the vast hordes of Russia could be effectively mobilized ? 
 Should they strike both east and west simultaneously? Should they 
 endeavor first to crush Russia's military power and then turn their 
 entire strength upon France and take Paris at their leisure? The 
 world of course knows that the first of these two alternatives was 
 chosen. Everyone knows, also, that after failing to put the French 
 out of the conflict, the second alternative was resorted to. And 
 everyone knows that they eventually succeeded in breaking Russia. 
 The delays involved, however, must be set down as due not so much 
 to faulty strategy as to the inherent difficulties in waging war simul- 
 taneously on the two fronts, which became a necessity because of the 
 unexpectedly strong resistance on the west and the unexpectedly 
 rapid mobilization of Russia's forces in the east. 
 
 The second disadvantage of the position of the Central Powers 
 lies in their being partially subject to blockade. It should be borne 
 in mind in considering this disadvantage that in the early months of 
 the war all the Roumanian frontier was open, as well as the Adriatic 
 Sea from the Italian border as far as Cataro. Likewise the Swiss and 
 Italian frontiers were open for trading purposes. In addition to all 
 this, by virtue of Germany's control of the Baltic and the neutrality 
 of the Scandinavian countries and Holland, the gates were at least 
 partly open to trade with the whole Western world. Great Britain's 
 control of the sea was, nevertheless, a powerful factor, and Germany
 
 RESOURCES OF THE BELLIGERENTS I2Q 
 
 was undoubtedly seriously embarrassed in obtaining all the materials 
 required. It is equally true, however, that in the early months and 
 even years of the war the Allies were seriously embarrassed in their 
 relations with neutral countries in endeavoring to prevent cargoes 
 sent to such neutral countries from being transshipped to Germany. 
 While the British fleet could search vessels the cargoes of which might 
 reach the Central Powers through Gibraltar, the Straits of Dover, or 
 the North Sea, it could not directly prevent supplies reaching Germany 
 through Switzerland, Holland, Denmark, Roumania, Norway, and 
 Sweden. The Allies did not dare seriously to offend European 
 neutrals for fear that they might be drawn into the conflict on the side 
 of Germany, and they were particularly anxious to retain the good- 
 will of the United States, from which they received large supplies 
 and on which they counted eventually for direct military assistance. 
 It should be borne in mind in connection with the trade of the Euro- 
 pean neutrals that although supplies obviously designed for German 
 use might be seized as contraband, it was impossible to prevent 
 Germany from buying the same material after it was "made up" by 
 the neutrals. 1 During the first two years of the war, the imports from 
 all the neutral countries bordering on Germany, particularly those 
 from the United States, increased tremendously, in many instances 
 representing increases of 400 or 500 per cent. That these goods were 
 transshipped to Germany, either in raw or finished form, goes without 
 saying. 
 
 It is apparent from the foregoing that the Allies' blockade of 
 Germany in the early stages of the war was relatively ineffective. 
 Indeed it is a question whether the energy expended by the Allies 
 during the first months of the war in endeavoring to prevent importa- 
 tions to Germany was worth the effort save as a necessary prelimi- 
 nary to more effective control in the later stages of the war. It has 
 been suggested that the partial blockade that was effected, particu- 
 larly in relation to imports of materials used in the manufacture of 
 luxuries, proved a boomerang to the Allies. Mr. A. C. Miller, of the 
 Federal Reserve Board, states: 
 
 It is coming to be recognized by those who appreciate that this war 
 is an economic endurance contest that England's blockade of Germany has 
 been one of Germany's greatest aids in her financing of the war. It has 
 forced the most rigid sort of economy and through bringing the whole 
 
 1 It was not until the spring of 19*8 that the United States was able to reach 
 a satisfactory commercial agreement with Norway.
 
 130 ECONOMICS OF WAR 
 
 people appreciably nearer the point of starvation has led them to accept 
 the most drastic control of living that the world has ever seen. I have been 
 told upon trustworthy authority that when the policy of submarine warfare 
 against England was under discussion in Berlin, one of Germany's most 
 eminent strategists argued vigorously against it on the ground, not of its 
 violation of the established rules of international practice, but on the ground 
 that it would help England more than it would hurt her. "Keep the 
 submarine away from England's shores and England will eat herself into 
 bankruptcy quicker than the submarine can bring her to starvation. " 1 
 
 While other measures of enforcing the economies required by war 
 have been discovered which have rendered this prophecy false, it is 
 undoubtedly true that the curtailment of raw materials required 
 by Germany in the manufacture of luxuries was a great aid to the 
 rapid readjustments of industry in Germany to a war basis. ^ 
 
 In the later stages of the war the blockade of Germany has been 
 more effective, but with the collapse of Russia and the resulting 
 enormous gains of Germany in the east and the southeast this 
 geographic disadvantage is again somewhat minimized. 
 
 The third disadvantage that has been pointed out in connection 
 with the geographic position of the Central Powers relates more 
 directly to the military organization. The German armies before 
 the collapse of Russia held four corners of a rectangular sort of area: 
 Belgium in the northwest, Alsace-Lorraine in the southwest, East 
 Prussia in the northeast, and Silesia in the southeast. A fifth might 
 be added the Italian front. The breakdown of Russia has of course 
 eliminated one of these corners. If Germany is forced on the defen- 
 sive she must face the following dilemma: Shall one or more of the 
 regions be sacrificed, or shall there be a dispersion of forces in an 
 attempt to hold all corners at once with a possible resulting loss on 
 every side ? The areas separating these fronts are considerable, and 
 in spite of Germany's strategic railways it remains a serious handicap 
 when once her enemies are gaining the upper hand. The recent allied 
 victories in quick succession in Italy, Albania, and in the Soissons- 
 Chateau-Thierry-Rheims salient offer concrete evidence of this 
 geographic handicap. 
 
 III. ADVANTAGES OF THE GERMANIC POSITION 
 
 The Central Powers have possessed, however, one tremendous 
 geographic advantage. This is contiguity of territory and closely 
 
 1 In an address before the Western Economic Society and the City Club of 
 Chicago, June 22, 1917.
 
 RESOURCES OF THE BELLIGERENTS 131 
 
 connected means of communication. The distance from Berlin to 
 Vienna is a brief night's journey by express train, so that the war 
 strategists are in almost physical touch with one another. Moreover, 
 the lines of communication throughout the Central Empires, both 
 north and south and east and west, are so well developed that it is 
 possible to transfer troops from one front to another with a minimum 
 loss of time. It is not to be understood from this statement that the 
 handicap suggested in the previous paragraph is after all an advantage. 
 The foregoing discussion relates to the situation in which Germany 
 would find herself when strongly pressed by the enemy on every sector 
 at once. So long as the German armies are in the ascendancy, at 
 least on some of the important fronts, this compact geographical area 
 with through lines for rapid communication is a real advantage. For 
 instance, it was possible for the Germans to transfer troops from Russia 
 to the Italian front for the Italian drive in the autumn of 1917 within 
 a very few days by virtue of almost direct trunk line connections. 
 
 2. ASSETS AND LIABILITIES OF THE ALLIED POSITION 1 
 
 I. ADVANTAGES 
 
 The outstanding advantage in the geographic position of the 
 Allies is the location of France and England on the Atlantic and Italy 
 on the Mediterranean. This position, coupled with the great mer- 
 chant fleets and navies of the Allies, eventually made possible a 
 serious embarrassment of Germany through a curtailment of importa- 
 tions of basic raw materials'. Although this blockade has not suc- 
 ceeded in bringing Germany to her knees, it must still be borne in 
 mind that it has necessitated heroic measures on the part of the Central 
 Powers to make themselves economically self-sufficient measures 
 which have resulted, in many instances, in devoting their energies to 
 productive operations for which they are very poorly adapted. The 
 Allies, on the other hand, having control of the seas, have been able to 
 draw the materials needed from the regions of the earth which can 
 produce them most advantageously, paying for them meanwhile with 
 commodities produced by themselves under favorable productive 
 conditions. Better still, they have not always had to pay for them, 
 but have borrowed tremendous quantities of materials and supplies 
 to be paid for after the war is over. Germany, on the other hand, has 
 since the first year or so of the war been- required largely to produce 
 
 An editorial.
 
 132 ECONOMICS OF WAR 
 
 her own supplies within her own borders. Credit with outside nations, 
 owing partly to geographical factors, has been more and more a neg- 
 ligible part of the German war program. On the other hand, the 
 allied nations from the very beginning were assured of large imports of 
 supplies. It was unnecessary in consequence to effect so complete 
 a diversion of energy with resulting loss in productive efficiency as 
 was the case in the Central Powers. This was the situation, however, 
 only so long as there was an important neutral world remaining. 
 With the United States an active participant in the conflict, the Allies 
 as a whole have found it necessary to devote their energies, as largely 
 as possible to the production of war supplies. It still remains 
 possible, however, by virtue of England's control of the seas, to 
 maintain an extensive interallied division of labor with resulting 
 productive economies. 
 
 Another geographic advantage possessed by England arises from 
 the fact that her island position, protected by a great navy, renders 
 her great resources of iron and coal immune from seizure by the enemy. 
 So long as England is free from invasion and so long as man-power and 
 woman-power remain for the working of her great manufactures of iron 
 and steel, England cannot be forced out of the war for want of the 
 munitions that are indispensable for modern warfare. As we shall 
 later see, France is in an entirely different position in this respect. 
 
 II. DISADVANTAGES 
 
 In the first stage of the war the most outstanding disadvantage 
 of the allied position was the geographic isolation of Russia. The 
 Central Powers as a united organization had to meet France on the 
 one front and Russia on the other disunited and uncorrelated allied 
 armies. Physical unification of armies was of course impossible, and 
 the communication of intelligence between the Russian and French 
 commands was slow and uncertain. One might almost say that it 
 was non-existent in comparison with the personal and continuous 
 contact possessed by the German and Austrian general staffs. As a 
 result of the geographic position of Russia it was impossible for either 
 side quickly to rearrange its plan of campaign as a result of changes 
 in their respective positions. Another geographic handicap of the 
 Allies, as relating to Russia, is that the only Russian outlets to the sea 
 were via: (i) the Arctic port of Archangel, which is open little more 
 than half the year and separated from the scene of military operations 
 by hundreds of miles of waste and deserted country, with only one
 
 RESOURCES OF THE BELLIGERENTS 133 
 
 narrow-gauge line of railroad with inadequate rolling stock to bridge 
 this territorial gap; and (2) Vladivostok on the Pacific, connected 
 with the scene of operations in the west by a single line of railway six 
 thousand miles long. 
 
 France possessed two marked geographic handicaps. The first is 
 that of an open frontier toward Germany. There are no geographic 
 barriers to prevent an open attack from the east, and in consequence 
 France had been compelled to fortify the entire frontier facing 
 Germany with a line of forts extending from Verdun to Belfort. For 
 200 miles to the north of this, however, that is, from Verdun to the 
 North Sea, there was virtually undefended territory undefended by 
 either geographic barrier or military forts, except for the Belgian 
 fortresses. 
 
 The second great geographic handicap of France lies in the fact 
 that her deposits of coal and iron are near the German frontier. 
 Germany's prompt advance into French territory thus struck France 
 a vital blow, for without resources of coal and iron no nation can wage 
 effective modern warfare. So long as France could rely upon accu- 
 mulated stores, the German occupation of the French industrial region 
 was of small account. But as soon as the war entered upon its second 
 stage, where the munitions for the armies had to be supplied from day 
 to day through new production, this became the most serious factor 
 in the French situation. It necessitated the importation, at enormous 
 cost, of great quantities of munitions and it required also, the develop- 
 ment at great expense of new industrial regions in France, noticeably 
 in the southeast. 1 
 
 England's first handicap lies in her island position. From one 
 point of view, as we have seen, this is an advantage, for it necessitated 
 the development of a great navy and merchant marine with the control 
 of the trade routes of the world. But from another point of view this 
 is a serious disadvantage. Her long-established insular security had 
 resulted in a policy that made it possible for her to supply an expe- 
 ditionary army at the beginning of the war equivalent only to about 
 one-thirtieth of the allied forces. In addition, England's control of 
 the trade routes of the world, coupled with her great navy, required 
 the utilization of a relatively large portion of her man-power. It is 
 a question inde.ed whether the diversion of man-power from direct 
 participation in the war occasioned by England's insular position 
 
 1 Cf. selection XVIII, i.
 
 134 ECONOMICS OF WAR 
 
 does not substantially offset the advantages which England is 
 regarded as possessing as a result of her control of shipping. 1 
 
 Another geographic handicap of England consists in her scattered 
 interests. England has had to maintain a home guard, forces hi 
 France, Saloniki, Egypt, and Mesopotamia. To occupy these 
 outlying regions has doubtless cost England more in dissipation of 
 forces than she has been able to gain from the assistance rendered by 
 her colonies. It is significant to note in this connection that England's 
 maximum force in France has been estimated at not more than two 
 million men. 
 
 The outstanding geographic disadvantage of the United States is 
 of course her cis-Atlantic location. This is a disadvantage from two 
 points of view. First, the rank and file of the people of this country 
 have never been able to grasp the real nature of the struggle from the 
 mere fact that it is three thousand miles away. This statement 
 applies not merely to the period of our neutrality but it has been true 
 until at least very recent weeks. Nearness to the awful carnage 
 appears to be indispensable to a genuine appreciation of its grim 
 requirements. 
 
 Second, the geographic position of the United States renders our 
 entire task of industrial and military mobilization dependent upon 
 shipping. The great army which we are sending and the vast stores 
 of supplies and munitions must all pass through a narrow-necked 
 bottle, as it were, before they can be hurled at the enemy. When 
 this is contrasted with the strategic railway net possessed by Germany, 
 leading to frontiers which are at best distant but a short day's journey, 
 our handicap is seen to be almost incalculable. 
 
 
 
 1 See in this connection selection X, p. 123.
 
 XII. The Industrial Resources of the Belligerents 
 i. LOCATION OF EUROPEAN ORE AND COAL DEPOSITS
 
 RESOURCES AND PRODUCTION OF BASIC RAW 
 MATERIALS 
 
 COAL PRODUCTION IN 1913 IN TONS OF 2,000 POUNDS 
 The figures are from Mineral Industry (1915), p. 118 
 
 J9 
 
 COAL RESOURCES IN 1913 IN METRIC TONS 
 
 The figures are from "Coal Resources of the World," International 
 Geological Congress, XII (1913), xx-xxvii 
 
 a
 
 RESOURCES OF THE BELLIGERENTS 
 
 137 
 
 PIG-IRON PRODUCTION IN 1913 IN TONS OF 2,240 POUNDS 
 The figures are from Mineral Industry (1916), p. 414 
 
 IRON PRODUCTION IN 1911 IN METRIC TONS 
 The figures are from Whitaker's Almanac (1915) 
 
 
 
 3 
 
 3
 
 STEEL PRODUCTION IN 1913 IN METRIC TONS 
 The figures are from Mineral Industry (1916), p. 4H 
 
 KS 
 
 o 
 
 ca 
 
 IRON RESOURCES IN 1913 IN METRIC TONS 
 
 The figures are from "Iron Ore Resources of the World," International 
 
 Geological Congress, XI (1910), xri-lxxix. The figures are those 
 
 of iron contents in the ore
 
 RESOURCES OF THE BELLIGERENTS 
 
 139 
 
 COPPER PRODUCTION IN, 1913 IN METRIC TONS 
 The figures are from Mineral Industry (1915), p. 133 
 
 PETROLEUM PRODUCTION IN 1913 IN 42-GALLON BARRELS 
 The figures are from Mineral Industry (1915), p. 54 
 
 &
 
 TIMBER LANDS IN 1908 IN ACRES 
 The figures are from the Harmsworth Atlas, p. 20 
 
 
 TIMBER PRODUCTION IN 1908 IN FEET, B.M. 
 The figures are from the Harmsworth Atlas, p. 20
 
 RESOURCES OF THE BELLIGERENTS 
 
 141 
 
 
 COTTON PRODUCTION IN 1915 IN BALES OF 500 POUNDS 
 
 
 The figures are from the American Whitaker (1915), p. 180 
 
 B 
 
 ./ ; !> :;-,,. ;;; ; ; ' ;:,;; ._;/; 
 
 1 
 
 8 Si 
 
 1 
 
 o 8 
 
 c 
 
 p 
 
 1 I I 1 '"' 1 
 
 "S. " " .c 
 
 
 S 03 03 
 
 w 
 
 ^ CJ 
 
 
 
 3. RAILWAY MILEAGE 
 
 II 
 
 o 1 
 
 RAILROADS IN 1913 IN MILES 
 The figures are from the World Almanac (1914), p. 212
 
 142 
 
 ECONOMICS OF WAR 
 
 XIII. Some Economic Assets of Germany 
 
 
 
 i. GERMANY'S RESOURCES IN COAL AND IRON 1 
 
 The industrial development of our time rests upon those two 
 mighty pillars, coal and iron. Germany is one of the lands which 
 nature has richly endowed with these two primary materials of 
 industry. Germany also possesses considerable supplies of other 
 important minerals, especially salts, and zinc, lead, and copper ores. 
 In recent generations we have learned how to recover these minerals 
 and to utilise them more and more perfectly. During the past twenty- 
 five years the value of the direct products of German mining (coal, 
 ores, salts) has increased from about 700,000,000 marks to con- 
 siderably more than 2,000,000,000 marks. Coal mining alone showed 
 the following development: 
 
 
 COAL 
 
 LIGNITE 
 
 TOTAL COAL PRODUCTION 
 
 Average 
 Number 
 of Miners 
 
 Production 
 
 Average 
 Number 
 of 
 Miners 
 
 Production 
 
 Average 
 Number 
 of Miners 
 
 Production 
 
 Amount, 
 Million 
 Tons 
 
 Value, 
 Million 
 Mark? 
 
 Amount, 
 Million 
 Tons 
 
 Value, 
 Million 
 Marks 
 
 Amount, 
 Million 
 Tons 
 
 Value, 
 Million 
 Marks 
 
 1887 
 
 217,357 
 628,307 
 
 60.3 
 160.7 
 
 311.1 
 1,572.6 
 
 29,408 
 72,567 
 
 IS 9 
 
 73-8 
 
 40.2 
 183.5 
 
 246,765 
 700,874 
 
 76.2 
 234-5 
 
 351-3 
 1,756.1 
 
 IQII . . 
 
 Increase 
 Percentage of 
 increase. . . 
 
 410,950 
 189.1 
 
 100.4 
 166.5 
 
 1,261.5 
 405.5 
 
 43,159 
 146.8 
 
 57-9 
 364-1 
 
 143-3 
 356.5 
 
 454,109 
 184.0 
 
 IS8.3 
 207.7 
 
 i ,404 . 8 
 399-9 
 
 The year 1912 showed still further progress. The production 
 of coal rose to 259,400,000 tons (177,100,000 tons of pit coal 
 and 82,300,000 tons of lignite). Germany's coal production has 
 accordingly been increased threefold during the past twenty-five 
 years. 
 
 1 By Karl Helfferich. Adapted from Germany's Economic Progress and 
 National Wealth, 1888-1913 (Berlin, 1913), pp. 60-64. 
 
 ED. NOTE. Dr. Helfferich was formerly director of the Deutsche Bank and 
 was Minister of Finance of Prussia in 1915. In 1916 he was made Director of 
 the Home Office, in which capacity he is a dictator whose authority is supreme 
 over the domestic economy of Germany. He prescribes the fashions as well as 
 the diet of German civilian life.
 
 RESOURCES OF THE BELLIGERENTS 143 
 
 Among producing countries Germany occupies the third place, 
 after the United States and England, as shown by the following 
 table: 
 
 Countries 
 
 Coal Production (Including 
 Lignite) in 1,000,000 Tons 
 
 Percentage of 
 Increase 
 
 1886 
 
 1911 
 
 United States 
 
 103.1 
 160.0 
 73-7 
 
 20.8 
 
 19.9 
 17-3 
 
 450.2 
 276.2 
 
 234-5 
 49.2 
 
 39-3 
 23.1 
 
 336.6 
 72.6 
 218.1 
 
 136.5 
 97.5 
 
 33-5 
 
 Great Britain and Ireland 
 
 Germany 
 
 Austro-Hungary 
 
 France 
 
 Belgium 
 
 
 The United States, which still occupied the second position in 
 1886, is now far in the lead. But Germany has now nearly overtaken 
 England, which occupied the first position twenty-five years ago with 
 a production more than twice as great as ours. In the year 1912 
 Germany's coal production was 259,400,000 tons, and that of Great 
 Britain and Ireland 264,700,000 tons (preliminary figures). The 
 reduction of the output in England was in part due, however, to the 
 strike of coal miners in that year. 
 
 About one-fifth of the total coal production of the world today 
 falls to Germany. 
 
 The expansion of the iron industry has been not less remark- 
 able. The production of iron ores within the German customs 
 union (including Luxemburg) amounted in the year 1887 to 
 10,664,000 tons, in the year 1911 to 29,879,000 tons, or a threefold 
 increase. 
 
 Nevertheless our home production of ores was not nearly enough 
 to supply the requirements of our furnaces, and they had to be sup- 
 plemented by a steadily increasing import of foreign ores, as the 
 following table shows: 
 
 
 IMPORTS 
 
 EXPORTS 
 
 EXCT 
 
 SS OF 
 
 
 i ,000 TONS 
 
 i ,000 TONS 
 
 Exports 
 
 Imports 
 
 1887 . 
 
 1,036 2 
 
 1,744.6 
 
 708.4 
 
 
 IOI2 
 
 I2,I2O. I 
 
 2.3O9.6 
 
 
 9,810.5 
 
 
 
 

 
 144 
 
 ECONOMICS OF WAR 
 
 The production of pig iron developed as shown by the next 
 table: 
 
 
 FURNACES IN 
 OPERATION 
 
 AVERAGE 
 NUMBER OF 
 WORKMEN 
 EMPLOYED 
 
 RAW 
 
 MATERIALS 
 SMELTED 
 i ,000 TONS 
 
 TOTAL PRODUCTION OF 
 PIG IRON 
 
 i ,000 Tons 
 
 MillionMarks 
 
 1887 
 
 212 
 
 313 
 45-6 
 
 21,432 
 47,546 
 
 121. 5 
 
 12,057 
 45,068 
 
 273.8 
 
 4,024 
 15,574* 
 
 287.0 
 
 166.4 
 867.9 
 
 421 .6 
 
 igil 
 
 Percentage of In- 
 crease 
 
 
 * The production of pig iron in 1912 was 17,853,000 tons. 
 
 The production of pig iron in Germany during the past 
 quarter of a century has accordingly been increased more than 
 fourfold. 
 
 Germany now occupies the second place among producing 
 countries, as shown by the following table: 
 
 PIG-IRON PRODUCTION (IN 1,000 TONS) 
 
 Countries 
 
 1887 
 
 IQII 
 
 Percentage of 
 Increase 
 
 United States 
 
 6,<?2O 
 
 24,028 
 
 ^68 ? 
 
 Germany 
 
 4,024 
 
 15,574 
 
 387.0 
 
 Great Britain and Ireland 
 
 7,681 
 
 IO.O33 
 
 ^o 6 
 
 France 
 
 1,568 
 
 4,411 
 
 281. * 
 
 Russia 
 
 612 
 
 3, 588 
 
 486.? 
 
 Belgium 
 
 7?6 
 
 2,106 
 
 178 6 
 
 
 
 
 
 Here, too, the United States, by reason of her enormous deposits 
 of ores, is far in advance of other countries. 
 
 Germany, whose production twenty-five years ago was only a 
 little more than half that of the United Kingdom, which then occupied 
 the first position, had a production of more than 10,000,000 tons 
 of pig iron in the year 1903 and thereby exceeded England's pro- 
 duction for the first time; but since that time the German production 
 has increased to more than 15,800,000 tons in 1911 and 17,000,000 
 tons in 1912, whereas England's production has remained at about 
 10,000,000 tons. 
 
 The world's production of pig iron now amounts to about 75,000,- 
 ooo tons, of which about one-fourth falls to Germany.
 
 RESOURCES OF THE BELLIGERENTS 
 
 145 
 
 The next table gives a view of steel production in the most 
 important countries: 
 
 STEEL PRODUCTION (IN 1,000 TONS) 
 
 Countries 
 
 1886 
 
 IQIO 
 
 Percentage of 
 Increase 
 
 United States 
 
 2 6oA A. 
 
 26 CI2 A 
 
 OIO 1 
 
 Germany 
 
 QZA. 6 
 
 13 698 6* 
 
 i lie o 
 
 Great Britain 
 
 2.4.O3 . 2 
 
 6,106.8 
 
 I fA I 
 
 France 
 
 427 6 
 
 3.3QO 3 
 
 602 o 
 
 Russia 
 
 241.8 
 
 2,3 i ;o o 
 
 871 2 
 
 Belgium 
 
 1 64..O 
 
 1,4-40 ^ 
 
 78l 6 
 
 
 
 
 
 *In the year 1912 Germany's steel production was 15.019,300 tons. 
 
 2. UTILIZATION OF POWER IN GERMANY 1 
 
 To what extent the use of steam power has increased in Germany 
 during the past quarter of a century and this despite the fact that 
 other kinds of power came more and more into competition with 
 steam is illustrated by the following figures: In Prussia's industries 
 the capacity of steam-engines amounted in 1882 to 222,000 horse- 
 power, in 1895 to 2,385,000 horse-power, and in 1907 to 5,190,000 
 horse-power. In these twenty-five years, therefore, the capacity 
 increased more than fourfold, and in the twelve years from 1895 to 
 1907 it was more than doubled. In the whole Empire, for which 
 comparative figures are available only since 1895, the development 
 was similar. In the year 1907 the census showed 124,000 steam- 
 engines with a capacity of 7,587,000 maximum horse-power, or 5,185,- 
 ooo effective horse-power. What these figures mean becomes clearer 
 when we compare mechanical and human capacity for work. The 
 effective capacity of one mechanical horse-power can be placed at 
 about the equivalent of the physical labour capacity of ten men. 
 Upon this basis the actual work done by German steam-engines in 
 the year 1907 was equivalent to the work done by 52,000,000 men; 
 and the increase of actually effective steam horse-power from 1895 
 to 1907 was equivalent to an increase of the working population by 
 about 28,000,000 men. These figures should be placed in juxta- 
 position to those of the working population of the German Empire 
 which showed for the year 1895 18,900,000 persons and 24,600,000 
 
 1 By Karl Helfferich (see p. 142). Adapted from Germany's Economic Progress 
 and National Wealth, 1888-1913 (Berlin, 1913), pp. 22-28.
 
 146 ECONOMICS OF WAR 
 
 for 1908. In the year 1895 there was, accordingly, for each person 
 engaged in labour not much more than one equivalent of his labour 
 represented by steam power. But whereas the labouring population 
 increased from 1895 to 1907 by 5,700,000 persons, the steam-engines 
 of Germany underwent an increase of 2,800,000 horse-power; hence 
 the steam power in 1907 represented more than two equivalents of 
 human labour for each person employed in gainful occupations. 
 
 In reality the increase of mechanical labour power was even 
 considerably greater than finds expression in the above figures; for 
 whereas steam was along with water power, which was relatively 
 little developed almost the exclusive source of power for motor 
 purposes till into the last quarter of the nineteenth century, the 
 development of the electrical industry and the invention and improve- 
 ment of explosive motors has, during the twenty-five years under 
 consideration, raised up a new and rapidly developing competitor 
 for steam power. 
 
 The electric current, from which the transformation of motor 
 technique during the past quarter of a century proceeded, found 
 application at first and for a long time only in weak-current dynamics. 
 The beginning was made with the invention of the electric telegraph 
 in the third decade of the nineteenth century; it was not followed 
 till three decades later by the invention of the telephone. 
 
 The application of electricity in strong-current dynamics, which 
 has produced in recent decades a complete revolution in power and 
 labour-saving machinery, had its origin in the invention of the 
 dynamo machine and in the solution of the problem of power transmis- 
 sion immediately connected with that invention. The enormous 
 advantages in the use of electrical energy depend upon power trans- 
 mission, which makes it possible to utilise sources of power which, 
 where nature placed them, had hitherto been economically worth- 
 less; furthermore it lies in the almost unlimited divisibility, in 
 an economically rational manner, of the power generated at a 
 central point, and in its distribution to any place in any amounts 
 desired. 
 
 Water power, especially, assumed a new importance alongside of 
 the steam-engine as a source of energy. Water power must therefore 
 be converted on the spot into energy that can be economically utilised; 
 and there has only been a possibility of doing this at a distance from 
 the water power itself, since energy has become transportable in the 
 form of the electric current.
 
 RESOURCES OF THE BELLIGERENTS 147 
 
 The transmission of electricity, moreover, has rendered it possible 
 to make an intense use of fuel which previously could not be used at 
 all, or only slightly so. That is especially true of low-grade fuels, 
 which would not pay the expense of long transportation, but can be 
 burnt at the place of origin for generating steam, now that it is possible 
 to transmit to great distances at little cost the energy thus generated. 
 
 But above all, the possibility of transmitting electrical power has 
 shown extraordinary results in connection with the development of 
 the gas-engine. By means of gas-motors the gas produced in making 
 coke, which was at first used only for illuminating purposes, was also 
 made available for generating power. The gas-motor next made it 
 possible to convert other gases of slight heating value, like the gases 
 escaping from blast furnaces, into energy in a rational manner. Dur- 
 ing the decade just elapsed the use of large gas-engines in iron-works 
 made enormous progress. 
 
 A new field for the big gas-engine has just begun to be opened 
 within a very few years through the invention of a practical process 
 for gasifying peat, lignite, etc. The gases thus produced are trans- 
 formed into electrical energy, which is distributed through district 
 stations. Ammonia, as a valuable by-product, is saved in converting 
 peat into gas. Through this latest progress a new power-source of 
 enormous extent has been opened, especially in the broad moors of 
 Germany, the utilisation of which is today still in its most incipient 
 stage. This source of energy is all the more important since the 
 working-up of the peat transforms at the same time into arable land 
 the moor areas, which have hitherto been almost worthless. 
 
 While the development of the big gas-engine, in which Germany 
 is far ahead of all other countries, is immediately connected with 
 electricity, the invention and perfection of other combustion-motors, 
 also an achievement of the most recent years, have been independent 
 of any such connection. This has been the case particularly with 
 small motors for automobiles and airships, which have hitherto used 
 benzine almost exclusively as fuel. The recent effort to replace 
 benzine by benzol and other products of coal tar are promising. A 
 new outlook is opened by the Diesel motor, which, in place of high- 
 priced benzine, uses cheap crude oil as fuel, besides tar-oil and recently 
 even coal-tar directly. 
 
 This brief survey may suffice to show to what extent hitherto 
 unused natural sources of power have been pressed into the service 
 of humanity in the course of the past twenty-five years. It is evident
 
 148 ECONOMICS OF WAR 
 
 that this enormous abundance of newly-created motor power must 
 inaugurate a new epoch in the development of machinery. 
 
 3. CORRELATED INDUSTRIAL PROCESSES 1 
 
 One of the most important elements in the maintenance of the 
 collective German industry under the present conditions is the fact 
 that no indispensable intermediate link is missing in the large processes 
 of production. Germany produces herself all her half-finished goods, 
 and she utilizes the residuary products of her industrial processes for 
 the manufacture of valuable auxiliary commodities with such financial 
 results that no other industrial nation in the world even approaches 
 her in this respect. What these auxiliary products mean to Germany 
 at present is more especially demonstrated by sulphate of ammonia 
 and benzol. How much the want of important links in production 
 can harm a country in her industrial processes is demonstrated in 
 England, where the inadequate development of many auxiliary and 
 vital industries has almost crippled some of the country's chief lines 
 of manufacture. Thus the stoppage of the German dyestuff import, 
 which, in money, represents only about a million sterling, threatens 
 the English textile industry, the English wall-paper industry, and 
 many other branches, with a turnover of many millions. In the same 
 way the absence of cheap German half-finished goods has deprived 
 the English iron industry of an important intermediate link. Further, 
 the stoppage of mining timber has gravely inconvenienced the 
 collieries. 
 
 Industrially the long-established and growing British principle of 
 producing entirely finished goods and importing the raw and inter- 
 mediate products of great industries has proved inferior to the 
 German method in time of war. This latter aims at a complete 
 organization of an entire manufacturing process in comprehensive 
 works, which, separately or together, cover the entire series of opera- 
 tions needed. The industrial expansion of Germany, although it is 
 much younger than that of England, has been laid out on more 
 systematic lines and in such a way as to render the country more 
 independent of foreign aid. Under the difficult and strenuous 
 conditions of war it has demonstrated the extreme value of system and 
 method and the advantages which they confer on a nation when it is 
 cut off from the lands from which it draws its raw materials. 
 
 1 Adapted from "German System and Method," Scientific American Supple- 
 ment (March 6, 1915), p. 155.
 
 RESOURCES OF THE BELLIGERENTS 149 
 
 4. GERMANY'S STRATEGIC RAILWAYS 
 A. IN GENERAL 1 
 
 The Army and Navy Journal, April 10, 1915, quotes from the result 
 of a survey by a Dutch General of the development of the German 
 railway system from a military point of view since the Franco- 
 Prussian War. As early as 1870-71 there were at the disposal of 
 the German military authorities all together 7 railroad lines in North 
 Germany and 3 in South Germany. Only one, that from Berlin to 
 Cologne, had double track. Yet with these facilities it was possible 
 to convey 16 army corps, an aggregate of 450,000 men, to the frontier 
 in 1 1 days. Since then military authorities have never ceased in the 
 development of the railway system on a strategical basis. The results 
 are striking. Germany now has 12 double- track railways lying 
 between Osnabriick on the north and Ulm on the south, 125 miles 
 east of the Rhine. Every army corps normally garrisoned east of this 
 district has a double-track railway at its disposal. The same facilities 
 were also available for the reserve army corps formed at the time of 
 mobilization. 
 
 No less than 18 double-line bridges were, at the time of the begin- 
 ning of the war, provided for the crossing of the Rhine. Eight to ten 
 cavalry divisions can be conveyed from the Rhine westward simul- 
 taneously with the army corps above referred to. Four brigades with 
 the requisite contingent of cavalry and artillery require 96 trains. 
 All of this number of trains could be dispatched in the same general 
 direction in 12 hours. Is was thus possible in August, 1914, to effect 
 the whole transport to the western frontier in about 20 hours. The 
 transport of these troops began on the second day of mobilization, 
 August 3, in the evening. It was completed at noon on August 4. 
 During the night the frontier was passed. Liege was assaulted on 
 August 5 and 6. 
 
 For the transportation of troops from the western to the eastern 
 front 6 double-track railways were available. The distance from 
 Maubeuge on the west to Konigsberg, just short of the Russian frontier 
 on the northeast, is 994 miles. A military train ordinarily makes 
 about 250 miles in 24 hours. The journey, then, occupied about four 
 
 1 By William L. Park. Adapted from Railways as a Part of a System of 
 National Defense, pp. 5-6. 
 
 An address delivered before the International Association of Railway Special 
 Agents and Police, at New Orleans, La., May 25, 1916.
 
 150 ECONOMICS OF WAR 
 
 days. For the transport of 6 army corps of 40,000 men each, a week 
 was generally allowed. The transportation of this number of men 
 required 124 trains and two or three days were consumed in the 
 necessary preparation. 
 
 The limited amount of double trackage in this country would 
 make impossible any similar movements, except in a few sections of 
 the country, for distances which, though absolutely as great as can 
 be made within the whole German Empire, would be comparatively 
 small when the extent of this country is considered. Double trackage 
 alone, however, would not have been sufficient to make the movement 
 possible. The sufficiency of trackage is only one item. Its provision 
 and the entire equipment and organization for its operation, even to a 
 knowledge of what orders would be given under any set of circum- 
 stances, have been a subject of expert study and preparation there 
 for 40 years. 
 
 B. IN PARTICULAR 1 
 
 In the southwest corner of Prussia is a rectangular piece of 
 territory the western and eastern sides of which are formed respec- 
 tively by the Belgian and Luxemburg frontiers and the river Rhine. 
 This territory includes about 3,600 square miles and supports a 
 population, including the great centres of Cologne, Coblence, Aix-la- 
 Chapelle, and Treves, of nearly 1,000,000 souls. In other words, it 
 is an area about half as large as New Jersey, if we omit that state's 
 water surface, and just about as thickly populated. 
 
 Five years ago this little corner of Prussia had about 15 .10 miles 
 of railway to every 100 square miles of territory, and New Jersey 
 30 . 23. In five years the Prussian territory has increased her railway 
 mileage to 28.30, and New Jersey to a little less than 30.25. 
 
 Five years ago, in the Prussian territory, the only double lines 
 existing were those from Cologne to Treves, from Coblence to Treves, 
 and the two double lines, one on each side of the Rhine, from Cologne 
 to Coblence, thus forming the three sides of a triangle. There was 
 also the double track running from Cologne to Aix-la-Chapelle. 
 These double lines were fed as commerce required, by only two sets 
 of single-track lines, all amounting to a little less than 550 miles of 
 
 'By Walter Littlefield. Adapted from "Germany's Strategic Railways," 
 published in Current History, I (1914-1915), 1001-4. Copyright by the New York 
 Times Co., New York. 
 
 ED. NOTE. Walter Littlefield (1867 ) is a well-known author and journalist 
 of New York.
 
 RESOURCES OF THE BELLIGERENTS 151 
 
 traction a very fair service, considering the products of the country 
 covered. 
 
 In the five years, without any apparent industrial and commercial 
 demand for it, this traction has been increased to nearly twice its 
 length, or to about 1,020 miles. Villages like Dumpelfeld, Ahrdorf, 
 Hillesheim, Pronsfeld, and the one health resort of Gerolstein, of 
 comic opera fame, all of less than 1,300 inhabitants, have been linked 
 up by double-track lines with towns like Remagen, St. Vith, -and 
 Andernach, whose populations range from 1,500 to 9,000. 
 
 Five lines converge on Pelm: the double line from Cologne, the 
 new double line from Remagen via Hillesheim, and the single line 
 from Andernach. Pelm is 2f miles from Gerolstein, and yet over 
 this short distance between the two villages there are laid down six 
 parallel lines of rail, besides numerous additional sidings. Moreover 
 the double line from Hillesheim to Junkerath crosses over the main 
 Cologne-Treves line by a bridge, and runs parallel to it for some 
 distance before turning off to the left to reach Weiwertz. 
 
 In fact, the knot of lines around Junkerath, Pelm, and Gerolstein 
 is a marvel of construction for heavy, rapid transit, for no congestion 
 would arise in a case of a sudden flood of traffic going in various 
 directions, and to secure still more freedom the line from Gerolstein 
 to Pronsfeld has been doubled. 
 
 Few of these lines, it is to be noted, cross the frontier. Three 
 of them as late as last May led to blind terminals within less than a 
 day's march from it the double line from Cologne via Stolberg to 
 Weiwertz, the double line from Cologne via Junkerath and Weiwertz 
 to St. Vith, and the double line from Remagen via Hillesheim and 
 Pelm to Pronsfeld. 
 
 The cost of the whole system, with its numerous bridges and 
 multiple sidings, must have been enormous. The German average 
 of $108,500 to the mile would hardly cover it. 
 
 Here is what a traveler saw when he visited this corner of Prussia 
 in May, 1914: 
 
 The traveler is as much struck by the significance of the ordinary 
 traffic along these lines as he is by the huge embankments and cuttings 
 on which nothing has yet had time to grow, and by the inordinate extent 
 and number of the sidings to be seen everywhere. Baby trains, consisting 
 of a locomotive and four short cars, dodder along two or three times a day, 
 and if a freight train happens to be encountered, it will be found to be 
 loaded with railway plant.
 
 152 ECONOMICS OF WAR 
 
 Another point that is noticeable is that provision exists everywhere at 
 these new junctions and extensions for avoiding an up-line crossing a 
 down-line on the level. The up-line is carried over the down-line by a 
 bridge, involving long embankments on both sides and great expense, but 
 enormously simplifying traffic problems when it comes to a question of 
 full troop trains pushing through at the rate of one every quarter of an 
 hour, and the empty cars returning eastward at the same rate. 
 
 The detraining stations are of sufficient length to accommodate the 
 longest troop train (ten cars) easily, and they generally have at least four 
 sidings, apart from the through up and down lines. Moreover, at almost 
 every station there are two lines of siding long enough for troop trains, so 
 that they can be used to some extent as detraining stations, and so that a 
 couple of troop trains can be held up at any time while traffic continues 
 uninterrupted. 
 
 5. GERMAN DISCIPLINE 1 
 
 In socialized Germany the state owns railroads, canals, river 
 transportation, harbors, telegraphs, and telephones. Banks, insur- 
 ance, pawnshops, are conducted by the state. Municipalities are 
 landlords of vast estates; they are capitalists owning street-car lines, 
 gas plants, electric-light plants, theatres, markets, warehouses. 
 The cities conduct hospitals for the sick, shelters for the homeless, 
 soup-houses for the hungry, asylums for the weak and unfortunate, 
 nurseries for the babies, homes for the aged, and cemeteries for the 
 dead. 
 
 Add to this the vast and complex system of state education, a 
 system of training that aims at livelihood. Nothing like the perfec- 
 tion, the drill; and the earnest, unsmiling efficiency of these elementary 
 and trade schools exists anywhere else in the world. In 1907 there 
 were 9,000,000 children in the elementary schools, taught by 150,000 
 teachers, nearly all masters, as the " school ma'am" does not flourish 
 in the Kaiser's realm. Every one of these pupils is headed for a 
 bread-and-butter niche in this land of super-orderliness. And more 
 than 300,000 persons are employed by the state in some form of 
 educational work, training the youth into adeptness, in all sorts of 
 schools. 
 
 The army, as well as the school, brings home to every German 
 family the fact that the state is watchful and jealous. It demands 
 
 1 By Samuel P. Orth. Adapted from an article in The World's Work, XXVI, 
 315-21. Copyright 1912. 
 
 ED. NOTE. Samuel P. Orth (1873 ) is professor of political science in Cornell 
 University. He is the author of many books on political and social questions.
 
 RESOURCES OF THE BELLIGERENTS 153 
 
 that two full years of every young man be "socialized"; and the 
 peasant woman and the artisan's wife must contribute her toil to the 
 toll that the vast system of state discipline demands. 
 
 Even the church, that form of organized social effort which is 
 everywhere first to break away from the regimen of the state, remains 
 "established." So I might continue through almost every activity 
 the vast system of state railroads, mines, shipyards and include 
 even art and music. 
 
 This socialized Germany is also an industrialized Germany. 
 Everyone knows how cleverly advertised are German goods. But it 
 is always well to remember that this race of traders and manufacturers 
 has somehow, in one generation, come from a race of solid scholars, 
 patient artisans, and frugal peasants. The old Germany has dis- 
 appeared; the Germany of the spectacles, the shabby coat, and the 
 book; the Germany of Heidelberg and Weimar. A new order has 
 taken its place. As you ride in the great express from Cologne to 
 Berlin you never are out of sight of clusters of tall, smoking chimneys. 
 Symbolic of the new Germany are the Deutsche Bank, the trade of 
 Hamburg, and the steel works of Essen. 
 
 Now, how has it been possible to make this transformation? 
 To create out of a slow, plodding, peasant-artisan people an industrial- 
 ized population; out of a race of scholars a race of manufacturers; 
 to fill a land no larger than one-half of Texas with 65,000,000 people 
 who are breeding at the rate of nearly a million a year, and to engage 
 the state in doing all sorts of things for these thriving families ? It is 
 the political miracle of the century, and its socialized efficiency is the 
 talk of the hour. How has it been accomplished ? 
 
 The Kaiser has adapted, line for line and point for point, the 
 pattern of mediaeval feudalism to the exigencies of modern industrial- 
 ism. So, to begin with, the Kaiser has an obedient people, in whom 
 the feudal notion of caste is second nature. Everyone has his place 
 and shall keep it. Such shifting as now is tolerated is due to wealth 
 and to the kind of ambition which luxury always awakens. 
 
 You cannot have superimposed classes without obedience. The 
 average German is docile and wants to be told what to do. 
 
 The government has its eager hands in every pocket, its anxious 
 fingers on every pulse. From the cradle to the grave the state 
 watches the individual, commands him, and, in a way, cares for him, 
 always seeing to it that he has a place in the national economy and 
 that he keeps it.
 
 154 ECONOMICS OF WAR 
 
 To an outsider, of course, the inner workings of the mind and heart 
 are hidden. But the outer aspect of the German state is perfectly 
 patent. It is mechanism there can be no doubt about it the 
 mechanism of the solar system. It is a land where every member of 
 society has an ordained orbit and moves in it around the central sun, 
 the state, which radiates a mystic gravitation into every activity 
 almost every thought of every man, woman, and child. 
 
 Here you see the most varied activities held to the ideals of 
 efficiency through a perfected feudalism. So that all Carl and John 
 need to do is to obey; then they are taught the rudiments of learning 
 and a trade, are insured against the most disturbing episodes of life, 
 assured also of some leisure, considerable amusement, and a decent 
 burial. And that is life! 
 
 Of all invented contrivances this German machine is the most 
 amazing this vast enginery of state, with the patents of Hohenzollern, 
 Bismarck & Co. on every part, that has reduced the life of a great 
 people to complacent routine and merged the rough eccentricities of 
 all into a uniformity of effort and ambition. 
 
 Germany's system is built upon discipline; hard, military, iron 
 discipline, that grips every baby in its vise and forces every man into 
 his place; a benevolent tyranny, no doubt, but nevertheless a tyranny; 
 an efficient feudalism, but none the less a feudalism of self-conscious 
 caste and fixed tradition. 
 
 XIV. Some Economic Liabilities of the Allies 
 i. THE THEORY OF LAISSEZ-FAIRE 1 
 
 Nature has implanted in every man's breast an instinct which 
 teaches him intuitively to pursue his own happiness; and by con- 
 necting the welfare of every part of society with that of the whole 
 she has wisely ordained that he shall not be able to realize his own 
 wishes without contributing to the happiness of others. 
 
 Every man may thus safely be intrusted with the care of working 
 out his own prosperity. It is not necessary for governments, it is 
 therefore no part of their duty, to teach to individuals what will most 
 
 1 By Piercy Ravenstone. Adapted from A Few Doubts as to the Correctness of 
 Some Opinions Generally Entertained on the Subjects of Population and Political 
 Economy (1821), pp. 2-3. 
 
 This is a classical English statement of the theory that an "invisible hand," 
 as it were, leads the individual in seeking his own welfare to promote national 
 welfare. The question is, Does it promote national efficiency for war?
 
 RESOURCES OF THE BELLIGERENTS 155 
 
 conduce to the success of their pursuits; they are ill-calculated for 
 such a superintendence. All care of this sort is on their part wholly 
 impertinent. Their functions are of quite a different nature; to 
 correct the vicious attachment to their own interests which too 
 frequently induces men to seek their own apparent good by the injury 
 of others, which would disorder the whole scheme of society, to bring 
 about what they mistakenly consider their own happiness. To 
 restrain, not to direct, is the true function of the government; it is 
 the only one it is called on to perform, it is the only one it can safely 
 execute. It never goes out of its province without doing mischief. 
 The mischief is not always apparent, for the constitution of the patient 
 is often sufficiently strong to resist the deleterious effects of the 
 quackery. But it is not safe to try experiments which can do no good, 
 merely because the strength of the patient may prevent them from 
 being injurious. 
 
 The spirit of interference has never manifested itself so strongly 
 as of late years. It constitutes the very essence of modern political 
 economy. Everything is to be done by the state; nothing is to be 
 left to the discretion of individuals. It is proposed to transfer men 
 into a species of political nursery ground, where the quality of plants 
 is to be regulated with mathematical exactness, to be fitted to the 
 capacity of the soil; where every exuberance in their shoots is to be 
 immediately pruned away and their branches confined within the 
 bounds of the supporting espalier. 
 
 2. SOCIAL CUSTOMS AND EFFICIENCY IN WAR 1 
 
 In Anglo-Saxon and Latin countries women are traditionally 
 home-keepers. In the Teutonic nations they are traditionally co- 
 workers with their men in the work of the world. This difference in 
 social customs is proving at the present time one of the most powerful 
 factors in the world-war. 
 
 The information has been disclosed that the Allies were out- 
 numbered on the western front in the spring and early summer of 
 1918. It has seemed impossible to many people that this could be 
 true; for leaving America out of consideration at this period is 
 not the population of Great Britain, Canada, Australia, France, and 
 Italy greater than that of the Central Powers ? It has seemed incred- 
 ible that the Allies could be outnumbered in face of the indisputable 
 population statistics. 
 
 1 An editorial.
 
 156 ECONOMICS OF WAR 
 
 Numerous explanations have been offered for the enigma. The 
 one most frequently given is the dissipation of British forces in 
 consequence of the necessity of keeping troops in Mesopotamia, 
 Egypt, and Saloniki; the maintenance of a large naval force, etc. 
 Another explanation is the more effective utilization by Germany of 
 her prisoners of war, including civilian populations from conquered 
 territories, the number of such prisoners employed on farms and in 
 industrial establishments in Germany being estimated in 1917 at one 
 million two hundred thousand. Still another explanation is that the 
 German organization has more effectively mobilized the man power 
 of the country in consequence of a more rigid curtailment of non- 
 essential .production. 1 Not so many men are required back of the 
 lines in Germany relatively to the number engaged at the front as 
 in the allied countries, particularly in England, where many are still 
 engaged in pursuits which are relatively unimportant. The most 
 important factor in the situation, however, appears to be the part 
 that women play in industry. It has been estimated that there 
 were one million five hundred thousand women engaged in British 
 industry in the spring of 1918. The English have derived great 
 satisfaction from this remarkable showing and it has given rise to 
 numerous volumes and scores of articles. Under the circumstances, 
 that is, in view of the age-old tradition against women in industry, 
 the British women have done extremely well. Their spirit, in the face 
 of a most cherished heritage, coupled with powerful opposition from 
 British trades unions, is admirable. But in contrast with the part 
 women are playing in the Central Powers this showing could in the 
 spring of 1918 cause only anxiety as to the outcome of the struggle. 
 
 The German woman's participation in agriculture is proverbial, 
 and the war has of course necessitated an even heavier carrying of the 
 burden of agricultural production by female labor. This is equally 
 true in Austria, Bulgaria, and Turkey. But it is not only in agri- 
 culture that the German women are playing a tremendously important 
 r61e. Even before the war there was a steadily increasing flow of 
 women into industrial pursuits in Teutonic countries. While the 
 complete statistics for women in industry in Germany at the present 
 time are not available, it was reported that as early as the middle of 
 1916 there were more women than men employed in the great metal 
 industries of the Berlin region, and on March i, 1917, it is reported 
 
 1 For a statement of the conscription law of Germany, December, 1916, see 
 selection XVIII, 36 (chap. v).
 
 RESOURCES OF THE BELLIGERENTS 157 
 
 that there were 3,973,457 women insured in the sick-benefit funds of 
 Germany. 1 Inadequate as these data are, they clearly show an enor- 
 mously greater participation of women in essential production in 
 Germany than in England. Between the ages of eighteen and forty- 
 five there are in the neighborhood of 1 1 ,000,000 women in Germany, 
 and it is probably a conservative estimate that three-quarters of these 
 are effectively employed in the creation of the basic necessities for 
 modern warfare. With 8,000,000 German women in industry as 
 against 1,500,000 women in English industry it means a release of 
 6,500,000 men, roughly speaking, for the military establishments. 
 Nor do knitting and other forms of household manufacture take the 
 place of machine production; they may reduce the above differences, 
 but they do not eliminate them. The German organization is thus 
 enabled to place a much larger percentage of the man power of the 
 nation in the army than it has been possible for the Allies to do. 
 Possibly, in view of Anglo-Saxon social sanctions, it is the best that we 
 can hope that at the end of four years of war 1,500,000 British women 
 should be engaged in industry. If so, we must set it down as one of the 
 serious economic liabilities of the Allies, a liability which can be offset 
 only by such a marked superiority of man power as the entrance of 
 America into the conflict affords. It is important to remember, how- 
 ever, that without America's entrance into the war the Allies would 
 quite obviously have had to succumb through defeat on the western 
 front, a defeat made possible because the "economic position of 
 women" in the Central Powers is such that they have been enabled 
 to place a larger percentage of their man power in the active military 
 establishments than have the Entente nations. 
 
 3. THE PENALTY OF TAKING THE LEAD IN INDUSTRY 2 
 
 An industrial system which, like the English, has been long 
 engaged in a course of improvement, extension, innovation, and 
 specialization will in the past have committed itself, more than once 
 
 1 See German Trade and the War (Miscellaneous Series, No. 65, Department of 
 Commerce), p. 90. 
 
 J By Thorstein Veblen. Adapted from Imperial Germany and the Industrial 
 Revolution, pp. 124-28. Copyright, 1915. Published by B. W. Huebach, New 
 York. 
 
 ED. NOTE. Professor Veblen is one of the best known of American econo- 
 mists. He is the author of several volumes and a large number of articles on 
 economic and social questions.
 
 158 ECONOMICS OF WAR 
 
 and in more than one connection, to what was at the time an adequate 
 scale of appliances and schedule of processes and time adjustments. 
 Partly by its own growth and by force of technological innovations 
 designed to enlarge the scale or increase the tempo of production or 
 service, the accepted correlations in industry and in business, as well 
 as the established equipment, are thrown out of date. And yet it 
 is by no means an easy matter to find a remedy; more particularly 
 is it difficult to find a remedy that will approve itself as a sound 
 business proposition to a community of conservative business men 
 who have a pecuniary interest in the continued working of the received 
 system, and who will not be endowed with much insight into tech- 
 nological matters anyway. So long as the obsolescence in question 
 gives rise to no marked differential advantage of one or a group of 
 these business men as against competing concerns, it follows logically 
 that no remedy will be sought. An adequate remedy by detail 
 innovation is not always practicable; indeed, in the more serious 
 conjunctures of the kind it is virtually impossible, in that new items 
 of equipment are necessarily required to conform to the specifications 
 already governing the old. 
 
 So, e.g., it is well known that the railways of Great Britain, like 
 those of other countries, are built with too narrow a gauge, but while 
 this item of " depreciation through obsolescence" has been known for 
 some time, it has not even in the most genial speculative sense come 
 up for consideration as a remediable defect. In the same connection 
 American, and latterly German, observers have been much impressed 
 with the silly little bob tailed carriages used in the British goods 
 traffic; which were well enough in their time, before American or 
 German railway traffic was good for anything much, but which have 
 at the best a playful air when brought up against the requirements of 
 today. Yet the remedy is not a simple question of good sense. The 
 terminal facilities,, tracks, shunting facilities, and all the ways and 
 means of handling freight on this oldest and most complete of railway 
 systems are all adapted to the bobtailed car. So, again, the roadbed 
 and metal, as well as the engines, are well and substantially con- 
 structed to take care of such traffic as required to be taken care of 
 when they first went into operation, and it is not easy to make a 
 piecemeal adjustment to later requirements. It is perhaps true that, 
 as seen from the standpoint of the community at large and its material 
 interest, the out-of-date equipment and organization should prof-
 
 RESOURCES .OF THE BELLIGERENTS 159 
 
 itably be discarded "junked," as the colloquial phrase has it and 
 the later contrivances substituted throughout; but it is the discretion 
 of the business men that necessarily decides these questions, and the 
 whole proposition has a different value as seen in the light of the 
 competitive pecuniary interests of the business men in control. 
 
 This instance of the British railway system and its shortcomings in 
 detail is typical of the British industrial equipment and organization 
 throughout, although the obsolescence will for the most part perhaps 
 be neither so obvious nor so serious a matter in many other directions. 
 Towns, roadways, factories, harbors, habitations, were placed and 
 constructed to meet the exigencies of what is now in a degree an 
 obsolete state of the industrial arts, and they are, all and several, 
 "irrelevant, incompetent, and impertinent" in the same degree in 
 which the technological scheme has shifted from what it was when 
 these appliances were installed. They have all been improved, 
 "perfected," and adapted to meet changing requirements in some 
 passable fashion; but the chief significance of this work of improve- 
 ment, adaptation, and repair in this connection is that it argues a 
 fatal reluctance or inability to overcome this all-pervading deprecia- 
 tion by obsolescence. 
 
 All this does not mean that the British have sinned against the 
 canons of technology. It is only that they are paying the penalty of 
 having been thrown into the lead and so having shown the way. At 
 the same time it is not to be imagined that this lead has brought 
 nothing but pains and penalties. The shortcomings of this British 
 industrial situation are visible chiefly by contrast with what the 
 British might be doing if it were not for the restraining dead hand of 
 their past achievement, and by further contrast, latterly, with what 
 the new-come German people are doing by use of the English tech- 
 nological lore. As it stands, the accumulated equipment, both mate- 
 rial and immaterial, both in the way of mechanical appliances in 
 hand and in the way of technological knowledge ingrained in the 
 population and available for use, is after all of very appreciable value; 
 though the case of the Germans should make it plain that it is the 
 latter, the immaterial equipment, that is altogether of first conse- 
 quence rather than the accumulation of "production goods" in 
 hand. These "production goods" cost nothing but labor; the 
 immaterial equipment of technological proficiency costs age-long 
 experience.
 
 160 ECONOMICS OF WAR 
 
 XV. The Economic Isolation of Germany 1 
 
 The question of Germany's economic ability to hold out during 
 the war is of paramount general interest. It is the first time under 
 modern conditions that an attempt has been made to isolate a great 
 nation completely from the outer world, and therefore also the first 
 time that a country, hitherto existing as an integral link in the world's 
 economic system, is put to the test of having in the main to support 
 itself and prove its ability to subsist under these new conditions. In 
 wondering doubt the world has awaited the result. 
 
 To begin with, it was no doubt the all but universal opinion that 
 Germany would be able to hold out for a limited period until her 
 accumulated supplies were exhausted, and then have to give way. 
 When the fighting had lasted six, twelve, and twenty months, and 
 Germany still showed undiminished economic strength, discussion 
 started everywhere regarding the economic possibility of such a 
 demonstration of strength. The interest in these discussions may 
 best be judged by the fact that well-nigh everybody has felt the 
 necessity of forming his own theory regarding the problem of war 
 finance. For this reason my attempt to analyze the problem may 
 count upon interest from the great majority of readers who do not 
 generally devote time to the study of such subjects. 
 
 There seem to be two main fallacies that have led England and a 
 large part of the rest of the world to the conclusion that Germany 
 could not stand a prolonged period of isolation. The one is the exag- 
 gerated idea people have regarding the importance of foreign trade 
 under modern economic conditions. This view is natural to England 
 and to a certain extent justified by conditions. But as for the other 
 great nations, it is mainly a popular illusion arising from the dis- 
 proportionate interest devoted to foreign trade in politics and in 
 statistics. The other fallacy is that people live on accumulated 
 riches, on "money," or large stocks of commodities. The entirely 
 
 1 By Gustave Cassel. From Germany's Economic Power of Resistance, 
 pp. 76-80. Copyright by the Jackson Press, 1916. 
 
 ED. NOTE. The author is professor of political economy in the University of 
 Stockholm, and his writings are well known to all students of economic theory. In 
 February, 1916, he was invited to visit Germany as a neutral economist and to 
 make a report on financial and economic conditions there. There is evidence 
 that he was "steered" through Germany by the government. But however this 
 may be, his conclusions seem to have been verified by the staying strength 
 exhibited by Germany since that time. The paragraphs quoted here are the 
 author's conclusions.
 
 RESOURCES OF THE BELLIGERENTS 161 
 
 exaggerated ideas as to the importance of stocks of commodities under 
 modern economic conditions has led to the conclusion that a belliger- 
 ent country, which does not receive help from outside must sooner or 
 later exhaust its resources. 
 
 The course of the war has already proved the untenable nature of 
 these views and fully proved, first as sound teachings of political 
 economy long ago should have proved that a nation lives mainly on 
 what it day by day creates by its productive work, and second, that 
 a country like Germany is able to do so without exchange of com- 
 modities with foreign countries. 
 
 But the human mind is slow to divest itself of ideas to which it has 
 become accustomed. In England people are reluctant to admit fully 
 the truth forced upon them by actual development; they cling to the 
 idea that it is only the incompleteness of the blockade that has enabled 
 Germany to live, that she will ultimately be starved into submission 
 if only every little hole can be still more effectively stopped. But 
 they are mistaken. As regards supplies from the northern countries, 
 they are under present conditions very acceptable to Germany; but 
 it would be utterly wrong to ascribe to them any sort of influence as 
 regards Germany's ability to hold out. Of great importance are the 
 supplies from the southeast. But Germany is laying her plans for 
 continued war economy without taking count even of these supplies. 
 
 The strongest, in fact the conclusive, proof that Germany can 
 economically hold out is that she has already done so for twenty 
 months. In the preceding chapters I have shown that the first year 
 of the war was by no means specially favorable economically, and 
 that even taking the whole period of the war this cannot be considered 
 the case; that, on the contrary, a number of circumstances indicate 
 that Germany's economic conditions in certain important directions 
 are better to-day [1916] than during the earlier phases of the war. I 
 have given reasons for the notion that this opinion, financially con- 
 sidered, may well be assumed to outweigh the deterioration in other 
 fields. This circumstance is obviously subversive of the theory on 
 which the blockade of Germany is based. 
 
 Of course Germany is not so strong economically as during the 
 last years of peace. But in peace-time consumption had reached a 
 scale which could stand a great reduction. We have seen that this 
 reduction need not in essentials reduce the German to a lower level 
 of consumption than that on which many other civilized people exist 
 or than even the Germans themselves were accustomed to a very few
 
 162 ECONOMICS OF WAR 
 
 decades since, and on which they were an active and powerful people. 
 The lowering of the standard of living it may appear to outsiders 
 important and for those concerned hard cannot involve any serious 
 harm or prevent the continuation of the war. 
 
 Let any Swede who imagines that the German people have reached 
 the lowest standard of living that a nation can endure call to mind only 
 for a moment the privations our people suffered during Sweden's wars. 
 By comparison, what has hitherto been demanded from the German 
 population in the way of economic sacrifice will then appear insig- 
 nificant. And if any German thinks of what his people had to pass 
 through during the long and bitter wars that from time to time have 
 been waged in and over Germany, he will admit that any comparison 
 with present times is absurd. 
 
 If the war were to continue for years Germany would be weakened 
 economically. But there is hardly any real reason to assume that this 
 weakening should occur more rapidly in Germany than in the countries 
 of her opponents. If the belligerents' economic power is used up by 
 degrees, but about the same degree for all, the war can, in so far as it 
 depends on economic conditions, continue from year to year until 
 Europe is completely exhausted. Truly a melancholy perspective! 
 But the future can hardly be viewed in any other light by anyone 
 who objectively strives to gain a clear understanding of what it means 
 to say the war is to continue until Germany's economic ruin is 
 accomplished. 
 
 My task has been to give as far as possible a correct, but in any 
 case a fully objective, view of Germany's economic strength and 
 ability to hold out. How far I have succeeded will be judged dif- 
 ferently. I only wish that that judgment may not be affected by 
 political views of the great struggle or by a sympathy for the one or 
 other side. Indeed there is after all no necessity why a political point 
 of view should enter when we are considering a question like the 
 present. The task I have attempted is essentially of a neutral nature 
 this point I would again emphasize. It should be of at least equal 
 interest to Germany's opponents as to Germany herself to obtain an 
 objective statement of her economic position. I am prepared to find 
 that anti-Germans of the kind that cannot abandon ingrained political 
 bias will consider my statements too favorable for Germany and will 
 accuse me of lack of objectivity. This does not worry me. But I 
 venture to hope that men in responsible positions on the Entente side 
 may find my conclusions worthy of consideration. They may perhaps
 
 RESOURCES OF THE BELLIGERENTS 163 
 
 think that my estimate of Germany's economic strength requires 
 some modification. But from their point of view a most important 
 thing is not to make any mistake in the opposite direction. No 
 impartial observer, and hardly any of the leading men of the Entente 
 themselves, would deny that they have from the beginning under- 
 estimated the economic strength of their opponent. This mistake 
 should not be continued. If the war is to go on indefinitely one should 
 make sure that one understands fully what has to be faced. 
 
 I can imagine that Germany's opponents argue thus: "Next 
 summer, autumn, Christmas, or at any rate in a year, Germany's 
 economic resources must be exhausted; having made such sacrifices 
 for the war, we must try to hold out for the comparatively short 
 period it may still last." It would be disastrous if such arguments 
 should prevail any longer, for they are absolutely wrong. But I am 
 not discussing military prospects, which I am not competent to judge. 
 But assuming that the military position remained about stationary, 
 the economic position will not, as far as I can see, offer any reason 
 for concessions on the part of Germany. In three, six, or twelve 
 months Germany's economic strength will essentially and from the 
 point of view of continuing the war be about the same as now. I have 
 probably had better opportunities of forming an opinion on this point 
 than the statesmen of the Entente and have been able to do so under 
 more undisturbed conditions than they.
 
 V 
 
 THE PROBLEM OF INDUSTRIAL MOBILIZATION 
 
 Introduction 
 
 The chapter on the "Nature of Modern War" made it clear 
 that a world-war is not merely a conflict of armies; that it is rather 
 a titanic struggle between rival economic organizations. The 
 mobilization of a nation's industries is therefore of equal importance 
 with the mobilization of armies. Indeed, mobilization of the military 
 forces and mobilization of the industrial forces are inseparably linked 
 and must be viewed as a single problem. This basic fact was not 
 realized by all the belligerents at the outbreak of hostilities; and the 
 human and material losses sustained before this conception of the 
 ultimate requirements of war was arrived at have been almost 
 incalculable. 
 
 Those who had been studying the problem, with the experience 
 of Europe as a guide (Section XVI), had gained, before April, 1917, 
 some comprehension of the nature of the task which would confront 
 the United States in the event that we should be drawn into the 
 struggle. But although warnings were early issued as to the readjust- 
 ments that would be required of American business, it is significant 
 that there was a year of floundering before American business men 
 as a whole, and even before governmental agencies as a whole, reached 
 a clear understanding of what was required in the way of industrial 
 reorganization. The notion that money would enable us to buy 
 goods somehow and somewhere was perhaps the greatest obstacle 
 in the way of a realization of the true nature of the problem. If any 
 given individual has placed in his hands a large amount of money, he 
 can of course buy whatever he desires. Why then could not the 
 nation with unlimited funds at its disposal forthwith purchase the 
 unlimited quantities of supplies required ? Thus was the individual 
 viewpoint read into a national situation, to which it could apply only 
 under conditions where there was a large neutral world standing ready 
 to furnish us with all the supplies required. Not until the individual 
 pecuniary concept could be replaced by the concept of national 
 production of goods could real progress in industrial mobilization be 
 made. 
 
 164
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 165 
 
 There are numerous methods of mobilizing a nation's industries 
 (Section XVII). They are not mutually exclusive, but neither are 
 they coequal in effectiveness. More and more in the experience of 
 all the belligerents, pure voluntary methods have been found to be 
 both slow and unscientific that is, dependent upon the psychological 
 reactions of individual business managers and laborers rather than 
 based upon a careful analysis of the complex requirements of the 
 situation in its entirety. 
 
 In Section XVIII we find authoritative statements of the experi- 
 ences through which the various European belligerents have passed. 
 The contrast between France and England is striking enough and is 
 indicative of the effect that invasion of a nation's territory may have 
 in hastening the individual sacrifices and industrial readjustments 
 that are required. But the contrast between Germany and Russia 
 is even more striking. Germany's mobilization of national resources, 
 as related by her own officials in charge thereof, reveals a clear under- 
 standing of the basic requirements of war, of the necessity of a close 
 union of economic and military strategy, and of the correlation of 
 military a.nd industrial activities, involving every aspect of national 
 life. Particularly significant is the German "organization for 
 victory" (Section XVIII, 3, C) at the beginning of the third year of 
 the war. The spectacle of Germany already clearly perceiving the 
 impending collapse (economic, if not political) of Russia and with- 
 drawing to a "Siegfried line" where defense on the west front would 
 be relatively easy, and then for many months devoting every energy 
 to the production of basic raw materials in hitherto undreamed of 
 quantities in order to lay the foundation for an eventual output of 
 munitions and supplies that would insure the materials for victory, is 
 without a parallel. The marvel only is that she did not have the 
 diplomatic astuteness to pacify America for yet a few more months; 
 for delay on our part for another half-year might well have sealed 
 the fate of Europe. 
 
 The old regime in Russia, on the other hand, never understood the 
 dependence of war upon economic organization. Neglect of the 
 economic side of war had virtually destroyed the power of Russia 
 even before the revolution had wrought its spiritual decimation of the 
 Russian forces. Russia was obviously defeated before the revolution 
 of 1917 defeated while it still maintained in the field the largest 
 national army known to the annals of warfare. And who can say 
 that lack of the basic necessities for existence on the part of the
 
 1 66 ECONOMICS OF WAR 
 
 masses, while the trading and privileged classes reaped war profits 
 uncontrolled, may not have been an instrumental factor in the decline 
 in Russian morale and in the eventuation of social and economic chaos 
 in that unhappy land ? 
 
 XVI. The Nature of the Problem 
 i. CONVERSION OF INDUSTRIES TO WAR PRODUCTION 1 
 
 If there should be an open break between the United States and a 
 first-class foreign power, taking form in a declaration of war and calling 
 for the raising of an adequate military and naval force, back of the 
 federal machinery of the War and Navy departments there must be a 
 quick mobilization of the industries of the nation to meet the increased 
 demands for munitions and other supplies for the fighting forces. 
 The survey of the industries of the country has been made, manu- 
 facturers are anxious to cooperate in meeting the governmental needs, 
 but the great and immediate step must be to show them how to 
 proceed. This must be a process of education and it can not be a 
 quick process. It takes time to convert a factory used for the manu- 
 facture of products of peace into an ammunition plant. The plants 
 may be had in a hurry many have been offered in advance of an 
 open break but the great task of mobilization will be to get them 
 running in new grooves. 
 
 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 govern- 
 ment 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. The 
 teaching of the munition-making art to these thousands of manu- 
 facturers and to millions of industrial workers, both men and women, 
 
 'By Howard Earle Coffin. Adapted from "Mobilizing Our Industries," 
 Independent, LXXXIX (February 19, 1917), 304. 
 
 ED. NOTE. It will be noted from the date of this reference that this article 
 was written by Mr. Coffin two months before the United States entered the war. 
 Mr. Coffin was at the time Chairman of the Committee on Industrial Preparedness.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 167 
 
 has called for a work in industrial organization and education such as 
 the world has never before seen. 
 
 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. 
 
 We have had no experience in the kind of warfare now being waged 
 abroad, and yet this is exactly the sort of thing for which we must 
 prepare, or immediately enter upon if war should now be declared, 
 or it is worse than useless that we prepare at all. We have the 
 investments in plants, in tools, and in machinery, and more important 
 still are our resources in skilled workers. But it is only through the 
 most careful methods of organization and education in time of peace 
 that we may make all these resources available in time of emergency. 
 
 Each manufacturing plant must be taught how to make that 
 particular part or thing for which its equipment is best suited. It 
 may be that that education must start at once to meet actual and 
 present pressing demands, but in any event annual educational orders 
 of war materials of such small size as not to interfere with com- 
 mercial products, must be made and delivered each year under 
 government inspection if our plants and workers are to be ready in 
 case of need. Skilled labor in every line must be so enrolled as to 
 ensure against its loss to industry through enlistment in the. fighting 
 forces. There exists no other means of harnessing industry in the 
 defensive service of the government. 
 
 We must nationalize the munitions industry politically. Each 
 community and each political district will have its share of government 
 responsibility and expenditure in this work. To each community 
 will be brought home the part it must play in the event of national 
 emergency. We have long known that we must nationalize geographi- 
 cally the munition-making art and that to leave it centered near our 
 east coast would be suicidal.
 
 1 68 ECONOMICS OF WAR 
 
 There is no mystery in the job of preparing the country for 
 defense. Through too much secrecy we deceive, and can deceive, 
 the American people only. Manufacturers should have been, looking 
 their part in the national scheme of things military squarely in the face 
 months ago. Their vital interests both commercial and national 
 require that each shall know how to do his "bit" in time of need. If 
 in the present situation any manufacturer can have the idea that he 
 may sit in security with folded hands because Congress has voted 
 battleships and a meagre increase in the standing army, he needs to 
 consult a brain specialist. There are in war, as in peace, three Graces, 
 and their names are "Army, Navy, and Industry" and the greatest 
 of these is Industry. The European war is, in its last analysis, a war 
 of munitions a war of factories, of producing powers, and of sweat- 
 ing men and women workers. 
 
 2. THE FUNDAMENTAL REQUIREMENTS OF WAR 1 
 
 Four things, in the main, are required of the United States in the 
 next year: 
 
 1. Ships as many as can be built. 
 
 2. Munitions and materials of war as much as can be supplied. 
 
 3. Food as much as can be produced. 
 
 4. Soldiers as many as can be trained. 
 
 Numerous subclassifications might be made here, but this simple 
 statement of needs will most effectively serve our present purpose. 
 The problem that is before us in supplying the unlimited quantities 
 of ships, munitions and materials, food, and soldiers that are required 
 may be made clear by a simple diagrammatic statement: 
 
 i. Indispensable goods: 
 
 a) Prime necessities for physical and mental effi- 
 ciency 
 
 b) Replacement of capital goods used in producing 
 
 50,000,000 workers 1 
 ordinarily pro- 
 duce 
 
 such necessities 
 
 c) New capital goods used in producing necessities 
 Dispensable goods: 
 
 a) Luxuries and many conventional necessities 
 
 b) Replacement of capital goods used in producing 
 these dispensable commodities 
 
 c) New capital goods 
 
 x By Harold G. Moulton. From "Industrial Conscription," Journal of 
 Political Economy, November, 1917. Delivered as an address before the Western 
 Economic Society and the City Club of Chicago, June 21, 1917. 
 
 3 1 assume 50,000,000 workers; there may be more or less, but the exact number 
 is quite immaterial. Call it x workers if you prefer.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 169 
 
 If we place one million men in the army the number of industrial 
 workers this year will be reduced to 49,000,000. This loss of numbers 
 may, however, substantially be made good by impressing into the 
 industrial ranks those who are normally not employed. In order 
 to be conservative let us assume that we have the same working force 
 this year as last. What now are the alternatives before us ? 
 
 1. Produce none or few of the indispensable war supplies that the 
 situation requires. 
 
 2. Speed up the workers and increase efficiency to a point where 
 they can produce, not only the customary amounts of both classes of 
 goods, the dispensables and the indispensables, but in addition the 
 unlimited quantities of ships, munitions, materials, and food required 
 for the war. 
 
 3. Produce less of the things normally produced the dispensables 
 and transfer our national energy into the production of the indis- 
 pensable sinews of war. 
 
 I take it that it will be at once conceded that the first alternative 
 is out of the question; it stands as an admission of failure. 
 
 The second alternative is regarded by many as adequate, or 
 substantially adequate, to the task before us. We are said to be a 
 big, rich, powerful country that can do anything once we have buckled 
 to the task with characteristic American energy and ingenuity. "We 
 will get there somehow." Now while we can doubtless speed up 
 somewhat, we cannot by that means produce more than a fraction of 
 the munitions, ships, and food required. For it must be observed 
 that the speeding up of workers in present lines of production will 
 merely give us additional quantities of the things normally produced, 
 luxuries and other dispensables, along with the things that are indis- 
 pensable. In so far as we are at present engaged in producing food, 
 ships, and war materials, speeding up will help. But it will scarcely 
 begin to solve the problem. At best it will give us a little more of the 
 indispensables required for 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. But it must be remembered: first, that increased 
 efficiency will be of importance only in so far as it results in the 
 production of the indispensable commodities; secondly, that a time
 
 1 70 ECONOMICS OF WAR 
 
 of speeding up and of reorganization and dislocation in industry is 
 not a favorable time for experimentation with industrial methods; 
 thirdly, that the number of trained men available for the introduction 
 of scientific management is very limited, and that, in any event, 
 business managers, under the spur of private gain, have been endeavor- 
 ing to improve their methods as fast as possible; and, fourthly, that 
 while it is as easy to make good resolutions hi a time of national crisis 
 as it is in a revival meeting, it is unfortunately just about as easy to 
 linger on with accustomed methods of business as to persist in habitual 
 modes of conduct. It would seem, therefore, that we cannot expect 
 too much from the improvement of business processes. Perhaps 
 we may reasonably count upon a substantial increase in efficiency to 
 be one of the ultimate effects of the war; but our problem now is 
 immediate, not ultimate. The time available is a matter of months 
 rather than of years. 
 
 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. 1 
 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 essen- 
 tial fact that we, the people within this country, must actually produce 
 practically all the war materials we are to have for use in the war. 
 
 It would seem to follow from the foregoing analysis that the third 
 is the only alternative open to us; and this inevitably means that 
 labor and capital human energy, if you please must be shifted 
 from the places that do not count to the places that do count in the 
 task we are undertaking. It means that capital and labor now being 
 employed in building machinery, factories, etc., that are not required 
 
 1 Imports have been paid for by England in three ways: first, by exporting 
 gold ($1,400,000,000); second, by reselling securities ($2,000,000,000); third, with 
 credit ($2,000,000,000).
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 171 
 
 for war purposes must be transferred to the construction of factories 
 and workshops that can be used in manufacturing munitions and 
 materials of war; it means that factories already built that are now 
 being used for the manufacture of dispensable commodities, luxuries, 
 etc., must be (where possible) made over into factories that can 
 manufacture indispensables; it means that where these factories 
 cannot be remodeled for war purposes they must be closed, and the 
 laborers, at least, released for service that counts. 
 
 We have been discussing the need of curtailing luxuries in order 1 
 that additional war supplies may be produced. It remains to con- 
 sider the relation of a curtailment of luxuries to an increased produc- 
 tion of necessities. We have all been urged to economize with certain 
 forms of food in order that more may be left for shipment to our 
 Allies. The food problem, however, goes much deeper than con- 
 serving 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, conserva- 
 tion in consumption is less important than large production. 
 
 Why is it that the food supply of the allied nations is short? 
 It is mainly because of the diversion of man power from agricultural 
 to war pursuits. To overcome this shortage in agricultural pro- 
 duction additional labor must be found for agriculture, and this labor 
 can come only through a release of those engaged in less essential lines 
 of production. In other words, it is imperative that less essential 
 lines of production be eliminated, not only to the end that the muni- 
 tions and materials necessary for fighting may be abundant, but in 
 order that the armies of the allied nations may be adequately fed and 
 that the civilian population may have sufficient food to sustain 
 themselves in a state of physical efficiency for the work that must 
 be done behind the lines. This applies not merely to the production 
 of food; it applies equally to the other fundamental necessities of 
 life. 
 
 As an ever-increasing percentage of our man power is drawn 
 overseas, the problem of producing adequate amounts of essentials 
 becomes increasingly severe. There is no possible escape from a 
 substantial shortage of the necessities of life other than through a 
 
 1 The following is from The Duty of the Consumer in War Time, a pamphlet 
 distributed by the Union League Club of Chicago, August, 1918.
 
 172 ECONOMICS OF WAR 
 
 diversion of productive energy from the nonessential to the essential 
 industries. 
 
 It is not usually understood that the chief cause of the enor- 
 mously 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 require- 
 ments of our Allies, has enormously increased. We can prevent a 
 still further soaring of prices only by increased production of neces- 
 sities increased production to be accomplished, let it be repeated, 
 through a diversion of productive power from the nonessential 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. 
 
 The importance of maintaining an adequate production of the 
 necessities of life and of preventing an enormous rise of prices cannot 
 be too strongly emphasized. In a war of attrition such as this, 
 physical deterioration of the masses of society in consequence of 
 inadequate nourishment results in a serious decline in national morale 
 and this is a decisive factor in the final outcome of the struggle. 
 Food and other physical necessities will win the war. We must therefore 
 not only conserve food and other necessities, but, more important, 
 we must insure ample production of them through a lessening of the 
 production of nonessentials. 
 
 3. THE SIZE OF THE JOB 1 
 
 This war is the biggest job America ever faced, or is ever likely to 
 face. It is a job so big that none of us has walked around and meas- 
 
 1 By Frank A. Vanderlip. Adapted from an address entitled "How to Win 
 the War," delivered before the Business Men's Association of Minneapolis, Minn., 
 in December, 1917. 
 
 ED. NOTE. Mr. Vanderlip, president of the National City Bank of New York, 
 is chairman of the National War Savings Committee.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 173 
 
 ured it. We have only got some little views of the mountain that is 
 ahead of us. We are just beginning to understand what it means 
 to go to war in the modern sense and what it means to prepare America 
 for war. 
 
 We knew we were unprepared. I don't know whether we knew 
 how thoroughly unprepared we were. Our unpreparedness was 
 complete. But when we come to make an inventory of what is 
 necessary; when we come to understand what a gigantic task it is 
 to equip an army; when we come to know something about modern 
 warfare and understand that it is a matter of equipment as much as 
 it is of men ; then we begin to see something of the size of this under- 
 taking. 
 
 We are apt to measure things with the yardstick of the dollar 
 this money value of things. We have seen Congress appropriate for 
 expenditure this fiscal year nineteen billion dollars. Do you know 
 what a billion dollars is ? I don't. I have been used to handling 
 million dollar units a good deal. We know what a million dollars is 
 pretty well. We can picture what sort of a building, how much of a 
 shop, what kind of a store a million dollars represents. But we 
 cannot as yet adequately measure a billion dollars. And we are to 
 raise $19,000,000,000. Nineteen billion dollars! It would make a 
 ring of twenty-dollar gold pieces around the Equator, one lying next 
 to the other. It is three times all the money there is in the United 
 States. Every dollar that this government has spent from its foun- 
 dation, down through all the wars, through all the days of peace, all 
 it has spent for pensions, for the Panama Canal, for constructing 
 public buildings every expenditure that it has made from the first 
 days of Alexander Hamilton in the Treasury down to the beginning 
 of this fiscal year foots twenty-six billion three hundred million, 
 and now we are going to spend nineteen billion dollars in a year! 
 The value of all the railroads in the country tracks, terminals, 
 equipment, locomotives, cars, everything is less than nineteen 
 billion dollars. What would you think if we had to reproduce the 
 railroad system of America in a year ? It would be something of a 
 job, wouldn't it ? 
 
 . This brings us to the question : What can organized industry do ? 
 How big is the industrial plant of this country ? Three years ago, the 
 year the great war began, the Census Department undertook to find 
 out just what the value of the manufactured products of America was, 
 and they found that they were worth for that year $24,300,000,000.
 
 174 ECONOMICS OF WAR 
 
 This year they would be worth a good deal more. We have 
 grown; we have expanded our industries; we are working harder; 
 more men are at work; prices are higher. But suppose that figure 
 is $30,000,000,000 or $35,000,000,000. Put in juxtaposition with 
 whatever figure you may set as the capacity of the workshops this 
 demand for $19,000,000,000 worth of things, and what will your 
 conclusion be ? It will be that the government is going to fail to do 
 its job, or you and I are going to call on the workshops for less than 
 we have been calling upon them for. 
 
 That is no theory; it is the inevitable conclusion from two facts: 
 our capacity and this demand. If we are going to continue to call on 
 labor, to call on the supply of raw material, to take up shop room, to 
 make those things that we have been in the habit of asking for; if 
 we are going to continue to demand the things of luxury, of comfort, 
 of convenience that we have been in the habit of demanding, the 
 government is going to fail to do this job, and you and I are going to 
 paralyze the blow when the government comes to strike it, because it 
 will not have equipped this army; it will not have equipped it as it 
 should. 
 
 Now that view makes the thing pretty personal. It begins to show 
 us that we have some relation to this job; that the government is not 
 a thing apart that votes war, that sells bonds, and that fights the 
 battle out. This is a democracy. We are part of that government, 
 and never before was it so clear that the responsibilities of citizenship 
 come directly to us and demand of us sacrifice; demand of us that 
 we so handle our personal affairs that we do not get in the way of the 
 government; that we do not become competitors with the govern- 
 ment for those things that the government must have. 
 
 We must think constantly what is the government's job; we must 
 recognize how big that job is, how enormous it is compared with the 
 capacity of our workshops. We want to build a billion dollars' 
 worth of aeroplanes. We want to spend two billion dollars on ships. 
 We have appropriated one billion eight hundred millions for ammuni- 
 tion. Why, in this war, which will be one in which the transportation 
 is done in the main by automobile trucks, we have ordered 136,000 
 horse-drawn vehicles. That would make a procession eight hundred 
 miles long. All this gives just a little glimpse of the endless things we 
 have to do. It gives us a little conception of the draft we are going 
 to make upon man power, upon raw materials, upon the workshops, 
 upon the organized industry of the country.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 175 
 
 4. THE DIVERSION OF ENERGY REQUIRED 1 
 
 All the great problems of supply man power, coal, ships, food, 
 and what not can find a genuine solution only in a consciously 
 formulated policy of diversion. Despite the conclusive proof which 
 England and France have alike offered, that war, which is the most 
 unusual of all businesses, can be carried on only if its requirements 
 are made the dominant end of the industrial process, some well- 
 meaning individuals still persist in the notion that business may be 
 carried on as usual. They seem to think that in addition to the large 
 and conglomerate volume of the good things of life which will allow 
 luxury as usual and pleasure as usual, an additional supply can in 
 some magical way be conjured up to meet the requirements of the 
 armed forces. It is argued that the stimulus of war enables the 
 productive system to increase its output by taking up the "slack." 
 In support of their belief perhaps it can be said that there have long 
 been, and still exist, abundant opportunities of increasing production 
 by the use of new lands, new technique, new organization, new 
 governmental supervision, and the added labor of those who once lived 
 in idleness. While it must be admitted that war has taught the people 
 of Europe many things about efficiency which five years ago seemed 
 beyond their grasp, it has given no evidence of being able to add to the 
 ordinary total production materials of war which constitute fully a 
 35 per cent addition to the volume of goods turned out. 
 
 Most of slack in our industrial system was taken up by the imme- 
 diate stimulus of the European war in 1914 and 1915. It must also 
 be remembered that efficiency comes only with the adaptation of the 
 system to its new ends and cannot become very manifest until this 
 process is well under way. Our recent experiences in the production 
 of aircraft and ships, although based upon sound enough business 
 principles as applied to peace conditions, can be characterized as 
 dismal industrial failures. They are evidence of the waste which is 
 a persistent, perhaps an inevitable, accompaniment of an entrance 
 into large-scale warfare by a nation of amateurs in knowledge of 
 industrial society. The experimentation which is necessary to learn- 
 ing how to do the great tasks of war carries with it many such wastes. 
 Many other wastes incident to the withdrawal of men and materials 
 from industry have been recounted in the pages above and require no 
 repetition here. In view of these conditions it seems fairly safe to 
 
 'An editorial.
 
 176 ECONOMICS OF WAR 
 
 say that war decreases rather than increases the total output of a 
 nation. Certainly there is little evidence for a belief in a rising total 
 output in a nation in which the industrial system has been organized 
 to respond to public demand through the agency of a scheme of prices. 
 But even if, in spite of losses and disorganization, production is to 
 increase, this can come only after an adjustment to the new conditions 
 is complete, and even then it promises at most an addition of only a 
 small part to the total product of the country out of which must come 
 the great supplies of a modern belligerent enterprise. 
 
 The general surplus of supplies which a civilian population must 
 produce over and above its requirements, of which the food surplus 
 is a single case, can be secured only by a policy of diversion. Since 
 the resources in land, capital, and labor, under a given organization 
 and technique, are limited and tend to be decreased, new supplies 
 can be had only at the expense of old ones. This diversion of economic 
 resources to national purposes may be either direct or indirect. It 
 is direct when consumers give up goods which immediately satisfy 
 military demands, as for example bread which can be used to feed 
 soldiers. It is less direct when the public abstains from purchasing 
 an article which cannot be used, but the materials out of which it is 
 made can be used to produce a different article adapted to war uses. 
 A case in point is that of automobiles, the materials of which can be 
 converted into army trucks. The diversion is even more indirect when 
 it occurs at an even earlier stage of the productive process, as for 
 example when steel is diverted from structural uses in bridges and 
 skyscrapers to submarine destroyers. From this it is evident that at 
 earlier stages of the industrial process the limited amount of labor, 
 machines, and other productive resources is more fluid, and therefore 
 more easily diverted, than at the later stages. For a short war, to 
 be fought upon a small scale, sufficient materials may be got by a 
 diversion to war uses of goods which are intended for ordinary con- 
 sumption. For a longer one requiring larger operations this source 
 will be insufficient, and it will be necessary to go farther back and 
 force unfinished goods into forms adapted to military ends. For a 
 modern war of the first magnitude goods cannot be obtained in suffi- 
 cient quantities and many goods cannot be got at all unless productive 
 energy is diverted to new uses at an early stage of the productive 
 process when it is still unspecialized and fluid. It is necessary to add 
 that because our productive processes are long ones the adaptation 
 of the industrial system as a whole to the demands of war requires a 
 carefully thought-out plan and no little time for its execution.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 177 
 
 Thus far we have relied quite largely for the diversion necessary 
 to an adequate supply of war materials upon voluntary effort, while 
 the enemy has used compulsion and definite design to divert produc- 
 tive resources to predetermined ends. To solve our problem ade- 
 quately productive materials in their earlier and more fluid forms 
 must by governmental order be turned to the production of war 
 materials. In this case consumption can be restricted by the sheer 
 inability of consumers to purchase the unnecessary articles with which 
 they have hitherto loaded down their productive budgets. Failing 
 such compulsion a rigid moral effort, directed by intelligence and not 
 by emotion must be relied upon for a reduction of our consumption 
 of the comforts and vanities of life. Tf by this latter means their 
 market is taken away, producers will be forced to devote their 
 resources to national uses. 
 
 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. 
 
 XVII. Methods of Industrial Mobilization 
 i. VOLUNTARY ENLISTMENT OF FACTORIES 1 
 
 The most usual method of industrial mobilization is by means of 
 what may be called the voluntary enlistment of factories in the 
 production of war supplies. This is induced on the part of the 
 government by means of an offer of high prices and large profits. 
 This has sometimes been called the financial method of readjustment, 
 because it involves the use of money as a medium for effecting the 
 necessary readjustments. 
 
 1 By Harold G. Moulton. From "Industrial Conscription" (see p. 168).
 
 178 ECONOMICS OF WAR 
 
 The precise role that money plays in industrial society is confusing 
 at all times to the economic novice, and it is perhaps especially so in 
 connection with war. Our government is to raise the first year of the 
 war $19,000,000,000. It is to spend this vast sum in inducing people 
 to furnish the materials that are required for military operations. 
 These funds are to be passed through the Treasury Department in 
 successive instalments, giving purchasing power while there, but 
 passing, in the act of purchasing, back again into the channels of 
 industry. 1 Money then is the means by which the government is 
 enabled to buy the things it needs. 
 
 While the process thus far is perhaps generally enough understood, 
 it is usually not so clear that if the commodities required by the 
 government are to be found ready on the market when they are 
 desired, the government must use the money placed in its hands in 
 such a way as to induce capital and labor to be shifted into the 
 production of the supplies and materials demanded. 
 
 Let us take some concrete examples. X, a manufacturer of 
 automobiles, is offered a contract by the government to produce motor 
 trucks for army service. If the price offered is attractive, and if the 
 factory can be easily adapted to the manufacture of motor trucks, the 
 manager will usually readily accept the government contract. Here 
 we have a diversion of energy without great difficulty and without 
 having to pay enormously high prices to accomplish it. But let us 
 take a different case. Y is engaged in the manufacture of candy, or 
 perfumery, or beer, or ceramics. The government seeks to induce 
 Y's concern to manufacture war supplies. To do so would require 
 extensive rehabilitation of plant if not indeed new factories altogether. 
 Will Y change the character of his business ? Purchasers of candy, 
 perfumery, beer, and ceramics engage in direct competition with the 
 government and seek to induce Y to continue his present business, by 
 demanding the usual output of such commodities. The government 
 must here greatly outbid private spenders if it is to secure the pro- 
 duction of war supplies. 
 
 In this connection it must be borne in mind that the government 
 is not a very effective competitor for either labor or capital it must 
 
 1 There is much apparent mystery as to how the government can raise $19,000,- 
 000,000 when there are only $5,000,000,000 in the country. One way obviously is 
 by having, say, $500,000,000 pass through the Treasury Department 38 times, or 
 once a week for 38 weeks. In fact, however, actual gold or actual money is not 
 used; credit instruments in the form of checks and drafts will be the means of 
 making payments.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 179 
 
 pay much higher returns than normal industry if it is to attract the 
 requisite production. Why? Because the laborer does not usually 
 feel the call of patriotism or the lure of adventure except when he 
 contemplates entering the active military establishment. The pecu- 
 niary motive alone must generally be looked to as the means of indu- 
 cing him to enter the industrial army of the government. He will not 
 often voluntarily leave his position and apply for one in munitions 
 factories at the same wages, because of the costs incident to trans- 
 ferring to a new (and often distant) employment, and because of the 
 ephemeral nature of the demand for war materials. Very high wages 
 are therefore required if he is to be tempted. 
 
 Similarly, the government must pay very high prices for the 
 materials supplied if the capitalist is to be tempted into new and 
 uncertain fields. Can he get efficient laborers for this work ? How 
 high wages will he have to pay ? How long will the war last ? These 
 are but a few of the questions the industrial manager has to ask and 
 answer as best he may. Generally speaking, he will assume the 
 speculative risks involved if the financial inducements are high enough, 
 but not otherwise. 
 
 It should be observed in this connection that the government's 
 inducement must be high enough to cover all costs incident to the 
 transition into the war business, the losses due to high cost of operation 
 while engaged in the manufacture of war supplies, and finally the 
 losses incident to the transition back to peace-time industry in the 
 period of reconstruction at the close of the war. Now there may be a 
 few who would volunteer under these circumstances; but the general 
 tendency in any event would be to delay as long as possible, to delay 
 perchance too long to be of any assistance in the prosecution of the war. 
 
 It should be observed, however, that this method eventually 
 results in a readjustment of business to war requirements. It is 
 largely accomplished by a negative process as a result of declining 
 profits from normal operations, caused by a curtailment of consump- 
 tive demand. There are several reasons for this retrenchment in 
 consumption. In the first place, the perfect barrage fire of argument 
 as to the necessity of saving which has been hurled at the American 
 public in recent months is bearing fruit. It is now [J une > I 9 I 8] 
 regarded as unpatriotic not to save as never before in our history. 
 
 In the second place, it is impossible for the rank and file of the 
 American people to buy Liberty Bonds and spend as usual. If they buy 
 bonds it must be at the sacrifice of accustomed luxuries. Moreover,
 
 l8o ECONOMICS OF WAR 
 
 we are now looking forward to the payment of taxes, and we are 
 making our preparations for this by economizing in our normal 
 purchases. It must be borne in mind in this connection also that at a 
 time when the future is so uncertain a great many people are saying, 
 " I had better save all I can now, because there is no telling whether 
 it will be possible for me to save anything in the next few years." 
 
 Finally, it must be noted that the rapid rise of prices in nearly 
 every line eventually forces rigid economy among the masses. Sta- 
 tistics published by the government early in 1918 show that retail 
 prices of foodstuffs in the United States are now 57 per cent higher 
 than they were in 1914, while general wholesale prices are 81 per cent 
 higher. Students of the question are unanimous in the belief that 
 prices will continue to rise here throughout the war, just as they have 
 in the nations of Europe. It will therefore shortly be impossible for 
 the masses of our people to devote much of their earnings to the 
 purchase of nonessentials. They will count themselves fortunate if 
 they are able to purchase enough of the necessities of life to sustain 
 themselves in a state of normal efficiency. Already in many cases the 
 pinch of war prices is beginning to mean real privation. 
 
 These forces, however, do not for several years result in a complete 
 shifting of productive energy from nonessential lines. The chief 
 reason for this is that the laboring classes, who as a result of the war 
 receive unprecedentedly high wages, are unable to resist the tempta- 
 tion to spend their new-found wealth for the luxuries and comforts 
 of life, which have so long been denied them. ' This excess of purchas- 
 ing power in the hands of the "rich war laborers" has had a striking 
 manifestation in England; and it began to develop rapidly in the 
 United States in the year 1918. A complete readjustment of industry 
 can be rapidly accomplished, therefore, only by the exercise of some 
 form of coercion on the side of production, such as the exercise of 
 priority rulings or conscription of the use of industrial establishments. 
 
 2. VOLUNTARY INDUSTRIAL MOBILIZATION OF LABOR 1 
 
 In our industrial system the standard mechanism for inducing 
 laborers to move is that of an offer of higher wages. This offer was 
 readily forthcoming from the contractors in war industries, particu- 
 larly from those who held " cost-plus-percentage" contracts, which 
 
 1 By L. C. Marshall. Adapted from "The War Labor Program and Its 
 Administration," Journal of Political Economy, XXVI (1918), 425-60. 
 
 ED. NOTE. Mr. Marshall is dean of the School of Commerce and Adminis- 
 tration, University of Chicago; now Chief of the Section on Industrial Relations 
 of the Emergency Fleet Corporation.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 181 
 
 made it actually to the profit of the employer to pay high wages for 
 his workers. War contractors "bid away" from ordinary industries 
 their skilled workers, disrupting in so doing some of the basic industries 
 of the country, and then bid against each other for these workers. 
 The lack of general planning, or indeed of general knowledge of the 
 turn events were taking, caused wages to rise very irregularly in the 
 various trades affected, in the various communities affected, and even 
 in the different industrial plants within a given community. 
 
 The competitive bidding of the various contractors was ac- 
 centuated by their firm belief that there was a scarcity of labor, 
 particularly of skilled labor. It is not surprising that this belief 
 should have been prevalent. There was undoubtedly a scarcity of 
 certain kinds of skilled labor; there was a scarcity of many kinds of 
 skilled labor in the congested districts; and the story of England's 
 difficulties in providing skilled labor had been widely circulated. 
 One feature of our situation was very generally overlooked. The 
 scarcity of shipping made our problem very different from that of 
 England. The actual situation is that, conceding scarcity of certain 
 kinds of labor and of many kinds of labor in certain districts and of 
 maladjustment of labor supply in many districts, there is no real 
 scarcity of labor, taking the country as a whole [April, 1918]. 
 
 To this hectic wage situation there was added the fact that we did 
 not have a satisfactory system of employment exchanges through 
 whose activities the movement of workers could take place in an 
 orderly fashion according to carefully determined requirements. 
 The result was that the movement occurred in a highly disorderly 
 manner, guided, if such a term may be used, by newspaper advertise- 
 ments of private industries, by wild rumors of high wages in some 
 distant locality, and by the patriotic desire of the individual worker 
 to be of service. A plant manager in one of these war-industry towns 
 said that "for weeks laborers milled around like cattle" in his town. 
 The story is told of one community in which an investigator met 
 incoming trains and watched workers accept employment in as many 
 as six to ten plants in the same day, moving from one to the other in 
 the hope of ever-higher wages and accepting employment in every one 
 whose wage offer was larger than that of its predecessor. 1 
 
 1 High wages are alleged to have contributed to the demoralization of labor in 
 another way. Reports are numerous that workers stayed away from their tasks 
 some days of the week because the high wages enabled them to make what they 
 regarded as a satisfactory living by working the other days. One plant reported 
 that it had to maintain a pay-roll of 10,000 in order to have an average of 9,000 
 report for work each morning.
 
 182 ECONOMICS OF WAR 
 
 There is, of course, no such thing as a "normal" labor turnover. 
 Some writers have estimated that a labor turnover of 100 per cent per 
 year represents average conditions. In these war industry plants a 
 labor turnover of 400 or 500 per cent was regarded low, and one of 
 i, 600 to 2,000 per cent was by no means phenomenal. 
 
 3. INDUSTRIAL CONSEQUENCES OF VOLUNTARY 
 ARMY RECRUITING 1 
 
 Voluntary recruiting is not merely unjust; it is harmful in its 
 outcome. It is the injustice which causes the obvious and immediate 
 difficulty. For instance, for young bachelors of twenty and twenty- 
 five to remain peacefully smoking their cigarettes in the streets whilst 
 heads of families are risking death is evidently unjust; but it also 
 involves extra expense to the state, for every unmarried soldier costs 
 only eighteen pence a day and his keep, whilst in the case of each 
 married volunteer a wife and almost always several children must be 
 provided for. It was calculated in the month of August that three 
 men who had enlisted in London on the same day were leaving alto- 
 gether twenty-six persons to be supported by the state. Not only, 
 then, for a moral reason should compulsory service, if established, be 
 enforced first of all on bachelors. The voluntary system has other 
 defects still more injurious to the successful conduct of the war. Not 
 only is the number of recruits smaller than it might be, but who can 
 foretell what this number will be to-morrow, or six months hence? 
 It is impossible to estimate and prepare the necessary equipment and 
 the adequate lists of instructors and officers; this became clear in the 
 first months of the war. Such was the sudden rush of volunteers, 
 that for lack of enough buildings, uniforms, guns, and instructors 
 many had to be refused. The men were discouraged; the idea spread 
 that no more men were wanted, and the next appeal met with a poor 
 response ; it was necessary to resort to new propaganda. Then there 
 was another difficulty leading to another kind of confusion. A man 
 would often enlist for a particular corps or a particular service only. 
 A chief engineer, priceless in the workshop, would insist on going to 
 the firing line ; an unskilled mechanic would prefer to serve at home in 
 a factory. Finally, for lack of the numbers of fighting men which 
 
 1 By Andr6 Chevrillon. Adapted from England and the War, pp. 197-99. 
 Copyright by Doubleday, Page & Co., Garden City, New York, 1917. 
 
 ED. NOTE. M. Chevrillon is an eminent French writer. This volume was 
 printed in England with a preface by Rudyard Kipling.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 183 
 
 conscription would give, the state, as the war extends and the need of 
 soldiers increases, ends by taking all who offer themselves, even boys 
 and weaklings, who quickly sink to the hospital and are finally dis- 
 missed. Time was required to reveal all these defects, some of them 
 clearly immoral, of a system which owes all its prestige to its appear- 
 ance of superior morality and the force of tradition. 1 
 
 4. SELECTIVE MILITARY CONSCRIPTION 2 
 
 One form of mobilizing the labor resources of the country for war 
 production is through the negative process of selecting tne men for 
 the Army with full regard to the needs of industry. In July, 1918, 
 this .problem had assumed so definite a shape in the United States 
 that the Chicago Daily News writes editorially as follows: 
 
 Mr. Baker says that from within the present draft age he can get all 
 the soldiers he needs between now and the first of next January. Yes. 
 But can he get them without taking them from factories and from farms 
 whose output is fundamentally essential to the conduct of the war ? Can 
 he get them without crippling and slowing the war ? 
 
 There are multitudes of idle unmarried men above the present draft age. 
 Some of them are idle in the ordinary complete sense they are loafers. 
 Others are idle in the technical sense they are engaged in occupations 
 which are injurious to the community or else they are busy with tasks (such 
 as cooking) which could easily be performed by women. Hundreds of 
 thousands of these men are perfectly fit for the front. Other hundreds of 
 thousands among them are perfectly fit for service as line of communication 
 troops. And still other hundreds of thousands are perfectly fit for non- 
 combatant work in uniform. And they would not be missed. That is, 
 they would not be industrially missed. 
 
 But consider the cannon industry. We are behind with cannon. At 
 our best, according to authorized statements from Washington, we cannot 
 get our biggest railway-mount cannon ready till next year. Any slightest 
 removal of men from the cannon industry will simply add one more post- 
 ponement to the happy and necessary day when we shall blast the Germans 
 off the soil of France and Belgium. Mr. Baker knows this fact. He 
 knows that when you take a man out of the cannon industry you lose days 
 and days, and perhaps weeks, while finding another man and teaching him 
 
 "The selection in the next chapter entitled "The Organization of Public 
 Opinion in England," by M. Chevrillon, should be read in conjunction with this 
 selection particularly the last pages describing the "compulsory voluntary" 
 recruiting system. 
 
 1 From the Chicago Daily News, July 3,1918.
 
 1 84 ECONOMICS OF WAR 
 
 his new job. And Mr. Baker knows that certain factories in the cannon 
 industry at this minute are lying idle for a considerable number of hours 
 every day because of a lack of men. 
 
 Therefore, in advising Congress not to extend the present draft age 
 Mr. Baker implicitly gives us this promise: 
 
 "From within the present draft age I will get all the soldiers needed 
 during the next six months; and yet I will not take one man from any place 
 where cannon are forged, or from any place where cannon are machined, 
 or from any place where cannon carriages are built, or from, any place 
 where panoramic sights for cannon carriages are assembled, or from any 
 place where optical glass for panoramic sights is ground, or from any place 
 where steel for any portion of any cannon or of any cannon carriage is 
 smelted or refined. I will leave the cannon industry whole. And I will 
 leave the airplane industry whole. And I will leave the rifle industry, and 
 the machine-gun industry, and the powder industry, and every other basic 
 war industry, all absolutely whole. I ask your trust and I pledge you my 
 word." 
 
 5. WORK OR FIGHT 1 
 
 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 exemp- 
 tion on any ground shall show that he is contributing effectively to 
 the industrial welfare of the nation. 
 
 1 By General Crowder.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 185 
 
 6. THE PRIORITY METHOD 1 
 
 Priority must be accorded to the services of war. 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. So matters have stood since time immemorial. This is 
 why it now seems merely common sense to enact a law giving the 
 president authority to claim priority in the transportation of goods 
 essential to the prosecution of the war. Whether the output of steel 
 mills shall be assigned to the building of war ships, merchant ships, 
 railways, office buildings, or summer hotels, should, we all feel, be 
 determined by a like principle of priority. If we have as yet no law 
 guaranteeing priority for military requirements in the field of pro- 
 duction, we feel that this is merely a gap in our war arrangements, 
 to be stopped for the present by patriotic action on the part of the 
 producers themselves. 
 
 What is novel in the present-day conception of priority is its 
 breadth of 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 impos- 
 sible 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 pro- 
 ductive 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 distinctions. A new country house may seem a 
 matter of necessity to the man of fortune, but he will persuade no 
 
 1 By Alvin Johnson (see p. 43). Adapted from "What Priority Means," The 
 Ncii' Republic (June 30, 1917), p. 237.
 
 1 86 ECONOMICS OF WAR 
 
 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. 
 
 7. INDUSTRIAL CONSCRIPTION FOR WAR SERVICE 1 
 
 By industrial conscription the government could transfer laborers 
 from the industries that are unimportant to the fields of production 
 that are imperatively necessary as rapidly as is required, without 
 waiting, possibly indefinitely, for public economizing to force read- 
 justment through the decline of profits and the closing of factory doors. 
 Industrial establishments engaged in manufacturing commodities 
 that are unnecessary for war purposes could by industrial conscription 
 be forced to convert themselves at once into factories for the manu- 
 facture of munitions -and other war materials. New construction 
 that is not necessary for war purposes could be halted and the energy 
 engaged therein diverted to the channels where imperatively 
 demanded. Such a system would reduce to a minimum the social 
 loss of time and energy incident to the transition period. Wisely 
 administered (note the qualification) upon a basis of what may be 
 called selective industrial conscription it would eliminate a great part 
 of the confusion, disruption, and maladjustment incident to the ordi- 
 nary financial method of readjustment. 
 
 Not only are the social losses involved in the transition less than 
 under the method of gradual readjustment, but the direct losses to 
 capitalists are almost certain to be less. Assume that time permits a 
 gradual transition covering a period of two or three years. Would 
 the losses through gradual readjustment by means of the financial 
 machinery be less than through direct commandeering ? The former 
 method means vainly struggling along in present lines with lower 
 margins of profits and heavy losses as reduced sales gradually develop; 
 it is likely to mean with any given establishment months of loss before 
 bankruptcy and then a considerable interval of no business at all 
 while attempting to fit itself into newer lines of production. Only in 
 cases where the rehabilitation of factories is a simple process can the 
 conversion be made without heavy losses. Even in these cases, 
 however, the tendency will be to delay the fatal step as long as possible, 
 and this means until the pinch of declining profits is no longer toler- 
 able. Under the method of industrial conscription, however, the 
 
 1 By Harold G. Moulton. From "Industrial Conscription" (see p. 180).
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 187 
 
 conversion could be forced before the decline in profits threatens 
 insolvency. And, moreover, the losses attending the entrance into 
 the new lines of industry could be reduced to a minimum by directing 
 capital to the places of greatest need. It is a method, substantially 
 speaking, of carefully planned adjustment by a board of experts 
 acquainted with the entire situation, as against the slow and uncertain 
 method of trial and error by business men who hope and believe that 
 business will continue as usual, and who, when eventually forced from 
 present lines of activity, find themselves only partially or inaccurately 
 acquainted with the government's requirements. 
 
 But aside from all this it must be emphasized that the method 
 of industrial conscription saves what is at present more precious 
 than gold itself it saves time. If selective conscription of men may 
 be justified on the ground that the volunteer system is hopelessly slow 
 and uncertain where speed and certainty are indispensable, may not 
 conscription of industry be justified on the same grounds ? If ships, 
 munitions, and food rather than soldiers are to render our greatest 
 service to our Allies, why resort to the method of efficiency in the 
 raising of armies and the method of inefficiency and uncertainty in 
 the raising of crops and supplies ? 
 
 Shall we answer, Because conscription of industry is un-American, 
 because it places autocratic power in the hands of a democratic govern- 
 ment and strikes at the very foundation of our institutions private 
 property, vested interests, free initiative, individual liberty, competi- 
 tion, and all the rest ? A similar answer may be, and has been, made 
 with reference to military conscription, but we have overruled the 
 objection there mainly on the ground that the time element is so 
 tremendously important that ordinary peace-time principles and ideals 
 have to give way. Much as we may dislike the principle and method 
 of conscription, do we not dislike and fear the alternative the 
 indefinite eclipse of democratic institutions more ? 
 
 In one important respect industrial conscription is incomparably 
 less objectionable than military conscription. The man who is 
 compelled to serve in the army is forced to offer life itself in the cause 
 for which he is enlisted ; the man who is compelled to close his factory 
 or convert it to different uses, the man who, as a laborer, is compelled 
 to change his employment, at best offers but his services for a smaller 
 remuneration. It is the old question of life versus property. The 
 nation which protests and believes that there is all difference between 
 a prize court and a submarine between temporary detention of our 
 ships and their cargo with legally determined compensation after the
 
 1 88 ECONOMICS OF WAR 
 
 war and the sinking of our ships and citizens without a warning can 
 make so far as justice is concerned only one decision on the question of 
 industrial versus military conscription. 
 
 The method of industrial conscription obviously raises enormous 
 problems of its own. How shall we provide the machinery necessary 
 to its successful administration? Who shall be given the power to 
 decree life or death for industrial establishments in the exercise of the 
 selective requirements of the plan ? Who shall decide what industries 
 are important to keep alive in war time for recreational and cultural 
 purposes as well as for physical and military requirements ? What 
 man or what body of men can be found with the necessary omniscience, 
 with the requisite prevision, for such a method of industrial reorganiza- 
 tion? I have spoken of a board of experts, but a friend of mine 
 remarks: "We may call them experts but that does not make them 
 really expert; they would be sure to make no end of mistakes; they 
 are not in a position to determine in anything approaching a scientific 
 manner what lines of human endeavor count for most." That there 
 is point to such contentions in piping times of peace I would be the 
 last to deny, but in time of war the problem is profoundly changed. 
 An administrative board giving its entire time to the study of the 
 situation could, it seems to me, determine and guide with considerable 
 wisdom the apportionment of our national energy. The insistent 
 demands of the War Department for ships, for munitions, for supplies 
 furnishes abundant evidence of the things that are needed most; 
 the demand side of the problem certainly has no insuperable obstacles. 
 The determination of what particular commodities shall be dispensed 
 with is perhaps not so simple a task. But could not any of us upon 
 reflection think of a score of commodities that are less important for 
 war purposes than shells, than food, than shovels, than airships? 
 We need not look for 100 per cent efficiency in order to justify the 
 effort. Any percentage of efficiency would be a net gain over the 
 present method of sheer inefficiency. 
 
 XVIII. Lessons from European Experience 
 
 I. FRANCE'S INDUSTRIAL SITUATION IN THE 
 AUTUMN OF igH 1 
 
 The first effect of the war was almost a complete disorganization 
 of French industry. Labor was suddenly taken away from the 
 
 1 By Raoul Blanchard. Adapted from "The Revival of Industry in France," 
 in North American Review, CCVI (July, 1917), 50. 
 
 ED. NOTE. Mr. Blanchard is a French exchange professor at Harvard 
 University.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 189 
 
 quarries, limekilns, cement-works, paper-mills, iron-works. The 
 gravity of the labor situation may be seen when it is understood that 
 the labor supply was reduced by about three-fourths by the call to 
 the colors of all able workingmen from the age of nineteen to forty- 
 five. The paralysis lasted during all the months of August and 
 September, 1914, and the revival of trade was very slow until the 
 beginning of 1915. 
 
 However, it did not take a very long time to discover that this 
 stoppage of all work was a tremendous mistake. The consumption 
 of ammunition and war material is so great in modern battles that 
 even in the supposition of a short war the production of France was 
 not adequate to the demand. That the war would be long began to 
 appear inevitable to the most clear-sighted people during the winter 
 of 1914-15. It was necessary to set about the manufacture of arms, 
 ammunition, and war supplies. The need was much more pressing, as 
 the coal and iron regions of France were for the greater part occupied 
 by the enemy. On the other hand, this supposition of a war of con- 
 siderable duration imposed upon the country the obligation of making 
 the most of all its resources, since it needed still greater revenue to 
 buy supplies in large quantities from foreign nations. The manu- 
 facturers had before them the task of resuming their industries and 
 increasing their output. 
 
 The most pressing duty was of course the manufacture of products 
 necessary for national defense. These are various, and the southeast, 
 to take one district for example, could produce a good many of them. 
 Though the region is not supplied with material for heavy iron-works 
 and could not manufacture guns, it was at least possible to work on 
 shells and grenades, to manufacture explosives, to prepare cotton for 
 powder, to produce timber and cement for the trenches, stocks for 
 rifles, and many other utilities. At the same time an attempt was 
 made to restore the activities of paper-mills and to give an impulse to 
 glove-making and silk-manufacture. 
 
 The difficulties, as may well be understood, were enormous. 
 Everything was lacking; labor, coal, raw material, and transportation 
 services were utterly disorganized. Thus passed several anxious 
 weeks. Little by little these problems were studied and solved with 
 the help of a new administrative organization, the " Sous-secretariat 
 d'Etat de rArtillerie," which became later the "Ministere de 1'Arme- 
 ment." Each particular problem was solved by the most practical 
 means, the power of the state being now a help, and not a hindrance, 
 to private initiative.
 
 190 ECONOMICS OF WAR 
 
 Various schemes were devised to answer the needs of the moment. 
 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 1914-1 5. 
 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 card- 
 board-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 south- 
 eastern region. A newer element was provided by natives from 
 French colonies, namely, Morocco and Algeria. Since the war
 
 PROBLEM OF INDUSTRIAL MOBILIZATION IQI 
 
 started, large numbers of Greeks and Armenians have been imported 
 to France, and during the last two years something like 200,000 
 Chinese have been brought to France for unskilled work. 
 
 The last resource was the enemy itself. There are in France 
 more than 250,000 German prisoners engaged in various work and 
 receiving a salary for it. The largest number are engaged in agri- 
 cultural work, but a good many gave themselves willingly to manu- 
 facturing which was not directly connected with national defence. 
 In the southeast they are building hydro-electric plants, working on 
 the railway tracks or on the roads, or employed anywhere as ordinary 
 workmen. Thus by these various means the difficult problem of 
 labor has been solved. 
 
 2. INDUSTRIAL MOBILIZATION IN ENGLAND 1 
 
 We discovered to our surprise at the beginning of the war that 
 war apparently meant prosperity and not poverty. The huge 
 governmental expenditures and the loans and taxation which they 
 caused resulted in an enormous redistribution of wealth. Wages 
 advanced, and millions found that they had more money than they 
 had ever had before. The result was that consumption actually 
 tended to go up among the poorer classes, and labor and materials 
 vitally required for war purposes were diverted to meeting these new 
 demands. It was some time before our government realized the 
 disastrous nature of this tendency, and it was long before the whole 
 of the people realized that though an individual may be able to afford 
 to be a spendthrift in war time, a nation cannot afford that he shall be. 
 To put industry on a war footing, so that the nation should produce 
 what is required for war and as much of it as possible, required drastic 
 measures on the part of our government. 
 
 Perhaps the simplest way of explaining why such measures were 
 required is to try to give some idea of our national production and 
 consumption in normal times and show how it has been affected by 
 the war. Most figures of national production and consumption are 
 unreliable, but the English figures, though somewhat out of date, 
 happen to be fairly reliable, as they are the result of a searching 
 
 1 By R. H. Brand. Adapted from an unpublished address before the American 
 Bankers Association, September, 1917. 
 
 ED. NOTE. Mr. Brand was vice-chairman of the British War Mission to the 
 United States.
 
 192 ECONOMICS OF WAR 
 
 investigation by a Royal Commission on the Census of Production 
 some years ago. The figures I give are for the year 1907. No doubt 
 by the year 1914 they had been very much increased and have 
 changed still more since, but they will serve as an illustration of my 
 argument : 
 
 In 1907 the British people are estimated to have produced 
 
 goods to the total amount of, roughly $10,000,000,000 
 
 The nation consumed during that year in personal con- 
 sumption 7,050,000,000 
 
 It spent on capital purposes at home : 
 
 a) On betterment of its national plant 950,000,000 
 
 b) On maintenance of its national plant 900,000,000 
 
 It used up goods to the value of (in keeping up and prob- 
 ably increasing its stocks of material on hand) 325,000,000 
 
 It exported goods in the form of loans to foreign countries 
 
 of about 500,000,000 
 
 making up in all the $10,000,000,000 that it actually produced. By 
 1914 probably its income had increased to at least $12,500,000,000, 
 and the surplus of goods which it had over to export as loans to foreign 
 countries seems to have increased from about $500,000,000 to 
 $1,000,000,000. 
 
 What happens then in war time ? First of all there was an enor- 
 mous and growing demand for materials of all kinds for war consump- 
 tion, either in the form of guns, or shells, or military clothing, or 
 food, or motor trucks, or aeroplanes, or any of the hundred and one 
 items of military equipment, and not only for ourselves but for our 
 Allies. 
 
 How was that demand met ? It is obvious from the figures given 
 above that there must be great changes either in production or con- 
 sumption, or there would be no materials at all for war purposes, 
 because they are normally all used up in other directions, and in fact 
 7/10 of what we produced in the year 1907 was immediately used up 
 again in the form of personal consumption by the people. It is clear 
 we must either have increased our production of goods, or reduced our 
 consumption, or, lastly, bought more goods from foreign countries by 
 selling them our liquid capital assets. 
 
 Let us consider first how we can have reduced our consumption. 
 It must have been in one or all, no doubt all, of the following ways: 
 
 i. By cutting off altogether our normal peace loans to foreign 
 countries, i.e., in 1914, $1,000,000,000.
 
 2. By cutting down all normal additions to our 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. 
 
 3. By cutting down and ceasing as far as possible to spend money 
 on the maintenance of our national plant, except the minimum 
 required to keep it running. This expenditure in 1907 amounted to 
 $900,000,000. We have undoubtedly let our roads, railways, houses, 
 and so forth, to some extent deteriorate. 
 
 4. And most important of all, by cutting down our civil personal 
 expenditure. This is so far the largest item of consumption that it is 
 here where the most important savings can be made. 
 
 By these means it is obvious that at the expense of our be- 
 coming poorer and allowing our national plant, our railways, houses, 
 factories, etc., to deteriorate, and by strict personal economies 
 we have been able to turn a large volume of production in the 
 direction of war material; in other words, to devote the labor 
 and material formerly used for the above purposes purely to war 
 purposes. 
 
 But how about production ? Has it decreased or increased ? The 
 greatest productive capacity in a nation is to be found, of course, 
 among the men who are of righting age. In England the total number 
 of "occupied males" between the ages of eighteen and forty-four, i.e., 
 roughly, the conscription age, was, in 1911, 7,200,000. The number 
 of men from the United Kingdom in our army and navy amount to 
 over 5,000,000; therefore, out of every seven of these men, on the 
 average five are now soldiers or sailors. These men are lost from 
 the productive capacity of the nation. It is obvious that if our pro- 
 duction has remained the same, or has increased, it must have 
 been the result of extraordinary efforts on the part of the small per- 
 centage 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. 
 
 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
 
 IQ4 ECONOMICS OF WAR 
 
 have been speeded up, labor-saving machinery in industry and agri- 
 culture 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 con- 
 sumption 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. 
 
 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, abso- 
 lutely impossible before the war have been imposed upon all industry.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 195 
 
 Fixed prices have 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 the industry may now be said to be directed to the require- 
 ments 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. 
 
 On the other side, partly as. result of the goods required actually 
 not being produced, and partly as result of restriction of consumption, 
 either compulsory or voluntary, we have cut down enormously our 
 ordinary consumption of luxuries, and are now cutting down on 
 necessities. Both for financial reasons and owing to the pressure on 
 tonnage caused by the submarine, the government has for long insti- 
 tuted an extremely drastic restriction of imports. I regret myself 
 that these restrictions were not introduced earlier, and here is some- 
 thing in our experience which may be useful to the United States. 
 Perhaps I can bring the situation clearly before you by the following 
 comparison: Before the war, we imported for the needs of our civil 
 population, about 55,000,000 tons of materials of all kinds each year. 
 We are now importing about 30,000,000 tons. Of that 30,000,000, at 
 least 10,000,000 represent munitions of war of one kind and another 
 for our Allies as well as ourselves. The balance of 20,000,000 tons is 
 in the main foodstuffs. Therefore, as against 55,000,000 tons before, 
 we are now getting 20,000,000, nearly all of foodstuffs. 1 
 
 You may think that all my insistence on our increased production 
 and increased economy in consumption has not much bearing on the 
 problem of financing our Allies. But in reality it has the most direct 
 and vital bearing, and your experience in this respect will be the same 
 as ours. We have never once, I believe, refused an Ally the necessary 
 credit if we have been able consistently with our own demands to 
 supply them with the goods which they 'wanted from our own home 
 products. We continue now to grant them the necessary credit when 
 we can make the goods ourselves in Great Britain. But the problem 
 
 1 ED. NOTE. Further drastic restrictions of imports were made in the spring 
 of 1918 in order to release shipping with which to transport American troops to 
 France.
 
 196 ECONOMICS OF WAR 
 
 has been to find the labor and material to produce what they wanted 
 as well as what we wanted. We have as a matter of fact supplied 
 them with every variety of materials in enormous quantities. We 
 have lent them continuously hundreds of ships at cost price, the most 
 valuable commodity in the world. We have supplied them with coal, 
 steel in very large quantities, with guns, rifles, ammunition, explosives, 
 and every other kind of munitions, motor trucks, rails, railway mate- 
 rials, locomotives, and so on. In the year 1916 alone we supplied 
 them, in addition to the materials quoted above, which are of course 
 the most important for war purposes, with 9,000,000 pairs of boots, 
 over 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 forth. 
 
 We have been able to do this and to continue doing it, first of all, 
 because our whole industry is now devoted to war purposes; secondly, 
 because of our intensified productive energy; and thirdly, because of 
 our economy in civil consumption. Without these efforts we might 
 have been prepared to give our Allies the same amount of credit, but 
 that would have been useless, because the goods they wanted would 
 not have been there. 
 
 We have had, however, to assist our Allies, not only by supplying 
 them with what we could produce internally, but by enabling them to 
 purchase abroad. This has been a problem of extreme difficulty and 
 of a character different from any that is likely to face the United 
 States. And it is here that we have had to supplement our resources 
 by the means I have already mentioned, namely, the sale of every 
 liquid asset our government could lay its hands on. 
 
 We are, as you know, by no means a self-contained nation. With 
 all our efforts we have not been able to produce all that we or our 
 Allies have required. The demands of war are absolutely insatiable, 
 and we have neither been able to produce the kinds of things which 
 were required, nor have we had enough of what we could produce 
 ourselves. Copper, for instance, we had to buy from you, and where, 
 as in the case of steel, we produced largely ourselves, so unlimited 
 have been our own and our Allies' demands that there also we had to 
 buy largely from you. At home our supply to our Allies of all articles 
 has been limited only by our productive capacity and our economy, 
 and not by any lack of credit. Abroad it has been limited by our 
 means of payment and by the credit we have been able to secure.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 197 
 
 3. GERMANY'S MOBILIZATION OF NATIONAL 
 RESOURCES 
 
 A. IN 1914' 
 
 On August 4, 1914, when England declared war, the terrible 
 event which has never happened before occurred, ad our country 
 became a beleaguered fortress. Shut in by land and by sea, it was 
 now thrown on its own resources, and war lay before us immeasurable 
 in time and space, in danger and sacrifice. Three days after the 
 declaration of war I could not bear the uncertainty of the position 
 any longer, and I announced myself at the War Office, where Colonel 
 Scheuch received me in a friendly manner. I told him that our 
 country was provided with the necessary material of war only for a 
 limited number of months. He agreed as to my calculation of the 
 duration of the war, and so I put this question to him: "What is 
 being done, what can be done, to prevent a shortage of supplies ?" 
 
 The first question which met us was a question of discovery. We 
 had to know for how many months the necessary supplies would last. 
 On this hung every measure that we took. The reports of various 
 industries were contradictory to the extent of 10 per cent in most 
 cases. I was told that I could get the statistics in six months. But 
 I had to get them in a fortnight. A daring conception, a hypothesis, 
 was necessary, and this plan succeeded. It was assumed that the 
 average output of German industry would be in the same proportion 
 as in any given large group of firms. The War Office had 900 to 1,000 
 contractors. If we sent around inquiries to these firms and gathered 
 what their power of production was in their various industries we 
 should be able to arrive with some probability at the total capacity 
 of the country. It was a question of big figures and the experiment 
 succeeded. In a fortnight light began to come, and in three weeks 
 we had accurate information. In a few materials the supply was 
 more than sufficient for the war demands at that time, which have 
 since been greatly exceeded. But in the great majority of cases it 
 was much less. 
 
 There were four possible methods to establish industry on a firm 
 basis and to guarantee our capacity for defense. In the first place, all 
 
 1 By Walter Rathenau. Adapted from "German Organization at the Begin- 
 ning of the War," an editorial in Current History (January, 1917), pp. 7 r 3 & 
 
 ED. NOTE. Dr. Walter Rathenau, head of the General Electric Company 
 of Germany, was appointed at the beginning of the war to superintend the supply- 
 ing of the German War Office with raw materials.
 
 198 ECONOMICS OF WAR 
 
 raw stuff in the country had to be put in a position that could be 
 commandeered, and voluntary courses and private desires could not 
 longer be consulted. Every material and every half-manufactured 
 product had to be disposed of in such a way that nothing might be 
 devoted to luxury or its relative needs. The flow of things had to be 
 forcibly restricted, so that they were automatically diverted to those 
 final products and means of manufacture which the army needed. 
 That was the first and most difficult task. 
 
 Secondly. [Here the censor has made a complete cut.] 
 
 The third source of supply which offered itself to us was manu- 
 factures. We had to see that everything that was produced in the 
 country was necessary and essential. We had also to see that new 
 methods of production were discovered and developed where former 
 technical means were insufficient. 
 
 And now for the fourth plan. We had to find a substitute for 
 stuff that was in excessive demand in other and more easily made 
 things. Where it was prescribed that this or that object had to be 
 made out of copper or aluminum, it could be made out of something 
 else. Something different had to be found, and old-fashioned methods 
 of manufacture had to be put on a new basis. 
 
 When the old methods became troublesome, owing to the need 
 of material, prejudice had to be broken down, and products had to 
 be made, which was more easily done in view of our means of supply. 
 
 These were the methods which came under survey. They were 
 not the solutions of the difficulties, but they showed the way, possible 
 means of solution, and the hope of attaining our ends. 
 
 B. COMPULSORY CIVILIAN SERVICE, 1916' 
 
 The German Reichstag on December 2, 1916, adopted a compul- 
 sory civilian service bill by a vote of 235 to 19. This is the most 
 drastic step ever undertaken by any government to mobilize all the 
 man power of a nation by force. It represents the apotheosis of 
 organization in war and confirms the absolute confidence of the 
 German people in the invincibility of their organizing talent. The 
 execution of this measure is in the hands of General Groner, chief of 
 the newly created Kriegsamt (War Emergency Office), who formerly 
 was chief of the Military Railway Service. 
 
 ' Adapted from "Germany under Civil Conscription," an editorial in Current 
 History (January, 1917), pp. 710-11.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 199 
 
 All men of the whole of Germany from sixteen to sixty are to be 
 enrolled and controlled from one central organization called the 
 Office of War. 
 
 General Groner describes the organization 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 enlist- 
 ment does not suffice we shall not be able to avoid the introduction 
 of compulsion. 
 
 C. GERMANY'S "ORGANIZATION FOR VICTORY," 1916' 
 
 Germany is girding up her economic loins for a finish fight if 
 necessary. 
 
 Germany is preparing for a war lasting to all eternity. We shall 
 first double our present production of ammunition and other war 
 material, then treble it, and so on and on until every man and every 
 woman will be working in the defense of the Fatherland. By spring 
 we shall be running under full steam. 
 
 The object of the new patriotic auxiliary service, as the Germans 
 call the general mobilization of labor and economic resources, is to 
 make all the nation's resources, human and material, effectively 
 available for the prosecution of the war. We must not figure on the 
 war ending next year or the year after. We must not bother our 
 hearts as to whether England or any other state will want to make 
 peace sooner or later or ever. We must not organize for the next few 
 months only, or allow ourselves to be influenced or guided by any 
 
 1 By General Groner. Adapted from Staff Correspondence of the New York 
 Times, December 14, 1916. 
 
 ED. NOTE. As indicated above, General Groner is director of the War 
 Emergency Office of Germany. This selection is from an interview with a staff 
 correspondent of the New York Times. It is significant to note that sixteen 
 months after this organization was effected General Ludendorff was able to say 
 (at the opening of the great spring offensive of 1918) that the Teutons were 
 superior to the Allies in every form of war supplies a statement which was not 
 officially denied by the Allies and which events in succeeding months did not belie.
 
 200 ECONOMICS OF WAR 
 
 other considerations than the determination to continue the winning 
 fight so long as it may be necessary. That would only shunt us on to a 
 false track. We must make ourselves absolutely independent of the 
 rest of the world. Only thus can we achieve the whole measures. 
 
 The mobilization of labor and economic resources is not a tem- 
 porary or half-way measure. We assure you it is not dictated by any 
 necessity of the moment. There is, in fact, no such necessity at the 
 present time. It is rather a farsighted policy to prepare for any and 
 every possible eventuality of the world-war. 
 
 We reached the conclusion to do this as soon as we saw that the 
 Chancellor's repeated peace offers fell on stony soil. We decided then 
 that it was necessary to organize for a fight to a finish. There is, 
 however, no rush, no hurry about it. The change will, and must, 
 come very gradually. Such a colossal change can not be dictated at 
 the Board of Directors' table and effected immediately. It is rather 
 an organic development or evolution from one organic state to another, 
 embracing and affecting the whole nation. 
 
 One may regard it as a great pyramid, of which the base is coal and 
 iron. Then comes the transportation question. Then the auxiliary 
 raw materials requisite for the manufacture of powder, steel, etc. 
 Then the necessary semi-finished products, the finished shells and 
 cannon forming the apex of the pyramid. 
 
 Closely connected with all this is the food question, in which I am 
 also interested. We are building from the ground up. We are first 
 going to double the output of shells and cannon, but we are not 
 beginning at the top with the manufactured article. On the contrary, 
 we are first doubling the coal and iron base of the pyramid by enlisting 
 the workers necessary to double the output of basic raw materials. 
 Intimately connected with this, we are taking measures to supply 
 adequate food to the heavy workers, notably fats from the Hindenburg 
 fat fund, to which, in answer to the Field Marshal's appeal, gratifying 
 contributions are pouring in from the patriotic German peasantry 
 and agriculturists, who now thoroughly realize what is at stake. 
 
 Next we are taking up the transportation question, first doubling 
 traffic facilities for transporting coal and iron and other necessary raw 
 materials by both rail and water, the canals being of especial impor- 
 tance for the war industries. 
 
 German locomotives are running to the Taurus in Asia Minor. 
 We are operating practically all the Serbian railways with German 
 rolling stock. We have thousands of cars in Transylvania and
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 201 
 
 Roumania, to say nothing of other occupied territories. After the 
 transportation problem, we .are taking measures to double the pro- 
 duction of the auxiliary raw materials and semi-finished products. 
 As one example, we are doubling our efforts for the manufacture of 
 nitres from the nitrogen of the air. Not only of the basic raw mate- 
 rials, coal and iron, but of auxiliary raw materials we have no lack. 
 
 The brains of our chemists and technicians are supplying the 
 missing imports, and will continue to do so. Only when we have 
 accomplished all this will we proceed to the last step of doubling the 
 production of shells and cannon. Such a war is not to be won by 
 looking ahead from month to month, but only by thinking of the 
 distant future. After we have doubled the pyramid, we shall proceed 
 to treble it. 
 
 By spring we shall be going full steam ahead. After that our 
 production will increase from month to month ; and we have the labor 
 and raw materials for keeping up the pace indefinitely. 
 
 The male working forces available between the ages of seventeen 
 and sixty, as provided by the Auxiliary Service law, will cover our 
 requirements into the distant future, but ultimately, aside from the 
 children, aged and sick, every man and woman will be enlisted for 
 home defense, if necessary. The home army will be the whole nation. 
 
 What we are engaging on is not alone the progressive mobilization 
 of all the nation's physical strength and material resources, but the 
 mobilization of the nation's brains. An army corps of professors, 
 scientists, chemists, engineers, technicians, and other specialists is 
 already working with the Kriegstaat. Our idea is to be eminently 
 scientific and practical no theorizing. We are working to show 
 results. 
 
 We are co-operating closely with the war industries of Turkey, 
 Bulgaria, and Austria. It means doubling and trebling their ammuni- 
 tion supply, too. 
 
 The military successes achieved in Roumania, which synchronize 
 with the birth of patriotic auxiliary service, are an advantage that 
 cannot be overestimated. The Danube means everything to us. 
 Last year we had to beg Roumania for her oil and grain and pay our 
 good money for it too. Now we don't need to beg costly favors of 
 Roumania. 
 
 Lloyd George does not scare us. We have, however, not time for 
 busying ourselves with politics; we have more important things to 
 do supplying Hindenburg with the means of victory.
 
 202 ECONOMICS OF WAR 
 
 4. THE ECONOMIC BREAKDOWN OF RUSSIA 
 
 A. HOW RUSSIA NEGLECTED ECONOMIC ORGANIZATION 1 
 
 At the beginning of the war the Russian government did not 
 anticipate more than a few months of fighting and accordingly made 
 no plans for a prolonged struggle. The Russian public acquiesced in 
 this program, and civilian aid was primarily directed to relief work 
 for the sick and wounded of the army. 
 
 The mobilization of the army was carried out with great speed 
 but regardless of economic consequences. The policy of the Russian 
 government seemed to be the simple one of calling to the colors great 
 numbers of soldiers (20,000,000 men were mobilized) who should be 
 sent to the front without delay, without adequate equipment, and 
 without thought of the effects upon the industrial organization back 
 of the lines. As a result of this policy the first months of the war 
 completely dislocated the economic life of Russia. Among the 
 instrumental factors in the situation the following may be mentioned. 
 
 "First, the disproportionate mobilization of the man power of the 
 nation served as a heavy drain upon the supplies of food and manu- 
 factured goods. Production of necessities shortly proved inadequate 
 to supply the army with the necessities of existence. The situation 
 was rendered much worse because of the wasteful and corrupt methods 
 of the Commissary and other services. 
 
 Second, Russian industries were disorganized because it was 
 necessary to evict the German element that had established itself, 
 under a definite program of penetration, in almost every branch of 
 industry. It was not a question simply of taking over the German 
 capital that had been invested in Russia, for in almost every case 
 German capital had been accompanied by German administrative 
 control of the enterprise. Many factories and other enterprises had 
 to close down, for the moment at least, because the directors and 
 managers were German subjects, requiring internment. 
 
 Third, the war closed all of Russia's ports except Vladivostok and 
 Archangel. These two ports were used exclusively for the import of 
 war munitions. As they were inadequately equipped to handle even 
 this most necessary import, this meant practically a prohibition on 
 the import of any but war supplies. 
 
 1 By Samuel N. Harper. 
 
 ED. NOTE. Mr. Harper holds the chair of Russian language and institutions 
 at the University of Chicago. He has spent many months in Russia since 1914 
 and was an eye-witness of the Revolution of 1917.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 203 
 
 Fourth, the herds of the provinces immediately behind the line 
 of battle were simply requisitioned, in some instances whole herds 
 being taken without any regard to the future economic welfare of the 
 given districts. Time and distance alone prevented requisition from 
 all parts of Russia. The cattle were taken to the front in herds, often 
 driven on foot, and were slaughtered on the spot where the meat was 
 needed for the soldiers, the hides being thrown aside to rot. As a 
 result of this wasting of the hides the supply of leather for military 
 uses and for shoes for both the army and the civilian population was 
 soon utterly inadequate to meet the requirements. 
 
 Horses were also requisitioned for the armies, leaving the supply 
 for agriculture quite inadequate for the needs. As a result of 
 decreased agricultural production and a lack of transportation 
 facilities, the army horses could not be supplied with food and they 
 died by the tens of thousands. 
 
 Fifth, the railway system of Russia, far from efficient even in 
 peace times, broke down completely by the end of the first year of the 
 war, because the rolling stock was allowed to deteriorate. The 
 number of what the Russians call "sick" locomotives and cars, which 
 were simply put aside, though very slight repairs would have returned 
 them to service, was enormous. The basic difficulty here was that 
 the railway repair shops were converted into munitions factories. 
 
 Sixth, the converting of many industries to the manufacture of 
 war supplies, and the taking over of the entire output of many manu- 
 facturing concerns for the supply of the army, led to a shortage of 
 manufactured articles on the open market for the civilian population. 
 By the end of the first year the shelves of many large warehouses of 
 firms dealing in clothing, boots, and so forth, were empty. By the 
 third year of the war so great was the dearth of cloth that one noted 
 that while the lines in front of the bakeries formed only in the early 
 morning hours, housewives gathered in front of the shops which sold 
 cloth, at eight in the evening, to wait the twelve hours of night for the 
 opening of the shop in the morning. 
 
 The Russian public from the very first weeks of the war organized 
 to assist in the care of the wounded and sick soldiers. The organiza- 
 tion was mainly through the local government bodies, called municipal 
 and provincial councils, which formed "All-Russian" Unions to 
 co-ordinate their activities. The men at the head of these so-called 
 public organizations, as opposed to governmental departments, 
 realized toward the end of the first year of the war that they must 
 extend the field of their activities in order to prevent the growing
 
 204 ECONOMICS OF WAR 
 
 disorganization of the economic life of the country. So these organi- 
 zations entered upon a campaign of "saving" and "production." 
 They saved the hides that were being thrown away, collected the 
 discarded boots at the front and repaired them, and took over the task 
 of supplying the underwear for the whole army mobilizing the 
 village co-operative societies to fill the large orders. And they did 
 much to organize the refugees from the invaded districts for productive 
 work. In a word, these men saw that the war was going to extend 
 into years and they realized that only foresight and organization of 
 productive resources would make it possible for Russia to withstand 
 economically the burdens of a protracted struggle. 
 
 The attitude of the governmental authorities (the bureaucratic 
 departments) toward the work of these non-bureaucratic, but public, 
 institutions (the Unions of the Municipal and Provincial Councils) 
 was one of suspicion and antagonism, and difficulties were put in their 
 way with the deliberate intent to block their activities. The insti- 
 tutions were suspected of pursuing political aims. Only when it 
 became clear that the ruling group in the bureaucracy was consciously 
 allowing the country to drift into a state of anarchy in order to bring 
 Russia out of the war did these leaders venture to risk revolutionary 
 methods of action. 
 
 The president of the All-Russian Union of Provincial Councils, 
 the Zemstva, was Prince Lvov, the first Prime Minister of the new 
 Russia after the revolution of March, 1917. In the monthly reports 
 of the work of the All-Russian Union of Zemstva, Prince Lvov 
 repeatedly issued warnings of the impending economic collapse of the 
 country. But neither he nor Kerensky was able to liquidate the 
 heritage received from the old regime in time to stave off the series 
 of economic and financial crises of which the Bolsheviki availed 
 themselves. 
 
 B. A WARNING OF IMPENDING ECONOMIC COLLAPSE 1 
 
 The end of the war cannot be seen, and no human vision can at 
 this moment define its duration. Only the united will for victory 
 of the peoples struggling against the German coalition gives confidence 
 in, and the safe foundations for, a lasting peace. Therefore all the 
 
 1 By Prince Lvov. Translated from Bulletin of the All-Russian Union of 
 Zemstva, October, 1916. 
 
 ED. NOTE. Prince Lvov was at the time president of the All-Russian Union 
 of Zemstva.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 205 
 
 questions of the continued and organized regulating of the supply of 
 articles of prime necessity to the army and to the civilian population, 
 and first of all the problems of food supply, have become more and 
 more present and persistent. We note the daily instances of dis- 
 organization in the supply of food and articles of first necessity 
 prices have gone up enormously, and frequently one cannot secure 
 products at any price. The reason lies solely in the absence of proper 
 organization and also the absence of definite knowledge as to what we 
 have and what we need .... [ten lines deleted by the censor]. 
 
 At the present moment comprehensive statistical material has 
 been collected, which gives a certain amount of information. But 
 untiring effort is needed in this field. But most of all one must 
 have the co-ordination of all supply enterprises, with the institution 
 of a single responsible control over them. It is important that all 
 institutions that have to do with problems of supply should act on the 
 same established principles, while local public forces should be secured 
 the widest possible latitude, as they are better acquainted with the 
 actual economic needs of the population. 
 
 Finally, society itself must learn to see in all these questions a 
 national significance, and interests of state, which will supersede both 
 class interests and also class prejudices. Both these factors exercised 
 considerable influence during the discussion of the fixing of the price 
 of wheat. Some tried to show that "landlord" Russia had the right 
 to the same war profits as were received by representatives of the 
 industrial class in time of war. Others saw "agrarian influences" 
 where in fact it was simply a question of supporting the fundamental 
 source of our national wealth, the labor of the agriculturalist, who not 
 only uses bread but also sells it. But we shall know how to free 
 ourselves here from mere phrases and to look directly at our Russian 
 situation without any desire to make disclosures, but with the idea 
 of assisting. We shall at the same time know how to develop in the 
 public the strong sentiment and discipline which come from a sense 
 of responsibility and national duty.
 
 206 ECONOMICS OF WAR 
 
 C. THE SITUATION IN THE THIRD YEAR OF WAR 1 
 
 The old regime has seemingly done everything deliberately to 
 destroy and demoralize the trade-industrial apparatus it took years 
 to build up. As a result the usual course of the country's eco- 
 nomic life was stopped, and at the same time, through the pecul- 
 iarly enforced system of regulations, a wide field for all sorts of 
 abuses and speculations was opened. We must frankly acknowledge 
 that from these abuses and speculations a system of oppression grew 
 up which has called forth fully merited reproach, distrust, and hostile 
 feelings towards the representatives of the trade-industrial class. 
 
 At the same time there can be no doubt but that under present 
 circumstances, lacking most of the necessaries of existence, with the 
 factories and mills forced to cut down their production due to lack of 
 raw material and fuel, with the demoralization of the transportation 
 system, and being compelled, despite all these obstacles, to meet the 
 numerous requirements at the front there is no other way out but 
 government control of private industrial and mercantile enterprises, 
 and the cooperation of the democratic masses of the population in 
 the matter of regulating the trade-industrial life of the country. In 
 addition to fair distribution it should be the task of all the committees, 
 which are to become parts of the Ministry, also to regulate the prices. 
 
 Closely connected with this question there is another one which I 
 personally consider of tremendous importance. I have in mind the 
 question of limiting the profits of all mercantile and industrial estab- 
 lishments. 2 Undoubtedly a properly worked-out solution of this 
 question would have the tendency to check the unwarranted growth 
 of prices that would appease the masses. The moral effect of a decree 
 limiting profits is of tremendous importance, not only in that it would 
 soften the feeling of ill-will towards the trade-industrial class, but 
 also because it would afford the government a new, convincing proof 
 that the commercial and industrial class is ready to make all possible 
 sacrifices for the common good, a proof which would paralyze the 
 voicing of any new demands on the part of the masses. 
 
 1 By A. I. Konovalov. Adapted from an address before the Moscow Stock 
 Exchange on April 14, 1917. Printed in The Birth of the Russian Democracy, 
 pp. 260-64. Copyright by A. J. Sack (Russian Information Bureau, Woolvvorth 
 Building), New York City, 1918. 
 
 ED. NOTE. Mr. Konovalov has been one of the most prominent financers of 
 Russia and was minister of trade and industry under the first provisional govern- 
 ment of Russia. 
 
 1 ED. NOTE. See selection LIII, 2, for Russian prices in 1918.
 
 PROBLEM OF INDUSTRIAL MOBILIZATION 207 
 
 Now, these are the main ideas, the fundamental points of view 
 which the trade-industrial class should consider as a starting-point in 
 its efforts to win the confidence of the population and to safeguard 
 that important position which it ought to occupy in the life of the 
 country. 
 
 The situation is becoming all the more difficult because of the 
 ever-increasing famine due to the shortage of means of production 
 as well as of all the necessaries of life; this famine will be felt very 
 acutely, not only on account of the lack of these goods, but also because 
 of the overabundance of paper money. Uncontrolled commerce with 
 a tendency for acquisition of property abroad, which is prone to 
 develop under such circumstances if left to private enterprise, must 
 lead to the further depreciation of the ruble.
 
 
 OBSTACLES TO RAPID MOBILIZATION IN 
 LIBERAL COUNTRIES 
 
 Introduction 
 
 The anxious query has many times been raised since 1914, Can a 
 nation with democratic institutions be made efficient for the purposes 
 of war? The answer has apparently been that, given time, liberal 
 states can cope reasonably well with autocracy. It seems to be gener- 
 ally agreed that whatever a nation such as England, for example, may 
 now lack as compared with Germany in the matter of thoroughgoing 
 co-ordination of effort and in disciplined efficiency is largely offset by 
 "spiritual" forces that are unknown in the heritage of Teutonic 
 culture. Whatever may be the balance of these ultimate factors in 
 military efficiency, it is one of the most obvious lessons of the war 
 that, without abundant time, individualistic countries such as England 
 and the United States would have been impotent in the present 
 conflict. 
 
 The organization of public opinion in England (Section XIX) 
 reveals the tremendous handicap that a heritage of individualism 
 imposes to a rapid and effective mobilization for war. Incidentally, 
 the recognition of social responsibility and community interest that 
 is eventually brought home to individualists is one of the most salu- 
 tary results of the war. It may lead us generally to understand that 
 the essence of democracy is a co-operation in which it is the duty of 
 each to contribute to the common good according to his ability. 
 
 At the time of our entrance into the war it was confidently 
 assumed by most Americans that whatever might be our shortcomings 
 on the distinctly military side of war, the American genius for business 
 efficiency would manifest itself in a way that would amaze the Old 
 World. Yet the first year of the war revealed that we were " weakest 
 where we were supposed to be strongest." What was wrong ? Two 
 things. First, the individualism which characterizes ordinary 
 business activities has little place where the task is a national one 
 that of organizing and co-ordinating the business activities of half a 
 continent with a single end in view. It required the better part of a 
 
 208
 
 OBSTACLES TO RAPID MOBILIZATION 209 
 
 year for this race of amateurs in the matter of national economics 
 to come to a real appreciation of the nature of the industrial problem 
 that confronted us. Second, there appears to have been a very general 
 inability to appreciate the importance of the time element. Quantity 
 production of standard supplies was the end sought, and, moreover, 
 since we are the nation of great inventions, everything must perforce 
 be of American design. The result was paralysis in many lines of 
 war manufacture. 
 
 Significant revelations are made (Section XXI) bearing on the 
 flexibility of our governmental machinery, of its efficiency for the 
 purposes of warfare, and of its adaptability in general to the condi- 
 tions of the intricate social and industrial world of our times. The 
 concrete examples of the task involved in developing the machinery 
 for war administration in the field of labor and industry respectively 
 (Section XXII) are given in detail in order that one may realize the 
 enormous amount of time that is required for a nation with no admin- 
 istrative agencies for war and few for peace merely to get ready 
 to do something efficiently. 
 
 XIX. The Organization of Public Opinion in England 1 
 
 In order to organize England the first thing was to organize public 
 opinion. This is necessary in a democracy, where the state has no 
 prestige and no power to command, where also it lacks the means of 
 exerting pressure on public opinion. 
 
 In England public opinion organizes itself, and pretty quickly, 
 when urgent questions arise. This is a result of natural adaptation; 
 it is a form of reaction gradually acquired, and now become instinctive, 
 because necessary in a country where no measure of national safety 
 can be taken unless opinion insists upon it. At the end of May, 1915, 
 it was given to the writer to see the beginning of this operation, an 
 operation that was to result in really organic changes. Its progress 
 and each of its different phases could be followed from day to day. 
 First came the alarm bell of the Times, 2 which all the great newspapers 
 re-echoed; then questions in parliament, meetings throughout the 
 
 1 By Andr Chevrillon (see p. 182). Adapted from England and tlie War, 
 pp. 163-68, 202-13. Copyright by Doubleday, Page & Co., Garden City, New 
 York, 1917. 
 
 2 ED. NOTE. The occasion for the alarm was the utter collapse of an Eng- 
 lish attack in Artois, made in co-operation with the French, owing to an almost 
 complete lack of high explosives.
 
 210 ECONOMICS OF WAR 
 
 country, with speeches by the chief party leaders and popular speakers 
 after this, letters from the public to the papers, examining the new 
 question from all sides, many of them signed by famous names 
 authors, professors, bishops; on the fifth day, the first posters, put up 
 by the voluntary recruiting committees, summoning the workmen, 
 by striking pictures, to work in the munition factories; and at the 
 same time, at all the news agencies and on the railway bookstalls, the 
 first propaganda pamphlets on the following Sunday in the towns, in 
 church and chapel alike, sermons delivered by famous preachers, 
 stimulating the minds to the idea of the unanimous and necessary 
 effort. A week later, in a little country church, where the rector was 
 addressing his congregation of farmers and labourers, I heard the last 
 vibrations of the alarm bell passing over the quiet rural world. 
 
 We saw what the sensation was. England was realizing what she 
 lacked in order to fight Germany: a systematic organization com- 
 manded from above. Insufficiently directed by a party government 
 which had never imagined any other enemy than the opposition party, 
 left to her routine, to her faith in the happy tendency of private 
 activities to adjust themselves mutually for the general welfare, 
 England, in this war in which industrial superiority seemed to play 
 the decisive part, England, the classic country of mechanical industry 
 on the great scale, had shown herself for ten months powerless 
 some people said openly incompetent. Towering furnaces, forges, 
 foundries, factories unceasingly covered with a pall of everlasting 
 smoke her northern and western counties, yet she had not been able 
 to cast, turn, and forge the cannon and shells, the accumulation of 
 which, still more than the numbers of the men, would compel victory. 
 Such a fact seemed amazing and all-important. Not only did it 
 leave English soldiers defenceless in face of an enemy who had 
 increased his armament to an incredible extent, not only did it detain 
 in England the greater part of the new troops, which for lack of arms 
 and munitions it was futile to send to be shot down by the Germans, 
 but it discredited England in the eyes of many Englishmen, for it 
 betrayed what seemed a national inaptitude. Thus it called in 
 question the fundamental habits and principles of the English com- 
 munity. 
 
 In these extraordinary circumstances it was clear that the individ- 
 ual should no longer be free, that he must serve at the post appointed 
 for him by a sovereign and competent authority. The country had to 
 change her whole method of life, the old English method of adaptation
 
 OBSTACLES TO RAPID MOBILIZATION 21 1 
 
 after the event, of adjustment under the spur of circumstances. 
 Wait and see was, when the war was as yet but threatening, the latest 
 definition of this method: but now to wait for the facts was dangerous. 
 Facts must be forseen and provided against; nay, they should be 
 compelled. It was no longer a question of adjustment to reality, but 
 of bringing new realities into being. Thus sprang up the vision of, 
 and the longing for, a new England, similar, but for the state of war, to 
 that of which Mr. H. G. Wells had already sketched an ideal picture 
 an England ruled by an idea which may thus be defined: co-ordination, 
 discipline, integration of the individual into a system, a system set up 
 by the state for its own purposes and exacting the subjection of all to 
 national ends. Naturally this idea was sure to meet with resistance, 
 and it still has its opponents. Such changes in the modes and trend 
 of life of an ancient nation attached to its habits and traditions can 
 be accepted but slowly, but such was the impelling force of the new 
 idea that it passed at once into act. Ten days after the alarm raised 
 by the Times the old radical government committed hara-kiri, and a 
 cabinet was formed such as had never been seen, for it brought together 
 both parties, no doubt in order to attempt measures as unprecedented 
 as itself. Then came the creation of a munitions department directed 
 by Mr. Lloyd George, hitherto a specialist in democratic budgets, 
 but now cheered by the Conservatives because they know his power 
 and that no one can speak to the working men as he does and he did 
 speak to them at once, at Manchester, Liverpool, and Bristol (June 3, 
 4, and 12), and no longer of their, rights, but of their duties and of 
 necessary discipline. On the twenty-third of June the Munitions Act 
 was passed. 1 Finally, on July 8, came the census, together with the 
 institution of the National Register, on which was to be inscribed the 
 name of every English subject, man or woman, from fifteen to sixty- 
 five years of age, with particulars as to their domestic responsibilities, 
 state of marriage or celibacy, trade or profession, and the special 
 services they can render to the nation, whether for industrial or mili- 
 tary purposes. By this new census, by this register which tells the 
 state what use it can make of each for the good of all, the idea that 
 each member of the community, along with all the others, has a 
 social duty became visible and familiar to all, and people began to 
 consider the possibility of obligations hitherto regarded as impracti- 
 cable in this classic land of individual liberty. 
 
 The great majority of the British Army, two or three millions, 
 enlisted voluntarily. Such a thing had never been seen and would
 
 212 ECONOMICS OF WAR 
 
 not have been thought possible; it is one of the finest collective acts 
 of a nation on record. But all the same, this great tale of the conscien- 
 tious came to an end at last, and then those who had shirked the 
 recruiting office came more and more to be looked on as an inferior 
 class with whom one might take liberties. How much was now left 
 to them of that private and guarded domain of freedom and conscience 
 which no one is supposed to enter? Recruiting agents, volunteer 
 canvassers, clergymen, neighbors and their wives, local notabilities 
 a clamorous throng pours its invasions into this desecrated retreat, 
 urging, forcing the shirker to take the pledge, no longer content with 
 taking what once would have seemed the liberty of putting a question 
 on such a private matter, or daring to offer unsolicited advice. Intim- 
 idations, well-nigh compulsion, are now used; humiliating and unjusti- 
 fiable, exerted as they are by a casual stranger, and not by the state. 
 Life has become unbearable to the man who still takes the word 
 "voluntary" in its literal sense, and still fancies he has the right to 
 refuse. The rector or squire of his village asks the reason of his 
 abstention, his employer threatens to dismiss him, his sweetheart to 
 throw him over, his lady friends cut him, others, whom he has never 
 seen, present him in the street with that English symbol of cowardice 
 a white feather. What now of the sacred principle in whose name, 
 for all its illogical injustice, the country refused to change a system 
 which kept it in a state of military inferiority ? Only a word is left, 
 and the most clear-sighted and sincere of the Radicals, these staunch 
 enemies of conscription, perceive this plainly enough and end either 
 in supporting or at least in tolerating the idea of compulsory service 
 talking no longer of principle but of expediency, and accepting 
 beforehand what the government, the only competent judge of the 
 necessity, decides. "If it must be, it must." 
 
 But for the masses, never given to analysis, a word, even when it 
 no longer corresponds to reality, may remain all-powerful a stimulus 
 to feeling and to action, like some dogma which can inspire fanaticism 
 even when it means nothing to the brain. This essential power of 
 words and signs, and in a more general sense, of appearances and 
 forms, even after the whole substance of trfeir contents has vanished 
 or changed, the English have always intuitively and dumbly under- 
 stood. Instinctively they respect this power; more, they know 
 how to turn it to account, with that innate and deep-lying sense 
 of life and its irrational processes which makes them so indifferent 
 to logic.
 
 OBSTACLES TO RAPID MOBILIZATION 213 
 
 It is this national trait which affords the means of solving, in true 
 English fashion, what would seem, a priori, an insoluble problem: how 
 to impose military service on men who regard it as the most humiliat- 
 ing slavery, and who are not to be coerced. A good enough working 
 solution the English do not insist on theoretical precisions-was 
 found by Lord Derby, who was forthwith commissioned to put it 
 into application. It was voluntary compulsory service. What does 
 the English mind care about the absurdity of such a conception, if 
 it works, as they say, if it gives practical results ? Voluntary enlist- 
 ment, so called, had in fact already become almost compulsory through 
 the pressure of opinion, through the application of well-nigh irre- 
 sistible influences to all who hesitated or refused. It only remained 
 for the state, following the lead of the general public, to assume over 
 the shirkers certain final rights and powers unrecognized by any 
 statute of the written Constitution, even contrary to the spirit of the 
 unwritten Constitution. Observe that great care was taken not to 
 assert these rights and provoke the defenders of ancient liberties and 
 traditions by proclaiming a new principle. The English, when aiming 
 at practical ends, instinctively feel the danger and futility of exciting 
 passions by setting up a new principle against an old. It is by silent 
 and gradual pressure that the state, in its want of soldiers, attempts 
 to extend its powers, assuming no direct responsibility, taking care 
 not to commit itself, simply authorizing provisionally a certain private 
 citizen, Lord Derby, until then quite unconnected with the govern- 
 ment, to exploit a certain private idea of his own, a patent system of 
 which he is the inventor. 
 
 The starting-point of the new system was the National Register, 
 drawn up in July, the chief object of which had been to prepare state 
 control over the individual by instilling into his mind the idea that 
 the community has a right to the service of each of its members, and 
 that such service may be exacted. From this huge catalogue the 
 local committees extracted the names and addresses of all those of 
 military age and transcribed them in special lists (pink forms} . They 
 form a class apart; the state has not seized them, but the state is 
 watching them, and its attitude clearly reveals its purpose. Still 
 the class of men who are wanted is not yet sufficiently defined. For 
 the fact is generally known that the government does not want to stop 
 all the manufactures of the country; it wishes England to go on as 
 long as possible producing and exporting the goods which will enable 
 her to meet her financial obligations greater than those of the other
 
 214 ECONOMICS OF WAR 
 
 belligerents and further increased by loans to her Allies. It is there- 
 fore easy for a man who does not want to enter the army to persuade 
 himself that he is supporting, more or less directly, one of these indis- 
 pensable industries. So Lord Derby adopts the plan of marking by a 
 star placed against their names those who are more useful in their 
 offices or workshops than at the war, the result, of course, being that 
 the others feel themselves more clearly pointed at than ever. He goes 
 further by providing with an armlet all those who have passed through 
 the recruiting office, as a visible sign of their accomplished duty and a 
 protection against public censure which is thereby drawn down on 
 those who do not wear an armlet. More significant still for here 
 the compulsory nature of the system first clearly shows itself special 
 courts are created to decide without appeal who are entitled to be 
 "starred"; and often masters are seen appealing for permission to 
 keep a clerk or workman on the plea that he cannot be spared. Thus, 
 for every Englishman from eighteen to forty, Nelson's order, so often 
 quoted, takes on an ever more imperious meaning. It is no longer, 
 "England expects that every man will do his duty," but England 
 requests every man to do his duty; and the summons is soon so 
 strongly expressed, so insistently repeated, that no one any longer 
 feels free to neglect it, and a stronger will is required to stand back 
 than to enlist. Hitherto the government had left everything to the 
 propagandist societies and committees; now it speaks, urges, 
 threatens, foreshadowing drastic action, and the peculiar tone of its 
 language shows clearly what sort of men it is addressing the so- 
 called shirkers and slackers, who, now that all brave men have enlisted, 
 are almost looked upon as defaulters. "If you are not ready to 
 march," says Lord Kitchener in very plain words, "until you are 
 made to, where is the merit of that ? Where is the patriotism ? Are 
 you going to wait to do your duty until you are fetched?" What a 
 difference between such language, which almost threatens, and the 
 simple, quiet .words which, last May, placed without comment the 
 need before the country, leaving each man to judge and decide for 
 himself ! 
 
 Almost at once, to increase the pressure, the demand becomes more 
 personal, not in the figurative fashion of posters and speeches, which 
 aimed at giving each man the feeling that he was personally addressed, 
 but actually, unceremoniously calling him by his own name, hunting 
 him up at home, pursuing and worrying him in his private life.
 
 OBSTACLES TO RAPID MOBILIZATION 215 
 
 First of all comes a private letter signed by Lord Derby, delivered at 
 the man's house, to impress on him a rigid, simple conception of duty 
 and dispel beforehand all illusory excuse by obliging him to put to 
 himself this catechism: "Am I doing all I can for my country? 
 Would the reason which I am giving for absention be considered valid 
 in a country where there is universal service ?" After this comes an 
 attempt to force a decision by notifying the date after which choice 
 will no longer rest with him; for though enlistment is still supposed 
 to be voluntary, he is warned that if he does not enlist he will at a 
 very early date "be fetched." Whereupon the doorbell rings and the 
 canvasser enters, sent by the local voluntary recruiting committee. 
 Like the members of the committee itself, these visitors are usually 
 local notabilities above military age: municipal councillors, clergy- 
 men, dissenting ministers, merchants, manufacturers, presidents and 
 secretaries of trade unions, workmen, election agents of both parties, 
 officials of political and private societies and each makes a point of 
 calling on those men whom he knows more or less closely, and who are 
 supposed to be open to the visitor's influence, for the whole process 
 is direct, living, and human. If the man is not at home, the orders 
 are to keep on coming until he is found, to tackle him by asking and 
 discussing the reasons of his resistance, by talking to him of allowances 
 and pensions, after which, if the result is negative, a fresh start is to 
 be made, this time indirectly, by trying to put pressure upon him 
 through his family, his friends, or his employer. This employer is 
 sometimes the head of a government department. In that case he 
 has not waited to act. Finally a list is drawn up of the decidedly 
 intractable, which looks very much like a roll of dishonour, and those 
 who base their refusal on religious reasons, as in Russia the Doukho- 
 bors, are in a truly pitiable position. In the presence of such pro- 
 ceedings one can understand the exclamation of a speaker at a meeting 
 of the No-Conscription Fellowship. "Better," he cried, "legal 
 compulsion!" to which, of course, an Englishman can always, if it be a 
 question of defending his conscience, honourably offer passive resist- 
 ance. Yes, the heavy hand of the policeman, prison itself, where a 
 conscientious objector can assume like those in old times who 
 refused to pay ship money the halo of sacrifice and almost of martyr- 
 dom, are better than this continual, nameless persecution, which, 
 whilst pretending to respect your liberty, tries to damage your 
 character. Besides, the man feels that, in fact, he is already no longer
 
 2l6 ECONOMICS OF WAR 
 
 free; he has but the choice between an act which they still deign to 
 call voluntary, and an act which will be exacted from him in a few 
 months, or weeks, by the law, and, in case of refusal, by the police. 
 At the end of November the state feels so sure of its right to the 
 person of every fit man for the defence of the country a right, mark 
 you, not yet put forward by the statute and is so certain of public 
 opinion that it takes that right tacitly for granted, at least in the case 
 of the unmarried men, by suddenly forbidding them to leave the 
 country. Till that moment appearances had been preserved and it 
 could still be said that only a voluntary act had been requested with 
 greater and greater urgency. Theoretically, at all events, "liberty 
 of the subject " was still intact. But when policemen prevent English- 
 men from boarding a steamer bound for a foreign port, conscription 
 or no, a new principle is being applied a new epoch begins in the 
 history of this nation. 
 
 That last measure affected only the unmarried men. The fact 
 is, that by these essentially English methods which respected familiar 
 forms and formulas whilst emptying them of their ancient contents 
 in order to fill them cautiously with an opposite meaning, solutions 
 were being arrived at no less peculiarly English solutions, that is, 
 fragmentary, special to the case, and hi the nature of a compromise 
 solutions in which the new principle is present, but hardly expressed, 
 laying no claim to absolute truth, and thus avoiding challenge to the 
 defenders of the old principle. Conscription perhaps; but first 
 only for this limited class; or, later on, indirect compulsion through 
 the intervention of the local authorities, such as requisition of a 
 certain number of soldiers from every town and county on the 
 supposed authority of obsolete laws suddenly unearthed. 
 
 XX. The Position of the Press 1 
 
 The power of the press for good or for evil is proverbial. In 
 connection with the mobilization of our resources for war the press 
 of the country has for the most part worked at cross-purposes with 
 national requirements and with the explicit desires of the government. 
 This is a strong statement, and it needs qualification as well as explana- 
 tion. It needs qualification in that the newspapers and magazines 
 have been indispensable aids for the dissemination of information as 
 to the causes of the war, and indispensable also in giving publicity 
 
 1 An editorial.
 
 OBSTACLES TO RAPID MOBILIZATION 217 
 
 in connection with our numerous Liberty Loan and Liberty Savings 
 campaigns. The explanation of the statement above is to be found 
 in the attitude of the press of the country toward the advertising of 
 luxuries and nonessentials generally. 
 
 The newspapers and magazines are at all times largely dependent 
 for their financial support upon advertising copy. This advertising 
 is, moreover, largely in the field of luxuries, because the staple 
 lines of necessities require relatively little advertising. In time of 
 war the move for economizing, which sooner or later develops, 
 appears to necessitate, on the part of individual manufacturers 
 and dealers in luxuries, increased advertising as a means of checking 
 a retrenchment of consumption which would mean to them a loss 
 of profits. It is a very natural impulse for the individual who finds 
 his sales declining to try to check such decline by convincing the 
 public that it is important for the nation that his industry be con- 
 tinued in order that the necessary revenue may be available for 
 government purposes. It is easy to understand also that the news- 
 papers, which so largely depend upon advertising of luxuries for their 
 financial support, should hesitate to refuse advertisements of such 
 commodities. Indeed the increased advertising that war occasions 
 appears as a godsend to the newspapers, whose costs of manu- 
 facturing, as well as news service, is tremendously increased under 
 war conditions. 
 
 As a result of the situation thus outlined we find that the press of 
 the country not only has advertised luxuries and nonessentials of every 
 description continuously since the war started, but, until very recently 
 in this country, has been in its editorial columns a strong opponent 
 of economizing and an ardent proponent of the doctrine of business 
 as usual. The gravity of the problem is revealed by the fact that one 
 of the largest publishing companies in New England refused in March, 
 1918, to print a quarter-page advertisement consisting of quotations 
 from President Wilson, Treasurer McAdoo, and the chairman of the 
 War Savings Committee, which urged economizing as a matter of 
 national importance, after having contracted to run such advertise- 
 ment for four days and having already carried out one-half of its 
 contract. On April 12 this publishing company settled with the 
 inserter of the advertisement for a breach of contract by paying $500 
 damages. The circumstantial evidence of the case is that the adver- 
 tisers of nonessentials controlled the policy of the publishing company
 
 218 ECONOMICS OF WAR 
 
 and exercised its control to the extent of excluding from its advertising 
 pages official statements on the subject of economizing. It is not 
 putting it too strongly to say that for the first year of the war the press 
 of the United States stood almost unanimously opposed to the curtail- 
 ment of nonessential production implicitly if not explicitly. 
 
 However much we may sympathize with the position of the press 
 occasioned by their unfortunate dependence upon the advertising of 
 luxuries, we must nevertheless set it down as one of the strongest 
 obstacles to a rapid mobilization of our industries. ' A government- 
 controlled press would have early centered upon the newspapers as 
 one of the more effective agencies ^ or the preaching of thrift. A 
 democratic press, by the very nature of our institutions, can be coerced 
 in the support of government requirements in opposition to its own 
 pecuniary interests only after many months, if not years, of war 
 experience. 
 
 XXI. Working at Cross-Purposes 
 i. WHY AMERICA LAGS 1 
 
 The different branches of our government and administration 
 are not in the habit of working together. We took over from an age 
 of despotism the conception of the government as a potential enemy, 
 which we had to divide in order to conquer. Our administrative 
 departments, to be sure, are directly dependent on the president, and 
 in specific cases might, by his order, be made to work together. But 
 in practice they do not work together regularly and smoothly. If you 
 want to know what is being done about a certain matter you may find 
 some preparation for action going on, we will say, in the Navy Depart- 
 ment, the Shipping Board, and the Tariff Commission; but you are 
 unlikely to find that one branch knows what is going on in the others. 
 Those who were in Washington when the British experts first arrived 
 will recall the chance expressions of bewilderment that escaped them. 
 They had exceedingly important information to communicate, but 
 nobody could tell them where to communicate it, nor, when they had 
 enlightened one apparent authority, had they any guaranty that the 
 information would be transmitted to other authorities equally in 
 need of it. 
 
 While the Food Administration arranges with the Chicago packers 
 to place limits upon the charges they might otherwise make in war 
 
 1 By Alvin Johnson (see p. 43) . Adapted from " Why America Lags," Unpopu- 
 lar Review (April-June, 1918), pp. 228-32. Copyright by the Unpopular Review.
 
 OBSTACLES TO RAPID MOBILIZATION 2IQ 
 
 * 
 
 time, the Department of Justice serenely proceeds to prosecute the 
 same packers for violations of the Sherman Law dating back to peace 
 times. One would suppose that an arrangement might have been 
 made by which Mr. Hoover could use the Department of Justice as 
 a club. "We have the goods on you: now cooperate with us faith- 
 fully in this war emergency or ." But no; Mr. Hoover asks the 
 packers to cooperate, and Mr. Gregory prosecutes them. 
 
 Labor in the Northwest is pretty well infiltrated with I.W.W. 
 ideals. That may be a pity, but it is true. If we want spruce for 
 aeroplanes or fir for ships, if we want ships built on Puget Sound 
 and heaven knows we want ships built at every point from which 
 they can float to deep water we have to employ I.W.W. men and 
 their sympathizers. And it is worth noting that those I.W.W. 
 laborers have done important pieces of our war work in record time. 
 The actual producers have found it not impossible to do business with 
 men of I.W.W. leanings and to get them to agree to sink their private 
 predilections for sabotage for the country's good. And while the 
 employers of labor were achieving this unexpected result the Depart- 
 ment of Justice fell upon the I.W.W. leaders with indictments for 
 conspiracy. Believe what you will against these I.W.W. leaders; 
 many of them were to be counted on to hold labor in line, and the rank 
 and file of workers in sympathy with the organization now feel sus- 
 picious of the government and all its works. 
 
 Anyone who has observed the concrete details of our administra- 
 tive blunderings must recognize that what chiefly ails our government 
 is not the character of Mr. Baker, of Mr. Daniels, of Mr. Gregory, or 
 of Mr. Houston, not the competence of the personnel of the Interstate 
 Commerce Commission, or the Shipping Board, or the Food or Fuel 
 Administration, nor the character of the president himself, but a 
 system that divides our administration into water-tight compart- 
 ments, and makes not only common action impracticable, but con- 
 flicting action inevitable. Under our administrative system, as it 
 now stands, the cabinet is not a body endowed with joint respon- 
 sibility, but an association of independent chiefs with only the 
 president's volition, sporadically exercised, to hold them together. 
 On any particular matter involving the cooperation of more depart- 
 ments than one, the several chiefs may indeed work out a common 
 plan, and they do this, in fact, with sufficient regularity to keep the 
 country's business from breaking down altogether. But no single 
 chief or group is responsible for taking the initiative toward common
 
 220 ECONOMICS OF WAR 
 
 action, and if a dominant personality in the cabinet attempted this he 
 would straightway be suspected of a purpose of personal aggrandize- 
 ment and would meet with stubborn resistance from the other chiefs 
 and their departments. Let it also be remembered that the functions 
 of the several departments are fixed by the laws constituting them, 
 and that any attempt on the part of a dominant personality in the 
 cabinet to override the wishes of his colleagues respecting their proper 
 fields would be bound to fail. 
 
 We shall get nearer to the heart of the matter if we will examine 
 in detail some concrete problem of war administration. Let us take 
 the railway service as an example. When we entered the war it was 
 plain that a tremendous strain would be placed upon the railways. 
 They had to prepare themselves to move great masses of material 
 for the construction of camps, and to transport hundreds of thousands 
 of soldiers, some over distances running into thousands of miles. 
 They had to keep munitions and supplies for our Allies moving, and 
 to meet more promptly than ever our pressing civil needs. This 
 meant that the railways had to work as nearly as possible as a single 
 organic unit. And under the Railways War Board they honestly 
 tried to do this. 
 
 But while they tried to work as an operating unit, they could not 
 work as a financial unit. They could not make whatever operating 
 arrangements would best meet the country's needs and take their 
 earnings out of a common pool. This would have been to violate the 
 anti-pooling law, and any move in this direction would have brought 
 the Department of Justice about their ears. They could not make 
 their arrangements with the expectation that any road, part of whose 
 traffic was diverted to lines that could handle it more expeditiously, 
 could recoup itself by higher rates on the remaining traffic; this 
 would have been to run afoul of the Interstate Commerce Commission. 
 There were possibilities of relieving the railways of less-than-carload 
 freight through development of freight service on electric lines and 
 corresponding reduction of passenger service, but here the juris- 
 diction of state public-service commissions would have been involved. 
 It would have been possible to throw much necessary freight to lake 
 and coastwise shipping devoted to carriage that might have been 
 dispensed with, but such an arrangement required the cooperation of 
 the Shipping Board. Finally the roads might have discriminated 
 in favor of essential shipments and against unessential ones, but 
 to do this on their own account would have been in contravention of
 
 OBSTACLES TO RAPID MOBILIZATION 221 
 
 the Interstate Commerce Commission Law. They did, in fact, 
 discriminate in favor of shipments endowed by the executive depart- 
 ments with the priority quality; but when the War Department, the 
 Navy Department, the Food Administrator, the Fuel Administrator, 
 were issuing priority orders without reference to one another, what 
 headway could the railways make against the confusion? The 
 voluntary railway organization, being human, failed of its purpose. 
 
 Any concrete problem of industrial mobilization, as the foregoing 
 example indicates, involves the coordination of many branches of the 
 government. The railways could have operated successfully as a 
 unit if they could have induced Congress, the Department of Justice, 
 the Interstate Commerce Commission, the state public-service com- 
 missions, the Shipping Board, the Army and Navy, and the Fuel and 
 Food administrations to work together. 
 
 2. A NATION OF ECONOMIC AMATEURS 1 
 
 The problems which faced our national leaders upon our entry 
 into the war were literally staggering. A nation whose whole tra- 
 dition was one of peace was to be placed in the physical and mental 
 attitude to wage war. Its human and industrial resources were to 
 be reorganized to meet the drains of war. For the direction of these 
 tasks there was a pitifully inadequate staff of officials inadequate 
 in numbers, in training, in outlook, and in authority who had not 
 even had in proper measure the advantages flowing from preliminary 
 planning. 
 
 Under the circumstances, it is not surprising that much industrial 
 confusion attended our efforts. Conditions in the Ordnance Depart- 
 ment 2 may be taken as an example of the difficulties involved. At the 
 outbreak of the war this department had on duty nine commissioned 
 officers at Washington and a total of ninety-seven in the entire 
 country. Its peace-time expenditures had been about $13,000,000 
 per annum. From this nucleus there was developed in one year a 
 staff at Washington consisting of 3,000 officers, 1,700 enlisted men, 
 and 9,200 civilians, with a total of 5,000 officers in this country and 
 
 1 By L. C. Marshall (see p. 180). Adapted from "The War Labor Program 
 and Its Administration," Journal of Political Economy, XXVI (May, 1918), 425-28. 
 
 2 The conditions in the Ordnance Department were of course not peculiar. 
 The Quartermaster Corps, the Signal Corps, the Medical Corps, the Navy, the 
 Shipping Board, and all our other so-called production departments could recount 
 a story substantially like that of the Ordnance Department.
 
 222 ECONOMICS OF WAR 
 
 abroad. This mushroom staff had charge of direct appropriations 
 and contract authorizations amounting to several billions of dollars; 
 it set up the mechanism for controlling the production of this quantity 
 of material (for of course it could not be procured on the open market 
 and its production had to be supervised); it provided the adminis- 
 trative forces for storing and handling, both in this country and 
 abroad, the material when it had been produced and delivered. The 
 enterprise was conducted in a fashion that was, upon the whole, 
 admirable. Men could not be trained overnight, but able engineers 
 and business executives were called into th'e service, assigned to duties 
 in the various divisions of the work, given a considerable range of 
 authority, and held responsible for results. 
 
 Admirable as was the approach of our higher officials to the 
 problem placed before them, defects in operation resulted from insuf- 
 ficient planning and from the impossibility of training subordinates 
 properly in the time available. It would be an unpardonable injustice 
 to assert that the programs of the production departments were 
 carried out with little planning. No one who came into contact with 
 the overburdened officials responsible for the execution of these pro- 
 grams would make such an assertion. It is true, however (through 
 little fault of theirs), that their planning was hastily done and was not 
 well co-ordinated. Each production department and indeed each 
 subdivision of each production department plunged into the execution 
 of the task assigned to it, knowing little, and often caring less, how 
 its actions would affect the execution of the programs of others. The 
 officers in charge, particularly the subordinates, saw no other course 
 open to them. They had been trained in our school of individualistic 
 enterprise where "results" counted "results," however, which did 
 not depend upon national team work, since the projects involved did 
 not demand the effective utilization of all the resources of the nation. 
 The country demanded "results." In the absence of co-ordinating 
 supervision at the top it seemed clear to the average production officer 
 that his patriotic mission, to say nothing of his chances of preferment 
 and promotion, began and ended in his "pushing his own program 
 through." And he had a reputation as a "pusher." He was the 
 veritable "he-man" so popular in Washington dispatches. He had 
 superlative contempt for the " super-co-ordinator " who dared ask 
 whether the nation's interests did not require studies in priority and 
 carefully balanced production. Furthermore, this "pusher" was 
 almost certain to have accepted the prevailing fallacy that the expendi-
 
 OBSTACLES TO RAPID MOBILIZATION 223 
 
 ture of dollars rather than materials would win the war. He accord- 
 ingly placed his emphasis on grinding out contracts for vast quantities 
 of materials an emphasis which the contractors themselves were not 
 averse to stimulating. Under such conditions one can well believe 
 that carloads of hull paint were delivered at shipyards where the ways 
 had not yet been laid on which the hulls were to be constructed. The 
 nation's resources, unadjusted as they were, could not adequately 
 meet such haphazard demands. 
 
 The confusion resulting from the apotheosis of the Great American 
 Pusher was accentuated by difficulties arising from another quarter. 
 Since there was little or no guidance from the top, since the industries 
 and labor resources of the country had never been effectively cata- 
 logued and classified for military purposes, since war contracts of 
 European nations had been centered in certain districts, and since the 
 successful business managers and engineers called into the government 
 service came mainly from the industrial districts of the country, the 
 outcome of the zeal of the contracting officers was a tremendous 
 concentration of contracts. When stock could be taken of the 
 situation 1 it was discovered that, aside from the contracts of the 
 Shipping Board, one-fourth of all the government contracts for war 
 purposes had been located in the state of New York alone, one-half 
 in three states (New York, Pennsylvania, and Ohio), and three-fourths 
 in seven ' states (New York, Pennsylvania, Ohio, Massachusetts, 
 Illinois, New Jersey, and Connecticut). A greater dispersion existed 
 in the case of the Shipping Board contracts because the vessels them- 
 selves were to be built all along our deep waterways. It is not 
 improbable, however, that the contracts for accessories needed in 
 shipbuilding showed a somewhat similar concentration, and the 
 general belief is that the contracts of our Allies were quite as heavily 
 concentrated. 
 
 The war-industry districts arising from this concentration of 
 contracts rapidly extended existing plants and built new ones. They 
 reached out to the rest of the nation for materials, money, and men. 
 They required that scores of thousands of workers be transferred to 
 them from districts where war work was not being done. Then 
 followed a tremendous congestion of transportation facilities a 
 
 1 It is an illuminating fact that this stock was not taken by the production 
 departments themselves. The Statistics Division of the Council of National 
 Defense, headed by Dr. Leonard P. Ayres, was the "outside" agency which found 
 time and opportunity to study what had been done and to report the facts.
 
 224 ECONOMICS OF WAR 
 
 congestion that was later to play its part in causing the issuance of a 
 so-called fuel order which was really an order to relieve an "industrial 
 jam." 
 
 3. THE NEED FOR CO-ORDINATION 1 
 
 When the War Department wants another ship (and it always 
 wants another ship) young Mr. Ewing plunges into his data and drags 
 that ship out from a trade here or from a trade there and knows pretty 
 well just what he is doing, because he has built a thorough apparatus 
 for doing it. His is one of the marvelously extemporized business 
 machines which we owe, in certain sections and sub-sections of our 
 departments, to our new business recruits. 
 
 But the withdrawing of ships from their present routes is not a 
 matter which is only a shipping matter. It is also an exports-and- 
 imports matter, an international-trade-strategy matter. What has 
 the Shipping Board to do with international trade strategy? This 
 question has been answered in a manner in which, again, some people 
 might think that a certain tardiness is discernible. 
 
 On June 15, in the "Espionage" Act, Congress authorized the 
 President to exercise a certain control over exports. On August 21 
 the President confided this control to the "Exports Administrative 
 Board," established for the special purpose of exercising it. But it is 
 impossible to imagine an effective and useful control of exports in any 
 particular unless it is conducted in harmony with a control of imports. 
 Mr. Hoover, for instance, wishes to import cocoanut oil, palm oil, and 
 soya bean oil to serve as a supplement and as a substitute for our 
 native cooking fats. If we are going to Import such things in increased 
 quantities we must, for that reason alone, import certain other things 
 in decreased quantities, and we must then send exports, in payment 
 for our imports, to the places, if we can, from which our imports are 
 actually coming. Therefore a control of imports, simultaneously 
 and concertedly with a control of exports, was inevitable, and it 
 arrived, exactly six months after our declaration of war, on October 6, 
 in the "Trading with the Enemy" Act. Pursuant to that act, on 
 October 12, the President established a "War Trade Board," which 
 took over the duties of the "Exports Administrative Board" and 
 which is now our one central authority for all licensing, actual and 
 
 1 By William Hard. Adapted from the New Republic, XIII (November 3 and 
 10, 1917), ii ff. and 40 ff. 
 
 ED. NOTE. William Hard is a well-known journalist, author of many 
 articles on war problems.
 
 OBSTACLES TO RAPID MOBILIZATION 22$ 
 
 prospective, of exports and imports both, and which is therefore 
 bound to be our one compelling center of information and of final 
 expert guidance with regard to our overseas trade. 
 
 Here, then, are two bodies which must work in harmony in the 
 mobilizing of our merchant fleet and in the adjusting of our com- 
 merce. Who is it that the Shipping Board reports to ? The Presi- 
 dent. Who is it that the War Trade Board reports to? It repre- 
 sents, in theory, in its six members, six departments of government: 
 state, agriculture, commerce, treasury, shipping, and food. Having 
 six masters it will, in practice, have none, short of the President. It 
 can justly be regarded as one more department, outside the cabinet 
 departments, reporting to the President alone. When, therefore, the 
 Shipping Board has one policy and the War Trade Board has another 
 policy (a case which is certain to occur because it occurs continuously 
 between every two departments having anything to do with each 
 other), the conflict will get settled only in one of the two ways in such 
 cases now established and provided. One: it will drag on and on, 
 without the President, through telephone conversations and luncheons 
 and dinners and improvised conferences between the departments 
 concerned, until a state of unanimous concessive consent is reached. 
 Two: it will drag itself in pieces, in an ex parte statement by one 
 combatant and in an ex parte statement from the other combatant, 
 to the White House. Most people do not resort to the second way 
 until they have tried for a very long time. They naturally do not 
 want to "bother the President." The President therefore often gets 
 blamed for delays of which he has no knowledge. The departments 
 also get blamed. But what can they do? They have their choice 
 between "bothering the President" and pursuing that sum and 
 climax of all administrative difficulty and dilatoriness unanimous, 
 concessive, inter-departmental consent. Administratively it is pre- 
 cisely what the old Diet of Poland used to be legislatively. The 
 liberum -veto of one department can stalemate a whole game of action. 
 
 But the Shipping Board and the War Trade Board are not the 
 only departments concerned in the matter now before us. There is 
 also the Navy Department, which wants many ships for auxiliary 
 purposes; and there is also the War Department, which wants more 
 and more ships for its army in France. The War Department, most 
 especially, must be considered. The ship that Mr. Hurley is going 
 to transfer from tropical waters to the waters of the northern Atlantic, 
 shall it simply go into the carrying of war supplies to the war-bound
 
 226 ECONOMICS OF WAR 
 
 populations of France or Italy, or shall it be commandeered to the 
 special immediate war aims of the American War Department ? 
 Can Mr. Hurley decide this question ? Can Mr. Vance McCormick, 
 head of the War Trade Board ? Can Mr. Baker ? Mr. Baker, like 
 every Secretary of War in the world, must regard the needs of his 
 army as being supremely pressing. History will not blame him if we 
 lose our sewing-machine trade with the Brazilians. History will most 
 distinctly blame him if his army is not clothed and fed and munitioned 
 to the last boot and the last dried pea and the last shell. The 
 disposition of that ship will require a unanimous consent in which 
 Mr. Baker's voice must be given a large range and in which the subject 
 of the resources of our merchant fleet and the subject of our present and 
 future overseas trade and the subject of our military efforts in Europe 
 must reach a combined consideration and a maritime, commercial, 
 military, strategic balance. There is no body of men constituted to 
 strike that balance. There is no body of men responsible for striking 
 it wrongly or for striking it too late. And even if Mr. Baker and 
 Mr. Vance McCormick and Mr. Hurley should set themselves up, of 
 their own motion, to be a board, meeting daily, to strike it and to take 
 the responsibility for striking it, they could not do it, because it 
 involves considerations far beyond even their combined proper 
 authority. That ship which is to be transferred, should it not be 
 assigned to the French instead of to Mr. Baker ? Or to the Italians ? 
 Here tremendous questions emerge, questions transcending all ques- 
 tions maritime or commercial or military, questions in the realm 
 of the highest international political world-settlement policy. 
 
 Is it surprising then that the French did not succeed in getting us 
 to assign to them that 80,000 tons of new shipping and that they did 
 not succeed in striking a bargain with us for giving us a lot of their 
 existing sailing tonnage in just exchange for a half-lot of our existing 
 steaming tonnage till after many weeks of running from one authority 
 to another authority in Washington, and till after their one million 
 tons of stranded materials on the American shore had become a staple 
 topic of dinner-table conversations throughout Washington, and till 
 after cablegrams actually had been received from American military 
 men and American naval men on the other side of the Atlantic pleading 
 for six tugs or something for the hard-pressed warriors of the French 
 Republic ? It is not too much to say that the representations of the 
 French on this subject, candid representations, perfectly legitimate 
 representations, had reached almost a world-wide scope in the ears
 
 OBSTACLES TO RAPID MOBILIZATION 227 
 
 of American administrators, and politicians, and journalists, and 
 military and naval personages before the moment of decision came. 
 The interval between the moment of first representations and the 
 moment of final orders was really scandalous. Let us assume that 
 the final orders were right. They were reached in weeks, when all the 
 facts were known in days. Yet where is the incompetency of any 
 individual? Nowhere. Is it for Mr. Hurley to be ready off-hand 
 to determine the partition of war effort between France and Italy and 
 the United Srates ? Is it for Mr. Baker ? Is it for any other depart- 
 mental head ? Certainly not. Therefore it passed through a long 
 stage of amicable jostling between departmental heads, and then it 
 passed through another long stage of attempted appeals, from all 
 conceivable quarters, to the much-harassed occupant of the White 
 House, and then it got settled either by a belated verdict from the 
 White House or by a desperate impulse from Mr. Hurley or by a sort 
 of general tired "Oh-let-them-have-that-8o,ooo-tons" feeling or, more 
 realistically, by an intricate incalculable combination of those three 
 natural developments. 
 
 In this way we can win the war. In this way we cannot win the 
 war with a maximum of speed and a minimum of killed and mangled. 
 Therefore people say: "In order to do every day's work on that day 
 and not several weeks later, let us have a Grand Priority Board which 
 shall determine a policy in tonnage and lay it down for everybody." 
 Very good. Let us go on to see what such a Grand Priority Board 
 would mean. 
 
 Let us suppose that our "Grand Priority Board" starts out to do it. 
 The first step it takes is to present its recommendations, together with 
 its data on which its recommendations are based, to the President. 
 His approval is manifestly necessary. The Board may be unanimous 
 in its recommendations. It may not be unanimous. That would 
 make no difference. It would present a report, jointly, as a Board, 
 as an impartial and supreme Board, with all rival claims analyzed 
 and with various courses, or one course, of action suggested. The 
 President would select, modify, approve. The gain, the inestimable 
 gain, would be this: the will of the President would be informed by a 
 group of men concertedly responsible for formulating impartial and 
 supreme policies and concertedly responsible thereafter for executing 
 them. 
 
 But have we not a Council of National Defense? We have. 
 That is, we have a thing called a Council of National Defense. But
 
 228 ECONOMICS OF WAR 
 
 this thing has no concerted responsibility whatsoever. It continues, 
 it defiantly continues, to be unable to bind even its own six members, 
 as heads of cabinet departments, to any one course of action. It 
 creates a War Industries Board and a Purchasing Commission within 
 the Board; and the Purchasing Commission turns out to have one 
 sort of power in relation to one cabinet department and another sort 
 of power in relation to another cabinet department, and it turns out 
 even to have different sorts of power in relation to different purchasing 
 sections within the same cabinet department; and a manufacturer 
 came to Washington the other day and sold the same commodity to 
 four different purchasing sections at four different prices. As a 
 commanding and coercing body for men the Council is much inferior 
 to the General Federation of Women's Clubs for women. Whatever 
 it has done of value has been done, in fact, for the most part by the 
 camel-like quality of certain of its sub-committees of business men 
 who have thrust their necks under the tent-flaps and pushed. The 
 Council itself is not a Council. It is an unresolved hexagon. 
 
 Moreover it has nothing to do with shipping, except that it is 
 ordered, by the statute which established it, to advise the President 
 "as to the development of sea-going transportation." It may advise 
 him. It is not empowered to execute its own advice when he has 
 adopted it. He adopted the War Industries Board idea, at the time 
 a good idea I still believe. And then Mr. Baker did what seemed 
 right in his own eyes about it in the War Department, and so did 
 Mr. Daniels in the Navy Department, and it is therefore clear that even 
 if Mr. Hurley were a member of the Council of National Defense 
 which he is not the Council could not and would not control him. 
 
 At one time the Council did indeed adventure itself into shipping 
 by appointing a "Shipping Committee" of shipping men. But this 
 committee just naturally floated away from the neighborhood of the 
 Council and drifted into the neighborhood of the Shipping Board; 
 and its chairman, Mr. Munson, now represents the Shipping Board on 
 the War Trade Board. 
 
 The national value of the Council today might be summed up thus: 
 
 Shipping is at present the most important part of the war for us. 
 The Council, partly because of its statute and partly because of its 
 temper, has no control of shipping. 
 
 Shipbuilders have come to Washington and, in great perplexity, 
 have demanded to knoW: Should they give priority to the ships they 
 were building for the Navy or to the ships they were building for the
 
 OBSTACLES TO RAPID MOBILIZATION 229 
 
 Emergency Fleet Corporation? The Navy wanted speed. The 
 Emergency Fleet Corporation wanted speed. What power does the 
 Council of National Defense possess, what power has it tried to get, 
 to decide that certain ships shall precede other ships into the water 
 and then to enforce its decision ? None. 
 
 A body which cannot jointly and bindingly execute a high policy 
 on all parties concerned will never even formulate a high policy. That 
 is why the formulation of every high policy falls crushingly, time after 
 time, on the President. That is why we assume that our "Grand 
 Priority Board" will have the power to execute. That is why we 
 assume that it will have the power to bind Mr. Baker and to bind 
 Mr. Daniels and to bind everybody else. Otherwise it will not think. 
 If it cannot act, it will not think. 
 
 Therefore, when our "Grand Priority Board" has made its recom- 
 mendations to the President, and when the President has done his 
 selecting and his modifying and his approving, we imagine the Board 
 going on immediately to action. It has already strengthened the 
 President's autocracy, his necessary administrative autocracy, by 
 serving him as a machine, as a supreme and impartial machine, super- 
 departmental, for the informing of his will. It now strengthens his 
 autocracy again by proceeding to execute his will, his informed arid 
 declared will, on all departments comprehensively and continuously. 
 Thereupon his autocracy becomes effective because it becomes 
 effectively possible. It gets confined to the hours of decision. It 
 escapes the days of information undigested and of execution unhar- 
 'monized. In shipping, in the war. And in -virtually everything else 
 of high importance in the war. 
 
 For, consider. As soon as the "Grand Priority Board" begins 
 to enforce a shipping policy, it begins to tell the War Department how 
 many men can go to France and therefore how many men should be 
 trained just now, and it begins to tell the Navy Department how 
 many destroyers can be built and therefore how many new bluejackets 
 should be enlisted just now, and it begins to tell the War Industries 
 Board how much steel can be transported to Europe for the Allies 
 and therefore how much steel should be manufactured for the Allies 
 in America just now, and it begins to tell our whole civilian population 
 how much food it is likely to get from abroad and therefore what shifts 
 of work or of appetite it must adopt for increased production at home 
 or for increased abstinence, and it begins to tell something of some 
 sort to almost everybody of every sprt, public or private.
 
 230 ECONOMICS OF WAR 
 
 What is it then, this Board? We have seen that it is greatly 
 desirable, that it is even, for harmony and for rapidity, unavoidable 
 in the matter of shipping. But it reveals itself, as soon as it acts, 
 to be much more, infinitely more, than a shipping affair. It reveals 
 itself to be what is revealed finally in every other affair projected to 
 bring harmony and rapidity into any high part of the war. It reveals 
 itself to be the One Thing Needful the " War Council of the United 
 States." 
 
 XXII. Concrete Illustrations of the Problems Involved 
 
 i. DEVELOPING THE MACHINERY FOR THE 
 ADMINISTRATION OF LABOR 1 
 
 I. THE EARLY STAGES OF REMEDIAL ACTION 
 
 Our whole administrative approach to the problems of war made 
 impossible any prompt solution through a centralized administration 
 of labor problems. To begin with, we had not followed the English 
 precedent of establishing a central department of production or 
 Ministry of Munitions, in which contracts, control of production in 
 relation to contracts, and control of labor in relation to production 
 we're placed under one administrative head who could keep the various 
 factors in proper balance. Far from being under one control, our 
 contracting and production departments were actually competing 
 with each other in the procurement of supplies. Through their 
 various contractors they were competing with each other for labor 
 to be used in production. 
 
 In view of the unwillingness of our responsible officials to provide 
 a central department of production, there was but one agency, the 
 Council of National Defense, which could bring about co-operative 
 action, and it was well-nigh powerless to deal with the situation. The 
 Council of National Defense is an investigating and advisory body. 
 Its administrative powers are not great. Handicapped as it was, it 
 none the less expended much time and effort in the attempt to bring 
 order out of chaos. As early as April 7, 1917, it passed a resolution 
 urging the maintenance of existing labor standards and existing indus- 
 trial relations. Its Committee on Labor did much useful service in 
 the development of sound public sentiment, in the formulation of 
 acceptable standards of labor, in making inquiries concerning dangers 
 
 1 By L. C. Marshall (see p. 180). Adapted from "The War Labor Program 
 and Its Administration," Journal of Political Economy, XXVI (May, 1918), 430-34.
 
 OBSTACLES TO RAPID MOBILIZATION 231 
 
 to labor arising from war conditions, in assisting in formulating laws 
 and regulations with respect to social insurance and employment 
 agency work, and in various other ways. It could not, however, 
 deal administratively with labor in production. 
 
 No complete account of the Council's labor activities will be 
 attempted. Their general drift may be sufficiently seen from the 
 fact that late in August, 1917, a resolution for the appointment by 
 the Council of a War Labor Board of five members was defeated by 
 the narrow margin of one vote, a unanimous vote being regarded 
 expedient in such a case. The dissenting vote on this resolution was 
 not caused by opposition to a centralization of labor administration, 
 but by a belief that our war administration already had a superfluity 
 of boards. Experience had made it increasingly clear that the ban 
 mot of one of the Cabinet officers was appropriate: "A board is long 
 and narrow and wooden." 
 
 It is noticeable that the demand for some central agency in labor 
 administration at this time centered primarily about the supposed 
 shortage of labor. This same consideration was largely responsible 
 for a later action of the Council of National Defense. On November 2, 
 1917, they instructed the Director 
 
 to undertake the following work, co-operating with the Department of Labor 
 and other government agencies: 
 
 1. To determine present and probable future demand for labor in war 
 industries. 
 
 2. To determine in connection with the Priorities Committee of the War 
 Industries Board the relative priorities of the labor demand. 
 
 3. To arrange for the supplying of the demand through the Department 
 of Labor or such other governmental or civilian agencies as can best meet the 
 demand. 
 
 4. To determine the needs for dilution of labor including the introduc- 
 tion of women into industry and recommend policies to be followed in 
 regard thereto. 
 
 This action resulted late in November in the establishment of 
 the so-called Industrial Service Section of the Council of National 
 Defense. By that time, however, the true character of labor problems 
 in war production had been more clearly revealed. At the request 
 of the chief of the Industrial Service Section its activities were per- 
 mitted to take the form of: (a) co-operating with others in promoting 
 the development of a United States Employment Service in the 
 Department of Labor; (b) co-operating with others in bringing to
 
 232 ECONOMICS OF WAR 
 
 pass a unified labor administration which would have executive rather 
 than consulting power and would be concerned with the whole range 
 of problems involved in the control of labor in production. 
 
 It is of course highly desirable that the administration of war labor 
 matters should be closely connected with the production of war 
 materials. Since, however, this was for many reasons not feasible 
 in the earlier stages of our war activities, the question arises whether 
 labor agencies which were not directly connected with production 
 might not have stepped into the breach. The chief agencies of this 
 character were the state bureaus of labor and the federal Department 
 of Labor. The state bureaus of labor could at the best deal with the 
 problem piecemeal as it appeared within the borders of the individual 
 states. Even within this circumscribed field their usefulness was not 
 great. Typically, they have not been organized on the basis of an 
 appreciation of the part labor plays in production. Rather, their 
 organization has been formulated in vague terms of labor welfare. 
 Several of these state bureaus have indeed done excellent work in 
 inspection of labor conditions and in maintenance of proper labor 
 standards among our war industries. Both because of geographical 
 isolation and because a sense of team play has not developed among 
 them, it was inevitable that they should fall far short of meeting such 
 national problems as those involved in securing an adequate supply 
 of labor, providing housing, regulating wages, and adjusting labor 
 disputes. 
 
 The federal Department of Labor was also not in a position to 
 render great service. Its enabling act provided for a department 
 whose duty it would be to "foster, promote, and develop the welfare 
 of the wage-earners of the United States." This was a large order, 
 and could be carried out only provided proper instrumentalities were 
 furnished. In actual fact, however, the Department of Labor was 
 made up of a somewhat miscellaneous collection of bureaus which had 
 been taken out of the parent Department of Commerce and Labor, 
 placed under a new administrative control, and metamorphosed by 
 the magic wand of congressional fiat into a new department. Its 
 administrative organization was in no sense comprehensive of the 
 entire field of labor in production. Its funds had been meagerly 
 provided by a somewhat suspicious Congress. Its support, both by 
 the business world and to some small extent by the labor world whose 
 interests it was designed to safeguard, had been lukewarm. Even if 
 this department had been cornmissioned at the outset to supervise
 
 OBSTACLES TO RAPID MOBILIZATION 233 
 
 labor in war production it could not have done so successfully except 
 on the basis of a complete reorganization of the department. In point 
 of fact, it was not so commissioned. Its activities in war production 
 were sporadic. It co-operated with the Council of National Defense; 
 its Secretary was the chairman of the President's Mediation Com- 
 mission; it took steps to bring into existence the United States 
 Employment Service; it performed many helpful functions; but, 
 speaking in general terms, the department could not properly be said 
 to be operating on a war basis. It was far from occupying a position 
 of leadership in war labor administration. 
 
 There could be no hope that in the absence of administrative 
 agencies dealing competently with labor matters a satisfactory solu- 
 tion would somehow " emerge " because of the " general drift of things" 
 or by force of "public sentiment." The competitive striving of 
 contractors of government production departments, the unrest attend- 
 ant upon war conditions, and the lack of general knowledge concern- 
 ing the war program of the government, if indeed such a program 
 existed, made it hopeless to rely upon any "general drift of things." 
 As for "public sentiment" with respect to labor matters, we have in 
 this country unity of opinion neither with respect to the proper goals 
 of industrial relationships and labor control nor with respect to the 
 roads which should be taken to reach those goals. Our industrial 
 history in such matters has been guided by individualistic opportu- 
 nism. There is no person or group of persons who can speak with an 
 authoritative voice for labor as a whole; no person or group of persons 
 whose findings would be accepted by capital as a whole; no person or 
 group of persons whose leadership would be acknowledged by the 
 public. We drift, and our drifting is attended by suspicions, jeal- 
 ousies, and irritations derived from labor contests of the past. Not 
 only is well-informed public sentiment on labor matters lacking, but 
 also there is in the individual industrial plants a lack of local machinery 
 adequate for carrying out a national labor policy from whatever 
 source such a policy might spring. Shop committees, employment 
 managers, welfare divisions, scientific management, etc., have not 
 been developed to the point where they meet the needs of the case. A 
 survey of the situation would convince the most pronounced advocate 
 of laissezfaire that his dogma is not applicable to the needs of the case. 
 
 Meanwhile, the various production departments of the govern- 
 ment were not in a position to accept the situation gracefully. Results 
 were demanded of them. It was not merely that congressional
 
 234 ECONOMICS OF WAR 
 
 inquiries loomed in the not-distant future. A more significant fact 
 appeared in the steadily accumulating evidence that paper contracts 
 did not necessarily mean soldiers clothed and fed and equipped for 
 fighting, and that unless effective steps were immediately taken to 
 check the growth of industrial disputes, of labor turnover, and of 
 general demoralization of the productive power of labor, adequate 
 industrial support would not be available for the armies on the 
 Western Front. In the absence of centralization of production, in 
 default of administrative control of labor in production, in the dearth 
 of sound national sentiment on labor matters which would cause 
 effective utilization of our labor resources to emerge automatically, 
 our production departments saw no course open to them but to take 
 charge of the situation themselves. 
 
 Their first actions combined a groping for a national labor policy 
 through a series of agreements with organized labor and the estab- 
 lishment of adjustment commissions to cope with industrial disputes. 
 The names of these commissions with the dates of their development 
 tell much of the story. The list includes: National Committee on 
 Mediation and Conciliation of the Labor Committee of the Council 
 of National Defense; June 19, 1917, Cantonment Adjustment Com- 
 mission (includes cantonments, aviation fields, and storage facilities; 
 similar arrangement for similar construction by navy); August 15, 
 1917, Arsenals and Navy Yard Wage Commission; August 24, 1917, 
 Board of Control of Labor Standards in Army Clothing; August 25, 
 1917, Shipbuilding Labor Adjustment Board; August, 1917, National 
 Adjustment Commission (longshoremen disputes) with local adjust- 
 ment commissions; September 19, 1917, President's Mediation Com- 
 mission; September 26, 1917, Harness and Saddlery Adjustment 
 Commission. 
 
 It is not without significance that these production departments 
 deemed it worth while to set up adjustment commissions independent 
 of the Mediation and Conciliation Service of the Department of Labor 
 and that the Department was represented on only two or three of these 
 commissions. Their work has been on the whole well done. They 
 have not been able to act on the basis of any uniform national policy, 
 for no such policy exists. Herein has been the main defect in their 
 work. 
 
 There is far more involved in the administration of labor in pro- 
 duction than the satisfactory adjustment of industrial disputes. 
 Indeed an ideal administration of labor would so care for the other
 
 OBSTACLES TO RAPID MOBILIZATION 235 
 
 elements of the situation as to prevent the emergence of industrial dis- 
 putes. To cope with these other elements of the situation, the 
 production departments began to establish Industrial Service Sec- 
 tions. The earliest of these was established by the Shipping Boa,rd; 
 the second by the Ordnance Department; and similar agencies, though 
 they do not bear the same name, have been established, or are reported 
 to be in process of formation, in the Navy, the Quartermaster Corps, 
 the Construction Division, and the Aircraft Board. 
 
 These Industrial Service Sections represent a correct industrial 
 philosophy in that they are parts of the production departments 
 themselves and can thus deal with conditions of labor, housing, train- 
 ing, etc., from the point of view of war needs and war production. 
 They have themselves, however, felt keenly the difficulties of their 
 situation. The administration of labor is not an ordnance problem, 
 not a quartermaster problem, not a shipping problem it is a national 
 war problem. Perfect administration within the confines of any one 
 or of all the production departments does not suffice. There remains 
 a need of a centralizing agency which can harmonize all administrative 
 policies, administer labor in production in industries essential to war 
 work although they may not have direct contracts with the govern- 
 ment, and care for those aspects of labor administration which are 
 broader than the work of a single production department, such as the 
 procurement and the distribution of the supply of labor, the main- 
 tenance of a balance of wage rates, the provision of adequate housing, 
 and the development of sound public sentiment. Early in December 
 the production departments themselves reached the conclusion that 
 their situation with respect to labor control was an intolerable one 
 and that unification must occur. Projects for war labor boards in the 
 Council of National Defense had come to naught. Dinner gatherings 
 of persons in charge of labor administration in the various depart- 
 ments availed little. Leading production officials accordingly sent 
 an informal request to the Council of National Defense that it assume 
 the leadership in bringing about definite unification of labor adminis- 
 tration. 
 
 II. EVENTS LEADING DIRECTLY TO THE AUTHORIZATION OF A 
 COHERENT LABOR ADMINISTRATION 
 
 Acting on the informal request of the production departments, 
 the Council of National Defense appointed a so-called Interdepart- 
 mental Committee, made up of representatives of the main producing
 
 236 ECONOMICS OF WAR 
 
 departments. It asked this committee to survey conditions and to 
 recommend a course of action. 
 
 Little time was spent by the committee in a survey of conditions 
 which, were notorious. Its major efforts were expended upon an 
 analysis of corrective measures and a consideration of the agency 
 appropriate to conduct a national labor administration. As will be 
 apparent from a reading of its report, much progress in thinking had 
 been made since the day of the projected war labor board of the 
 Council of National Defense. It had become clear that (a) in some 
 manner there must emerge a comprehensive national labor policy, (b) 
 which must be administered on a national scale by a well-rounded 
 labor administration having executive power. With respect to the 
 agency appropriate to carry on this administration, much discussion 
 took place within the committee. The possibilities of the case were 
 numerous, but they narrowed down to four main ones. 
 
 There was in the first place the possibility of establishing an 
 agency corresponding to the British Ministry of Munitions, which 
 would bring under one control all the procurement and production 
 activities of the government. Administration of labor in production 
 would in this event and properly become a bureau or phase of the 
 Ministry of Munitions. The logic of accepted principles of business 
 administration pointed very definitely to some such solution, as did 
 also successful British experience. It was known, however, that our 
 national administration was definitely, and apparently irrevocably, 
 opposed to such a solution, and it seemed reasonably clear that a 
 proposal for the American equivalent of the British Ministry of 
 Munitions would result solely in bickering and delay. 
 
 Passing to the other extreme, there was the possibility of attempt- 
 ing to solve the problem by means of a board or a committee made up 
 of the persons already in administrative charge of labor matters. 
 Both Washington and the country at large, however, had by this time 
 had a surfeit of boards, and the proposal of a war labor board of this 
 type received scant consideration. 
 
 A third possibility lay in an extension of the powers of the Depart- 
 ment of Labor. In this department the nucleus of an administrative 
 agency was already in existence, one that had the confidence of both the 
 organized and unorganized labor of the entire country. It could be 
 urged against this solution, however, that the Department of Labor 
 was not in close touch with production activities and that it was 
 viewed with some suspicion by a considerable section of the business
 
 OBSTACLES TO RAPID MOBILIZATION 237 
 
 community. Some question arose also concerning the wisdom of 
 having the later years of peace administration of the department 
 prejudiced by an association with the jealousies, strains, and possible 
 failures of war administration. 
 
 The fourth possibility was that of a separate war labor adminis- 
 tration, comparable to the food and fuel administrations. This 
 solution received the approval of those who felt that it would increase 
 the confidence of the business world if the administration were 
 divorced from the Department of Labor. It seemed probable, how- 
 ever, that this gain would be more than offset by the loss resulting 
 from the disapproval of labor. Furthermore, the President's sense 
 of loyalty to his subordinates and his known attitude on labor matters 
 made it seem probable that he would insist on the war labor adminis- 
 tration being in the hands of the Department of Labor. 
 
 The report of the committee as finally made, on December 20, 
 1917, to the Council of National Defense is worth reproducing in full, 
 for it indicates in concise form the nature of the problem. 
 
 A 
 
 Your Committee is of the opinion that the present method of dealing 
 with labor problems which arise in connection with the Government's war 
 activities is not satisfactory; and for the following reasons: 
 
 1 . At present each department of the Government is, with a few excep- 
 tions, dealing with its own labor problems irrespective of what is done by 
 other departments. As a result (a) there is much duplication of effort; 
 (b) there is no uniformity of policy or procedure ; (c) there is much conflicting 
 action. 
 
 2. Each department competes against all other departments for essential 
 skilled labor. Contractors and sub-contractors engaged on Government 
 work are using every means at their command to draw essential skilled labor 
 away from one another. By this means labor turnover is multiplied and 
 men are kept moving from job to job in certain industries for higher pay. 
 
 3. There is as yet no adequate system for dealing promptly and uni- 
 formly on a nation-wide basis with labor disputes affecting war work. The 
 result is an increasing labor unrest. 
 
 4. To allow this situation to continue will, in our opinion, diminish the 
 country's production and eventually paralyze industry. 
 
 B 
 
 Your Committee is of the opinion that action should be taken along the 
 following lines: 
 
 i. In order to allay industrial unrest and to create a spirit of real co- 
 operation between labor and capital during the war, it is essential that
 
 238 ECONOMICS OF WAR 
 
 excessive war profits be wholly eliminated; and that the Government's 
 policy in regard thereto be sufficiently uniform so that the wage-earner can 
 be satisfied that profiteering no longer exists. ,,-. 
 
 2. A series of understandings concerning certain underlying principles 
 affecting labor should be arrived at between representatives of employers, 
 employees, and the Government. The following are some of the questions 
 which should be considered in such conferences: basis for wage determina- 
 tion, strikes and lockouts, piece-work prices and price fixing, method of 
 eliminating improper restrictions on output of war material from whatever 
 cause, practice to govern dilution of labor, discrimination against union and 
 non-union men, admission of union agents to plants, method of promptly 
 adjusting disputes at their source through boards containing equal repre- 
 sentation of employers and employees, right of workmen to organize. 
 
 3. A coherent labor administration in accordance with principles to be 
 determined as set forth above should be established to deal with all labor 
 problems arising in connection with war work. 
 
 There is as yet no consensus of opinion as to what means or agency shall 
 be used to secure this coherent labor administration. The following are the 
 outstanding suggestions: 
 
 1. A co-ordinating war labor board, either under or divorced from the 
 Council of National Defense, to which the various existing agencies shall 
 delegate powers. This seems to your committee too loose an organization 
 to meet the emergency. 
 
 2. A very great extension of the activities of the Department of Labor. 
 
 3. The establishment of a department of production, which, along with 
 its other duties, would take charge of the appropriate aspects of labor 
 administraiton. Such a department would co-operate with the Department 
 of Labor in securing coherent administration of the whole problem- 
 Action on the report of the committee was deferred by the Council 
 
 of National Defense until the return of the Secretary of Labor, who 
 was at that time in the West with the President's Mediation Com- 
 mission. On January 3, 1918, the report of the committee was taken 
 up by the Council with the Secretary of Labor present, and the 
 Secretary of War, the presiding officer of the Council, was instructed 
 to present the matter to the President of the United States for his 
 favorable consideration. The President approved the program, and 
 on January 4 asked the Secretary of Labor to take steps to organize 
 a war labor administration. 
 
 Responsibility had at last been located. It remained to be seen 
 whether the coherent labor administration authorized by the President
 
 OBSTACLES TO RAPID MOBILIZATION 239 
 
 would be linked properly with the administration of production. It 
 remained to be seen whether an organization could be evolved which 
 would really enable the Department of Labor to "deal with all labor 
 problems arising in connection with war work." None the less, the 
 highest executive authority had taken the question of labor adminis- 
 tration under consideration, had decided that unification was neces- 
 sary, and had designated the agency to bring about this unification. 
 From this time forth responsibility for lack of unification could be 
 placed definitely at the door of the Secretary of Labor. He was 
 called upon to provide the coherent labor administration. If he 
 could not provide it, he must make clear the forces preventing his 
 doing so in order that the Chief Executive might seek other solutions 
 for the difficulties. 
 
 THE WORK OF THE ADVISORY COUNCIL TO THE SECRETARY 
 OF LABOR 
 
 The Secretary of Labor at once took up the matters intrusted to 
 his care. He called to his assistance an Advisory Council, which he 
 requested to suggest plans and personnel for organizing the new work. 
 A very brief survey of the situation convinced the Council that the 
 nation required (a) a definite national labor program (6) which could 
 be executed through effective mechanisms in industrial plants 
 (c) on the basis of sound public sentiment (d) by an efficient labor 
 administration. The two essential features of this requirement 
 were the definite national labor policy and an efficient labor 
 administration. Given these, the other elements might reasonably 
 be expected to be called into existence. Lacking these, everything 
 was lacking. 
 
 In view of this situation it seemed to the Advisory Council that 
 its first task was that of providing, as well as might be, for the emer- 
 gence of a national labor policy which would have the possibilities of 
 being acceptable to labor, capital, and the public. On January 19, 
 three days after they began their work, the Council presented to the 
 Secretary of Labor the following memorandum : 
 
 The Advisory Council recommends to the Secretary of Labor that he 
 call a conference of twelve persons representing employers' organizations, 
 employees' organizations, and the public, for the purpose of negotiating 
 agreements for the period of the war, having in view the establishment of 
 principles and policies which will enable the prosecution of production with- 
 out stoppage of work.
 
 240 ECONOMICS OF WAR 
 
 The Advisory Council recommends that this conference body of twelve 
 be composed as follows: Employers' organizations, as represented by the 
 National Industrial Conference Board, are to name five employers, and these 
 five are to select a person representing the general public. Employees' 
 organizations, as represented by the American Federation of Labor, are to 
 name five representatives of labor, and these five are to select another 
 representative of the general public. 
 
 The Secretary approved this memorandum, issued an appro- 
 priate call, and brought into being the War Labor Conference 
 Board. 
 
 The Secretary also approved a later recommendation of his 
 Advisory Council in which it pointed out that a labor policy must be 
 a growing thing, changing with the requirements of various situations, 
 meeting the needs not merely of war but also of the reconstruction 
 period; and in which it urged the selection of a person who, in co- 
 operation with the Secretary of Labor, would serve as a planning 
 agency in formulating and steadily developing the national labor 
 program. The Council pointed out that such a person should be an 
 investigator, with ability to administer investigations, who had a 
 vision of the service the Department of Labor might render in leading 
 the way to a new order in industrial relationships. 
 
 Turning now to the other features of the war labor administration, 
 in memoranda dated January 17 and 19 the Advisory Council 
 presented to the Secretary of Labor recommendations (which he 
 approved) that he appoint "as soon as it might prove feasible" 
 directors of the following divisions of the work: 
 
 A. 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. 
 
 B. A Conditions of Labor Service which will have charge of the adminis- 
 tration of conditions of labor within business plants. 
 
 C. 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. 
 
 D. A Woman in Industry Service which will meet the problems con- 
 nected with the more rapid introduction of women into industry as a result 
 of war conditions. 
 
 E. A Training and Dilution Service which will administer such training 
 and dilution policies as may be agreed upon.
 
 OBSTACLES TO RAPID MOBILIZATION 241 
 
 F. A Housing and Transportation of Workers Service whose duty it 
 will be to provide the housing facilities to meet the nation's needs. 
 
 G. 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. 
 
 H. 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 Depart- 
 ment, in problems of reconstruction, and would assist in formulating the 
 national labor policy. 
 
 I. An Investigation and Inspection Service to provide the field force of 
 examiners and inspectors required by the other services. 
 
 As has been said repeatedly, a war labor administration which 
 would be divorced from production would accomplish little or nothing. 
 The Advisory Council accordingly took up as its next task the relating 
 of the central war labor administration to the various production 
 departments of government. On January 22 it sent to the Secretary 
 of Labor a memorandum, which he approved, on the organization and 
 administration of the new work. 
 
 Having thus blocked out the essential features of the new war 
 labor administration and its connection with the production depart- 
 ments of government, the Advisory Council turned to (a) a considera- 
 tion of the securing of funds to carry on the work; (6) a canvass of 
 competent personnel; (c) a detailed consideration of some of the more 
 important services, particularly the United States Employment 
 Service; and (</) a study of the relationship of the new war labor 
 administration to various other agencies of government, such as the 
 committees and sections on labor of the Council of National Defense, 
 the United States Employees' Compensation Commission, the Com- 
 mittee on Education and Special Training of the War Department, 
 the War Service Exchange, and the Federal Board for Vocational 
 Education. 
 
 The securing of funds was of course of most pressing importance. 
 It involved by way of preliminary work (a) a survey of the problems 
 which would have to be met by each service, (6) a study of the plan 
 of organization which would make it probable that the service could 
 meet these problems successfully, (c) the preparation of organization 
 charts for the various services, and (d) an estimate of the personnel 
 required and of the expense involved. These matters were canvassed 
 as rapidly as might be, experts in the various fields being called into 
 conference for counsel and criticism. It seemed to the Council that
 
 242 ECONOMICS OF WAR 
 
 in view of the pressing character of the emergency, it would be proper 
 for the President of the United States to grant from his emergency 
 fund money sufficient to initiate the various services and to maintain 
 them until Congress should have provided the funds for their con- 
 tinuance. This did not seem to the President expedient. It became 
 necessary, therefore, to proceed on the basis of securing the funds by 
 new Congressional appropriation. It was February 8 before the 
 Advisory Council was able to lay before the Secretary of Labor a 
 draft of a letter to be sent to the Secretary of the Treasury transmitting 
 estimates for the appropriations needed for the rest of the fiscal year 
 1918, and for the fiscal year 1919. After further study and revision, 
 these estimates were sent to the Secretary of the Treasury and by him 
 transmitted on February 15 to the Speaker of the House of Repre- 
 sentatives. The sums asked for were exceedingly modest, the Council 
 reasoning that Congress would be more or less continuously in session 
 and that a modest initial appropriation would enable the installation 
 of the new services. Congress could later provide for them according 
 to their demonstrated merit. 
 
 Little need be said concerning the relationships of the new labor 
 administration to the outside agencies previously mentioned. Con- 
 ferences which the Council held with these outside agencies made 
 it abundantly clear that there was small probability of friction 
 arising, or, stated positively, that there was every reason to suppose 
 that a division of labor which was satisfactory to all could readily be 
 worked out. The committees and sections on labor of the Council 
 of National Defense constituted the most puzzling problem. These 
 agencies had done excellent work, but the question arose whether the 
 continuance of advisory agencies was advisable after an executive 
 mechanism had been provided. The decision finally reached was 
 that an appropriate solution of this matter could be made only after 
 the new war labor administration had become an actuality through 
 receiving adequate appropriations from Congress. 
 
 On March 5 the Council presented to the Secretary its final 
 memorandum, dated March 4, the significant recommendation of 
 which, aside from those already covered, was as follows: 
 
 A departmental agency fitted to furnish the driving force which will 
 secure efficient execution of the war labor administration should be provided. 
 It is clear that the Secretary is already overburdened with the regular 
 administration of the department, and the Advisory Council feels strongly 
 that the Secretary should himself continue to administer the adjustment
 
 OBSTACLES TO RAPID MOBILIZATION 243 
 
 work, which will presumably increase in scope and in demands on the 
 Secretary's time. Unless an able administrator can be found who will give 
 his full time to the general supervision (under the Secretary) of these war 
 labor matters, it is the judgment of your Advisory Council that the venture 
 will not achieve its full measure of success. 
 
 The person to assume this responsibility must have, above all, vision and 
 administrative capacity. Possessing these, the other attributes will follow 
 as a matter of course. He must be able to command the respect of the 
 members of the Policies Board and must be willing to assume responsibility 
 and authority. His position will be an impossible one except with the most 
 cordial support of the Secretary. For, without formal title, he would 
 be asked to perform under the Secretary the duties of a War Labor 
 * Administrator. 
 
 The course of events up to March 5 might very naturally lead 
 one to conclude that within two or three weeks' time a unified labor 
 administration would come into actual operation. As a matter of 
 fact, nothing of the sort happened and the situation as it stands now 
 (April, 1918) is both curious and uncertain. 
 
 From the point of view of the Secretary of Labor the matter 
 probably resolves itself into two main considerations : first, will he be 
 able to secure from Congress the funds necessary to carry on the war 
 labor administration? second, will he be able to organize under his 
 jurisdiction an effective administration and be able satisfactorily to 
 correlate it with the Industrial Service Sections now operating in the 
 production departments ? On both of these points he must have his 
 misgivings, but certain considerations indicate a successful outcome 
 if he assumes a position of vigorous and efficient leadership. 
 
 Notwithstanding the fact that the appropriation bill has slumbered 
 peacefully in Congress for two months, it is difficult to believe that 
 the necessary funds will not be forthcoming. There is no denying 
 the existence of an undercurrent of ugly feeling in Congressional 
 circles over the entire labor situation. Such a feeling could easily 
 develop out of the memories of labor controversies of the past, the 
 lack of well-informed public sentiment on labor matters, the very real 
 demoralization of labor which has occurred in some cases, and the 
 grossly misleading reports which have been circulated concerning labor 
 difficulties. There is also no denying that requests coming from the 
 Department of Labor are viewed by a considerable section of Congress 
 with misgivings, if not with actual hostility. This section cannot 
 down its fears that the Department of Labor will be more concerned 
 with labor welfare and "uplift" than it will be with the best utiliza- 
 tion of our national resources by a sound administration of labor in
 
 244 ECONOMICS OF WAR 
 
 production. This section alleges that requests made by the Depart- 
 ment of Labor in the past have not been properly supported with 
 reasons why they should be granted, and it further alleges that the 
 administration of the Department has been wasteful and ineffective. 
 It is not clear that these allegations are the real substance of the 
 difficulty. They savor of being excuses rather than substantial 
 reasons. It is, furthermore, not clear that the attitude of this group 
 properly reflects the attitude of Congress as a whole. 
 
 Congress cannot avoid being influenced by the fact that the request 
 for a war labor administration administered by the Secretary of Labor 
 did not emanate from the Secretary. The issue was raised originally 
 by the production departments the Council of National Defense 
 recommended that the coherent labor administration be under the 
 charge of the Secretary of Labor, and the President of the United 
 States issued an order to that effect. The President has since issued 
 a formal proclamation creating the National War Labor Board, 
 which is one phase of the Secretary's scheme of administration. It 
 will be difficult to refuse an appropriation under such circumstances. 
 Indeed, Congress has already committed itself to a considerable extent. 
 It has appropriated for the current year $250,000 for the ordinary 
 administration of the United States Employment Service and has 
 given the service an additional $250,000 as a "rotary fund" to provide 
 transportation for war workers. The House of Representatives has 
 passed a bill for $50,000,000 to provide housing facilities, with the full 
 knowledge that the complete administration of this fund would be 
 in the hands of the Secretary of Labor and that an understanding 
 existed by which he was to play a large part in the administration of 
 the $50,000,000 housing fund already appropriated for the uses of the 
 Shipping Board. Having gone this far, Congress will be disinclined 
 to turn back, particularly since a strong case can be made for the 
 necessity of a central labor administration and for the adequacy of 
 the central labor administration which the Secretary of Labor has 
 devised. It is worth noting in this connection that even if Congress 
 should fail to pass the specific appropriation bill herein referred to, 
 but should pass in satisfactory form the so-called Overman Bill, which 
 is now pending, power would be given to the President of the United 
 States to carry out his order of January 4 authorizing the Secretary 
 of Labor to set up a national administration, by transferring to his 
 jurisdiction the requisite agencies and instrumentalities. 1 
 
 'Eo. NOTE. The Overman Bill was subsequently passed.
 
 OBSTACLES TO RAPID MOBILIZATION 245 
 
 2. THE HISTORY OF THE WAR INDUSTRIES BOARD 1 
 
 I. ANTECEDENTS 
 
 To trace the history of the War Industries Board it is necessary to 
 go back to the beginnings of the Council of National Defense and its 
 Advisory Commission, under whose legal authority the Board was first 
 organized and of which it is still technically a part. The Council of 
 National Defense and Advisory Commission, it will be recalled, were 
 created in a section of the Army Appropriation Act approved August 
 29, 1916. In general, the Council was to study the industrial and 
 transportation systems of the country and make recommendations 
 as to the methods by which they might best be utilized in case of some 
 possible future war. The members of the Advisory Commission were 
 appointed in October of that year. Yet it was not until March 3, 
 1917, that the Council was fully organized. By this time any idea 
 of carrying out the letter of the enabling act by conducting a long- 
 drawn-out, survey of American industry had gone. The time was too 
 short. Immediate action was vital, and while the Commission was 
 not designed as an executive body, the law creating it was elastic 
 enough to permit a great deal of successful effort toward bringing 
 industrial organization in touch with the government through the 
 several departments represented in the Council of National Defense. 
 
 The Commission divided itself into seven committees, repre- 
 senting respectively transportation and communication; munitions 
 and manufacturing, (including standardization); supplies (including 
 clothing); raw materials, minerals, and metals; engineering and 
 education; labor; and medicine and surgery (including general 
 sanitation). Under this arrangement the Commission constituted 
 itself an informal advisory industrial cabinet in a sense the first 
 agency in the government to devote itself to the war industrial prob- 
 lem as an entity with each member serving as a rjoint of contact 
 between the particular form of activity with which he was charged 
 and the several government departments. 
 
 Yet as the war continued, increasing experience began to show 
 weaknesses in the design of the\ Council's structure as applied to the 
 new and unexpected task which confronted it. In the supply problem 
 
 1 By Curtice N. Hitchcock. Adapted from "The War Industries Board. 
 Its Development, Organization, and Functions," Journal of Political Economy, 
 XXVI (June, 1918), 545-66. 
 
 ED. NOTE. Mr. Hitchcock was Assistant Secretary of the Council of National 
 Defense during the first year of the war.
 
 246 ECONOMICS OF WAR 
 
 the bureaus and departments of the Army and Navy, organized on 
 the old hard-and-fast lines established through generations of peace- 
 time bureaucratic habit, naturally tended each to attempt to meet 
 its own needs in its own way with little or no concerting of effort even 
 when several needed large amounts of the same form of supplies. 
 These purchasing bureaus early began commissioning civilians to meet 
 the great need for increased personnel, but this seldom affected the 
 systems under which they were managed. Certain of these bureaus, 
 directed by capable officials, handled their own individual problems 
 unusually well. The fundamental weakness in the whole situation 
 was not so much the individual incapacity displayed in a few instances 
 by bureau officials as the lack of cohesion in the whole governmental 
 system which prevented the adoption by all bureaus of a single policy 
 toward industry. 
 
 II. THE GENERAL MUNITIONS BOARD 
 
 The earliest manifestation of weakness in the iron-clad separation 
 of bureaucratic functions displayed itself through a general tendency 
 on the part of the purchasing bureaus to bid against each other for all 
 kinds of supplies and materials, with the result that those which had 
 the most forceful personnel got the most effective results without 
 regard to the relative importance of the work each had in hand. It 
 was probably this tendency as well as the need for planning for the 
 production of many forms of munitions entirely new to the War 
 Department that inspired the creation of the General Munitions 
 Board, the first of the attempts at a co-ordinating agency to draw 
 the various departments and bureaus together for common planningT 
 The somewhat earlier Munitions Standards Board, constituted for 
 the purpose of standardizing specifications and tools for munition 
 manufacturing, was soon absorbed by the larger body. 
 
 The General Munitions Board was composed of seven repre- 
 sentatives of the Army, nine of the Navy, the chairmen of the Advisory 
 Commission Committees on Supplies, on Raw Materials, on Manu- 
 facture, and on Medicine, and the chairman of the National Research 
 Council. In the words of the annual report of the Council of National 
 Defense, "The efforts of the General Munitions Board were directed 
 toward co-ordinating the making of purchases by the Army and Navy, 
 and assisting in the acquisition of raw materials, and establishing 
 precedence of orders between the Departments of War and the Navy, 
 and between the military and industrial needs of the country." Its
 
 OBSTACLES TO RAPID MOBILIZATION 247 
 
 activities included developing sources of supply for almost every form 
 of munition from rifles, ordnance, and shells to optical glass and 
 gauges. It set up sub-committees which contributed invaluable aid 
 to the construction of cantonments and the provision of storage 
 facilities. It gave particular attention to collective consideration of 
 price questions. Yet inevitably from its size, its indefinite powers, 
 and its loose organization its functions were more judicial than execu- 
 tive. The power of decision rested in the whole board rather than 
 in the chairman, which necessarily detracted from the driving force of 
 the organization. In practice this scheme proved unwieldy, slow, and 
 inadequate. The General Munitions Board began work on April 9. 
 It lasted until July 28, when it was superseded by the War Industries 
 Board, Mr. Scott remaining as chairman. 
 
 III. THE WAR INDUSTRIES BOARD: FIRST PERIOD 
 
 The War Industries Board which succeeded the General Munitions 
 Board avoided some of the more obvious weaknesses in the old 
 organization. It was made up of seven instead of twenty-odd 
 members, all civilians with the exception of one representative each 
 of the Army and Navy. Many loose ends were thus drawn together, 
 and the new Board was much more nearly an active planning board 
 for industry than anything which had preceded it. Yet regarded as 
 an industrial cabinet it still occupied a very arromalous position. Its 
 hazy authority could be checked in many directions. As a subordi- 
 nate body of the Council of National Defense it very definitely lacked 
 power to take the initiative in industrial policy. It was still a clearing- 
 house rather than a directorate. Again, looked at from the point 
 of view of effective administration, such authority as it possessed, 
 whether delegated by members of the cabinet or assumed through the 
 prestige of its position, was vested in the Board as a whole rather 
 than in the chairman, just as in the case of the General Munitions 
 Board, 'with a resultant loss in driving force. Finally, as in the case 
 of the latter Board, its decisions could be nullified, not only by the 
 heads of the executive departments of the government, but also by 
 chiefs and even subordinate officials of the purchasing bureaus, in 
 whom statutory responsibility and power over contracts still rested. 
 The bureau chiefs were subject constantly to a dual responsibility 
 their legal responsibility to the heads of their departments, and at the 
 same time their hazy dependence for guidance on the War Industries 
 Board.
 
 248 ECONOMICS OF WAR 
 
 The board was still a "co-ordinating" body which depended for 
 its effectiveness on the co-operation and consent of individual bureaus, 
 and their unwillingness in many instances to accept its leadership was 
 frequently a source of embarrassment both to the government and to 
 industry. Aside from questions of policy the Board's lack of a 
 definite status frequently produced unnecessary confusion in the 
 mechanics of the dealings between manufacturers and the govern- 
 ment. In a sense charged with supervision over production, the Board 
 often found itself compelled to refer producers to individual bureau 
 heads for information and direction even in questions involving several 
 of them alike. While many of the threads of industrial activity 
 converged in the Board, others remained unfocused. 
 
 IV. QUESTIONS OF PRICE AND PRIORITY 
 
 The War Industries Board early set up an organization under 
 Judge Lovett to decide questions of priority in production among the 
 purchasing departments, and the Priorities Division of the Board 
 was able to do much effective work toward eliminating conflict in 
 war orders between the several departments and the Allies. Yet, 
 especially in the earlier months of its existence, it was much hampered 
 by special priority orders issued by individual production depart- 
 ments, particularly the Quartermaster Department, which in its 
 eagerness to expedite shipment inaugurated its own special system and 
 caused a great deal of confusion before the plan was finally abolished. 
 
 Yet the difficulties of establishing an effective system for admin- 
 istering priorities in production were largely of a mechanical nature. 
 The much larger problem of determining priority in delivery as 
 between military and non-military needs, between food and fuel and 
 guns, between steel for merchant ships and steel for destroyers, and 
 between guns for the Navy and guns for the Army, involving the whole 
 question of large war strategy, was not vested in the Board, nor indeed 
 vested anywhere definitely short/ of the President. 
 
 In the words of the statement issued by the Council of National 
 Defense creating the War Industries Board, the Board was to "con- 
 sider price factors." The actual form which its "consideration" 
 took through the period from July 30 to March 4 was a series of agree- 
 ments with the national representatives of various branches of 
 industry on the price to be paid for their products. The price was to 
 be charged alike to the American government, the public, and the 
 Allies. While negotiated through collective bargaining, naturally
 
 OBSTACLES TO RAPID MOBILIZATION 249 
 
 these agreements had all the force of a price-fixing law, and they 
 illustrate perhaps better than any other of the activities of the Board 
 its tendency to become a central, executive, industrial planning board. 
 It should be noted as further illustrating its trend that in each case the 
 President's definite approval was secured before the price was adopted, 
 making the Board here the direct agent of the President rather than 
 of the Council, securing in this way the agreement of the several 
 purchasing departments to the price determined upon, and giving the 
 Board as an ultimate weapon in bargaining the power of the depart- 
 ments to commandeer. 
 
 Yet in spite of the extensive character of the Board's organization 
 as it existed in the spring of 1918, and its contact with almost every 
 conceivable phase of production and purchasing, it was still very 
 largely what it had been when it was created in July of 1917, what the 
 General Munitions Board had been, and what the germs of both 
 organizations had been in the days of the early miscellaneous advisory 
 committees of the Council a supplementary agency without author- 
 ity to assume leadership or control policy. It fixed prices on certain 
 commodities, administered priority, acted as a clearing-house, and 
 performed certain delegated purchasing functions, but that was all; 
 initiative still rested with the departments. 
 
 V. THE WAR INDUSTRIES BOARD: REORGANIZED 
 
 When on March 4 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.
 
 250 ECONOMICS OF WAR 
 
 The great advance which this step marks is the definite fixing of 
 responsibility for the administration of such a policy. It is yet some- 
 what early to judge whether the powers of the reconstructed organiza- 
 tion will be commensurate with the responsibility. Although the 
 President's letter to Mr. Baruch conferred seemingly far-sweeping 
 powers, existing legislative barriers still make many of those powers 
 dependent in greater or less measure on the co-operation and consent 
 of the existing departments and bureaus of the government. Unwil- 
 lingness and delay in granting such consents on the part of depart- 
 mental agencies during the past year have hampered and even wrecked 
 some of the organizations which the newly constituted War Industries 
 Board has supplanted. The first six months of the war produced 
 indeed a constant succession of experiences with the unwillingness of 
 bureau officials to relinquish in any form the responsibility and powers, 
 especially for placing contracts, which were theirs by congressional 
 enactment. The interdepartmental committees, munitions boards, 
 and like agencies which sought to draw together for common planning 
 the scattered and apparently conflicting interests of the production 
 and purchase bureaus which had to deal with industrial problems each 
 encountered the same handicaps. 
 
 Varying in the ingenuity of their structure, these co-ordinating 
 boards fell alike before the fundamental weakness that their common 
 action and their power depended on the voluntary delegation of 
 authority by bureaus inspired with a spirit of competition in efficiency 
 which transcended their desire to work together for a common cause. 
 This is said in no spirit of undue criticism of the men who composed 
 them. It is undoubtedly too much to expect of human nature that 
 an official charged with the detailed administration of a separately 
 constituted government agency should be able to regard the problems 
 of a brother-official as of equal urgency with his own. The British 
 experience in the early days of the war with "groaning cabinets "- 
 planning bodies intended to undertake executive action, but composed 
 of officials each charged with administrative duties and thus with 
 special interests was not far unlike our own. An executive arbiter 
 with the final voice on all decisions is alone able to prevent such 
 bodies from becoming mere disorganized debating societies. 
 
 Yet there are at least three excellent reasons for predicting- more 
 effective results from the War Industries Board as now constituted. 
 The first is that the President, far more definitely and emphatically 
 than before, has thrown the vast prestige of his office behind the
 
 251 
 
 agency and has delegated to Mr. Baruch in no uncertain terms many 
 functions of an extra-legal but widely extended character which the 
 presidency has gradually assumed during the past fifteen years and 
 especially since the beginning of the war. This in itself is a guaranty 
 that the influence of the War Industries Board will be determined by 
 no narrow legalistic interpretation of its powers. 
 
 The second is that, with the exception of its functions in the 
 determination of prices, the final decision as to the action of the Board 
 is vested by the President in the chairman exclusively instead of as 
 hitherto in the Board as a whole. This gives hopeful promise of quick 
 and decisive action and opens the way to a courageous and effective 
 assumption of leadership by the man to whom he has delegated the 
 functions which his letter defines. While it may yet be too soon to 
 reach a conclusion, the methods adopted by the new chairman and 
 his choice of assistants so far show no reason for questioning the 
 confidence which the President has placed in him, and with that 
 whole-hearted confidence behind him, as the American war govern- 
 ment is now constituted, there seems little reason to doubt his ability 
 to carry through any policy which he may decide to inaugurate. 
 
 Finally, the passage by Congress of the so-called "Overman" 
 bill gives the President power to redistribute the powers of the 
 executive departments in any way which he may wish, and undoubt- 
 edly makes available to the President the power to remove any 
 existing legislative obstacles to the assumption of full control over 
 governmental industrial policy by the War Industries Board and its 
 investment with any or all necessary prerogatives now held by the 
 several existing production and contracting bureaus and departments. 
 
 In the actual machinery of the War Industries Board itself there 
 have been and probably will have to be few changes. The Board 
 as it now exists has under it special divisions and sections for handling 
 particular supply problems, each in charge of experts. The Raw 
 Materials Division has specialists for such materials as steel and its 
 products, non-ferrous metals, chemicals and explosives, lumber, 
 building materials, and the like, each with its complement of by- 
 products. The Division on Finished Products and the Conversion of 
 Industry includes such materials as cotton duck, machine tools, 
 electrical equipment, optical glass, and a host of other things. Fre- 
 quently of course the Board relies on the technical staff of one of the 
 regular supply departments of the government for handling particular 
 commodities.
 
 252 ECONOMICS OF WAR 
 
 Acting as the directing agency in the mechanism of the Board's 
 organization is a "Requirements Division" composed of the heads 
 of various sections of the War Industries Board, including the 
 Priorities Division, and representatives of the Army, the Navy, the 
 Emergency Fleet Corporation, the Food Administration, the Red 
 Cross, the Railroad Administration, the Fuel Administration, and 
 the Allied Purchasing Commission practically all the government 
 agencies which come in touch with the industrial field. To this 
 agency the supply departments of the government furnish con- 
 tinually estimates of their future needs, keeping the division con- 
 stantly in touch with the progress of their business, so that their 
 requirements can be planned for far ahead. In turn the Require- 
 ments Division delegates to the proper division of the Board or to 
 one of the supply departments itself, as the case may be, the task of 
 meeting the need. Of this division the chairman of the War Industries 
 Board is an ex-officio member and is thus constantly in touch with 
 the daily progress of business, although not compelled to devote 
 himself to the detailed administration of it. 
 
 Priority of production is administered as before by the Priorities 
 Division, but a new agency has been set up by the Board for the 
 administration of priority of delivery, of which Mr. Baruch is again 
 an ex-omcio member, and which includes representatives of all the 
 executive departments and special administrations, such as food and 
 fuel, which touch industrial questions, joined together for common 
 planning. It will be noticed that this agency hardly yet meets the 
 requirements for a general war priority board to determine the largest 
 questions of national strategy and to join military with industrial 
 strategy. These decisions apparently rest now chiefly with the 
 General Staff of the Army if not directly with the President himself. 
 Yet the new Priorities Board in the War Industries organization is a 
 long step in the right direction. 
 
 Finally the determination of price is now vested in a special 
 committee, of which Mr. Robert S. Brookings, of the War Industries 
 Board, is chairman, and of which Mr. Baruch is again an ex-officio 
 member. It includes General Palmer E. Pierce, member of the War 
 Industries Board and Surveyor-General of Supplies for the War 
 Department; Paymaster Hancock, of the Bureau of Supplies and 
 Accounts of the Navy Department; Dr. H. A. Garfield, Fuel Admin- 
 istrator; F. W. Taussig, chairman of the Tariff Commission; W. J. 
 Harris, chairman of the Federal Trade Commission; and Hugh 
 Frayne, the labor member of the War Industries Board. The Price
 
 OBSTACLES TO RAPID MOBILIZATION 253 
 
 Committee thus includes, officials having to do not only with the 
 commodities particularly to be considered, but also the basic factors 
 entering into a just price determination. This again is a decided 
 step in advance toward fundamental planning. 
 
 VI. FURTHER CO-ORDINATION REQUIRED 
 
 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 admin- 
 istered by another government agency, and it is obvious that priority 
 in the labor supply must go hand in hand with priority in materials. 1 
 
 Finally the War Industries Board is now virtually directing the 
 government's price policy. Statesmanship necessarily demands the 
 most carefully studied relationship between prices and war finance. 
 Great Britain, with her flexible parliamentary system, found her 
 peace-time budget system easily adaptable to war and has been able 
 to correlate her war taxation and her policy toward war profits. In 
 the United States the responsibility for regulating prices a "volun- 
 tary" but none the less effective system of regulation has been 
 assumed by the President, acting through the War Industries Board, 
 while the ultimate responsibility for taxation rests exclusively with 
 Congress, a constitutionally co-ordinate branch of the government. 
 
 1 ED. NOTE. Co-ordination here has since been accomplished.
 
 VII 
 
 WAR-TIME REGULATION OF TRADE AND 
 INDUSTRY 
 
 Introduction 
 
 With this chapter we begin a study of the more specific problems 
 of economic control to which the war has given rise. The organization 
 of all the resources of each belligerent with an eye single to military 
 victory has required the development of elaborate machinery for the 
 regulation of trade and industry. 
 
 The dislocations of trade that are occasioned by a war such as 
 the present one extend literally "unto the ends of the earth." The 
 war has revealed to the laymen, as no amount of theoretical statement 
 could have done, the interdependence of the trade and industry of the 
 world. Neutral as well as belligerent economic life has been pro- 
 foundly affected. In the case of the neutrals, after a brief chill at 
 the outbreak of the war, the enormous demand for war materials in 
 the belligerent nations gave an unprecedented stimulus to industrial 
 activity, which resulted for a year or so in prosperity which was fairly 
 well diffused among the various classes. In time, however, as the 
 energy of the world becomes more and more devoted to the arts of 
 destruction, war casts its darkening shadows over neutral as over belli- 
 gerent lands. The economics of an international division of labor 
 based upon exchange disappear as soon as the control of trade and 
 industry by contending powers renders free exchange no longer 
 possible; and then there stands revealed the true significance of 
 international economics. 
 
 The international exchanges (Section XXIV) present one of the 
 most complicated problems of control. In normal periods the 
 exchanges work automatically, but in time of war, the disruption 
 of shipping, the practical cessation of foreign investments, the cur- 
 tailment of gold movements, the enormous trade that is handled 
 directly by governments on other than business principles, etc., require 
 the development of an entirely new mechanism for regulating foreign 
 trading and business operations. 
 
 254
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 255 
 
 The shifting of the world's gold supply (Section XXV) had 
 profound effects in the United States long before our entry into the 
 war. It facilitated a credit expansion that was perhaps of service 
 in connection with the enormous expansion of business activity which 
 European demands occasioned, but it was at the same time doubtless 
 instrumental in causing a general rise of prices, and the social inequal- 
 ities that accompany such an event. It is significant in this con- 
 nection that the total of bank deposits in Japan has substantially 
 increased during the war; but that the deposits of the masses have 
 declined. Food riots and revolutionary propaganda are certain to 
 be the eventual fruits of such unbalanced wealth accumulation. The 
 re-allocation of the supply of gold at the end of the war also raises 
 problems of extreme delicacy as well as of far-reaching importance. 
 
 What will be the ultimate results of the vast experimentation of 
 government control of trade and industry which the exigencies of war 
 have required ? To what extent will it prove serviceable in the inter- 
 ests of peace ? These queries inevitably present themselves here, 
 though in the nature of the case they cannot now be answered. 
 Chapter xiv, however, attempts a preliminary appraisal of some of the 
 ultimate effects of this social experimentation and its relation to 
 long-run national efficiency. 
 
 XXIII. Trade Dislocations 
 i. THE NATURE OF TRADE DISORGANIZATION 1 
 
 The disturbance to industry which follows in the wake of war is 
 international as well as national. In fact, the more a nation has 
 depended upon others, the more likely it is to be seriously crippled by 
 an attempt to meet new conditions. This disorganization cuts down 
 the productive efficiency of the peoples who are not at war. We all 
 know that in general goods are produced in the localities where 
 favorable conditions make costs lowest, and that through a world-wide 
 division of labor nations satisfy each other's wants. It has come 
 about that the countries of Western Europe have specialized in the 
 production of manufactured articles and have come to depend upon 
 Russia, the Near East, the French and English colonies, and the two 
 Americas for their raw materials and a large part of their food. In 
 general, industry and business have been arranged upon the assump- 
 tion that normal markets and means of communication are to remain 
 
 1 An editorial.
 
 256 ECONOMICS OF WAR 
 
 open. By seriously crippling the communication upon which the 
 division of labor depends the war is making specialization between 
 nations more expensive. It takes away markets, increases the costs 
 and makes difficult of purchase the materials essential to production, 
 and robs of its effectiveness the contribution which the in'ternational 
 organization of industry makes to the economy of production. Out 
 of such maladjustments in economic organization comes a loss in 
 economy of effort, and in the use of resources which affect, along with 
 the complementary processes of the industrial system, the sequence 
 of acts which culminates' in the production of the concrete commodities 
 essential to the maintenance of health and efficiency and to the waging 
 of effective warfare. 
 
 2. THE WAR'S EFFECTS IN NEUTRAL SCANDINAVIA 1 
 
 To describe conditions in Scandinavia toward the end of 1916 is 
 a difficult matter. It cannot be done with a few words or in a couple 
 of lines. The picture which unrolls itself before one's mental eye is 
 kaleidoscopic it is a picture of many colors, a bewildering variety 
 of human conditions, one entangled mass of political uncertainty, 
 commercial aggressiveness, variations of financial responsibility, and 
 social-economic development. 
 
 What is the general impression ? The vague, but not altogether 
 unsatisfactory one is that the people of the three nations are becoming 
 somewhat more anxious than they were in the heyday of previous 
 phases of war-time, that they seem to have a better judgment regard- 
 ing the isolated economic situation of their countries and the necessity 
 of careful movement in political affairs, perhaps, also that voices of the 
 more sober tenor in the nations are now heeded more thart in the past. 
 The war has all the time been near. It was near enough to fear the 
 worst in the beginning of the catastrophe. Then came the feeling of 
 more certainty and the chance of making profit by courageous and able 
 individual enterprise. This condition of things was soon followed by a 
 practically insatiable demand for every kind of commodities and goods 
 which enabled any man, so to speak, to make a fortune merely by 
 selling at fabulous prices. The international shortage of tonnage 
 made freights soar; shipping shares became attractive. A world of 
 hitherto unknown chances opened to the ever present speculative 
 trait in human nature. The ordinarily slow Scandinavian was quick 
 
 1 By Fin Lund. Adapted from The Americus (February, 1917), pp. 5-7. 
 Copyright by the National City Bank, New York.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 257 
 
 enough to discover this; he bought and he sold, he promoted, and he 
 ordered new ships. 
 
 These were the advantages of being so near the war, but little by 
 little in the beginning, then by seven-mile jumps, the war closed in on 
 the Scandinavian countries, the mailed fist made its stern pressure felt, 
 and when Germany's note to Norway on the question of U-boats in 
 Norwegian waters was presented war itself loomed large on the home 
 threshold, and displayed its dreaded teeth at close quarters. The 
 Allies would not allow goods to be imported "for the sole purpose of 
 re-selling them to the Central Powers," and the latter, on their 
 part, entertained the same point of view as to their products. 
 Importations into Scandinavia were curtailed more and more 
 rigorously. 
 
 Everything which could be sold had been sold in the beginning 
 of the war. Now, because imports were falling off rapidly and also 
 with due understanding of international exigencies, the Scandinavian 
 governments started their policy of embargoing exports, so that at 
 present hardly a thing can be sent out of any of the countries. The 
 index of the Swedish official list of laws, dated October 31, 1916, for- 
 bidding exports, mentions more than 1,100 articles, and even that is 
 expressly called only a help to find the commodity looked for and does 
 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 
 is a problem which is already exceedingly difficult to manage. Law 
 upon law, one governmental decree after the other, tries to regulate 
 the distribution of commodities as well as their prices. The majority 
 of the people are in actual need. Prices soar, and it really does not 
 matter to the ordinary man whether the cause of this rise in the cost of 
 living is a too big circulation of paper currency or a limited supply of 
 goods. What confronts him is the fact itself, not theories, and he 
 realizes all too well that he cannot make " both ends meet." There is, 
 generally speaking, no doubt that under normal circumstances the 
 laws of supply and demand will work satisfactorily to the community 
 and that artificial interference is only harmful. At present the supply 
 is short, consequently the demand and the consumption must be 
 controlled to secure a fair distribution. Sugar cards, which have 
 been used in Sweden for months, and which were decreed in Denmark
 
 258 ECONOMICS OF WAR 
 
 to go into force January ist, 1917, are an example of the means 
 employed to control the distribution and to prevent waste of supplies. 
 While on the one hand one sees new millionaires permit themselves 
 to indulge in_the most senseless luxuries, which incidentally add con- 
 siderably to the high cost of living under circumstances like these, the 
 less well-to-do must actually go without many things formerly con-_ 
 sidered necessities. Collections of money and food-stuffs are now 
 made all over Scandinavia to help the less fortunate through the 
 winter. The poorer population of the cities is especially considered. 
 It is even difficult to get a roof over one's head. Proposals and 
 counter-proposals to remedy the evil are forthcoming, but no real 
 remedy seems to be in sight. 
 
 3. GERMAN FOREIGN TRADE IN WAR TIME 1 
 
 When the war broke out, the German ships were driven off the 
 seas, traffic with over-sea countries became difficult; it was made 
 impossible later on by the allied blockade. Trade with neutral 
 countries was affected by numerous prohibitions against exportation 
 issued both in Germany and in the neutral countries. Letters, 
 newspapers, or other information from abroad could not be obtained 
 currently, and thus a survey of market conditions became impossible. 
 Domestic trade suffered when the public suddenly developed the 
 practice of extreme thrift, some because their income had been 
 reduced, others because the war had made them apprehensive and 
 nervous. Trade also suffered from the irregularities of the trans- 
 portation services, as all traffic would cease at times when large 
 movements of troops were to be undertaken. The war, on the other 
 hand, created an enormous demand for all goods serving directly or 
 indirectly the purposes of warfare. The dealers in articles of luxury 
 lost most of their customers, while the war trades prospered. Pro- 
 fessional men saw their incomes dwindling. Raw materials and wares 
 formerly imported on a large scale became scarce and their prices rose, 
 while the warehouses were filled with articles intended for exportation 
 which could not be sold until later. Many firms suffered from their 
 inability to collect claims due them from foreign customers. As the 
 war proceeded, and the prospects of victory diminished, the govern- 
 ment gradually extended its control over both industry and trade. 
 
 1 By Chauncey Depew Snow and J. J. Krai. From Department of Commerce, 
 Miscellaneous Series No. 65, pp. 23-24.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 259 
 
 Although many of the industries of Germany have succeeded in a 
 large measure in adapting themselves to the new conditions, trade 
 has found no opportunity for readjustment, and the merchant has 
 suffered much more than the manufacturer. The former, as a class 
 distinct from the producer, could be dispensed with, whereas the 
 latter had indispensable work to perform for war needs. The imperial 
 government and the state of Prussia are now the largest purchasers of 
 goods, and they buy directly from associations of producers, the 
 middlemen having been eliminated in most cases; many of them are 
 walking the streets. The men who are selling syndicated products 
 are not merchants; they are officials or employees of the producers, 
 and protests have been made against their claiming membership on 
 various boards as "representatives of the trade." 
 
 Trade with neutral countries increased considerably for a time, as 
 they offered the only available medium for trade with foreign 
 countries. This trade was gradually restricted and cut off both by 
 the allied blockade and the growing needs of the neutrals themselves. 
 Germany continued as a buyer of foodstuffs and raw materials; the 
 neighboring neutrals required coal, iron wares, chemicals, and fer- 
 tilizers from Germany in exchange. 
 
 XXIV. The International Exchanges 
 i. GREAT BRITAIN'S FOREIGN-EXCHANGE PROBLEM 1 
 
 England, at the commencement of the war, was in far the strongest 
 position of any of the Allies to purchase munitions and other materials 
 from foreign countries both for herself and her Allies. She was in fact 
 the greatest creditor nation in the world. France too was a powerful 
 creditor nation, but not so powerful as England, and at the commence- 
 ment of the war her export commerce received unfortunately a much 
 more staggering blow than England's. While, therefore, France has 
 made every possible effort financially, the greater burden fell to us. 
 On the other hand, Russia and Italy were debtor nations, and even 
 before the war had to borrow in order to balance their foreign account. 
 Serbia was, of course, in the same position, and Belgium, too, has been 
 in that position since the commencement of the war. All these 
 nations have required assistance in making purchases abroad. From 
 the commencement of the war, therefore, we have had to assist our 
 
 1 By R. H. Brand (see p. 191). Adapted from an unpublished address before 
 the American Bankers Association, September, 1917.
 
 260 ECONOMICS OF WAR 
 
 Allies as well as our Dominions in making foreign purchases, and 
 have in these three years lent them not less than six billion dollars. 
 
 Consider England's position in 1913 as regards her balance of 
 trade. In that year her imports were valued at $3,210,000,000, her 
 exports at $2,560,000,000. But it has usually been estimated that 
 England was owed about $1,610,000,000 annually by foreign countries 
 for interest on capital lent, for shipping, freights, and for banking, 
 insurance, and other commissions, etc. If this sum is added to her 
 exports, then the total amount owed to her was $4,170,000,000 as 
 against $3,210,000,000 which she owed for her imports. In other 
 words, she had a favorable balance of about $960,000,000, which was 
 lent abroad. She was therefore in a very comfortable position. The 
 war, however, has altered that position greatly to her disadvantage. 
 
 The tonnage of our ordinary commercial imports has constantly 
 been falling off since the commencement of the war and is now enor- 
 mously reduced. Although the huge increase in prices has actually 
 enormously increased the value of our imports and maintained that 
 of our exports at nearly their pre-war figure, our export trade must 
 in fact have been enormously reduced in tonnage, because it is mostly 
 to South America and the Far East, and in order to provide tonnage 
 nearer home all our ships have been taken by the government off 
 these routes and brought to the North Atlantic. But the excess of 
 commercial imports over exports is now about $1,950,000,000 a year 
 instead of $630,000,000, altogether apart from our huge government 
 imports. 
 
 It is impossible to say to what extent our earnings from freights, 
 interest, and commissions have been affected by the war, but unques- 
 tionably they have not covered anything like the above extremely large 
 debit balance. In consequence we have been obliged for very many 
 months to take exceptional measures to maintain our exchange with 
 the United States, from whom our chief purchases are made. 
 
 In fact, these unfavorable influences of the war began to tell very 
 soon on our external position. Notwithstanding our drawing in, in 
 the first months of the war, money which we had lying all over the 
 world, which I believe amounted to a very large sum, and notwith- 
 standing our great exports of gold, there was by June, 1915, a collapse 
 in our American exchange, and it was clear that much more drastic 
 measures to maintain it were required. These measures could only be 
 the mobilization of all our liquid assets salable abroad; and since that 
 date it may be said that we have carried through completely this
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 261 
 
 mobilization and placed those assets at the disposal of our Allies, so 
 far as they were not needed to pay our debts. 
 
 In the first place, the United States has received in gold over 
 $1,000,000,000 since August, 1914, of which the major portion must 
 have been from the British Empire. 
 
 In the second place, we have taken the most drastic measures to 
 insure that every holder of American securities, or indeed any other 
 securities which we could sell or borrow against here, should either 
 sell or lend such securities to the government. We have in fact, I 
 think, drained our country dry of them. 
 
 While the exchanges between the Allies and nearly all neutral 
 countries are depreciated, the exchange between New York and 
 London has by means of the above measures been maintained practi- 
 cally at gold point to the very great advantage, not only of Great 
 Britain, but of our Allies and also of the United States, and in fact of 
 every nation, except our enemies, because all are interested in uninter- 
 rupted trade. 
 
 In peace time the exchanges find their own level. If a nation is 
 living too extravagantly, the fall in its exchange will naturally tend to 
 correct its extravagance, because imports tend to be restricted and 
 exports to be encouraged. Naturally, if the exchanges are 'artificially 
 maintained, that tendency ceases to operate. That is of course a dis- 
 advantage, but it would be more of a disadvantage if it were not that 
 other and even stronger influences are restricting ordinary commercial 
 imports into European belligerent countries. 
 
 I have already quoted the very striking figures of the tonnage of 
 imports into Great Britain, which sufficiently prove that practically 
 no imports are now being made except such as are absolutely necessary. 
 
 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
 
 262 ECONOMICS OF WAR 
 
 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 ulti- 
 mately come back on the sterling exchange in New York. Lastly, it is 
 well known that neutrals who are owed money by England unfortu- 
 nately 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 main- 
 tenance 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. 
 
 2. TRADE AND "FINANCIAL" BALANCE OF THE 
 UNITED STATES 1 
 
 I. THE BALANCE OF TRADE 
 
 A significant feature of our trade expansion during the last three 
 years has been an enormous increase in the excess of exports of 
 merchandise over imports or a marked addition to our so-called 
 ''favorable balance of trade," as shown by Table I. 
 
 The excess in 1917 was probably greater than that indicated by 
 the figures in the table, as quantities of merchandise, including war 
 material, food, and clothing were sent out of the United States by the 
 government for the use of our troops in Europe, and such material, 
 
 1 By Abraham Berglund. Adapted from "Our Trade Balance and Our 
 Foreign Loans," Journal of Political Economy, XXVI (1918), 732-43. 
 
 ED. NOTE. Mr. Berglund is professor of political economy at the University 
 of Washington. He is now working with the Federal Trade Commission.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 263 
 
 when passing out of the country on our own transports, goes without 
 being recorded. The same is true of articles which the government 
 
 TABLE I 
 
 EXPORTS AND IMPORTS OF MERCHANDISE DURING THE YEARS 1912 TO 1917 
 
 INCLUSIVE 
 
 Calendar Year 
 
 Exports 
 
 Imports 
 
 Excess of Exports 
 over Imports 
 
 IQI2 . . 
 
 $2, ^OQ, 217,00'? 
 
 $I,8l8,O73,O 1 C i ; 
 
 $";8l 14.4. o?8 
 
 IQI3 . . 
 
 2,484,018,292 
 
 i, 702, ^06,4.80 
 
 691 421 812 
 
 1914 
 
 2,113,624,050 
 
 1,789,276,001 
 
 ? 24,34.8 ,04,0 
 
 1915 
 
 3,554,670,847 
 
 i.778.so6,6os 
 
 1,776,074,1 <2 
 
 1916 
 
 5,482,641,101 
 
 2-3OI.6tS.33S 
 
 ?, 001,00^, 7 66 
 
 1917 
 
 6,231,244,976 
 
 2,0^2,4.67, QZZ 
 
 3,278,777,021 
 
 
 
 
 
 may be importing in the same manner, although the quantity of 
 such imports is probably much less than the outgoing merchandise. 
 
 II. RETURN OF AMERICAN SECURITIES 
 
 The most conspicuous feature of our "financial" balance since the 
 war began and the one of greatest significance for the future has been 
 the return to the United States of securities in American industries 
 formerly held by foreigners, coupled with a great increase in invest- 
 ments by Americans in foreign securities largely, but not wholly, 
 war loans. The extent to which investments by foreigners in Amer- 
 ican industries have been reduced since the outbreak of hostilities 
 cannot be stated with any degree of accuracy. Compilations by 
 President Loree, of the Delaware and Hudson Company, show that 
 nearly 60 per cent of the foreign holdings of American railroad secu- 
 rities were returned to this country in the two years 1915 to 1917. 
 These figures embrace the securities of 144 railroads all the roads in 
 the United States over one hundred miles in length. 
 
 On January 31, 1915, there were $2,704,402,364 (par value) of 
 railroad securities held abroad, and on January 31, 1917, $1,518,- 
 590,878 had been returned to this country, leaving on the latter 
 date $1,185,811,486 still held abroad. 
 
 Securities of industrial corporations and railroads in other lands 
 have also been sold in this country to the extent of some hundreds of 
 millions of dollars. Large investments have been made in Canadian 
 and "South American concerns, though we have no means of deter- 
 mining the extent of these investments.
 
 264 ECONOMICS OF WAR 
 
 III. LOANS BY THE UNITED STATES 
 
 Loans floated in the United States by foreign nations, both 
 belligerents and neutrals, reveal another side of the same phase of our 
 trade account with the world. Between August i, 1914, and Decem- 
 ber 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 i, 1917, was therefore 
 $2,150,900,000. The loans may be classified geographically as 
 follows : 
 
 Europe $i ,893,400,000 
 
 Canada 270,500,000 
 
 Latin America 1 57,000,000 
 
 China 5,000,000 
 
 Total foreign loans $2,325,900,000 
 
 Less amount paid, estimated 175,000,000 
 
 Net foreign indebtedness $2,150,900,000 
 
 The loans of the belligerent countries which were floated in the 
 United States up to the close of 1916 are divided as follows: 
 
 Great Britain $ 908,400,000 
 
 France 695,000,000 
 
 Russia 160,000,000 
 
 Germany 45,000,000* 
 
 Canada 270,500,000 
 
 Total $2,078,900,000! 
 
 * Estimated. f Nearly $1,900,000,000 of this constituted war loans. 
 
 Since the opening of the year in which the United States entered 
 the war there have been issued $250,000,000 United Kingdom of Great 
 Britain and Ireland one- and two-year 5^ per cent notes, of which 
 $100,000,000 matured and was paid February i, 1918; $100,000,000 
 Government of the French Republic 5! per cent secured convertible 
 notes; $80,000,000 Dominion of Canada notes; and approximately 
 $315,000,000 additional, including British government ninety-day 
 treasury bills. These amounts, minus the notes matured and paid, 
 aggregate approximately $645,000,000. These sums do not of course 
 include loans made by the United States government to her Allies 
 since our entrance into the war.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 265 
 
 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 Table II. On the basis of the requests being made 
 
 TABLE II 
 
 Country 
 
 Loans and Credits 
 Agreed Upon 
 
 Loans Made 
 
 Balances under 
 Established Credits 
 
 Great Britain 
 
 $2,045,000,000 
 
 $1,985,000 ooo 
 
 $31 1 O7O 2SO 
 
 France 
 
 1,285,000,000 
 
 I 225,000 OOO 
 
 50 ooo ooo 
 
 Italy 
 
 500,000,000 
 
 450 ooo ooo 
 
 50 ooo ooo 
 
 Russia 
 
 325,000,000 
 
 187 720 7<;o 
 
 T37 27O 2?O 
 
 Belgium 
 
 77,400,000 
 
 75,400,000 
 
 2,OOO,OOO 
 
 Serbia 
 
 6,000,000 
 
 4,200,000 
 
 I,8OO,OOO 
 
 
 
 
 
 Totals 
 
 $4,238,400,000 
 
 $3.Q27, 32Q, 7?O 
 
 $311 O7O.2'CO 
 
 
 
 
 
 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 author- 
 ized 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 munici- 
 palities which formerly went to London to sell their securities have 
 recently been financed through the United States. About $150,000,- 
 ooo of the 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. 
 
 The establishment on a large scale of credits in this country in 
 behalf of foreign nations and the flotation of foreign loans will probably 
 continue during the period of the war. During the continuance of this 
 "export of capital" the great surplus of exports over imports is likely 
 to be a feature of our foreign trade. The interest on this investment 
 which is already large and growing larger is on the credit side of our 
 account with the world making for the supply of foreign exchange
 
 266 ECONOMICS OF WAR 
 
 and thus encouraging imports. The United States, as a creditor 
 country with great investments abroad, will be in receipt of an income 
 which will tend to show itself in a relatively larger import trade than 
 has been the case for three or four decades. In other words, our 
 highly "favorable balance of trade" will tend to be changed into an 
 "unfavorable balance." 
 
 IV. OUR SHIPPING IMPROVES 
 
 This transformation in our trade balance is hastened by another 
 factor which is likely to be very potent if the war is of long duration. 
 This factor is our mercantile marine engaged in foreign trade. As is 
 well known only a small fraction of our foreign commerce in recent 
 times has been carried in vessels flying the American flag. Ocean 
 freight rates have thus been paid foreign vessel owners for services 
 performed in the carriage of our exports and imports these services 
 figuring on the debit side of our account with the world and being 
 paid for, in part at least, by a surplus of exports over imports. 
 
 Since the outbreak of war in Europe the proportion of our foreign 
 commerce carried in American vessels has greatly increased. Between 
 June, 1914, and June, 1916, the gross tonnage of American vessels 
 engaged in foreign trade increased from 1,076,152 to 2,191,715 or 
 more than doubled. The percentage of our exports carried by this 
 tonnage increased during the same period from 8 .3 to 13 .o, and of our 
 imports from n .4 to 22 .5. Since the United States entered the war 
 a considerable part of our enrolled tonnage has been registered for the 
 foreign service. The destruction of ocean vessels by submarine 
 activity and the construction of new shipping have combined to 
 increase our proportion of the total carrying capacity of the ocean 
 merchant marine of the world. The bulk of the tonnage destroyed 
 has been British, French, Norwegian, and Dutch. The new con- 
 struction of vessels in the United States and in Japan has been out of 
 proportion to that of any other country except Great Britain. In the 
 case of Great Britain the new tonnage constructed has been more than 
 offset by tremendous losses. The United States thus bids fair at 
 the end of the war to have on her hands the ships necessary to carry 
 on a large part of her foreign commerce. 
 
 V. A FORECAST 
 
 With the huge loans made to foreign governments and industries 
 coupled with a decline in the holdings of foreigners in American
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 267 
 
 securities and the increasing importance of our mercantile marine in 
 the commerce of the world, our "invisible exports" will figure to a 
 greater extent in our commercial relations with other nations than 
 heretofore. Like the exports of merchandise and of gold, they make 
 for the supply of foreign exchange and will tend to stimulate the 
 importation of merchandise. As a creditor country, the debt due us 
 and the interest on that debt will be paid by a relatively greater 
 increase of imports than of exports. Our present highly "favorable 
 balance" of trade will tend to be changed into an "unfavorable 
 balance." Our "invisible exports" will probably exceed our "invis- 
 ible imports" with the balance made up by a corresponding excess of 
 "visible imports" over "visible exports." 
 
 We are this month in the thick of important developments in 
 national and international finance. The United States government 
 has taken control of exchange, and its control is so complete that it 
 now knows every transfer of money or credits of any kind from this 
 country to any other, or from foreign countries to America, and all 
 exchanges of credits belonging to Americans from one foreign country 
 to another. Our government has not only made it a summary offense 
 for an American business concern of any kind to take part in the 
 transfer of merchandise, money, securities, bank credits, or rights of 
 any kind to money or property anywhere in the world (except in 
 business wholly within the United States) without its cognizance or 
 direct permission, and it has built Up a machinery of control which 
 makes it well-nigh impossible for anybody to do so without coming 
 under the penalties of the Enemy-Trading Act. 
 
 This control is bound to be of effect in interfering with Germany's 
 ability to raise buying credits in the neutral countries contiguous to 
 her through any kind of financial transactions in friendly quarters 
 over the world where Germans have property, securities, or commercial 
 accounts in banks. Germany's credit had been rising in the markets 
 of these neutrals, and the rise was not all accounted for by publicly 
 known financial arrangements with contiguous neutrals by which she 
 obtained loans in compensation for permitting German coal, iron, and 
 other products to go to the neutrals. There has evidently been good 
 
 1 Adapted from The Americas (February, 1918), p. 14.
 
 268 ECONOMICS OF WAR 
 
 reason for suspecting that Germany had been drawing upon German 
 credits elsewhere in the world, and some vagaries of international 
 exchange within the past few months could be accounted for in this 
 way. The rigid control of gold and silver exports by our government 
 was suddenly assumed for the purpose (among other reasons and pur- 
 poses) of preventing Germany's subtle realization on German property 
 and credits in America, and now the government, no doubt in co- 
 operation with other financially powerful Allies, has adopted a drastic 
 measure that will greatly impede Germany's ability to realize on 
 German property or credits even in neutral countries anywhere in the 
 world, in order to transfer these into buying credits which she would 
 use now in Scandinavia, Holland, or Switzerland, and perhaps be 
 gathering at strategic points in the world for use of her industries at 
 the moment of peace. 
 
 This is a development in the way of a financial offensive against 
 Germany, supplementing the other economic offensives of the Allies. 
 
 4. PROBLEMS IN THE CONTROL OF FOREIGN 
 EXCHANGE 1 
 
 The development of the gold-embargo policy and the strengthen- 
 ing of public control of foreign exchange is bringing about in the trade 
 of the United States the development of new conditions which are 
 necessarily leading to the application of further methods of commercial 
 regulation. Up to date under the gold embargo there have been 
 granted licenses for the importation of about $60,000,000 gold, $i6c-, 
 000,000 silver, and $30,000,000 currency in round numbers, or a total 
 of approximately $250,000,000. The value of the dollar in foreign 
 markets has continued to decline because of the difficulty of obtaining 
 means of remittance for the purpose of settling balances. 
 
 Peculiar conditions are recognized as surrounding the gold situa- 
 tion, due to the fact that as a result of the war and limitations upon 
 trade it is not possible, as in times of peace, to offset foreign balances 
 against one another. The situation is leading to the negotiation of 
 special agreements with various foreign countries for the regulation 
 of exchange relationships, many of these being based upon under- 
 takings to export net balances of gold within a specified period after 
 the close of the war. Congress has made provision by law for the 
 sale of bonds abroad, payable in terms of foreign currency, and this 
 
 1 Adapted from Washington Notes, Journal of Political Economy, XXVI 
 (July, 1918), pp. 749-51-
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 269 
 
 may render it possible in some instances to provide a means of liqui- 
 dating balances due to those countries. 
 
 In some cases conditions have become so acute as apparently to 
 require direct regulation of payments. In the case of Italy, for 
 example, it has been deemed best to effect an adjustment whereby 
 the practical supervision of each transaction is placed in the hands 
 of a committee representing the Italian and American governments. 
 Experience in connection with our foreign exchange relations is very 
 similar to that already had by foreign countries which have attempted 
 the same method of restricting payment. The interesting question 
 in the whole matter is whether it will be possible to bring about a 
 general control of financial relations with foreign countries unless 
 trade relations with them are first subjected to such control. Thus 
 far the regulation of trade relationships has been in the hands of the 
 War Trade Board, but that Board has been governed very largely by 
 military considerations and has given comparatively little attention 
 to the commercial side of our foreign business. 
 
 Within the past sixty days the United States Shipping Board has 
 come forward as a part of the system of regulation by applying 
 methods for the control of tonnage. Under this plan those who wish 
 to import commodities into the United States must obtain tonnage 
 through assignment by the government. They are thus not only 
 obliged to secure importation licenses but must also secure in practice 
 action which will furnish them with the means of moving their goods. 
 As yet it is uncertain how far this system will be worked out upon a 
 strictly economic basis, that is, with a view to adjusting trade balances 
 and thus relieving the disturbances to exchange and other financial 
 relationships with foreign countries. As the war continues for a 
 longer and longer period the necessity of a general limitation upon 
 foreign business will grow more and more pressing, and the adoption 
 of temporary measures designed to relieve difficulties in the exchange 
 situation will become necessarily less and less effective. This is even 
 now being made evident by the difficulties already referred to in 
 connection with the tendency of the dollar to depreciate in buying 
 power abroad as compared with currency units of the countries with 
 which we are doing business.
 
 XXV. Shifting the World's Gold Supply 
 i. GOLD HOLDINGS OF THE NATIONS, 1914-1917' 
 
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 1 By John E. Rovensky. From a pamphlet distributed by the National 
 Bank of Commerce, New York, in April, 1917. 
 
 ED. NOTE. Mr. Rovensky is vice-president of the National Bank of Com- 
 merce.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 271 
 
 2. EFFECTS OF THE SHIFTING OF THE WORLD'S 
 GOLD SUPPLY 1 
 
 What have been the effects of these gold movements first, upon 
 the belligerents, and, second, upon the neutrals ? 
 
 The governments of all belligerent countries have been alive to 
 the fact that the greatest amount of service can be had from their 
 gold by postponing parting with it as long as possible. Therefore 
 they have permitted exchange on their countries to decline consider- 
 ably before shipping gold. 
 
 A decline in the value of a currency always has the effect of raising 
 the prices of imported commodities, as it requires more of the depre- 
 ciated money to pay the foreigner for the same quantity of goods than 
 it did before. A high rate of foreign exchange (i.e., a low rate of 
 exchange on the subject country) is an infallible sign of a depreciation 
 in the value of a currency. 
 
 Of course the main factors in raising price levels in the belligerent 
 countries are the increased demand for merchandise and the reduced 
 production of commodities, but this contributory defect of declining 
 exchange is not inconsiderable. The extent of this upward movement 
 of prices can be seen from the index number of The London Economist, 
 which advanced from 2,565 in July, 1914, to 4,908 in December, 1916 
 an increase of almost 100 per cent. 
 
 The withdrawal of gold from circulation for export to the neutral 
 countries created a dearth of circulating medium, which has been 
 replaced by the additional issues of bank notes by the government 
 banks. The movement did not stop there, however; the temptation 
 to "make money" by the printing-press process has been too great 
 in all countries, and we find everywhere a tendency to issue currency, 
 not only sufficient to replace the gold, but far in excess of that amount. 
 
 The effects upon neutral or supply countries of the influx of gold 
 have been, first, the direct impulse to finance and trade of the increase 
 in circulating medium; second, the ultimate expansion of credit based 
 upon the gold imported; third, the stimulus to trade from the afore- 
 mentioned factors; fourth, higher price levels of commodities as a 
 result of all three foregoing factors. 
 
 The secondary effect is the expansion of credit upon the basis of 
 the gold thus imported. An excellent illustration of this is found in 
 the last report of the Comptroller of the Currency. 
 
 1 By John E. Rovensky (see p. 270). From a pamphlet (ibid.).
 
 272 ECONOMICS OF WAR 
 
 On June 30, 1914, just before the outbreak of the war, the total 
 amount of cash held by all the banks of the United States (national, 
 state, and private) was estimated at about $1,639,000,000. Of this 
 amount about $913,000,000 was in the form of gold or its representative 
 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 amount to 4 . 27 per cent. On June 30, 1916, 
 the total amount of cash held by the same banks (including now the 
 Federal Reserve banks) was $1,911,000,000, of which it is estimated 
 that about $1,140,000,000 was in gold. In addition the Federal 
 Reserve agents held quite an amount of gold as coverture for Federal 
 Reserve notes issued, but this gold cannot be taken into consideration 
 in this connection as it is not at present available as a basis of credit 
 expansion. 
 
 Upon this gold basis of $1,140,000,000 there rested a credit struc- 
 ture of $28,250,000,000. The gold basis amounted to 4.02 per cent 
 of the deposits. This is a clear illustration of how readily the gold 
 taken into our system is assimilated and how promptly credit expands 
 upon its basis. 
 
 The resultant effect upon our economic structure of such an expan- 
 sion of credit and the stimulation of trade can well be imagined, and 
 the next result higher prices of commodities is also apparent. Of 
 course there are many other factors that tend to drive price levels 
 upward, and primarily prices have risen because of the greatly 
 increased demand upon us for materials by the belligerent countries. 
 
 That this situation contains many elements of danger is clearly 
 apparent. The greatest dangers are: 
 
 First. Overexpansion of credit and resultant stimulated trade. 
 
 Second. General disarrangement of economic structure; high 
 prices, abnormal wages; change in standards of living, etc. 
 
 Third. The inevitable reversal of the golden tide. 
 
 XXVI. British Control of Trade and Industry 
 i. THE REGULATION OF TRADE IN GREAT BRITAIN 1 
 
 When the war began no country was so ill prepared as England 
 for controlling the trade and business ancillary to war, for protecting 
 the public against monopolists. And yet no country has done so well 
 
 1 By Robert Donald. Adapted from "Trade Control in War," an interview 
 given to the New York Times, 1916. 
 
 ED. NOTE. Mr. Donald is the editor of the London Daily Chronicle.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 273 
 
 the big things which are of vital importance to the armies and the 
 people. The strong hand of the state has intervened, untrammelled 
 for the time being by legislative checks, and has asserted its power of 
 possession, control, direction, and regulation in every sphere of trade 
 where public interest and the welfare of the Army had to be safe- 
 guarded. 
 
 When the war took the world except the Teutonic portion of it 
 by surprise on the first of August, 1914, Europe commercially was at 
 once plunged into anarchy. The first shock demoralised all the 
 exchanges and knocked the bottom out of credit; cheques were not 
 cashed, the sacred Bank of England " fiver" was rejected as a worth- 
 less scrap of paper. The possession of gold and goods was the only 
 thing that counted. Goods were being cornered and prices were 
 mounting unrestricted to prohibitive levels. England was in danger 
 of a food famine. Promptly the government set up a Food Control 
 Committee to regulate prices and prevent cornering. It was only a 
 temporary measure to meet an unprecedented emergency. Things 
 settled down in a few weeks, except in one or two directions. 
 
 The first discovery made, which no control could help, was that 
 the country was short of sugar. England imported 39,385,190 cwts. 
 of sugar per annum, and two-thirds of the supply came from Germany 
 and Hungary. The outbreak of the war caught the country between 
 two seasons, when supplies from Cuba and elsewhere were stopping 
 and when the German imports had not begun. The stock in the 
 country was very short. Mr. McKenna, who was then Home Secre- 
 tary and chairman of the Food Supply Committee, promptly took 
 action. He was given a free hand by the government. He called 
 together all the sugar importers and refiners and selected two of them 
 to buy for the British government. They bought sugar both raw 
 and refined all over the world. England invaded the Java market 
 for the first time. Supplies were obtained from Italy, America, the 
 Argentine and other South American countries, from Spain, and from 
 every country which had sugar to sell. The total value of these first 
 purchases was over $86,400,000 the biggest deal in sugar in the 
 history of the trade. It was not very long before the holders of sugar 
 discovered that they were selling to the British government and began 
 to raise the prices. Purchasing then stopped, but the official buyers 
 swooped down on the markets later on, and since then there has 
 been no difficulty about the supply of sugar in England. Con- 
 tracts for long periods were made. The only difficulty has been,
 
 274 ECONOMICS OF WAR 
 
 not the shortage of sugar, but the shortage of freight to carry it to 
 England. 
 
 The purchasing scheme was only preliminary. The government 
 set up a commission to control the whole sugar trade. The British 
 government is the only sugar importer. It sells at fixed prices to 
 refiners, fixes the price for wholesale houses and for retailers. Every 
 intermediary is allowed a fair profit, and the consumer is better pro- 
 tected than ever he was. When the war came, the tax on sugar was 
 about 45 cents per hundred weight. It was raised for war purposes 
 to $2 . 24. In normal times the retailers would have added two cents 
 per pound to cover the increase, but the government had made so 
 many favorable purchases that it only increased the price to the 
 consumers by one cent per pound, and had left, not only the duty for 
 the revenue, but also a profit on the transaction. The duty on sugar 
 is now $3 .36 per hundred weight, and yet it is cheaper in England than 
 in any belligerent country and in most neutral countries. The public 
 has been protected and the Treasury enriched. This year's budget 
 includes, as the revenue for the British Exchequer on account of 
 sugar, the sum of $33,600,000. The British government now supplies 
 the French government with sugar at cost price. 
 
 The problem of beef supply had to be tackled at the same time as 
 that of sugar. England depends largely at all times on imported 
 frozen or chilled meat. When the war crisis came the public and the 
 Army had to be protected from the beef trusts. Early in the war it 
 was evident that the state had to act. Mr. Runciman, the president 
 of the Board of Trade, the department which looks after commercial 
 and mercantile marine interests, intervened. His first master-stroke 
 was to seize all steamers with refrigerating space capable of carrying 
 chilled meat. Chilled meat for England comes chiefly from the 
 Argentine, Uruguay, and from Australia and New Zealand. In 1913 
 we imported 15,397,554 hundred weight of chilled and frozen meat. 
 The government having gotten possession of the ships, the two parties 
 were then on a level footing for bargaining. The meat corporations 
 had the beef but could not sell it without ships. The government had 
 the ships and wanted the meat, so that it did not take long to come to 
 terms. The business was put in the hands of a committee of ship- 
 owners, and the whole transit problem was solved without delay. As 
 a precaution against any shortage of chilled meat from the usual 
 sources the government entered into contracts with a great American 
 meat firm. As a further protection freezing works were acquired in 
 South America for the period of the war. The enormous quantities
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 275 
 
 of meat imported from the United States for the armies are mainly in 
 the form of bully-beef and other canned meat. The British govern- 
 ment went into the beef business in order to supply the troops at home 
 and overseas with chilled meat. It has done so at an average cost 
 of 12 cents per pound. It also supplies all meat of this kind required 
 by the French Army, the Italian Army, the Belgians, and the Serbians. 
 The amount of meat required several months ago 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 have increased 
 proportionately with the additions to the forces during the last six 
 months. Having created a state monopoly in the importation and 
 control of chilled meat, the government had to make provision 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 is purchased for government 
 account on somewhat similar lines as beef. A small committee, at 
 the head of whom is a civil servant and a corn expert, manage the 
 whole business. One of the largest importing houses was com- 
 missioned to do all the purchasing, while the other houses held off, 
 and it was four months before the corn trade, on the selling side, dis- 
 covered the purchases were made for the state. Naturally the 
 commission which the state pays on such transactions is nominal. 
 The British government organisation buys and ships wheat, oats, 
 fodder, etc., for Italy. The French government buys their civil ravi- 
 taillement wheat through the Hudson Bay Company. Large purchases 
 have been made in Canada on behalf of the Italian government. 
 
 There are other examples of government purchase and control of 
 food. Take fish, for instance. The fishing trade in the North Sea 
 has been paralysed to a very large extent by the war, especially by 
 the danger from submarines and mines. The government has 
 maintained a service of fishing boats and has just completed a big 
 deal with Norway, by acquiring the whole fish harvest of the year. 
 Last year Germany bought the Norwegian fish supply. This year, 
 before the German agents had time to turn round, the British govern- 
 ment had bought the lot and deprived Germany of the sole outside 
 source of supply. 
 
 The system of government control has been successful in other 
 directions. There is the case of coal. Coal is wanted for the allied
 
 276 ECONOMICS OF WAR 
 
 fleets, for munition works, and for transportation by land and sea. 
 Clearly the production and distribution of coal had to be made a 
 public-utility service. The government passed a Price of Coal 
 Limitation Act, which fixed a fair profit for the coalowners according 
 to the prices in the year before the war. Having got the coalowners 
 under control the act then regulated the prices which the wholesale 
 dealers could charge, and also the retailers, throughout the United 
 Kingdom. The result has been no shortage of coal and no excessive 
 prices. The regulation of coal has been a stupendous task, as rrore 
 than half a million men engaged in coal mining have enlisted, and the 
 first duty of the government was to see that not only the British Navy 
 but the French and Italian navies should have ample supplies. Next 
 came the mercantile marine, transport, munition works, etc. The 
 British government supplies not only its own needs but also those of 
 France and Italy. After much trouble the problem of freight has 
 been regulated, as far as England and her Allies can control their own 
 mercantile marine, but much of the trade is done by neutrals. The 
 general export of coal was prohibited, except to the allied countries 
 and British possessions. A network of coal- and coke-supply com- 
 mittees has been set up throughout the country under the supervision 
 of a central authority working under the Board of Trade. Beyond 
 supplying the war and governmental needs, including the railroads of 
 the French and Italian governments, the British Board of Trade 
 regulates the freights for the supply of coal for commercial and business 
 purposes in France and Italy, so far as it has the tonnage available. 
 Mr. Runciman declined to make this arrangement until France intro- 
 duced the same system of regulating prices, otherwise the whole of the 
 benefit would have got into the pockets of the French coal merchants. 
 These are only some of the great business undertakings which 
 the war has forced upon the British government. Except in the case 
 of sugar, all have been carried out by the Board of Trade. 
 
 2. THE DEVELOPMENT OF THE BRITISH MINISTRY 
 OF MUNITIONS 1 
 
 On the i4th of May, 1915, the Times military correspondent on 
 the Western Front wrote that the absence of an unlimited supply of 
 
 1 By Jules Destree. Adapted from Britain in Arms, pp. 189-98. Copyright 
 by John Lane Co., New York, 1917. 
 
 ED. NOTE. Jules Destre'e is a noted French traveler and journalist, an 
 interpreter of the entente nations to each other. The preface to Britain in Arms 
 is contributed by Georges Clemenceau.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 277 
 
 high explosives had proved a fatal obstacle to success. In saying this 
 he gave free and open expression to criticisms that had been rife 
 in the lobby of the House of Commons and in private circles for a long 
 time past. The failure of the British Army to reap the full fruits of 
 its splendid achievements at Neuve Chapelle, and the ebb and flow 
 in the defence of Hill 60 on the 1 7th of April were cases in point. An 
 energetic campaign was organised in the newspapers after the publica- 
 tion of the Times letter. Questions were put in the Commons. 
 Popular feeling was deeply stirred. 
 
 This feeling was unquestionably justified. The War Office had 
 displayed a lack of foresight in its arrangements for the production 
 of munitions, a shortcoming which it shared, however, with the other 
 partners in the Alliance ; of that the Russian reverses afforded decisive 
 proof. 
 
 The daily output of munitions did not equal the necessary con- 
 sumption. How immense this consumption is it would be difficult 
 to realise, did we not know that the number of shells consumed at 
 Neuve Chapelle alone was greater than the total employed in the 
 whole South African campaign. 
 
 Moreover the English factories had manufactured a great quan- 
 tity of shrapnel, but only a comparatively restricted supply of high 
 explosives. This was diametrically opposed to the requirements of 
 the situation. In fact, the nature of the terrain and the strength of 
 the enemy's defensive works were such that, before an infantry attack 
 could be launched, even under protection of shrapnel fire, it was 
 necessary that the hostile positions should be subjected to such a 
 deluge of high explosives as to render the most thoroughly organised 
 defences untenable. 
 
 These defects having been made manifest by bitter experience, 
 measures were taken to remedy them. 
 
 The 25th of May, 1915, witnessed the formation of the Coalition 
 government in England. Mr. Lloyd George became head of a newly 
 created department the Ministry of Munitions. The new Minister 
 lost no time in setting to work. He remedied the most urgent defects 
 and, a month later, laid on the table of the House the Munitions Bill 
 that was to solve the great problem once for all. 
 
 The problem may be stated as follows: 
 
 Experience had shown that of the two opposing forces the advan- 
 tage would rest with the one that could outdo the other in the expen- 
 diture of munitions. From that time onwards the question ceased
 
 278 ECONOMICS OF WAR 
 
 to be a purely military one; it became a labour question. It was in 
 the workshops, the factories, the arsenals, that victory was to be 
 wrought out. 
 
 This had been perfectly well understood by the Germans, and in 
 this as in so many other respects they had the advantage over the 
 Allies of preparation and foresight. These preparations were of two 
 kinds. They consisted, in the first place, in the accumulation of 
 reserves of munitions and of the raw material necessary for their 
 manufacture, and, secondly, in the measures ensuring the immediate 
 and effective mobilisation of the national industries for the sole and 
 exclusive purpose of carrying on the war. The Central Empires were 
 able to turn out 250,000 shells a day, or nearly 8,000,000 a month. 
 The British rate of production was 2,500 high explosive shells and 
 13,000 shrapnel shells a day. Thus the problem before the Allies 
 was first of all to equal and then to surpass the formidable productive 
 capabilities of their adversaries. The sooner they did so, the sooner 
 victory would be theirs. 
 
 England's reserves in the matter of labour and machinery were 
 immense. But they were all unsystematised. The problem was to 
 organise these resources, and to organise them without delay. 
 
 Mr. Lloyd George's first step was to select his staff. A large 
 number of business men, technical engineers, and others freely placed 
 their services at his disposal, most of them without demanding any 
 remuneration from the state. Each one of them was put in charge 
 of a particular branch, e.g., metals, explosives, machinery, labour, 
 chemical research, and so on. 
 
 But Mr. Lloyd George's principal aim being to obtain quick 
 returns, he regarded it as an urgent necessity to decentralise the work 
 as much as possible. The United Kingdom was split up into a certain 
 number of districts; special committees were formed for the purpose 
 of organising the work in each district. They consisted of local 
 business men who were familiar with the resources and the labour 
 conditions of the place; of engineers who, in order to fit them for 
 their duties, had undergone a brief period of service in the government 
 arsenals or in one of the following works: Elswick, Vickers-Maxim, 
 or Beardmore; and of a technical engineer and a secretary in touch 
 with the Ministry of Munitions. 
 
 One of the great difficulties was the matter of raw material. Some 
 England possessed in abundance, some could only be obtained with 
 difficulty. The department had also to see to it that no attempt was
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 279 
 
 made by unscrupulous suppliers to make a corner in their goods. The 
 doings of the metal markets were carefully looked into, with imme- 
 diately beneficial results. 
 
 Having provided the raw material, the next thing was to get to 
 work on it. Where was the plant to come from ? 
 
 A vast registration scheme was set on foot, and in a short time the 
 government had an accurate idea of the machinery at its disposal. 
 As soon as the process of classification was completed it was of course 
 evident that what was chiefly lacking were certain machines required 
 in the manufacture of large shells. The government thereupon took 
 all the big machine works under its direct control for the duration 
 of the war. Henceforth these works were government works, and on 
 the 28th of July, 1915, Mr. Lloyd George remarked with satisfaction 
 that there had not been a word of protest on the part of any machine- 
 tool manufacturers, although the change involved a considerable 
 diminution in their profits. Owing to this measure, supplemented 
 by the creation of a committee of machine-tool manufacturers of the 
 United Kingdom, the output of material required for the manufacture 
 of munitions was greatly increased, and will increase still further as 
 time goes on. 
 
 The government was thus able to reorganise the production works 
 themselves. These were of two kinds. First, there were the muni- 
 tion works properly so called, where it was necessary to extend the 
 plant or increase the rate of production. Then there were factories 
 which had to be altered so as to adapt them to the new kind of work. 
 Finally, the government decided to create sixteen large works a 
 number subsequently increased to twenty-six the equipment of 
 which is being carried out with the utmost dispatch. 
 
 The next thing was to organise the labour and recruit fresh hands. 
 There was a choice of two methods, the compulsory and the voluntary. 
 After going into the matter with the Trades Union leaders it was the 
 latter method that was decided upon. It was more in accordance 
 with English traditions and sentiment. 1 A vast recruiting campaign 
 was started, the headquarters being the town hall, in one hundred and 
 eighty different centres. It lasted a week and was an immense 
 success. Mr. Lloyd George stated, on the 23d of July, 1915, that the 
 government had got together 100,000 workmen, most of whom were 
 experts in machinery and shipbuilding. True it was not possible to 
 employ them all, some already doing government work, others being 
 
 1 Cf. Section XIX.
 
 280 ECONOMICS OF WAR 
 
 indispensable to the civil life of the country. But when all deductions 
 were made it was found that the number of men was amply sufficient 
 for present needs. To them we must add the skilled workmen who 
 had joined the Army and who, as far as possible, were brought home 
 to serve their country in an industrial capacity. 
 
 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 fulfil their contracts or else they were allotted to the 
 new factories. 
 
 But in view of influence wielded by the labour unions, various 
 provisions were inserted in the Munitions Act. They related to the 
 settlement of labour disputes and to the prohibition of strikes and 
 lock-outs 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 insti- 
 tuted. 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 depart- 
 ment was created by the Ministry of Munitions, under the control 
 of an under-secretary, whose special business it was to examine 
 war inventions. 
 
 On the 2oth of December, 1915, Mr. Lloyd George, in a speech 
 delivered in the House of Commons, summarised 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.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 281 
 
 Theputput 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. 
 
 3. ENGLAND'S MACHINERY FOR INDUSTRIAL 
 CONTROL 1 
 
 It has been said that there are 250,000 persons employed in 
 England in connection with censorship and with various phases of 
 domestic and foreign business regulation for purposes of war. This 
 figure may include also the civil employees in the Munitions and War 
 departments, but it shows how the business side of the war has to be 
 organized. An idea of the extent and intricacy of British control of 
 business activities may be obtained from the following list of control 
 boards, recently made public by the British government in a directory 
 printed for the convenience of persons having business with them. 
 
 There is no indication, in the official publication, of how the ac- 
 tivities of all these boards and committees are co-ordinated and 
 made to do team-work in accordance with a central policy. 
 
 Acetylene Committee Agriculture and Fisheries Board and 
 
 Admiralty Coasting Trade Com- Royal Agricultural Society (Joint 
 
 mittee Committee) 
 
 Admiralty Board of Inventions and Alcohol Supplies for War Purposes 
 
 Research Advisory Committee 
 
 Aerial Transport Committee Army Contracts Advisory Com- 
 
 Aeronautics Advisory Committee mittee 
 
 Agricultural Machinery and Imple- Army Supplies Commercial Depart- 
 ments Branch of the Ministry of ment 
 Munitions Black List Committee 
 
 1 Adapted from The Americas. Copyright by National City Bank, New York, 
 1918.
 
 282 
 
 ECONOMICS OF WAR 
 
 Bleaching Powder Committee 
 
 Blockade Ministry 
 
 Blockade Ministry Committee 
 
 Board of Customs and Excise 
 
 Breathing Apparatus in Coal Mines 
 
 Building Labor Committee 
 
 Building Trades, Central Advisory 
 Committee 
 
 Business Names Registry 
 
 Butter Supplies Advisory Com- 
 mittee 
 
 Canal Control Committee 
 
 Capital Issues Committee 
 
 Cargoes (Delay in Unloading) Com- 
 mittee 
 
 Cargoes (Diverted) Committee 
 
 Cargoes Insurance 
 
 Cattle, British, Committee on Utili- 
 zation of 
 
 Chemical Trade Committee 
 
 Coal Exports Committee 
 
 Coal Mines (Controller of) Advisory 
 Board 
 
 Coal Mines Department 
 
 Cocaine or Opium (Permits) Com- 
 mittee 
 
 Commercial and Industrial Policy 
 Committee 
 
 Commission Internationale de Ravi- 
 taillement 
 
 Contraband Committee 
 
 Contracts Made Prior to the War 
 
 Controlled Establishments Board 
 of Referees on Profits 
 
 Copper Committee 
 
 Cotton Control Board 
 
 Cotton Exports Committee 
 
 Cotton Growing in the British Em- 
 pire, Committee on 
 
 Defence of the Realm (Licensed 
 Trade Claims) Commission 
 
 Defence of the Realm (Losses) Com- 
 mission 
 
 Delay in Unloading Cargoes Com- 
 mittee 
 
 Diamond Export Committee 
 
 Distributing Trades (Scotland) 
 Committee 
 
 Diverted Cargoes Committee 
 
 Dyes, Commissioner for 
 
 Electrical Trades Committee 
 
 Electric Power Supply Committee 
 
 Empire Cotton Growing Committee 
 
 Enemy Debts Committee 
 
 Enemy Exports Committee 
 
 Enemy Supplies Restriction Depart- 
 ment 
 
 Engineering and Shipbuilding Es- 
 tablishments Production Com- 
 mittee 
 
 Excess Profits Duty Committee 
 
 Exports and Imports Licensing 
 Committee 
 
 Exports Committee 
 
 Fair Prices Committee 
 
 Fertilizers Committee 
 
 Finance Department (Blockade) 
 
 Fish (Coarse), Irish Committee 
 
 Fish (Cured) Committee 
 
 Fish Food and Motor Loan Commit- 
 tee 
 
 Fish Food Committee 
 
 Fish (Tinned) Imports Committee 
 
 Fisheries Sea (Scottish) Committee 
 
 Fresh Water Fish Committee 
 
 Flour Mills Control Committee 
 
 Food Ministry 
 
 Food Production Advisory Commit- 
 tee 
 
 Food Production Department 
 
 Food Production in Ireland Advi- 
 sory Committee 
 
 Food Production in Ireland Depart- 
 mental Committee 
 
 Food Production in Scotland Com- 
 mittee 
 
 Forage Committee (Farm Produce) 
 
 Foreign Claims Office 
 
 Foreign Trade Debts Committee 
 
 Foreign Trade Department 
 
 Fruits (Import Licenses) Committee 
 
 Fuel Research Board 
 
 Glass and Optical Instruments Com- 
 mittee 
 
 Grain and Potato Crops (1917) 
 Committee 
 
 Grain Supplies Committee 
 
 High Explosives Committee 
 
 Hop Control Commitee 
 
 Horse Breeding Committee (No. 2) 
 
 Horses (Utilization and Feeding of) 
 Committee 
 
 Housing (Building Construction) 
 Committee 
 
 Imperial Mineral Resources Bureau 
 (Committee on Proposed Estab- 
 lishment)
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 283 
 
 Imperial Preference, Ministerial 
 Committee on 
 
 Import Restrictions Department 
 
 Indian Wheat Committee 
 
 Industrial (War Inquiries) Branch 
 
 Information Department of Foreign 
 Office 
 
 Insurance Intelligence Department 
 
 Insurance of British Ships' Cargoes 
 
 Invention and Research, Admiralty 
 Board of 
 
 Iron and Steel Industries Committee 
 
 Labor Advisory Committee (Na- 
 tional Service Department) 
 
 Labor Ministry 
 
 Labor, Substitutionary (Scotland) 
 Committee 
 
 Leather Supplies Central Advisory 
 Committee 
 
 Licensing Committee (Exports and 
 Imports) 
 
 Liquor Trade (Financial Aspects of 
 Control and Purchase) 
 
 Liquor Traffic, Central Control 
 Board 
 
 Lubricating Oil Advisory Commit- 
 tee 
 
 Machine Tool Committee 
 
 Machinery and Implements, Agri- 
 cultural 
 
 Machinery, Central Clearing House 
 for 
 
 Meat 
 
 Mercantile Marine (Seamen), Con- 
 ditions of Employment, Inter- 
 departmental Committee 
 
 Mercantile Marine (Seamen's Ef- 
 fects) Grants for Losses through 
 Hostile Operations at Sea Com- 
 mittee 
 
 Mercantile Marine Standard Uni- 
 form Committee 
 
 Metal (Non-ferrous) Trades Com- 
 mittee 
 
 Metals and Materials Economy 
 Committee 
 
 Milk Distribution Committee 
 
 Mine Rescue Research Committee 
 
 Mineral Resources Advisory Com- 
 mittee 
 
 Mineral Resources Bureau Com- 
 mittee 
 
 Munitions Boards of Management 
 Executive Committee 
 
 Munitions (Inter-allied) Bureau 
 
 Munitions Finance Committee 
 
 Munitions Financial Advisory Com- 
 mittee 
 
 Munitions Hours of Labor Com- 
 mittee 
 
 Munitions Inventions Panel 
 
 Munitions Labor Priority Commit- 
 tee 
 
 Munitions Ordnance Committee 
 
 Munitions Parliamentary Executive 
 Committee 
 
 Munitions Priority Advisory Com- 
 mittee 
 
 Munitions Workers' Health Com- 
 mittee 
 
 Munitions Works Board 
 
 National Service Central Advisory 
 Committee 
 
 National Service Department 
 
 National Service (Ireland) Depart- 
 ment 
 
 Oats Control Committee 
 
 Oils and Fats Branch of the Ministry 
 of Munitions 
 
 Oranges, Advisory Committee on 
 Imports 
 
 Overseas and Government Loans 
 Committee 
 
 Overseas Price Disposal Committee 
 
 Paper Supplies Royal Commission 
 
 Passenger Traffic between United 
 Kingdom and Holland, etc., Com- 
 mittee 
 
 Peat Deposits in Ireland, Committee 
 on 
 
 Petrol Control Department 
 
 Petroleum Executive 
 
 Petroleum Pool Board 
 
 Petroleum Regulation of Supplies 
 Committee 
 
 Pig-Breeding Industry (Ireland) De- 
 partmental Committee 
 
 Port and Transit Executive Com- 
 mittee 
 
 Potash Production 
 
 Poultry Advisory Committee 
 
 Preference, Imperial 
 
 Pre-War Contracts Committee 
 
 Prize Cargoes Release Committee 
 
 Prize Claims Committee 
 
 Prize (Overseas) Disposal Com- 
 mittee 
 
 Production, Committee on
 
 284 
 
 ECONOMICS OF WAR 
 
 Purchases Department 
 Railway Executive Committee 
 Railway Executive Committee (Ire- 
 land) 
 
 Rationing Consultative Committee 
 Ravitaillement, Commission Inter- 
 nationale de 
 Raw Materials Finance Branch of 
 
 the War Office 
 Reconstruction Ministry 
 Registry of Business Names 
 Registry of Business Names Com- 
 mittee (Ireland) 
 
 Reserved Occupations Committee 
 Road Stone Control Committee 
 Rubber and Tin Exports Committee 
 Scientific and Industrial Research 
 
 Department 
 
 Scottish Shale Industries Committee 
 Seamen, Conditions of Employment 
 Shipbuilding Advisory Committee 
 Shipbuilding Construction Commit- 
 tee, Ministry of Shipping 
 Ship Licensing Committee, Minis- 
 try of Shipping 
 
 Ship (Neutral) Detention Commit- 
 tee 
 
 Shipping and Shipbuilding Indus- 
 tries Committee 
 
 Shipping (International) Committee 
 Shipping Control Committee 
 Shipping Ministry 
 Spirits and Wine, Delivery of from 
 
 Bond, Advisory Committee to 
 Standard Uniform for Mercantile 
 
 Marine Committee 
 Sugar Supplies Royal Commission 
 Sulphate of Ammonia Distribution 
 
 Committee 
 Sulphur, Sicilian, Committee on 
 
 Supplies of 
 
 Sulphuric Acid and Fertilizer Trades 
 Committee 
 
 Tea Advisory Committee 
 
 Tea Control Committee 
 
 Timber Supplies Department 
 
 Tin and Rubber Exports Committee 
 
 Tobacco and Matches Control 
 Board 
 
 Tobacco (Import Licenses) Com- 
 mittee 
 
 Tonnage Priority Committee 
 
 Trade after the War, Committee on 
 Commercial and Industrial Policy 
 
 Trade, Development of, between 
 British Empire and Belgium 
 
 Trading with the Enemy Advisory 
 Committee 
 
 Treaties with Enemy Countries Re- 
 vision Committee 
 
 Trench Warfare Chemical Advisory 
 Committee 
 
 Trench Warfare Commercial Advi- 
 sory Committee 
 
 Trench Warfare Mines Committee 
 
 Trench Warfare Research Advisory 
 Panel 
 
 Trench Warfare Supply Depart- 
 ment, Chemical Section 
 
 Utilization and Feeding of Horses 
 Committee 
 
 War Output, National Advisory 
 Committee 
 
 War Risks Insurance Office 
 
 War Trade Advisory Confmittee 
 
 War Trade Department 
 
 War Trade Intelligence Department 
 
 War Trade Statistical Department 
 
 Wheat Executive 
 
 Wheat Supplies Royal Commission 
 
 Woods and Stones (Import Licenses) 
 Committee 
 
 Wool Purchase Central Advisory 
 Committee 
 
 Woolen and Worsted Industries 
 Board of Control
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 285 
 
 XXVII. United States Regulations 
 i. HOW THE NEUTRALS HELP GERMANY 1 
 
 Germany has been making a maximum use of her small neutral 
 neighbors in a highly profitable mutual arrangement to counter what 
 would otherwise be the disastrous effects of the loss of control of the 
 seas. That the aid thus brought to Germany was very considerable is 
 proved by the figures adduced below ; 2 and that the case of Switzerland 
 is only typical of all the neutral neighbors of Germany is a matter of 
 common knowledge. 
 
 Exports by the neutrals into Germany occur in two forms: First, 
 there is direct re-exportation of materials imported from abroad. 
 This has formed a considerable volume of the trade of Germany and 
 the neutrals and has by no means yet ceased. The second form is the 
 export of domestic products and the filling of the deficit by importa- 
 tion from abroad, mainly from the United States. The neutrals are 
 profuse in their promises that no material imported from America 
 will be re-exported into Germany. 
 
 To direct and indirect re-exportation must be added, finally, 
 smuggling, which has always been a factor in the evasion of blockades. 
 In Switzerland a member of the Commerce Department of the govern- 
 ment was recently convicted of this offense and is serving a prison 
 sentence. 
 
 That this aid was precious to the Central Powers and enabled 
 them to stave off starvation and consequent submission can be 
 corroborated in various ways. First, in spite of the enormous volume 
 of imports from the neutrals Germany was on the verge of starva- 
 tion during the last winter, the economic crisis reaching its critical 
 stage coincidentally with the political crisis in the Reichstag at the 
 beginning of July. The most potent cause of this political upheaval 
 was the economic destitution, which cast its melancholy shadow over 
 the whole nation and increased the desperation of people and Reichstag 
 till it exploded in a violent outburst of wrath against the government. 
 
 1 By James Louis Moore. Adapted from the New York Times, August 19, 
 1917. 
 
 ED. NOTE. Mr. Moore is the Bayard Cutting Fellow of Harvard University 
 for European Research in Modern History and International Law. The read- 
 ing clearly shows the necessity of commercial agreements with neutral countries, 
 such as that concluded with Norway on May 10, 1918, which covers about 
 50 commodities (War Trade Board Regulations, 103). 
 
 1 ED. NOTE. Extensive figures were given by the writer to prove the case for 
 Switzerland.
 
 286 ECONOMICS OF WAR 
 
 Secondly, the general impression of press and people in Germany 
 and Switzerland is that the most sensational part of the speech of 
 Erzberger> which brought the crisis into being, consisted of an expose 
 proving the futility of the submarine policy and impugning the judg- 
 ment of the officials responsible for its inauguration, inasmuch as the 
 entrance of the United States into the list of Germany's enemies, 
 which resulted therefrom, was likely to result in a curtailment of the 
 imports obtained through the neutrals, and without a continuance of 
 these imports Germany could not hold out long. 
 
 2. GENERAL POLICIES OF THE WAR TRADE BOARD 1 
 
 The activities of the Board are roughly divisible into three 
 spheres those relating to the control of exports, those relating to 
 the control of imports, and those relating to enemy trade. 
 
 The Board has sought first to conserve for ourselves and for 
 those associated with us in the war such commodities as are required 
 to maintain adequately the economic life of the several nations and 
 to carry out their war programs. Other objects sought have been 
 to prevent our commodities reaching the enemy directly or indirectly, 
 as by releasing like goods for the enemy, and to prevent commercial 
 transactions between persons within the United States and an enemy 
 or an ally of the enemy. 
 
 In undertaking to supply the food and other vital wants of neutral 
 peoples, under carefully considered agreements, the Board has desired 
 "to prevent acute suffering in those countries and to prevent them 
 from falling under the economic power of the enemy." 
 
 These trade agreements the Board has regarded as being particu- 
 larly important in the case of those European neutrals which are in 
 trade relations with the enemy. Against these European neutrals, 
 the report goes on to say, " temporary embargoes have been enforced 
 pending the securing of information indispensable to permit the Board 
 to issue licenses." 
 
 An agreement has been concluded with Switzerland, assuring to 
 the Swiss the periodic receipt of a stipulated grain ration and of other 
 articles required to maintain the economic existence of the people of 
 Switzerland. "The Swiss government, on the other hand, gives 
 satisfactory assurances against exportation to our enemies of imported 
 commodities and agrees to limit, in certain other respects, her trading 
 with the enemy." 
 
 1 From War Trade Board Journal (March, 1918), pp. 15-16.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 287 
 
 A still more definite achievement is discoverable in the Board's 
 references to the Northern European neutrals, where temporary 
 embargoes are in force pending the conclusion of comprehensive 
 agreements. The report continues: 
 
 Their exports of foodstuffs to the Central Powers have declined from last 
 year's corresponding exports in amounts estimated at from 65 to 85 per cent, 
 depending on the neutral, and there has been a decrease in the export of 
 many other important commodities. 
 
 In November, 1917, we became party to Great Britain's tentative 
 agreement with Norway, as a result of which action on our part 1,400,000 
 tons dead-weight of Norwegian shipping were chartered into the service of 
 the United States and Great Britain for the period of the war. Shortly 
 following, temporary agreements were concluded with Holland and with 
 Sweden. That with Holland gives us the use, for periods up to 90 days, of 
 450,000 tons dead-weight of her shipping which had heretofore, for a long 
 period, lain idle. The agreement with Sweden gives us the use for three 
 months of tonnage estimated at 250,000 tons dead-weight which had not 
 theretofore been employed in services useful to us. 
 
 Specific accomplishments of this character are, however, far from 
 constituting a full measure of the results achieved by the War Trade Board. 
 The elimination of enemy advantage from our trade and, to a considerable 
 extent, from that of the world, the securing and conserving of commodities 
 essential to ourselves and those associated with us in the war, the bringing 
 of shipping generally into the services most useful to us these results can 
 not be accurately stated or appraised at the present time, nor have they been 
 accomplished by any single act or agreement. 
 
 The report explains the use of bunker-coal licenses, as being 
 intended to assure the utilization of America's restricted supply of 
 fuel primarily by ships performing services useful to the United 
 States and its associates in the war. 
 
 Abolition of calls at Halifax for ships sailing between United 
 States and European neutral ports, which is foreshadowed in a para- 
 graph dealing with the endeavors of the Board to reduce the necessary 
 control machinery over sailings, has since been accomplished; "letters 
 of assurance," heretofore issued by the British Embassy, are also no 
 longer required. 
 
 The extent of the business under the control of the Board may be 
 gathered from the fact that the Bureau of Exports has handled 
 approximately 425,000 applications for licenses to export and was, 
 at the date of the report, passing upon between four and five thousand 
 applications per day.
 
 288 ECONOMICS OF WAR 
 
 The Bureau of Imports, of more recent formation, has received, to 
 January i, 5,279 applications for licenses to import, upon which 
 4,719 licenses, covering commodities of an aggregate value of $237,- 
 810,949, had actually been issued. 
 
 In order to guide merchants in their transactions with foreigners, 
 there was published in October an "Enemy Trading List" containing 
 the names of individuals and associations in neutral countries who 
 were enemies or allies of enemies. This list is not a fixed and 
 unchanged classification, but is subject to constant revision, and the 
 Board has been able to remove from the original list many firms who 
 have cleared themselves of the taint of enemy character. 
 
 3. EXPORTS IN TIME OF WAR 1 
 
 Whereas Congress has enacted, and the President has, on the i5th 
 day of June, 1917, approved a law which contains the following pro- 
 visions: 
 
 "Whenever, during the present war, the President shall find that 
 the public safety shall so require, and shall make proclamation thereof, 
 it shall be unlawful to export from, or ship from, or take out of, the 
 United States to any country named in such proclamation any article 
 or articles mentioned in such proclamation, except at such time or 
 times, and under such regulations and orders, and subject to such 
 limitations and exceptions as the President shall prescribe, until 
 otherwise ordered by the President or by Congress: Provided, how- 
 ever, That no preference shall be given to the ports of one State over 
 those of another. 
 
 "And whereas the President has heretofore by proclamations 
 dated July 9, 1917, August 27, 1917, September 7, 1917, and November 
 28, 1917, declared certain exports in time of war unlawful, and the 
 President now finds that the public safety requires that such proclama- 
 tions be amended and supplemented in respect to the articles and 
 countries hereinafter mentioned: 
 
 "Now, therefore, I, Woodrow Wilson, President of the United 
 States of America, do hereby proclaim to all whom it may concern, 
 that the public safety requires that the following articles, namely, all 
 kinds of arms, guns, ammunition, and explosives, machines for their 
 manufacture or repair, component parts thereof, materials or ingredi- 
 
 1 By Woodrow Wilson. Adapted from a proclamation of the President, 
 February 16, 1918, extending control of exports to every commodity of commerce, 
 in the War Trade Board Journal (March, 1918), pp. 4-5.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 289 
 
 ents used in their manufacture, and all articles necessary or convenient 
 for their use; all contrivances for, or means of, transportation on land 
 or in the water or air, machines used in their manufacture or repair, 
 component parts thereof, materials or ingredients used in their manu- 
 facture, and all instruments, articles, and animals necessary or con- 
 venient for their use; all means of communication, tools, implements, 
 instruments, equipment, maps, pictures, papers, and other articles, 
 machines, and documents necessary or convenient for carrying on 
 hostile operations; all kinds of fuel, food, foodstuffs, feed, forage, and 
 clothing, and all articles and materials used in their manufacture; 
 all chemicals, drugs, dyestuffs and tanning materials; cotton, wool, 
 silk, flax, hemp, jute, sisal, and other fibers and manufactures thereof; 
 all earths, clay, glass, sand, stone, and their products; animals of 
 every kind, their products and derivatives; hides, skins, and manu- 
 factures thereof; all non-edible animal and vegetable products; all 
 machinery, tools, dies, plates, and apparatus and materials necessary 
 or convenient for their manufacture; medical, surgical, laboratory, 
 and sanitary supplies and equipment; all metals, minerals, mineral 
 oils, ores, and all derivatives and manufactures thereof; paper pulp, 
 books, and all printed matter and materials necessary or convenient 
 for their manufacture; rubber, gums, rosins, tars, and waxes, their 
 products, derivatives, and substitutes, and all articles containing 
 them; wood and wood manufactures; coffee, cocoa, tea, and spices; 
 wines, spirits, mineral waters, and beverages; and all other articles of 
 any kind whatsoever shall not, on and -after the sixteenth day of 
 February, in the year one thousand nine hundred and eighteen, be 
 exported from, or shipped from, or taken out of, the United States 
 or its territorial possessions to Abyssinia, Afghanistan, Albania, 
 Argentina, Austria-Hungary, Belgium, her colonies, possessions, and 
 protectorates, Bolivia, Brazil, Bulgaria, China, Chile, Colombia, 
 Costa Rica, Cuba, Denmark, her colonies, possessions, and pro- 
 tectorates, Dominican Republic, Ecuador, Egypt, France, her 
 colonies, possessions, and protectorates, Germany, her colonies, 
 .possessions, and protectorates, Great Britain, her colonies, posses- 
 sions, and protectorates, Greece, Guatemala, Haiti, Honduras, Italy, 
 her colonies, possessions, and protectorates, Japan, Liechtenstein, 
 Liberia, Luxembourg, Mexico, Monaco, Montenegro, Morocco, 
 Nepal, the Netherlands, her colonies, possessions, and protectorates, 
 Nicaragua, Norway, Oman, Panama, Paraguay, Persia, Peru, Portu- 
 gal, her colonies, possessions, and protectorates, Roumania, Russia,
 
 2QO ECONOMICS OF WAR 
 
 Salvador, San Marino, Serbia, Siam, Spain, her colonies, possessions, 
 and protectorates, Sweden, Switzerland, Turkey, Uruguay, or Vene- 
 zuela, except under license granted in accordance with regulations or 
 orders and subject to such limitations and exceptions as have hereto- 
 fore been, or shall hereafter be, prescribed in pursuance of the powers 
 conferred by said act of June 15, 1917." 
 
 4. PURPOSE OF RESTRICTING IMPORTS 1 
 
 The benefits to be derived from the license system are numerous, 
 one of the most obvious being that the present control over the dis- 
 tribution and use of raw materials, which are now imported under 
 license, will be extended to all materials, so that if at any time a 
 shortage exists or appears imminent in any imported material the 
 supply thereof may be directed to the uses most vital to our martial 
 requirements. 
 
 But the most effective manner in which this weapon of import 
 control may be used against the enemy is the prevention of trading 
 with firms of pro-enemy character. No commerce, of course, exists 
 between the United States and the countries with which we are at war. 
 Unfortunately, however, largely due to the foresightedness of our 
 enemy in long years of preparation, individuals and firms are estab- 
 lished throughout the world whose controlling motive is the advance- 
 ment of German interests. Still more unfortunate is the fact that 
 such agencies have existed in our own land. To stamp out all 
 activities among such agencies and to safeguard our well-intentioned 
 citizens from dealing with them, we must proceed with the utmost 
 promptness and vigor. The forms of activity of these concerns and 
 the subtle and intricate methods pursued by them are innumerable, 
 but are invariably directed, either by furnishing information, smug- 
 gling supplies through the blockade, providing credits, or hoarding 
 for post-war purposes, to giving aid and comfort to the enemy. 
 
 Before the advent of the United States into the war Great Britain 
 and her Allies found it necessary to surround the importation into this 
 country of commodities controlled by them with various safeguards, 
 in the form of guaranties and agreements procured from importers. 
 Now that we have entered the war and established our export and 
 import control, our Allies have very willingly relinquished to us the 
 duty of seeing that the imports coming forward to us are used for our 
 own legitimate purposes, and are not re-exported to pro-German firms 
 
 1 Adapted from War Trade Board Journal (March, 1918), pp. 11-12.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 291 
 
 in neutral countries to trickle through, either physically or in the form 
 of credits, to Germany, or accumulated to foster Germany's commerce 
 after the war. 
 
 To accomplish these results the War Trade Board, through its 
 Bureau of Imports, has adopted certain regulations in connection 
 with the importation of many of these raw materials, to which it is the 
 duty of every patriotic American citizen to give complete arid whole- 
 hearted support. 
 
 Organizations have been voluntarily created in many of the trades, 
 such as rubber, wool, jute, tin, etc., to act as consignees when required 
 and to perform other duties in connection with importations, under 
 and by direction of the War Trade Board. 
 
 Every effort will be made to administer these regulations with the 
 slightest possible detriment to legitimate business interests, but when 
 it is considered that the transmittal of a few pounds of rubber or 
 copper to Germany may cost the liyes of scores of our men at the 
 front, and that each day's supply of wool, or food, or money to the 
 enemy means another day's war, with its accompanying toll of lives, 
 the very thought of hesitancy or weakness is inconceivable. The 
 policy will be "safety first" for our soldiers, regardless of every other 
 consideration. Persons and firms in this country, as well as abroad, 
 who before our entrance into the war had little sympathy with the 
 war-time commercial safeguards of the Allies must be taught that 
 these are now matters of the first importance to this country, and 
 violators of present restrictions need expect no favors, regardless of 
 how important such individuals or firms may be in the business world. 
 The time has come when all must realize that the war is not limited to 
 combating the enemy on the battle fields of France, but must be 
 carried into our everyday transactions of life, and that our business 
 practices must be remolded, where necessary, to meet existing con- 
 ditions. 
 
 It is unnecessary to mention other desirable results which may be 
 obtained by this import control, such as the gathering of trade 
 information or the conservation of tonnage by elimination of non- 
 essentials. 
 
 No anxiety need be felt by importers that there will be any serious 
 restrictions of the importation of necessary articles if the transaction 
 does not involve dealing with an enemy or ally of an enemy, or other- 
 wise giving him aid or comfort. If the importer endeavors diligently 
 and in a spirit of cooperation to comply with the requirements of
 
 292 ECONOMICS OF WAR 
 
 the War Trade Board, no loss and but slight inconvenience need be 
 anticipated. 
 
 Since November 28 last, import licenses have been required for 
 many of the basic raw materials, and importers are already familiar 
 with the very simple method of 'procuring them. The added incon- 
 venience of applying for licenses for all importations will be negligible 
 in comparison with the advantages secured. The question of what 
 does or does not require a license, with its accompanying uncertainty 
 and delay, will be eliminated. 
 
 5. PROBLEMS OF THE ORDNANCE DEPARTMENT 1 
 
 In order to make the statement comprehensible as to the activities 
 and responsibilities of the Ordnance Department, let us consider it 
 from the standpoint of the obligation put upon that department in 
 respect to a single unit of the Army. The smallest unit bringing into 
 play all classes of arms and all fbrms of munitions and equipment is 
 an army division. To simplify the description at the expense of 
 exactness, an army division consists of two brigades, each brigade 
 consisting of two infantry regiments, one machine-gun battalion, two 
 regiments of 75-mm. field artillery, one regiment of field howitzers of 
 155 mm., and one battery of trench mortars. These make up the 
 primary front-line forces and are supplemented by a regiment of 
 engineers, the signal corps, and the aircraft service. Back of the lines 
 we have the transport trains for munitions and field supplies, the 
 hospital units, heavy artillery, tanks, and special reserve field artillery. 
 For the equipment of a division the Ordnance Department carries 
 responsibility for furnishing to the division and maintaining always 
 on hand, in perfect order and for instant use, in round figures, 18,000 
 rifles, 12,000 pistols, 224 heavy guns, 768 automatic rifles, thirty-six 
 anti-aircraft machine guns, fifty 75-mm. field artillery, twenty-four 
 i55-mm. howitzers, twelve 6-in. trench mortars, twenty-four 3-in. 
 trench mortars, twelve i-lb. guns, together with all necessary and 
 reserve ammunition and also trench-warfare munitions consisting of 
 bombs, hand grenades, rockets, signal lights, and other pyrotechnics. 
 
 1 By Samuel McRoberts. Adapted from an address in Bridgeport, Conn. 
 Printed in the Iron Age (March 14, 1918), pp. 686-88. 
 
 ED. NOTE. Mr. McRoberts is vice-president of the National City Bank of 
 New York. He is one of the many American business men in government 
 service, being chief of the Procurement Division of the Ordnance Bureau of the 
 War Department.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 293 
 
 It furnishes the personal equipment of the men apart from clothing 
 and shoes, consisting of such articles as helmets, bolos, knives, can- 
 teens, haversacks, cartridge belts, bandoliers, and other miscellaneous 
 personal equipment incident to field service. The Ordnance Depart- 
 ment also furnishes the machine guns and drop bombs for the aircraft 
 service. 
 
 Behind the lines the Ordnance Department is called upon to 
 provide all forms of heavy artillery on both wheel and railroad 
 mounts. It must also furnish the means for transporting and main- 
 taining this material in working order, consisting of automobile trucks, 
 tractors, motorized machine shops for field service, and extensive 
 permanent machine shops for repairs of all classes of equipment, the 
 repair of gun carriages, and the relining of guns. From a strictly 
 military standpoint the number of divisions to be put into the field 
 roughly determines the program upon which the Ordnance Depart- 
 ment must proceed. 
 
 At the outbreak of the war the quantity of material on hand or 
 immediately available was negligible. The experience already gained 
 in the European war showed that practically all existing designs for 
 this material were obsolete. To design and provide for the manu- 
 facture of the ordnance equipment and deliver it in France as rapidly 
 as it might be required, which was the unprecedented task put up to 
 the Ordnance Department by the American government and the task 
 that General Crozier and his small company of ordnance officers were 
 forced to undertake, the department consisted of 79 officers and 825 
 enlisted men, and I will undertake to give you some idea of how they 
 fulfilled that obligation. 
 
 First, consider some 'of the difficulties. Take the subject of 
 engineering and design. In respect to rifles there were then in exist- 
 ence about 600,000 Springfield rifles of a type pronounced to be 
 efficient and practical for our needs. However, they had been manu- 
 factured only in the government arsenals, with small manufacturing 
 organizations, and it was impossible to increase their production so as 
 to provide the rifles in anything like the time desired. This neces- 
 sitated a compromise to meet conditions. Manufacturing facilities 
 in this country had already been created by England for the British 
 rifle. Unfortunately the rifle was inferior to that in the hands of our 
 enemies and had to be redesigned and the manufacturing plants 
 re-equipped for the production of an efficient rifle of a modified 
 design.
 
 294 ECONOMICS OF WAR 
 
 In field artillery we had worked out designs and specifications for 
 guns that had been enthusiastically approved by the ordnance experts 
 of this and other countries, but the conditions under which we entered 
 the war necessitated many modifications of manufacture, due to the 
 necessity for interchangeability of ammunition with that of our Allies 
 and the enormous difficulties of quick manufacture. All field artillery 
 of the 3-in. or 75-mm. type is horse drawn, which limits the possible 
 weight of the gun and carriage. While the experience of warfare has 
 developed the original simple field piece into a very complicated 
 machine, the original limitation of 650 Ib. per horse must still be 
 observed. This makes the design of a field carriage one of the most 
 difficult of engineering operations, and this was still further compli- 
 cated by the fact that it was necessary to get the guns at the quickest 
 possible rate of manufacture. It ordinarily takes years for designing 
 and perfecting a new type of artillery. To adopt the French and 
 English designs also presented very great difficulties from the stand- 
 point of time. The drawings that existed in this country were out 
 of date many modifications had been recently made; many of the 
 features of the French gun were secrets of the French Ordnance 
 Office or French artillery manufacturers and could be obtained in 
 accurate form only by the cooperation of experts, and then after 
 prolonged negotiations. For the utilization of existing seacoast and 
 naval guns, special carriages for both wheel and railroad mounts for 
 heavy artillery had to be designed de now. 
 
 The high-explosive shell is practically a product of this war and 
 had to be designed not only with a full knowledge of the experience 
 gained by our Allies but with a view to their early production out 
 of materials that could be obtained in this country. The design 
 of tractors, tanks, and motor-repair equipment had to be without 
 precedent or experience. 
 
 Never in the history of warfare has chemistry been called upon to 
 play such a large and important part. Not only was it necessary to 
 design propellants from well-known materials, but new combina- 
 tions had to be arrived at in order to fit our needs for the possible 
 production of the various chemical ingredients. An entirely new 
 element has been introduced by gas warfare. The first use of gas 
 released before a favoring wind has been supplemented by the 
 surer and more scientific way of placing by means of gas-loaded 
 shells, and the proportion of shells loaded with gas is steadily 
 increasing.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 295 
 
 Contracts have been let for the production of two and one-half 
 million rifles, of which there have been delivered to date 800,000, and 
 the production has reached 11,000 per day. On rifles we are ahead of 
 our needs, and provision is now being made for closing down one of 
 the rifle factories so as to obtain its facilities for increasing the output 
 of machine guns. 
 
 We have contracted for about one million automatic pistols and 
 revolvers. All the pistol facilities, outside of the Colt organization, 
 had to be created. We have received only 160,000 to date, but from 
 now on the production will rapidly overtake the needs. Of small-arms 
 ammunition we have contracted for practically three and one-half 
 billion rounds, and our production has already reached greater pro- 
 portions than was ever produced by either France or Great Britain. 
 One manufacturer delivered in the past month a quantity of rifle 
 ammunition aggregating more than 125,000,000 rounds. 
 
 We have let contracts for 270,000 machine guns of various types 
 and have delivered to the troops 45,000. A large part of the plant 
 capacity had to be created, and heavy deliveries of these guns will 
 not begin until April. 
 
 For motives of policy it is not permissible to discuss the details of 
 our artillery program. It was obviously impossible to furnish this 
 artillery short of a year, and, as surplus manufacturing capacity 
 existed in France and England, by furnishing them the raw materials 
 we are meeting our artillery equipment for the first year from that 
 source. Practically all of our artillery program, as planned at present, 
 is under contract, and already we have reached a production equal to 
 50 per cent of that of France. Two hundred and ten million dollars 
 was expended on this account up to the first of February. In the 
 artillery program is included motorized vehicles amounting to some- 
 thing over 40,000 pieces. The artillery projectiles contracted to date 
 amount to a total cost of over $1,000,000,000 for over 60,000,000 
 shells of all descriptions. Over 400,000,000 Ibs. of explosives are in 
 process of manufacture, and two smokeless-powder plants of a capa- 
 city of 1,125,000 Ibs. per day are under construction and a third under 
 consideration. Some comparative idea can be gained as to the volume 
 from this incident: At the outbreak of the European war I was asked 
 by one of the European governments to obtain 1,000,000 Ibs. of 
 smokeless powder in the United States. When presented to the 
 leading powder manufacturers, they called attention to the unpre- 
 cedented size of the order and said it could be furnished only by an
 
 296 ECONOMICS OF WAR 
 
 extension of their plants, and deliveries would not begin until four or 
 five months after the order was placed. Today we are planning to 
 furnish our own Army four or five times this amount per day. 
 
 I do not want to confuse by going into too much detail, but the 
 following figures- are significant: We have purchased $23,000,000 
 worth of leather. We have spent over $50,000,000 in trench-warfare 
 material alone. The demand for pyrotechnics is such as to require 
 the building of a vast fireworks plant after filling up every known 
 manufacturer with all that he would take. Drop bombs for aero- 
 planes is an item that runs over $300,000,000. In order to get 
 chemical raw materials we have been forced to build many extensive 
 plants calling for a huge outlay. To provide ammonia and nitrates, 
 in addition to the foreign supply two plants, costing approximately 
 $30,000,000 each, are under construction and still others are being 
 planned. 
 
 There has been considerable discussion, not always intelligent, as 
 to the best form of organization for war preparation. There has been 
 strong sentiment that it should be civilian organization headed by a 
 business man. From my own study of the matter I am convinced 
 that no business man is qualified to take this responsibility. The 
 plan of what should be purchased and the selection of the type of 
 material and its design are so intimately dependent upon a knowledge 
 of military affairs and the condition of camp life and actual warfare 
 that no civilian can bring to these basic operations the necessary 
 experience. The correct place for civilian help is that of assisting 
 the army experts only as to the business aspects of the program, those 
 of purchasing and manufacturing, and must necessarily be subordi- 
 nated to the military experience. 
 
 6. THE PRIORITY SYSTEM AT WORK 1 
 
 There has been created in the War Industries Board in Washington 
 a Priorities Board, consisting of the chairman of the War Industries 
 Board, the Priorities Commissioner, a member of the Railroad 
 Administration, a member of the United States Shipping Board and 
 Emergency Fleet Corporation, a member of the War Trade Board, a 
 member of the Food Administration, a member of the Fuel Adminis- 
 tration, a representative of the War Department, and a member of the 
 Allied Purchasing Commission. This Board has adopted for .the. 
 purpose of guiding all governmental agencies in the production, 
 
 1 An editorial .
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 297 
 
 supply, and distribution of raw materials, finished products, electrical 
 energy, fuel, and transportation, the following general classification of 
 industry for the purposes 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 (a) Foodstuffs for human consumption, 
 
 and plants handling same. 
 
 (b) Feeding stuffs for domestic fowls and animals, and plants handling 
 same. 
 
 (c) 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. 
 
 (d) Products of collateral industries, such as fertilizer, fertilizer ingre- 
 dients, insecticides and fungicides, containers for foods and feeds, 
 collateral products. 
 
 (e) 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 popu- 
 lation. 
 
 Included with the foregoing list are all necessary raw materials, 
 partially manufactured parts, and supplies for completion of these 
 products. 
 
 This list of war industries is to be given as nearly as possible 100 
 per cent of their requirements. This, the Board points out, "will 
 in some cases practically exhaust and in other cases substantially 
 reduce the available supply, resulting in an acute shortage of certain 
 basic raw materials and products." 
 
 RESTRICTION OF NEW BUILDING OPERATIONS 
 
 The War Industries Board, with a view to promoting the successful 
 prosecution of the war, states that 
 
 all new undertakings not essential to, and not contributing either directly 
 or indirectly toward winning the war, which involve the utilization of labor,
 
 298 ECONOMICS OF WAR 
 
 material, and capital required in the production, supply, or distribution of 
 direct or indirect war needs, will be discouraged, notwithstanding they may 
 be of local importance and of a character which should in normal times meet 
 with every encouragement; and that in fairness to those interested therein 
 notice is hereby given that this Board will withhold from such projects 
 priority assistance, without which new construction of the character men- 
 tioned will frequently be found impracticable, and that this notice shall be 
 given wide publicity, that all parties interested in such undertakings may 
 be fully apprised of the difficulties and delays to which they will be subjected 
 and embark upon them at their peril. 
 
 This applies to industrial plants which cannot be utilized in the 
 prosecution of the war and to the construction by states, counties, 
 cities, and towns of public buildings and other improvements which 
 will not contribute towards winning the war. 
 
 A convenient means of preventing new building operations that 
 are not essential to the prosecution of the war is found in the exercise 
 of priorities in the issue of securities. A Capital Issues Committee 
 of the War Finance Corporation now passes upon applications with 
 respect to proposed issues of bonds, notes, certificates of indebtedness, 
 and other securities, state, county, municipal, or corporate. (Detailed 
 instructions to applicants with respect to such issues may be found 
 in the Federal Reserve Bulletin [March, 1918], pp. 168-71.) 
 
 FUEL AND TRANSPORTATION PRIORITIES 
 
 The coal supply, not only in the United States, but throughout 
 the world, will not prove adequate during the coming year to meet the 
 needs of both war industries and non-war industries. The Fuel 
 Administration has therefore arranged the following list of preferred 
 industries : J 
 
 Aircraft Plants engaged 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. 
 
 1 Trade Publication No. i, April, 1918, U.S. Fuel Administration, Educational 
 Division.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 299 
 
 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 manu- 
 facturers 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.
 
 300 ECONOMICS OF WAR 
 
 Wire rope and rope wire Manufacturers of same. 
 Automobile plants are not in the list. 
 
 It should be noted that all industries not included in the list above 
 will have to wait for both fuel and transportation until the require- 
 ments of the above have been fully met. This may mean in many 
 cases waiting indefinitely. 
 
 At the same time the Fuel Administration has issued a fuel-oil 
 order with the explanation that "the shortage in the amount of fuel 
 oil which can be delivered because of transportation conditions is 
 such that it is clearly a wasteful and unreasonable practice to deliver 
 such oil for uses which are not intimately and directly connected with 
 
 the prosecution of the war The classes specified and the 
 
 precedence in selling, if the 'pinch' comes in oil, is fixed as follows:" 
 Railroads, bunker fuel, and oil refineries using or making fuel oil. 
 Export deliveries or shipments for the United States Army or Navy. 
 Export shipments for the navies and other war purposes of the Allies. 
 . Hospitals where oil is now being used as fuel. 
 
 Public utilities and domestic consumers now using fuel oil (including gas oil). 
 Shipyards engaged in government work. 
 Navy yards. 
 Arsenals. 
 
 Plants engaged in manufacture, production, and storage of food products. 
 Army and Navy cantonments where oil is now being used as fuel. 
 Industrial consumers engaged in the manufacture of munitions and other 
 
 articles under government orders. 
 All other classes. 
 
 This applies to the entire region east of the Rocky Mountains. 
 
 7. THE REGIONAL ORGANIZATION OF INDUSf RY' 
 
 Until very recently it has been necessary for manufacturers who 
 desired to secure war contracts to send a representative to Washington 
 to "drum up business." This representative has had to make the 
 weary round of innumerable purchasing divisions of the government, 
 and it has required a man of dauntless courage to succeed in his 
 enterprise. Under such circumstances it has obviously been impos- 
 sible for the small manufacturer without connections to secure gov- 
 ernment business. This has been unfortunate, not merely from the 
 standpoint of the individual manufacturer, but also from the stand- 
 
 1 By Harold G. Moulton. From Your Business and War Business, a pamphlet 
 distributed by the Union League Club of Chicago, July, 1918.
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 301 
 
 point of the government; for when the government patronizes only 
 the larger manufacturers, and those with established connections, it 
 inevitably means a congestion of manufacturing enterprise with the 
 attendant evils of inadequate housing and retarded production of war 
 supplies. 
 
 To remedy this situation and to decentralize the production of 
 war supplies throughout the United States the Resources and Con- 
 version Section of the War Industries Board, under the direction of 
 Mr. Charles A. Otis, has worked out a plan whereby it is believed that 
 the small manufacturer will be given an equal opportunity with the 
 large one to obtain war business. The primary object is to assemble 
 as quickly as possible detailed information concerning industries in all 
 parts of the country. The official communication states that 
 
 to accomplish this in the most efficient way it has been decided to divide 
 the country into regions and organize them thoroughly under the leadership 
 and with the cooperation of the local chambers of commerce and other 
 business men's organizations. 
 
 It is desired to enlist the aid of all classes of industry, and to bring this 
 about it is imperative that all the industries of a given region should be 
 asked to participate whether they are now members of- business organiza- 
 tions or not. 
 
 Under the plan that has been worked out for bringing the manu- 
 facturing resources of the country into more effective cooperation with 
 the government, the country is to be divided into twenty industrial 
 regions, with the following cities as centres: 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 asso- 
 ciations Industrial Committees with the principal industrial center as 
 headquarters and such sub-divisions 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 coopera- 
 tion 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
 
 302 ECONOMICS OF WAR 
 
 Board for information to the various procurement sections of the govern- 
 ment. 
 
 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 coordinates 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 for important lines of 
 industry. 
 
 The administrative organization is as follows: In each sub-region 
 each line of industry is placed in charge of a chairman to be chosen 
 by the industry. The chairmen of the various industries together 
 constitute an executive committee for the sub-region, which is the 
 governing body within the sub-region. 
 
 The governing body of the region as a whole is an executive com- 
 mittee composed of the chairmen of the executive committees of the 
 eight sub-regions. 
 
 Coming back to the sub-region, the chairman of each industry 
 makes his own sub-classifications. For instance, under castings we 
 may have aluminum and brass castings, gray-iron castings, malleable 
 castings, and steel castings. A sub-chairman is placed in charge of 
 each sub-classification. If the sub-classification is a large one, each 
 sub-chairman may have a committee large enough to enable him to 
 report promptly and in detail the capacity available in all plants in his 
 sub-classification . 
 
 With this organization in working order, detailed information of 
 the capacity of the plants in each industry to produce materials will 
 be made available to the chairman of the industry, and by him be 
 communicated to the executive committee of the region. - This
 
 WAR-TIME REGULATION OF TRADE AND INDUSTRY 303 
 
 regional committee in turn will make this information available to the 
 Resources and Conversion Section of the War Industries Board in 
 Washington, and through this section to the various supply and pur- 
 chasing officers of the government. Similarly, when government 
 requirements are made known to the Resources and Conversion 
 Section of the War Industries Board, telegraphic communication from 
 this section to the chairman of each region will promptly set the 
 machinery in motion to secure the production of the necessary sup- 
 plies in minimum time and with maximum efficiency. There will no 
 longer be any necessity for individual manufacturers to go to Wash- 
 ington to secure war contracts. The distribution of the production 
 of munitions and supplies within each region will be accomplished 
 through the representatives whom the industries themselves have 
 chosen. 
 
 GENERAL ADVANTAGES OF THE PLAN 
 
 It will be seen at a glance that this method of enlisting the pro- 
 ductive capacity of the nation in the service of the government is 
 much superior to the haphazard method that has characterized past 
 months: 
 
 1. It eliminates "pull" and established connections as a factor 
 in the awarding of contracts. 
 
 2. It eliminates the necessity of expensive and time-consuming 
 trips to Washington in the endeavor to secure war business. 
 
 3. It saves the time of the government procurement officials, 
 hitherto largely wasted in conferences with individual business men. 
 
 4. It provides for the scientific apportionment of the work to be 
 done to the localities and plants best adapted to the doing of the work. 
 
 5. It enables individual laborers to remain in their own com- 
 munities and in their own homes and thus does much to minimize 
 the difficulties of the housing situation. 
 
 6. It permits our existing industrial equipment to be turned 
 directly to war uses, thus saving the necessity of new construction 
 with needless using up of raw materials, labor power, and transport 
 facilities. 
 
 7. It serves to disrupt as little as possible our industrial fabric 
 and thus to make less difficult the task of reconstruction after the war.
 
 VIII 
 FOOD AND FUEL 
 
 Introduction 
 
 The problems of economic organization for war with which the 
 public is most familiar are those of food and fuel. They have made 
 their presence felt in every business establishment and private home 
 in the land. They have brought home to the people the familiar 
 economic fact of scarcity. They have given to all a conviction that 
 in some vague and indefinite way the organization and use of supplies 
 of bread and meat and coal and power are connected with the winning 
 of the war. Yet, in general, popular conceptions of these problems 
 run in terms of their relation to the management of business or the 
 affairs of the household rather than of the larger economic strategy 
 of which they are part. 
 
 The discussions which make up this chapter contain nothing new 
 in outlook or general statement. Their main interest is to translate 
 the principles already discussed into terms of the everyday problems 
 of war with which people are most familiar. It is to indicate the 
 relationship of the organization of the distribution and use of a limited 
 supply of an essential commodity to the general problem of industrial 
 mobilization. 
 
 The selections below are intended to serve a number of secondary 
 purposes. They indicate the complexity and ramifications of the 
 administrative problems which the war has raised, their interdepend- 
 ence, their inclusion of such seemingly alien things as social traditions 
 and personal habits, and the combination of circumstances upon 
 which their solutions rest. They disclose the great variety of dangers 
 which lie in wait for the administrator who attempts the regulation of 
 production or the control of consumption, and indicate the intelligent 
 approach, careful analysis, and technical knowledge necessary to the 
 successful accomplishment of such tasks. They point to the folly of 
 attempting to impute responsibility to a single individual for the 
 success or failure of a policy which depends upon so wide a variety of 
 conditions. And, last but most important of all, they present material 
 which tends to enlarge and clarify one's conception of the nature of 
 the organization of industrial society. 
 
 304
 
 FOOD AND FUEL 305 
 
 To these several ends a wide variety of materials is presented 
 below. "Where Hunger Pinches" (Section XXVIII) indicates the need 
 for increased control and the difficulties of enforcing it in a country 
 where food is really short as against a country like ours where the 
 exactions of the food administration have imposed no real burden. 
 The statement of "The Requisites of a National Food Policy" 
 (Section XXIX) serves both to illustrate the application of the 
 principles of industrial mobilization to a particular problem and to 
 show that the national is but a part of a world-wide organization 
 of food. The materials upon "The World's Coal Situation" (Section 
 
 XXX) perform the same task in terms of another essential commodity. 
 The discussion of "Coal Problems of the United States" (Section 
 
 XXXI) indicate some of the more important steps in the gradual 
 solution of the fuel problem. The last two readings, concerned with 
 "Competition versus Efficiency in Mining Coal" and "Coal and 
 Electricity in Double Harness," illustrate the complications given to 
 the problem by such seemingly foreign elements as the traditions of 
 the industry and the current status of technology. 
 
 XXVIII. Where Hunger Pinches 1 
 i. THE SCARCITY OF FISH IN BERLIN 2 
 
 Like so many other foodstuffs, fish has also disappeared from the 
 Greater Berlin market during the war. There is a pressing need, 
 particularly in winter, when, besides the ever-scanty meat ration, 
 experience has proved that other foodstuffs are also not very abun- 
 dantly distributed in the capital, that the population should receive 
 larger supplies of fish as compensation. The imperial commissioner 
 for the fish supply has given our representative the following informa- 
 tion: 
 
 Up to about a week or fortnight ago relatively large supplies of 
 sea fish reached Berlin. Now, however, heavy storms have set in 
 in the North and Baltic seas, rendering fishing extremely difficult and, 
 in parts, stopping it altogether. The prospects for future imports of 
 
 1 ED. NOTE. The excerpts which make up this reading are compiled and 
 translated from German and Austrian newspapers by Alfred Maylander. They 
 are to be found in Food Situation in Central Europe (1917), which is Bulletin No. 242 
 of the United States Bureau of Labor Statistics. The original sources of the 
 excerpts are indicated in the bibliographical footnotes. 
 
 ' From Berliner Tageblalt, evening edition, September n, 1917.
 
 306 ECONOMICS OF WAR 
 
 sea fish are difficult to estimate. The home catch, which, owing to 
 the abnormally cold winter, was rather small from January to March, 
 increased quite considerably in the spring. The catches were bought 
 up and distributed quickly, but naturally were insufficient to cover the 
 great demand. At present strenuous efforts are being made to 
 increase the fishing industry in order to store up as much as possible 
 for the winter, but too great expectations must not be indulged in. 
 
 2. CONTROL OF EGGS IN BERLIN 1 
 
 The egg-supply organization has proved a great failure. Stop- 
 pages have continually occurred, and certain districts receive no eggs 
 at all, while others have a surplus. This is undoubtedly due to faulty 
 organization. A special organization, the State Food Association, 
 was formed some time ago in Berlin for the purpose of collecting and 
 distributing eggs. To the great loss of the community, however, the 
 greatest difficulties have, from the start, been placed in the way of this 
 organization. The superior authorities showed so little understanding 
 of the functions of an egg-supply organization that, despite all com- 
 mercial efforts, no success was obtained. All practical suggestions for 
 improving the prevailing conditions were simply ignored. 
 
 3. FOOD EXCURSIONS 
 
 During the past spring and summer the food authorities received 
 numerous complaints about the increasing practice among the urban 
 population of going out to the rural districts to secure food illicitly. 
 These "food excursions" were much discussed in the daily press, 
 some papers expressing sympathy for the poorer class of excursionists, 
 who should be distinguished from the richer and merely selfish 
 hoarders. 
 
 In Berlin and the province of Brandenburg this injurious practice 
 led to a proclamation by the commanding general, which contained 
 the following statement: "Individuals can not be permitted to seek 
 to obtain in this way an advantage over their fellow citizens. More- 
 over, people now go out, not merely to buy but to steal food or take 
 it forcibly; they have the effrontery to help themselves to standing 
 field and garden crops, often long before these are ripe. The injury 
 to the farmers and to our future supply is obvious. Robbing the 
 fields and damaging the crops is a crime in war time, and the strongest 
 measures must be taken against it." 
 
 1 From Berliner Tageblatt, August 29, 1917.
 
 FOOD AND FUEL 307 
 
 He therefore lays the authorities under an obligation to enforce a 
 preventive order, and states that where it is necessary military assist- 
 ance will be available. 
 
 4. "MASS FEEDING" IN GERMANY 
 
 At least for the period of the war "mass feeding" seems to be 
 thoroughly established in Germany. Of the 563 communes, each 
 with 10,000 or more inhabitants, and with a total population of 
 26,700,000, there were only 56, with 857,000 inhabitants, without 
 mass-feeding arrangements; 472 communes, with 24,354,090 inhabit- 
 ants, reported the existence of 2,207 such establishments, of which 
 1,076 are general war kitchens, 116 middle-class kitchens, 528 factory 
 kitchens, and 487 kitchens of various kinds. Although most towns 
 provided only midday dinners, most kitchens are arranged for at least 
 two shifts of cooks. The average output of the 2,207 establishments 
 amounted in February, 1917, to a daily production of 2,528,401 liters 
 of food, which allowed 10.4 liters daily per 100 inhabitants of the 
 24,354,000 total inhabitants in question, as against 8.8 liters in 
 January. The highest possible daily output would promise a total, 
 of 4,208,741 liters, or 17.8 liters per 100 inhabitants. 
 
 The comparative popularity of mass feeding is a good index to 
 the actual condition of the food supply. War kitchens are being 
 increasingly patronized by members of the middle class. The number 
 of middle-class and officials' kitchens and of soup kitchens in Berlin 
 has now almost reached a hundred; 35,000 portions of food and 14,000 
 portions soup are served daily, and 8,000 portions of bone soup are 
 distributed to heavy workers and children. The portions are generous 
 and a second helping can be obtained at low prices. 
 
 5. THE FOOD-CARD SYSTEM 1 
 
 Food tickets are issued in general by three methods. In Berlin 
 and some other towns the porters of the large blocks of flats in which 
 almost everybody lives obtain the tickets from the authorities and 
 distribute them to the individual families. In Munich and a decreas- 
 ing number of towns, school children and other voluntary helpers take 
 the tickets round. The method becoming most general is, however, 
 to compel each family to fetch its tickets for itself from a local office 
 on one or more fixed dates, arranged so as to prevent an undue rush 
 
 1 Adapted from the National Food Journal (London), November 28, 1917.
 
 308 ECONOMICS OF WAR 
 
 of applicants. The advantage of this method over the others is that 
 complaints are investigated and settled on the spot. The last occasion 
 on which Leipzig distributed tickets by volunteer messengers to its 
 155,000 families produced nearly 100,000 complaints. The person 
 who fetches the tickets for a family has to produce their individual 
 police registration cards and sometimes special food-ticket registration 
 documents, and is often requested to bring their birth certificates. 
 The issuing office keeps a card register showing changes in the member- 
 ship of each family, all such changes having to be reported imme- 
 diately. Under the first two methods of issuing tickets a receipt 
 has to be given by the recipient. Tickets are taken out at intervals 
 ranging from every three months down to every month or less. The 
 more frequent the issue, the less is the danger of forgery, as the 
 appearance of each successive series of tickets can be varied. Hoard- 
 ing and anticipation of supplies are prevented by making each ticket 
 valid only for a single week, or fortnight. 
 
 The original and simplest form of German food ticket is a card 
 with detachable coupons, printed so as to be difficult of imitation. 
 It now must generally be signed by the holder; it is never trans- 
 ferable. Other varieties used locally for general or special purposes 
 are books containing a page with separable coupons for every article. 
 Such a book occasionally represents the rations for a whole family. 
 On the whole, the use of one card for every article and for every person 
 is found most satisfactory, while general tickets or books are issued 
 with blank coupons to be used in buying any exceptional supplies 
 which the* local authority may be able from time to time to provide; 
 e.g., dried vegetables and farinaceous foods are not regularly on sale, 
 but can be bought at irregular intervals on specified coupons of the 
 general food ticket. 
 
 The comparatively simple ticket system described above worked 
 well in Germany for bread and flour down to the end of 1915; but it 
 requires for its successful operation the existence of a considerable 
 margin of stocks in the retail shops, so that the ticket holder may be 
 certain of being served in some shop near his home. The extreme 
 scarcity of all foods, which began to prevail in 1916 and still continues, 
 has necessitated the introduction of important complications; and, 
 speaking generally, bread, flour (usually), and sugar are now the only 
 foods to which the simple system still applies. For meat, milk, fats, 
 potatoes, and other foods, especially those which are only distributed 
 occasionally, the purchaser must become the registered customer of a
 
 FOOD AND FUEL 309 
 
 particular shop, and very frequently he must place his order a week 
 or more in advance. The shop is supplied in exact proportion to the 
 number of its registered customers or of the advance orders received. 
 To prevent the formation of food queues (waiting lines), a number is 
 assigned to every customer, and the tradesman announces in his 
 window what numbers will be served at particular hours. One hour 
 in the day is reserved for persons who prove by a certificate from their 
 employers or otherwise that they could not attend when their numbers 
 were up. These refinements prevent the necessity for a margin; but 
 they involve the issue of special registration tickets, complicate 
 enormously the problem of removals, and subject the public to a very 
 great inconvenience. 
 
 In conclusion, one observation may be made by way of caution. 
 The ticket system is the effect, not the cause, of the German food crisis. 
 If it has to some extent lessened the supply of food by discouraging 
 production and dislocating trade, it has undoubtedly saved the nation 
 from early defeat in the war by reducing consumption to a minimum 
 far below any that voluntary effort could have secured. 
 
 6. FOOD IN BOHEMIA 
 
 The food situation in Bohemia, due in the main to inefficient 
 organization, is very bad. The following official memorandum 1 
 needs no comment. 
 
 1. Potatoes are unobtainable. 
 
 2. The butter ration during last year was only 120 grams (4.2 ounces) 
 per household per month. 
 
 3. The milk supply gets steadily worse, both in quality and quantity. 
 On July 31, 1917, the allowance for each individual was only 0.06 liter 
 (0.06 quart). 
 
 4. Sugar supply is unsatisfactory owing to the inefficiency of the Sugar 
 Central Office in Vienna and transport difficulties. 
 
 5. Meat. The allowance of 900 head of cattle which had been promised 
 has been reduced to 565. 
 
 6. Coal. Greater Prague before the war used 320 wagonloads of coal 
 daily; only 100 per day are now available. 
 
 7. The results of this are that a great part of the population suffers from 
 hunger, and that the children suffer both physically and morally. The 
 number of child beggars has gone up to several thousands. The death rate 
 
 1 Drawn up by a commission of the Prague City Council (see Prager Tageblalt, 
 September n, 1917).
 
 310 ECONOMICS OF WAR 
 
 among the general population increases daily. Diarrhea is spreading at an 
 alarming rate in Greater Prague. 
 
 7. THE "KIT-BAG" TRADE 1 
 
 We are officially informed that numerous persons, to the detriment 
 of the community, unlawfully obtain food controlled by the state 
 (particularly flour, pulse, potatoes, eggs, butter, milk, fat, sugar, and 
 coffee), in addition to the rations fixed by the Food Office, and that 
 in a markedly increasing degree the authorities are obliged to order the 
 examination of baggage (boxes, baskets, bags, and kit bags) of 
 travelers and pedestrians. This examination will be carried out by 
 the police at the stations in the neighborhood of Vienna, by the 
 revenue guard at the boundary customs offices, and by the gendarmery 
 in the country. Food carried contrary to prohibition will be taken 
 away in every case and handed over to hospitals, cooperative kitchens, 
 and similar public- welfare institutions. People are therefore warned 
 not to render themselves liable to accusations of smuggling of this 
 kind, as in addition to a considerable fine or imprisonment they may 
 expect the confiscation of the food in question. 
 
 Our government, which has certainly not been lacking in ordi- 
 nances, has just brought out another, the "kit-bag" ordinance, which 
 has aroused the greatest bitterness, and indeed despair, in the whole 
 population of Vienna. With unparalleled lack of consideration large 
 and small bags belonging to incoming travelers are examined, not 
 only in Vienna, but also during the journey, and small quantities of 
 food, as, for instance 10 eggs or a bottle of milk, are confiscated. In 
 Bohemia large quantities of flour are sold by small millers without 
 regard to state control, and without ration tickets or cards, in excess 
 of the maximum price; there are no officials to interfere. Here in 
 Vienna articles are taken away from poor women, who, through 
 former connections in the country, manage to pick up here and 
 there small quantities for their children, and these women leave the 
 stations weeping and in despair. I appeal to the government, as I did 
 recently in the municipal council, not to proceed with such petty, 
 irritating methods, which only calculate to disturb and embitter the 
 population. 
 
 1 The first of the paragraphs quoted is from the morning edition of the Arbeiler 
 Zetiung, of Vienna, October 7, 1917; the second, from the morning edition of 
 Die Zeit, of Vienna, for October 17, 1917.
 
 FOOD AND FUEL 311 
 
 8. THUS FARES THE TURK 1 
 
 We left Constantinople because it was absolutely impossible for us 
 to live there any longer. You know how difficult it is to procure 
 certain necessaries even in Vienna and Budapest; but we felt a sense 
 of relief when we passed from Turkey into Austria. Austria lacks 
 many things, but Turkey lacks everything. When it is reported that 
 the Viennese are dying of hunger, it may be taken as a form of speech, 
 but in Constantinople this is literally true. 
 
 The food-card system has produced the most pitiable results. How 
 can the population be rationed when there is no census ? How can a 
 Turkish functionary be induced to keep his books in order and remain 
 incorruptible? Besides, the government depots are for the greater 
 part of the time empty, though speculators are piling up foodstuffs 
 which frequently find their way to Germany. The word baksheesh 
 (" graft") has become more than ever the essential word in Turkish. 
 
 For many weeks bread in Constantinople smelled of petroleum. 
 But to people dying from hunger nothing is uneatable. Meat, even 
 horse meat and goat meat, is a luxury reserved for the rich. As for 
 the Bosphorus fisheries, they were abandoned a long time ago, owing 
 to the danger from mines and to the fact that all kinds of boats have 
 been requisitioned. To a real Turk black coffee is as necessary as 
 bread and meat. But a kilogram of sugar costs 14 francs ($i . 23 per 
 pound) and coffee 15 francs ($i .32 per pound). Last July thousands 
 of Turkish women pillaged the shops of Galata and Pera. In con- 
 sequence of this the Turkish government requisitioned from merchants 
 rice, potatoes, and sugar, and offered these articles for sale at pre-war 
 prices, but only to Turkish women. This period of plenty lasted 
 a fortnight, and the Turkish women were somewhat calmed; as for 
 the non-Mussulmans, they continued tightening their belts. 
 
 XXIX. The Requisites of a National Food Policy 2 
 
 I. THE NATURE OF THE PROBLEM 
 
 The food problem has its place as a part of the larger program of 
 adjusting the industrial system to the demands of war. In the 
 various aspects of its readjustment of consumption, production, and 
 
 1 From a letter of a "neutral" recently arrived in Switzerland, published in 
 the Messagcr d'Athenes, of Athens, July 25, 1917. 
 
 1 By Walton H. Hamilton. Adapted from "The Requisites of a National 
 Food Policy," Journal of Political Economy, XXVI (June, 1918), 612-37.
 
 312 ECONOMICS OF WAR 
 
 distribution of food, it affects profoundly the interests and the 
 efficiency of the people at home and the soldiers at the front. The 
 amount of food which must be produced depends upon the triple 
 demand of the people at home, the civilian population of our Allies, 
 and the forces in the field. Its distribution involves numerous and 
 baffling choice between conflicting interests. Its consumption 
 requires the scrapping of the personal habits of a lifetime and the 
 substitution therefor of others formed in the light of military necessity. 
 The character of the program depends upon the duration of the 
 unusual food conditions which have come in the wake of war. It is 
 complicated by the varied fortunes which four years of war have 
 brought to our Allies. It is affected by dominant tendencies imposed 
 upon the industrial system which the signing of a treaty of peace 
 cannot soon remove. Because of its intimate association with the 
 larger problem of supplies and its dependence upon peculiar circum- 
 stance, a statement of the requisites of a food program must wait upon 
 an enumeration of the antecedents to which it must conform. There- 
 fore it seems best, in the pages which immediately follow, to consider: 
 (i) the situation in Germany with a view to the testimony which it 
 gives upon the duration of the current food situation; (2) the peculiar 
 food needs of our principal Allies, Great Britain and France, and of 
 the neutral nations of Europe; (3) the tendencies affecting the 
 production of food which are accompaniments of war; and (4} the 
 peculiar requirements laid upon this country. In view of these it 
 will be possible to outline, not in any adequate fashion, but at least 
 in its main aspects, a food policy for the current emergency. 
 
 II. THE FOOD SITUATION IN GERMANY 
 
 In some respects Germany's food situation is better, in some 
 respects worse, than that of the other European belligerents. It has 
 the advantage of not losing sight of the ideal of agricultural self- 
 sufficiency in the four decades immediately preceding the war and of 
 quickly giving its attention to the serious defects in the organization 
 of food revealed in the earlier months of the war. Evidence of 
 attention to this problem is revealed in the statistics of agricultural 
 progress between 1887 and 1913. During this period population 
 increased from 48,000,000 to 66,000,000, or 38 per cent. Yet from 
 1887 to 1912 the supply of vegetable foods increased everr more 
 rapidly. The production of rye increased 97 per cent, of wheat 54 
 per cent, of potatoes 72 per cent, of sugar 251 per cent, and of other food
 
 FOOD AND FUEL 313 
 
 articles from 44 to 1 14 per cent. At the beginning of the war Germany 
 was producing nearly all the grain, potatoes, and sugar consumed in 
 the country. In respect to meats the situation was by no means so 
 favorable, only one-fourth of the beef, one-tenth of the pork, and 
 one-twentieth of the mutton consumed being of domestic production. 
 We have little direct evidence upon the increase of production or 
 more likely the decrease since the beginning of the war, though 
 there is an abundance of indirect evidence of all degrees of reputability. 
 This indicates that despite the use of the labor of prisoners and an 
 attempt to use food resources to produce only commodities of the 
 highest food value conditions have been fluctuating from bad to worse, 
 but with a steady drift toward worse. The best evidence seems to 
 indicate that Germany has at best only about 70 per cent of the 
 vegetable food and certainly not more than 40 per cent of the animal 
 food regarded as necessary in time of peace. This shortage is impor- 
 tant, however, more as evidence of the large part of the population 
 below the subsistence line than of the success of a policy of attrition 
 in bringing Germany to terms. 
 
 The greatest promise for Germany is the lands in the East which 
 either have been annexed or have been made accessible by the collapse 
 of Russia. The consensus of opinion among those who know the 
 economic East seems to be that these lands will be of little avail this 
 year. Whether they can be made to furnish a large food supply in 
 1919 or later depends largely upon the ability of the German govern- 
 ment to organize the country for the furtherance of its own purposes. 
 
 On the whole, the outstanding features of the German situation, 
 so far asjihey affect the food problem, are two in number. The first 
 is that, in view or German discipline, there is little to expect from a 
 policy of attrition. The policy of the Allies may force an ever larger 
 part of the population beyond the minimum necessary to keep health 
 in the body for physical toil, but it is not likely to starve the popula- 
 tion into surrender. If the war becomes an involuntary hunger 
 strike, Germany's powers of endurance are likely to exceed those of 
 any Western nation. The German armies may be kept back, the Ger- 
 man government may be driven into bankruptcy, the German morale 
 may be broken, a victory over German arms may be achieved, but it is 
 safe to say that economic inability to fight is not likely to be a cause 
 of German defeat. So long as the losses in men do not greatly exceed 
 the numbers added to the army by incoming classes, and so long as 
 the industrial system is arranged to supply a large number of men for
 
 314 ECONOMICS OF WAR 
 
 fighting and materials for them to fight with, the German government 
 may, if it wills, keep up the struggle. The second important fact is 
 that no matter how soon peace arrives a serious food problem will 
 remain in Germany for some years to come. The production is low 
 and disorganized, the personnel on the farms is far below normal, both 
 in numbers and in ability, and for many groups the standards have 
 been driven far below what is necessary for efficiency. Both of these 
 facts point to the necessity of a food program which looks farther ahead 
 than a few months one that looks even to the problems of the pro- 
 duction and distribution of food a decade after peace. 
 
 III. THE FOOD PROBLEM IN ALLIED AND NEUTRAL COUNTRIES 
 
 At the beginning of the war France was, as it had been for some 
 time, a country of small farms. No less than 45 per cent of the 
 population belonged to the agricultural class. On the eve of the 
 present conflict France was producing approximately 86 per cent 
 of the cereals consumed and about 85 per cent of the meat 
 supply. 
 
 This favorable situation has been radically changed by the war. 
 In the first place, the large percentage of the population engaged in 
 agriculture has caused the draft of fighting men to make larger drains 
 upon agriculture with greater decreases in efficiency than in any 
 belligerent country. In the second place, nitrates for fertilizer, 
 which usually come from Chile, have been very hard or almost 
 impossible to get. In the third place, capital has not been available 
 for improvements, depreciation has gone forward at a very rapid rate, 
 and materials which otherwise would have gone into farm machinery 
 have been diverted to war uses. In the fourth place, a very consid- 
 erable amount of fertile soil has been usurped for military pur- 
 poses and an even larger amount has fallen into the hands of the 
 Germans. 
 
 France has of course resorted to various devices to overcome these 
 tendencies to agricultural decline. The aged and the very young 
 alike have been put in the fields; the labor of men back from the 
 front, of prisoners, and of Chinese coolies has all been used; the 
 production of certain products has been subsidized; and a rigid 
 system of agricultural supervision by prefects has been established. 
 But in spite of all this the supply of food has diminished and is still 
 diminishing. The most reliable computations indicate that nearly, if 
 not fully, 40 per cent of the agricultural area has been lost to cultiva-
 
 FOOD AND FUEL 315 
 
 tion and that the fertility of the most important crop-producing 
 sections has declined by from 20 to 30 per cent. To grasp the sig- 
 nificance of this one must note that if France were today to try to 
 maintain its consumptive standards of 1913 it would have to import 
 60 per cent of its wheat, 48 per cent of its rye, 35 per cent of its oats, 
 and 1 5 per cent of its barley. This general decrease in the consumption 
 of staple commodities indicates the extent to which standards of 
 consumption have been reduced and how close a considerable part 
 of the population is to actual starvation. Yet the most serious aspect 
 of the situation is that the land and its productive equipment are 
 deteriorating from month to month and that the tendencies bringing 
 about a decrease are becoming more and more pronounced. Peace 
 will leave France face to face with a serious food problem. 
 
 Because of its peculiar industrial organization Great Britain is 
 very unlike France. Economically the British Isles are but the cen- 
 ter of a vast industrial system which ramifies to the corners of the 
 earth. It performs a few economic functions for a large part of the 
 world, and other parts of the world perform many functions essential 
 to the welfare, and even the lives, of the inhabitants of the islands. 
 Most important for our purpose England produces only a very small 
 part of its food supply. The national food supply rests upon the 
 double contingency of production in foreign countries and the shipping 
 .available for bringing the food to British ports. 
 
 But the crux of the problem is not in production; it is in the 
 shipping situation. The tonnage available for transportation has been 
 greatly diminished by three causes. The first is the diversion of 
 vessels how large only those in the secrets of the governments can 
 say to war uses. The second is the large losses through destruction 
 by mines and submarines, losses familiar to every reader of the 
 newspapers. The third is a loss in the number of journeys which a 
 ship can take in a given time, due to circuitous routing to avoid sub- 
 marines. An attempt has been made to meet the situation by pro- 
 hibiting the importation of nonessential commodities. * But in view 
 of the large number of imports for war uses, imports unknown to 
 Great Britain before the war, the places of the nonessentials are filled 
 without supplying sufficient accommodation to take food from the 
 places where it is most plentiful to English ports. Whatever rosy 
 promises shipbuilding may hold out, at this writing (April, 1918) the 
 combined construction in Great Britain and America is not yet equal 
 to the losses <5aused by submarines. In view of this serious shortage
 
 316 ECONOMICS OF WAR 
 
 relief can be found only by discontinuing long hauls and concentrating 
 shipping upon routes connecting Great Britain with the countries close 
 at hand. 
 
 Such concentration merely solves the immediate shipping problem 
 in terms of another problem of production. It makes the food supplies 
 of South America, Australia, and India less available than they were 
 and throws an increased burden upon Canada and the United States. 
 This burden becomes the heavier when it is realized that the war has 
 cut off England entirely from some of its important sources of supply. 
 There is little likelihood that ships will be available, before the war is 
 over, in sufficient number to allow a resumption of the old routes of 
 trade and a tapping of the old sources of supply. On the contrary 
 there is every reason for believing that Great Britain will have 
 to depend upon the nearer sources oS supply, particularly upon 
 Canada and the United States, for many years after the coming of 
 peace. 
 
 What is true of the seriousness of the food situation in France 
 and Great Britain is true, in their several degrees, of the smaller 
 belligerent countries, of their neutral neighbors, and even of non- 
 participating nations far removed from the scene of combat. The 
 great food-producing area is the northern temperate zone, the inhabit- 
 ants of a large part of which are engaged in the present struggle. 
 The southern temperate zone is of secondary importance. The 
 arctic zones produce only enough for their indigenous populations, 
 and the tropics do not yet produce enough of the staples to satisfy 
 their own needs. Like Great Britain these countries, even though 
 they lie within the great food-producing areas, are not self-sufficient. 
 Italy and Spain, despite great home production, are large importers 
 of grain, and Holland, Denmark, Norway, Sweden, and Switzerland 
 are quite dependent upon imports. 
 
 It is characteristic of the war that the great dearth in the good 
 things of life which the diversion of labor, materials, and land to other 
 uses has caused has afflicted neutral as well as belligerent nations. 
 The prices of the essential commodities are relatively steady the world 
 over. A scarcity in one country, due to the war, causes prices to rise, 
 and the higher prices attract goods from other countries in which 
 prices are lower. The movement continues until prices in the export- 
 ing country rise enough to make sales abroad unprofitable. In this 
 way countries which scrupulously keep the peace have to share the 
 dearth of nations at war. Conditions alike among the smaller warring
 
 FOOD AND FUEL 317 
 
 nations and among the neutrals indicate that they have their several 
 food problems, problems which are likely to remain acute even after 
 peace is made. 
 
 IV. THE DEPENDENCE OF WAR UPON FOOD 
 
 It seems unnecessary to elaborate at length the abstract principles 
 which explain the decrease in food production and the emergence of a 
 food problem in the wake of war. Many of the conditions responsible 
 for the problem are clearly apparent in the presentation of the situa- 
 tion in France and Great Britain given above. Others are familiar 
 to any student of the nature of modern warfare. A few words of 
 abstract statement must suffice. 
 
 The first of two general groups of forces which reduce food pro- 
 duction in time of war operates directly upon agriculture. Of this 
 group the first and most obvious is the decrease in number and the 
 decline in efficiency of agricultural laborers. Large numbers are 
 drafted for the army who are habituated to farming just at the ages 
 at which they are most efficient. The old men, the women, and the 
 children who take their places are their equals neither in physical 
 efficiency nor in their knowledge of agricultural methods. To this 
 depletion jnust be added the additional host who are drawn to indus- 
 trial occupations by the lure of high wages paid in establishments 
 engaged in war work. 
 
 The second of this group of forces directly lowering food pro- 
 duction is the increasing difficulty of getting the materials which 
 successful farming requires. If fertilizers are imported, war renders 
 them difficult or impossible to procure. If they are of domestic origin, 
 they have to take their precarious chances of transit upon a railway 
 system which is being reorganized to accommodate itself to the 
 expeditious movement of munitions of war. Farm machinery, like 
 the soil, is constantly wearing out, and neglect and misuse, the inevi- 
 table accompaniments of management by amateurs, make the rate of 
 obsolescence or depreciation a very high one. New machinery to 
 take the place of that which has been scrapped is at best expensive, 
 because it is made of the very productive elements out of which most 
 munitions of war are made. Moreover, the supply of raw materials 
 may be so limited as to allow little if any of them to find their way into 
 agricultural implements, or it may be that a shipping board puts them 
 far down on the list of priorities of imports. It is also usually impos- 
 sible for the farmer to pay cash for machinery, and borrowed capital
 
 318 ECONOMICS OF WAR 
 
 is hard to obtain in war time, owing to the direct competition of the 
 government which floats loans large enough to absorb nearly all the 
 free capital. 
 
 In the third place, the high prices which follow soon after the 
 declaration of war give rise to great waste. Tempted to make profits 
 while the making is good, the farmer is likely to sell even the produce 
 which he would ordinarily keep for seed, trusting to buy in the spring 
 at a lower price. More important still is the depletion in herds, where 
 the increase is slow a depletion that may cause scarcity for years to 
 come. At present the supply of animals needed for breeding purposes 
 in the United States and Canada, as well as in most European coun- 
 tries, has been reduced almost to the danger-point. 
 
 The second general group of forces reducing food production 
 -includes conditions which have their effect upon the whole industrial 
 system. In the large they resolve themselves into an increase in the 
 risk and uncertainty which accompanies business enterprise. They 
 include capricious changes in prices, sudden changes in the industrial 
 policy of the government, the inability to determine in advance the 
 real effects of price control, the uncertainty about the duration of the 
 war and what will follow it, and other major and minor forces of 
 dissension. These are but manifestations of the general disarrange- 
 ment which necessarily accompanies an adjustment of the industrial 
 system to new conditions. The losses involved in adjusting men, 
 materials, processes, and habits to new ends are fairly clear to anyone 
 who has seriously thought about the problem of the relationship of 
 industry to war. Their extent and nature form a subject much too 
 large and complex to be discussed here. 
 
 V. THE BURDEN PLACED UPON THE UNITED STATES 
 
 The argument above points to a serious shortage of food and a 
 grave food problem which are likely to be with us until the end of the 
 war. It gives no definite promise that this problem will be less acute 
 or even that it will not be more menacing in the future. It points 
 clearly to the United States as the country which must bear the brunt 
 of the task of feeding the Allies. How great this task is and what the 
 resources are with which it must be faced a brief survey of the situation 
 will indicate. 
 
 To recite the list of our Allies in the present struggle, or to name 
 the nations which are not our enemies, is to present a catalogue of 
 peoples who are seriously in need of subsistence. England, France,
 
 FOOD AND FUEL 319 
 
 Italy, Belgium, Portugal, Spain, Switzerland, Denmark, Holland, 
 Norway, and Sweden are in dire need of food. A very large part of 
 the population, of belligerent and neutral countries alike, are not 
 getting enough to make them productively efficient, and no incon- 
 siderable part of them are becoming an easy prey to disease. It is a 
 situation of actual and potential famine in all of Western Europe which 
 the United States is called upon to face. 
 
 It is hard for us to realize that the United States is much less 
 favorably situated for producing a huge food surplus than it was 
 thirty years ago. In the interim industrialism had made huge strides 
 in the land, and a great urban population has arisen 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 588,492,000 bushels, or about 90 per 
 cent, wKne 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 popu- 
 lation which has been consuming a larger and larger part of the food 
 surplus. 
 
 Our primary concern is of course with current production and 
 current consumption. Taking the leading food products we note that
 
 320 ECONOMICS OF WAR 
 
 while in 1915 the production of wheat increased to 1,025,801,000 
 bushels, of which 332,465,000, or 37 per cent, was exported, the 
 yield fell to 639,000,000 bushels in 1916, and the estimated yield for 
 1917 is only 656,000,000 bushels. Our current normal consumption is 
 about 575,000,000 bushels, leaving only about 80,000,000 bushels of 
 wheat to be exported, if we continue the prodigal waste of the days 
 before the war. The yield of corn for 1917 is estimated at 3,248,- 
 000,000 bushels, an increase of 495,628,000 bushels, or 18 per cent, 
 over the average yield of the five years preceding the opening of the 
 European war. Our crops of barley and rye, aggregating respectively 
 204,000,000 and 56,000,000 bushels, are not of a size to add appreciably 
 to our surplus of food cereals. Like the corn crop, the crop of oats 
 last year was particularly large, aggregating 1,533,000,000 bushels. 
 These figures indicate that the great increase has been in corn and 
 oats, cereals upon which neither we nor the Europeans have been 
 depending for bread. 
 
 An early estimate places the winter wheat crop for the current 
 year at about 1,000,000,000 bushels. Yet these figures, promising as 
 they are, do not indicate the end of the problem. If when the returns 
 are in we have partially escaped the scarcity of last year, it will be 
 indicative rather of a slight respite than of security. 1 
 
 For a time after the beginning of the war the domestic production, 
 or more properly the marketing, of meat increased materially. This 
 is evidenced by an increase in our exports of meat (excluding pork) 
 from 493,848,000 pounds, which was the average for the three years 
 before the war, to 1,339,193,000 pounds for the year ending June 30, 
 1916, or about 190 per cent. But the figures lose their significance 
 when we remember that before the war Western Europe received only 
 a very small part of its meat from the United States and that the last 
 figure is small when compared with our export of wheat or with the 
 meat annually consumed at home. Yet there is abundant evidence 
 from all parts of the country that stocks are being seriously depleted 
 and that the dearth of breeding animals will prevent so large an 
 annual slaughter in the immediate future. Taken together, these 
 figures indicate the nature and magnitude of the problem of economy 
 in consumption, as well as a complicated problem in production, 
 which we have to face this season and perhaps for some seasons to 
 come. 
 
 1 ED. NOTE. Midsummer crop reports indicate a substantial improvement 
 over the situation that prevailed a year ago.
 
 FOOD AND FUEL 321 
 
 But our concern cannot stop with so shortsighted a consideration 
 of the problem. If the war is to go beyond the present year we need 
 to make our plans with that contingency in mind. If it stops within 
 the year its effects upon the production of food cannot be immediately 
 halted and the food problem will remain acute for some time to come. 
 
 VI. THE ESSENTIALS OF A FOOD POLICY 
 
 The analysis of the conditions out of which springs the food prob- 
 lem makes evident the principles which must dominate its solution. 
 The pages above indicate that for many years to come the United 
 States must either produce or save a large surplus of the staple food 
 commodities above the needs of its civilian population. This can be 
 accomplished by, and only by, diverting food and the stuff of which 
 it is made from ordinary peace uses into this surplus available for our 
 military forces and our Allies. Like all the great supply problems, 
 the food problem can find a genuine solution only in a consciously 
 formulated policy of diversion. Its translation into terms of the 
 diversion of limited economic resources to specific ends is easily made. 
 In the newer terms it requires merely a brief statement in conclusion. 
 
 First and most obvious is the obligation which the food problem 
 imposes upon the consumer. Within the last year it has become a 
 truism that we can all contribute to a military victory by abstaining 
 from the over-consumption and waste of commodities like wheat, 
 meat, and sugar, which without change of form can be used by our 
 soldiers and our civilian Allies. As yet it is not so clearly appreciated 
 that many of our expenditures upon food get their necessity from 
 social convention rather than from bodily need or physical or mental 
 vigor. Before the war the consumption of food, both in quantity 
 and in the wasteful methods of its preparation, was affected quite 
 largely by a desire to do the proper thing. A great saving may be 
 effected by keeping in mind the principle that the selection of articles 
 for consumption must be based upon their food values rather than 
 their customary positions in the dietary or social budget. More 
 recently we have been trying to save staple foods for war uses by 
 substituting for them other foods diverted from less important uses. 
 As an immediate necessity much can be said in favor of this policy, 
 provided the substitutes can be made to yield the food values which 
 inhere in them. But as a part of a long-time program this is of 
 doubtful wisdom, since the alternative is present of using the resources 
 embodied in these substitutes to turn out products more in keeping
 
 322 ECONOMICS OF WAR 
 
 with the conventional- standards of American culinary technique. 
 While these and similar measures may be quite proper and fit so far 
 as they go, they do not afford a solution of the food problem. They 
 are based upon immediate considerations, overlook the period of 
 several years during which there is every probability that for the 
 Western world the problem will remain a serious one, and assume that 
 the problem is limited to consumption. They constitute an attempt 
 to solve the problem out of existing stocks of food. At best such a 
 shortsighted policy will yield a bare minimum that will hardly tide 
 the peoples of the allied countries through an emergency. It will 
 not give them the supply of food which is necessary for health, for 
 industrial efficiency, and for a vigorous population in the next genera- 
 tion. 
 
 Second is the burden which the food problem imposes upon the 
 producer. It is his duty to see to it that his limited resources are 
 used in such a way as to turn out products of maximum food value 
 in comparison with the resources which have gone into them. Since 
 huge quantities of staple products are required, he must not give his 
 time, the labor of his men, his fertilizers, the use of his invested capital, 
 and the properties of his soil to the costly production of fancy vege- 
 tables and meats which are intended to tickle the palate of the dietary 
 aesthete. Under present conditions a non-regulated price system is 
 not a proper guide to agricultural production. It has the double 
 failing of leading too many people to produce articles which in the 
 previous system have commanded high prices, to the end that' the 
 quantities of staple commodities are not properly apportioned, and 
 of allowing the production of articles to suit the whims of those who 
 can afford to pay. While it seems necessary to insure prices high 
 enough to tempt farmers to produce, these prices to be effective must 
 be carefully regulated. To the end of proper production the consumer 
 can help the producer by refraining from buying unnecessary food 
 products at prices attractive to the latter and thus tempting him to 
 a wasteful use of resources. 
 
 But the real solution of the problem calls for a positive policy on 
 the part of the government. By absolute prohibition, or by a denial 
 of the use of essential materials, the state must see to it that food 
 resources used in the production of nonessential food commodities be 
 diverted to the production of essential commodities. But even more 
 is necessary. The proper solution of the problem requires supplies 
 larger than such makeshifts can offer. The government must see
 
 FOOD AND FUEL 323 
 
 to it that where possible machinery is forthcoming to take the place 
 of the labor which has gone into the army. It must divert capital 
 from nonessential industrial uses to essential agricultural uses. And 
 where a labor shortage threatens production it must see that an 
 adequate labor supply is found. In resources of the soil the United 
 States lacks nothing; the function of the state is to see that the 
 auxiliary materials are forthcoming and that food be increased even 
 at a sacrifice of nonessential industries. 
 
 Third is the burden which is placed upon the state to supervise 
 the proper distribution of food. It must find principles for settling 
 the claims between the civilian populations of our Allies, our armies, 
 and the civilian population at home. In addition the problem of 
 distribution between the individuals which make up each of these 
 groups is a difficult one. Fortunately only the last of these devolves 
 upon those who are responsible for the national food policy. Even 
 the bare outlines of the solution of these problems of distribution 
 would require a great deal more space than this article occupies, and 
 here it must be dismissed with a word. Economic theory and actual 
 practice alike attest the possibility of the solution of these problems 
 by authoritative regulation, including price-fixing. But it is safe to 
 say that no authoritative policy can hope to succeed if it be formu- 
 lated in ignorance of the nature of the price system and of the relation 
 
 of particular prices to economic conduct. 
 
 l 
 
 XXX. The World's Coal Situation 1 
 
 I. COAL PRODUCTION 
 
 The coal industry is the one basic industry most closely connected 
 with the present war. To both the Allies and the Central Powers 
 their respective available coal resources constitute a sine qua non for 
 carrying on the war, while in the period of reconstruction after the 
 war coal will unquestionably become one of the most vital factors 
 in determining industrial expansion and the growth of international 
 trade. 
 
 Stimulation of coal production has been the factor of prime 
 importance in the world's coal situation ever since the present great 
 
 1 By William Notz. Adapted from "The World's Coal Situation, I," Journal 
 of Political Economy, XXVI (June, 1918), 567-612. 
 
 ED. NOTE. Mr. Notz is an expert investigator with the Federal Trade 
 Commission.
 
 324 
 
 ECONOMICS OF WAR 
 
 conflict of nations began. Everything else prices, wages, trans- 
 portation, legislation, etc. has become primarily a means toward the 
 all-important end of producing as much coal as possible. While 
 complete production figures are not available for all coal-producing 
 countries, Table I shows the production of coal in the leading coal- 
 producing countries of the world during the five years from 1913 to 
 1917. 
 
 From Table I it will be seen that the coal production of most of 
 the large Coal-producing countries has decreased considerably since 
 1913. Great Britain, Germany, France, Russia, Austria, and Belgium 
 show greatly reduced annual outputs. In the United States, Japan, 
 China, Spain, and Holland the pre-war level was either maintained or 
 increased. Canada shows a slight decrease. The main causes for 
 the decline in coal production were lack of labor and inability to move 
 coal from the mines owing to car shortage. Strikes, inefficient labor, 
 scarcity of machinery and pit timber were other contributing causes- 
 The decrease in French, Belgian, and Russian coal production was 
 caused by the German military invasion of large parts of the coal fields 
 in those countries. 
 
 TABLE I 
 
 COAL PRODUCTION IN THE LEADING COAL-PRODUCING COUNTRIES OF THE WORLD 
 
 Country 
 
 1913 
 
 1914 
 
 IQIS 
 
 1916 
 
 1917 
 
 United States. . . 
 Great Britain . . . 
 Germany 
 
 570,048,125 
 287,698,617 
 278,627,4.07 
 
 513,525,477 
 265,664,393 
 24<;,482,i3S 
 
 531,619,487 
 253,206,081 
 235,082,000 
 
 585,372,568 
 256,348,351 
 
 621,409,629 
 
 248,473,119 
 
 Austria-Hungary 
 
 50,647,057 
 
 
 
 30,896,388 
 
 28,558,719 
 
 France . . 
 
 40,843,618 
 
 29,786,50^ 
 
 19,908,000 
 
 21,477,000 
 
 28,960,000 
 
 Russia 
 
 24x00.674 
 
 
 27,820,632 
 
 13,622,400 
 
 13,266,760 
 
 Belgium 
 Taoan 
 
 22,847,000 
 
 21, 31^,062 
 
 21,203,410 
 
 15,930,000 
 2O,40O,747 
 
 22,QOI,'\8o 
 
 
 India 
 
 18,163,856 
 
 
 I7,IO3,Q32 
 
 17, 214.3OQ 
 
 
 China 
 
 IS ,432,200 
 
 
 l8,OOO,OOO 
 
 
 
 Canada 
 
 15,012,178 
 
 17, 637,5 2Q 
 
 13,267,023 
 
 14,483,30'; 
 
 14,015,588 
 
 Spain . 
 
 4., 731,64,7 
 
 4,424,430 
 
 4,686,753 
 
 5,588,594 
 
 
 Holland 
 
 2,064,608 
 
 
 2,333,000 
 
 2,656,000 
 
 
 
 
 
 
 
 
 II. TRANSPORTATION CONSIDERATIONS 
 
 Transportation has become, next to production, the most impor- 
 tant problem in connection with the international coal situation. In 
 fact, difficulties of rail and water transportation have multiplied so 
 rapidly during the course of the war that the whole question of
 
 FOOD AND FUEL 325 
 
 supplying the world's needs of coal at present depends largely upon 
 adequate shipping facilities. 
 
 The paramount importance of this phase of the transportation 
 problem has been officially recognized in several special government 
 reports on this subject here and abroad. The Federal Trade Com- 
 mission reported to Congress "that the coal industry is paralyzing 
 the industries of the country, and that the coal industry itself is 
 paralyzed by the failure of transportation." The coal situation in 
 Canada was described in a report submitted to the Minister of 
 Labour as follows: "Transportation had most to do with the con- 
 ditions in so far as Quebec and Ontario were concerned. The partial 
 failure of the railroads to meet the situation was probably the main 
 cause of the [coal] shortage, as with transportation available coal 
 could have been had." In Great Britain the first difficulty which 
 arose in connection with the coal situation after the outbreak of war 
 was one of distribution, due to the congestion of railways. An 
 official communication recently issued by the German government 
 states that the inability to meet the demand for coal is solely due to 
 lack of transportation facilities. Limitation of passenger traffic is 
 suggested as a means of meeting the difficulty. Enormous stocks of 
 coal at the mines, it is claimed, cannot be moved due to rolling-stock 
 shortage. In the Scandinavian countries, France, Italy, and South 
 America, all of which depend at present for a large part of their coal 
 supply on oversea shipments, the scarcity of coal-carrying vessels 
 and exorbitant freight rates have become matters of grave concern. 
 
 As one means of relieving railroad traffic congestion zoning schemes 
 have been put in operation in Great Britain, the United States, and 
 France. These countries were divided into areas or zones, the inter- 
 change of coal between producing areas was restricted, and consuming 
 districts were allotted specific sources of supply. As a further means 
 for economizing railway transport, inland canals have been utilized 
 for coal shipments in this country and in Europe to a greater extent 
 than ever before. For many years practical coal men have advocated 
 the buying and storing of coal by household consumers during the 
 summer months so as to avoid coal-traffic congestion occasioned by 
 rush orders during the fall and winter months. Special inducements 
 in the form of summer discounts were given with this end in view. 
 Nation-wide educational campaigns to bring about greater co- 
 operation of the public in this matter have been organized in several 
 countries, and prospects are that the results attained will have a
 
 326 ECONOMICS OF WAR 
 
 permanent beneficial effect, not only on coal transportation but also 
 on the financial side of the coal trade in the future. 
 
 III. THE LABOR SITUATION 
 
 The labor question, in so far as it affects the world's coal situation, 
 offers several distinct features. Throughout the world a shortage of 
 labor has developed in the coal fields. It has been a matter of vital 
 importance to the governments of all the coal-producing countries to 
 provide for an adequate, steady, and efficient labor supply as a means 
 of keeping the production of coal at the maximum. At the beginning 
 of the war the mistake was made in Great Britain, Germany, and 
 Canada of drawing heavily upon the coal miners for service in the 
 army. This mistake reflected itself almost immediately in a decided 
 falling off in the coal production and made it necessary to send thou- 
 sands of the enlisted coal miners back to the coal fields. In the 
 United States thousands of men in 1915 and 1916 left the coal fields 
 for more lucrative employment in munition factories, etc., where the 
 scale of wages ranged on an average about 20 per cent higher than 
 wages in the coal fields. 
 
 To keep miners from seeking other employment and to remove 
 labor unrest due to wage troubles, liberal allowances for wage increase 
 were made in the regulations governing maximum coal prices. The 
 French law of April 23, 1916, provides that the average wages in 
 mines shall not be in any case below those in effect in 1914 and 1915, 
 and that all payment in kind to the miners or their families, affirmed 
 by local custom, shall be observed. In England the so-called "war 
 wage" containing liberal provisions was established on September 17, 
 1917. In the United States a special wage increase of 45 cents per 
 ton was provided for by an order of the United States Fuel Adminis- 
 tration of October 27, 1917, this being the second wage increase for 
 coal miners in that year. Never before in the history of coal-mining 
 have wages in the coal fields of the world been as high as they are at 
 the present time. 
 
 Nevertheless there has been much unrest and numerous strikes 
 have occurred among the coal miners of Great Britain, the United 
 States, and Germany. The main causes for these labor troubles have 
 been shutdowns at the mines on account of shortage of cars, thus 
 decreasing the number of work days, and a heavy increase in mine 
 fatalities, due partly to inexperienced labor and partly to less rigid 
 enforcement of mine-safety regulations in order to speed production.
 
 FOOD AND FUEL 327 
 
 IV. COAL PRICES 
 
 The question of war-time coal prices offers many angles of interest. 
 Everywhere prices have increased far above pre-war levels. Volun- 
 tary 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 obtain- 
 ing 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 $125 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 govern- 
 ment 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 author- 
 ities 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. 
 
 V. TENDENCY TOWARD COMBINATIONS 
 
 Mention should be made of the tendency among operators, jobbers, 
 and wholesale and retail dealers everywhere to form voluntary trade 
 associations and combines. In England such a movement on a large 
 scale was initiated by Lord Rhondda just prior to the war, including
 
 328 ECONOMICS OF WAR 
 
 not only the colliery owners but also the world-wide coal export trade 
 of Great Britain. In Germany and France coal syndicates and cartels 
 have existed for many years; in fact, in the former country a strong 
 effort was made in 1915 to disrupt the leading coal syndicate, which 
 was averted, however, by government intervention. The combina- 
 tion movement has made itself felt most strongly during the war in the 
 United States. In 1917 the National Coal Operators' Association, 
 the National Jobbers' Association, and the National Retail Coal 
 Dealers' Association were organized. In addition to these national 
 associations, numerous state and local associations have organizations 
 of their own, including about fifty operators' associations in various 
 coal fields throughout the country. In Canada a similar movement 
 is noticeable, as also in Sweden. Shipping pools like the Tidewater 
 Coal Exchange, the Lake Erie Coal Exchange 2 and its successor, the 
 Coal and Ore Exchange, indicate a similar tendency toward syndica- 
 tion among American coal-shipping interests. On the other hand a 
 parallel movement of combining is noticeable among the miners 
 the number, size, solidarity, and influence of the miners' unions in all 
 the coal-producing countries having greatly increased during the war. 
 This universal movement of the coal producers and dealers on the 
 one side and of coal miners on the other to combine for the protection 
 of their common interests represents one of the significant develop- 
 ments in the world's coal situation, and the chances are that in the 
 near future it will speed the various governments to enact remedial 
 legislation in the public interest. 
 
 VI. EXPORT TRADE AND BUNKER SITUATION 
 
 An analysis of the international coal export situation from 1913 
 to 1918 reveals some very interesting facts. One of the most signifi- 
 cant is the great decline in the coal exports of Great Britain, whose 
 position as a commercial nation rests very largely on her coal export 
 trade. The increased demand for domestic consumption and the 
 decreased available shipping tonnage have brought the total of Great 
 Britain's coal exports from 97,719,996 tons in 1913 down to 51,341,487 
 tons in 1917. This amounts to a decline in the coal exports for the 
 two years of more than 46,000,000 tons. In comparison with these 
 figures it is interesting to note that the total exports of anthracite and 
 bituminous coal from the United States have increased during the 
 same period from 23,022,746 tons in 1913 to 27,616,500 tons in 1917. 
 
 During the war, ocean freight rates on export coal have reached 
 unprecedented figures. As compared with 1914, the last normal year
 
 FOOD AND FUEL 329 
 
 prior to the war, ocean freights from Atlantic ports to European and 
 South American ports have increased as much as 400 per cent. 
 Scarcity of tonnage, high insurance rates on account of submarine 
 depredations, and high wages for seamen were the chief causes for 
 these high freight rates, although individual tramp steamers sailing 
 under neutral flags apparently seized upon the opportunities for 
 profiteering. 
 
 Closely connected with the question of coal exports is that of 
 coaling stations for bunkering purposes. The nation which controls 
 the coaling stations along the international sea routes will have a great 
 advantage over its competitors in international trade. In the past 
 Great Britain was the foremost maritime nation in possession of 
 strategic artificial coaling stations and thus gained control of the bulk 
 of the world's supply of bunker coal. Gibraltar, Malta, Port Said, 
 Singapore, Hongkong, and Shanghai are some of the British coaling 
 stations which encircle the globe. The war has effected great changes. 
 While Germany has lost the few coaling stations she possessed at 
 Tsing-Tau, in Africa, and in the Samoan Islands, American, Japanese, 
 and Dutch coals have won new markets. England's exports of 
 bunker coal have declined from 21,031,550 tons in 1913 to 12,988,172 
 tons in 1916. In the Far East, Japanese coal has in many places 
 supplanted English coal, and on the entire Northern Pacific coast of 
 Asia, Japanese coal is now predominant. Nagasaki and Yokohama 
 are the chief Japanese coaling ports and are used by practically all 
 coal-burning steamers crossing the North Pacific. In the East Indies 
 the Dutch have recently built up a successful bunker trade. Dutch 
 coaling stations, supplying Sumatra and Borneo coal, have been 
 established at Batavia, Soerabaia, and notably at Sabang, a strategic 
 location at the entrance to the Straits of Malacca and on the direct 
 trade route from Europe to the Far East. 
 
 The war has brought about a marked increase in the American 
 bunker coal trade of the Atlantic. The excellent coaling facilities 
 at Panama and Colon give the United States complete control of one 
 of the most important replenishing depots of the world's trade. 
 American bunker coal has also supplanted British coal to a very large 
 extent at the leading South American stations. 
 
 VII. BY-PRODUCT INDUSTRY 
 
 One of the most far-reaching and salutary effects of the war upon 
 the coal industry in the United States, Canada, and Great Britain is 
 the powerful stimulus it has exercised on the by-product coke industry.
 
 330 ECONOMICS OF WAR 
 
 The present war has brought the people of these countries to realize 
 their former dependence on Continental Europe, and on Germany in 
 particular, for the by-products obtained in distilling coal, especially 
 for dyestuffs. Up to a few years ago the United States was the most 
 backward of all great nations in the manufacture of coal-tar products. 
 Since 1915 all this has changed. The old beehive oven is^ being 
 supplanted by by-product ovens to such an extent that in the three 
 years from January i, 1915, to January i, 1918, the by-product coke 
 production has practically doubled and there has been as much gain 
 as in the previous twenty years. In addition to the great stimulus 
 given to the chemical and manufacturing industries by the supply of 
 such an abundance of raw materials, one of the most valuable results 
 of the introduction of the by-product coke ovens is the conservation 
 of our coal supply. It is estimated that the ovens put in operation 
 during the three years mentioned above will save annually to this 
 country the fuel equivalent of 9,000,000 tons of coal. The value of 
 by-products obtained in the manufacture of coke in the United States 
 from 1913 to 1915 was as follows: 1913, $16,925,941; 1914, $17,529,- 
 088; 1915, $29,824,579. 
 
 In Great Britain the recovery of by-products from coal is being 
 actively encouraged by the government along systematic lines with a 
 view to future expansion of this industry on a large scale. A special 
 Fuel Research Board has been organized for this purpose, and a fuel 
 research station has been established to investigate the problem of 
 replacing the greater proportion of raw coal now used by the substitu- 
 tion of various fuels obtainable from coal after the by-products have 
 been extracted. 
 
 XXXI. Coal Problems of the United States 
 i. OUR HEATLESS "HOLIDAYS" 1 
 
 War's first drastic home regulation, Fuel Commissioner GarfieLd's 
 coal-conservation order, brought home to everybody, worker or 
 employer, the grim reality of .the coal famine, and many who were hit 
 hardest accepted it as a necessary measure to be obeyed with patriotic 
 self-denial. To relieve the coal famine in the eastern states, it will be 
 recalled, all factories in the United States east of the Mississippi River 
 and in Minnesota and Louisiana, with some exceptions, were directed 
 to shut down for five days beginning January 18. Moreover, Monday 
 
 1 Adapted from the Literary Digest, Vol. LVI, No. 4, January 26, 1918.
 
 FOOD AND FUEL 331 
 
 for ten weeks was decreed a holiday 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 restric- 
 tions 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 cooperation of every individual, firm, and cor- 
 poration affected by the order in its enforcement." We read further 
 that the government aims to carry out its plan without "undue inter- 
 ference with the ordinary course of business" and earnestly desires to 
 "prevent entirely any dislocation of industry or labor." 
 
 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 inane, 
 criminal starvation of the railroads by the government for a genera- 
 tion"; 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." Although the Fuel Administrator's order is the
 
 332 ECONOMICS OF WAR 
 
 most drastic in the history of the country, the Wheeling Register 
 considered it justified and instructive of the fact that we are in this 
 war to win, and "upon the people, as well as the soldiers, rest the 
 nation's chances of victory."- While the five-day suspension order 
 meant the loss of millions of dollars to the wage-earning classes, the 
 Register believed the measure would cheer our Allies and depress 
 Germany, and it urged the people to show their determination by 
 accepting without complaint any sacrifices they are called upon to 
 make. Said the Buffalo Courier: " If the sacrifices entailed by it will 
 permit the supply ships now held in port through lack of bunker coal 
 to sail for France and England with their needed cargoes; if it will 
 permit the makers of war supplies in the United States to go ahead 
 steadily with their production of essential materials for the use of our 
 troops abroad, the rest of the country will meet the losses and depriva- 
 tions entailed with reasonably cheerful philosophy and without undue 
 complaint." 
 
 The jolt will give the American people a realization of the "colossal 
 magnitude" of the war, thought the Memphis Commercial Appeal, 
 which pointed out that we had to "organize the commerce and the 
 industries of the country on a military basis as well as the actual 
 fighting arm of the nation." The order will put the patriotism of the 
 American people, and especially of the American business man, to "a 
 very stern test," said the Charleston News and Courier, by an exhi- 
 bition of federal power "such as this country has never witnessed 
 until now." 
 
 Tolerance colored with disquiet appeared in the comment of some 
 dailies, such as the Philadelphia Inquirer, which assumed that the 
 measure was based on good and sufficient reason and said every one 
 hoped the purpose for which the "unexampled sacrifice" was asked 
 would be "successfully accomplished." The Albany Knickerbocker 
 Press thought the effect on business would be "very discouraging for 
 the time being," and the effect on Germany would be to "give it 
 renewed hope and much comfort," yet it was convinced that "some- 
 time we will get out of the tangle of incompetence and be on our feet 
 again." If the Administration made a blunder, said the Baltimore 
 American, it will be held strictly responsible, but if good results follow 
 the order "no blame will be placed up to it." Yet because of improv- 
 ing coal conditions and the coming warmer weather this journal 
 thought the coal order would not have been necessary if the adminis- 
 tration had waited a week or so. Many journals throughout the
 
 FOOD AND FUEL 333 
 
 country were openly hostile to the coal order, regarding it as a national 
 disaster and a confession of failure on the part of the Fuel Adminis- 
 tration. 
 
 According to the news columns of the New York Tribune, the coal 
 order meant in New York state alone an immediate loss in wages of 
 about $95,000,000. The estimate made for this journal was based on 
 the five "workless days" plus the nine "legal holiday" Mondays. 
 The loss in wages throughout the twenty-eight states involved was 
 estimated at more than $680,000,000. In circles of commerce and 
 finance there was a divergence of opinion similar to that observed 
 in the press. Mr. James B. Forgan, chairman of the Board of 
 Directors of the First National Bank of Chicago, was quoted in a 
 New York Times dispatch as saying that while he did not know the 
 fuel situation was so serious as the Administrator's order indicated, 
 still the Administrator undoubtedly had the data before him, arid 
 "if the famine is as critical as the order indicates, even this drastic 
 move must be warranted." In the same dispatch Mr. Samuel Hast- 
 ings, president of the Illinois Manufacturers' Association, said that 
 more than 250,000 employees of members of his organization would be 
 idle while the order was in force, and the number of idle in the state 
 was estimated at 600,000 or more. Mr. Hastings added that while 
 they regretted that conditions should necessitate such an order, 
 "there is just one thing for us to do, and that is to obey it." 
 
 From Fuel Administrator Garfield's explanation of the necessity 
 of the order we cull the following: 
 
 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
 
 334 ECONOMICS OF WAR 
 
 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. 
 
 2. THE ZONING SYSTEM OF THE UNITED STATES' 
 
 The question of transportation and car supply at the mines has 
 been perhaps the most difficult war-time problem with which the coal 
 industry of the United States has had to cope. Traffic congestion 
 caused by the extraordinary demands made upon the railroads by 
 war industries, troop movements, etc., has time and again paralyzed 
 the transportation of coal from the mines to the consuming markets. 
 Conditions have been most serious at important railroad gateways 
 and terminals like Cincinnati, Chicago, and New York. 
 
 The slow movement of coal cars in transit and delays in returning 
 empty cars to the mines, due in part to the general congestion of 
 traffic prevailing throughout the country, has resulted in what is 
 generally considered the most serious phase of the coal situation, 
 viz., car shortage at the mines. 2 This one factor has done more than 
 all other causes combined to keep down coal production. In most of 
 the coal fields of the country coal mines have been forced to close 
 down for shorter or longer periods, while others have been running 
 on short time, in both cases involving a decreased production. This 
 state of affairs began to develop in the fall of 1916 and has continued 
 to become more serious since then. 
 
 A statement given out by the National Coal Association shows the 
 loss in production of bituminous coal on account of car shortage for 
 the period from January i to March i, 1918, to have been 31,128,000 
 tons. According to the most reliable estimates there has been an 
 average of at least 100,000 miners idle every day for six months. 
 
 The experience during the year 1916-17, when numerous coal 
 shortages had developed in different sections of the country, relieved 
 only partly by priority-shipment orders, made it clear that unless 
 
 1 By William Notz (see p. 323). Adapted from "The World's Coal Situa- 
 tion, II," Journal of Political Economy, XXVI (July, 1918), 682-89. 
 
 1 ED. NOTE. Cf . selection XXXVI, 2, p. 348, for an indication of the car 
 situation in the summer of 1918.
 
 FOOD AND FUEL 335 
 
 radical changes were effected with respect to the distribution of 
 bituminous coal the most serious consequences would be likely to 
 result in the immediate future. Accordingly, the United States 
 Fuel Administration, after prolonged conferences with coal producers, 
 jobbers, and consumers, and with traffic and operating officials of the 
 railroads, devised a zone system for the distribution of bituminous 
 coal for the year beginning April i, 1918. 
 
 By an order of the United States Fuel Administrator, dated 
 March 27,1918, the states, with the exception of the Rocky Mountain 
 and Pacific Coast states, were divided into fifty-seven zones, each of 
 which is restricted to the use of coal from certain producing districts. 
 The Rocky Mountain and Pacific Coast states under the zone system 
 will be dependent for their bituminous coal, except for special pur- 
 poses, on coal mined in Montana, Wyoming, Colorado, New Mexico, 
 Utah, Washington, and Oregon. The whole zoning plan applies only 
 to bituminous and cannel coals, and not to anthracite coal or coke. 
 In order to provide for consumers who require illuminating or pro- 
 ducing gas, by-product coking, metallurgical smithing, or other 
 particular purposes, or require special coals which are not produced 
 in the coal districts from which the zoning plan permits shipments 
 to be made, special permits covering such cases are issued. The zone 
 system affects all bituminous coal except (i) coal for railroad fuel, for 
 which special arrangements are made; (2) coal for movements on 
 inland waterways, which is in no way restricted by the system, 
 (3) coal delivered to Canada, which is subject to regulations of the 
 Fuel Administration. 
 
 The purpose of the plan is to save transportation by the elimina- 
 tion of unnecessary long hauls and avoidable cross-hauls, thereby 
 conserving the car supply and increasing car utility and the production 
 of coal. The method of enforcement of the zoning system is simple. 
 The United States Fuel Administration prohibits distribution beyond 
 the limits of the zone, and the Railroad Administration supplements 
 these prohibitions by railroad embargoes. 
 
 A statement issued by the United States Fuel Administration 
 in connection with the zone order states that the general effects of 
 the zone system is to restrict eastern coal to eastern markets and to 
 fill the shortage in the Central and Western states with nearby coal 
 produced in those states. In addition to the saving in transportation 
 the system will provide for the possible retention of something like 
 s, 000,000 tons of coal for the Eastern states which heretofore has gone 
 
 Of /
 
 336 
 
 ECONOMICS OF WAR 
 
 West by rail. It will eliminate the movement of more than 2,000,000 
 tons of Pocahontas coal to Chicago and other western points over a 
 haul of about 660 miles. Chicago is to obtain this tonnage from 
 southern Illinois mines with an average haul of 312 miles. On 
 shipments of 550,000 tons annually from Kanawha districts to Wis- 
 consin points it is planned to save about 2,500,000 car miles; on the 
 movement from southeastern Kentucky to Chicago the saving is 
 estimated at about 800,000 car miles, and the elimination of the 
 Indiana to Iowa movement will save 1,600,000 car miles. The 
 movement of approximately 300,000,000 tons of bituminous coal, or 
 60 per cent of the total production, will be regulated by the zone 
 system. 
 
 3. THE OUTLOOK FOR 1918-19' 
 
 
 1917 Amount 
 
 1918-19 Amount 
 
 Percentage of 
 Increase 1918-19 
 over 1917 
 
 Industrial 
 
 204,907,000 
 66,915,000 
 
 33,038,000 
 
 155,000,000 
 24,000,000 
 
 52,450,000 
 7,700,000 
 
 5,000,000 
 1 1 ,000,000 
 
 242,024,000 
 75,678,000 
 37,941,000 
 166,000,000 
 24,000,000 
 52,450,000 
 10,000,000 
 
 5,000,000 
 12,500,000 
 
 18 
 13 
 15 
 7 
 o 
 o 
 3 
 
 o 
 14 
 
 Domestic 
 
 Gas and electric utilities 
 
 Railroads 
 
 Exports 
 
 Beehive coke 
 
 Bunker foreign 
 
 Bunker domestic, including Great 
 Lakes ... 
 
 Used at coal mines for steam and heat 
 Total 
 
 560,010,000 
 5,282,000 
 
 625,594,000 
 
 2,000,000 
 7,OOO,OOO 
 
 12 
 14.4 
 
 Used from storage 4,375,000 
 
 Exports 907,000 
 
 
 Estimated production 
 
 554,728,000 
 
 Substitution of coal for oil, mainly in 
 West 
 
 To increase stocks of industrial plants 
 and public utilities outside of New 
 England by ten days' supply 
 
 
 Total requirements for 1918 with- 
 out allowance for estimated 
 conservation 
 
 s 
 
 634,594,000 
 554,728,000 
 
 Production 1917 
 
 
 Increase required 
 
 
 79,866,OOO 
 
 
 
 1 This table, compiled by the United States Fuel Administration, shows the 
 estimated consumption in net tons of bituminous coal during the coal year 1917 
 and the estimated requirements for the present coal year.
 
 FOOD AND FUEL 337 
 
 XXXII. Competition versus Efficiency in Mining Coal 1 
 
 Bituminous coal mining as an industry is beset by conditions 
 which are the occasion of present wastefulness and the justification of 
 apprehension for the future. Scattered and unorganized, most of 
 the individual companies are small and financially weak; no adequate 
 cooperation in engineering practice exists; new developments are 
 slow of growth; coal is mined for the most part by conservative, long- 
 established practice. With no methods of storage developed, the 
 average mine can mine coal only when railroad cars stand ready to 
 receive it; a fluctuating demand, accentuated by seasonal variation, 
 leads to instability of operations; many mines in normal times must 
 close down in slack periods, with destructive effect upon the conditions 
 and supply of labor. For years the price of coal at the mine has been 
 from $i to $i . 15 a ton, a figure so low that only the best and most 
 easily obtainable coal could be extracted by the cheapest methods of 
 mining, irrespective of the waste involved; the tonnage of thin-seam 
 and high-cost areas sacrificed in the process amounts to more than half 
 the total coal produced to date. Many districts have been burdened 
 with a leasing system that obligated the company to remove a given 
 tonnage each year, irrespective of market demand or price, with the 
 result that the richest spots were drawn from seam after seam with 
 irretrievable loss to future needs. Miners' unions in general have 
 fixed wages on the basis of thick and easily worked seams and imposed 
 such severe penalties upon inferior conditions that the operator is 
 precluded from introducing new and improved methods. 
 
 The bituminous industry deals with a necessity that is lending 
 itself less and less to competitive production. Competition is incom- 
 patible with economy, because coals expensive to mine cannot compete 
 on a commercial basis with those which may be mined cheaply, and 
 the two, in general, occur in such intimate association that the first, 
 under present conditions, must be sacrificed in order to get the second. 
 If the price is arbitrarily fixed high enough to cover the extraction 
 of high-cost coal, society will pay too much for low-cost coal. If, on 
 the contrary, the price is allowed to seek a natural level, the high-cost 
 coal cannot be extracted and much of it becomes permanently lost. 
 
 1 By Chester G. Gilbert and Joseph E. Pogue. Adapted from "Coal: The 
 Resource and Its Full Utilization," Smithsonian Institution, United States National 
 Museum Bulletin 102, Part 4, pp. 20-25. 
 
 ED. NOTE. Messrs. Gilbert and Pogue are associated with the Division of 
 Mineral Technology of the United States National Museum,
 
 338 ECONOMICS OF WAR 
 
 It may be asserted that we should use up the cheaply obtainable coal 
 first, and then later, when necessary, turn to the coal more expensive 
 to produce. Such would be advisable were it not for the fact that 
 the fat and the lean occur intimately mixed, and we cannot later 
 return and glean the unused values. This limitation is set by the 
 geological occurrence of coal and cannot be changed. The only 
 way by which coal can be mined effectively is for the price to be 
 adjusted to the mining costs of each mine, and even to those of dif- 
 ferent parts of the same mine. Obviously this would require a pooling 
 of interests in short, integration. 
 
 Bituminous coal, therefore, is a necessity which cannot be pro- 
 duced advantageously under competitive operation. It has become' 
 by its very nature a public utility, and its administration as such, with 
 integrated activity, is the only practicable way by which its full 
 service can be secured. 
 
 While the price of coal to the consumer has been too high, the price 
 of coal at the mine has been so low that it has been a small factor in 
 the ultimate cost to the public. That is evident in the contrast 
 between one dollar and the figure the consumer pays. The price of 
 coal at the mine mouth, however, has been slowly advancing; the 
 upward tendency is natural and if left to itself will become stronger 
 and stronger as more and more of the easy-to-get coal is mined. At 
 the present moment the price at the mine is low because of the 
 apparent abundance of easy-to-get coal; but within a few years (if 
 not already), with the exhaustion of cheaply mined coal, the mining 
 costs are bound to attain a rank more consequential in effect upon the 
 ultimate price. It is even now very generally conceded that the 
 "day of cheap coal is over." While integrated mining would add 
 slightly to the average ton cost of coal at the time, the effect would 
 be to relieve the further upward tendency from the acute increase 
 which present conditions will inevitably create. The result, in fine, 
 will be to prolong to the utmost the period of cheap coal. 
 
 The advantages of integration in coal production are well known 
 in other countries. The thin seams of the eastern coal fields of 
 Canada can be worked only under a cooperative system, as pointed 
 out by the Canadian Department of Mines. Belgian mining law 
 imposes the obligation of cooperative measures upon the coal-mining 
 concessionaire. Cooperative coal marketing has been successfully 
 practiced in many parts of the world, notably in Germany and in 
 the Transvaal.
 
 FOOD AND FUEL 339 
 
 In short, coal as a resource demands cooperative measures of 
 development. This is true of coal in peculiar degree and holds equally 
 for no other resource. The reason is twofold. In the first place, coal 
 deposits do not lend themselves, as do many other types of mineral 
 deposits, to a graded extraction of values according to the strength 
 of economic demand. In the second place, coal as the major source 
 of power is the basis of modern life, and as such imposes upon organized 
 society a direct responsibility to insure its most effective disposition. 
 
 The wastes in mining may be decreased through integrated opera- 
 tions. The wastes in distribution may be reduced through the 
 development of hydro-electric power, thus relieving coal of unneces- 
 sary duties, and by improvements in utilization, thus destroying the 
 over-dependence upon high-grade coals which now necessitates undue 
 haulage. 
 
 The wastes in utilization may be done away with by establishing 
 a method of separating the energy-producing constituents of coal from 
 the commodity values and using the products to their common 
 advantage. The most logical point of attack is the municipality, to 
 which may be attached a public-utility plant converting raw coal into 
 smokeless fuel artificial anthracite plus gas, or gas alone and 
 valuable by-products, ammonia, benzol, and tar. Such a plant would 
 supply the fuel needs of the community and ship the surplus by- 
 products to serve as raw material for a coal-products industry, 
 developed thereby to proportions consistent with its importance to 
 social progress. 
 
 By-product utilization will give cheaper fuel through the advan- 
 tageous disposition of all the values contained. It will also end the 
 smoke nuisance, relieve transportation, and cause the growth of a 
 great coal-products industry with ultimate possibilities ranging beyond 
 the grasp of the imagination. 
 
 This paper does not presume to set forth the exact methods 
 whereby these results may be attained; the procedures remain to be 
 worked out in detail. Its purpose, however, has been to present a line 
 of attack, drawn up on the basis of the character and extent of the 
 resource, which may be followed to specific advantage. There are 
 no serious technical obstacles in the way; the chief requisite for 
 progress is a popular appreciation of the fact that coal contains 
 greater values than society is getting from it. From this realization 
 will spring a public demand that scientific and technical knowledge 
 be used, not merely in making improvements in the details of present
 
 340 ECONOMICS OF WAR 
 
 practice, but in revising that practice itself and shaping a policy of 
 administration more in keeping with what is known to be the 
 potentiality of coal. 
 
 XXXIII. Coal and Electricity in Double Harness 1 
 
 The actual amount of energy which we get in driving power from 
 a ton of coal with the most up-to-date methods of combustion and 
 utilization of heat or gas is a very small percentage of what is obtain- 
 able theoretically. 
 
 Eminent scientists have suggested that we should convert our 
 coal into gas at the pit-mouth and convey it thence by pipe-line to 
 wherever it may be required. This would, no doubt, save an immense 
 amount of transportation and handling of coal, with the accompanying 
 expense and loss; but we have yet to learn whether questions of 
 pressure and other conditions connected with coal-gas would permit 
 of its being practicable, safe, and commercially profitable for long 
 distances and wide areas. It seems more likely that the conversion 
 of coal into electric current in close proximity to the mine would yield 
 better results, a more flexible and safer method of transmission and 
 distribution for long distances, and more useful forms of power, 
 warmth, and illumination than those obtainable from the combustion 
 of gas. 
 
 In this connection, the interim report recently made to the 
 Ministry of Reconstruction in Great Britain by the Coal Conservation 
 Sub-Committee is full of suggestion and significance. The British 
 Sub-Committee proposes to supply all industries with electrical power 
 generated at large "super-power stations" not more than sixteen 
 in number for the whole country and to eliminate or combine all 
 smaller stations. 
 
 The primary object of the scheme is to economize the coal supplies. 
 The amount of coal used in the United Kingdom for the production 
 of power is 80,000,000 tons at a cost of, say, 40,000,000 at the pit- 
 head. The Committee confidently states that by an up-to-date and 
 national scheme of electrification 53,000,000 tons of this (27,000,000) 
 a year could be saved. This, with a saving of the by-products now 
 wasted by the burning of coal in open grates and boiler furnaces, 
 would effect a national economy of 100,000,000 a year. The most 
 economical way of obtaining power from coal on a large scale is by 
 
 1 Adapted from "Coal and Electricity in Double Harness," Scientific American 
 (May 4, 1918), pp. 408, 418, and 419.
 
 FOOD AND FUEL 341 
 
 generating electricity from it. The coal now used, says the Com- 
 mittee, would, if used economically, produce at least three times the 
 present amount of power. 
 
 It has been settled conclusively during the past fifteen years that 
 the most economical means of applying power to industry is the electric 
 motor. In the factories put down for the production of munitions 
 during the war 95 per cent of the machinery is driven by electricity, 
 and it is only a question of time for all power to be applied in this way. 
 The problem is not how to apply electric power, but how best to 
 generate it. The development of electricity has been hindered by 
 the multiplicity and the smallness of the electrical undertakings. At 
 the present time the supply of electricity in Great Britain is split up 
 among about 600 companies and municipal undertakings. The 
 average generating capacity of such of these undertakings as possess 
 power stations is only 5,000 horse-power, or about one-fourth of the 
 capacity of one single generating machine of economical size, and 
 about one-thirtieth of that of a power station of economical size. 
 Technically and commercially the big generating station is admittedly 
 the best. The reform proposed by the Committee is to supersede 
 all these small undertakings by laying down throughout Great Britain 
 main trunk lines to be fed by some sixteen " super-power stations." 
 
 The generating machines in these stations should be of large size, 
 not less than 20,000 horse-power each. In more important industrial 
 districts machines of as much as 50,000 horse-power might be used 
 with even greater advantage. The generating stations should be on 
 large sites, with ample coal and water transport facilities. It is 
 contemplated that at each generating station by-products be extracted 
 from the coal before it is used for the production of power, and that 
 various electro-chemical processes essential to British industry be 
 carried on near by. The sites for the stations must be outside, not 
 inside, towns. This would improve the health of the great industrial 
 centers by the reduction of smoke and would relieve the congestion of 
 the railway lines in their neighborhood by practically abolishing the 
 carriage of coal. 
 
 There already exists in England a practical example of centralized 
 production in electricity for a large area. The northeast coast 
 district, rather larger in area than Lancashire, is served by a group 
 of power companies from one interconnected electrical system. The 
 population of this area is less than that of Lancashire, and the area is 
 therefore less advantageous for electrical supply. But, whereas in
 
 342 ECONOMICS OF WAR 
 
 Lancashire, with its multiplicity of electrical undertakings, the price 
 per unit for electric power varies from a penny to two pence or more, 
 the average price paid in the northeast coast district is less than a 
 half-penny a unit, and the use of electric power per head of population 
 is three times as great. A great saving of coal and reduction of smoke 
 has resulted. Apart from the electric-power companies' consumption, 
 practically no coal is burnt on the Tyne for power purposes except by 
 the railways and some collieries. The Tyne shipyards may be said 
 to have adopted electricity to the exclusion of all other forms of power. 
 As a result of the adoption of electric traction on the suburban railways 
 the traffic facilities of the district are greater than those of any other 
 district of similar size. New industries have been established in the 
 district solely on account of the cheap electric power available. Waste 
 heat and gases have been extensively used for the production of 
 electricity, so that electric power is produced as a by-product of two 
 of the largest local industries the making of pig-iron and coke. 
 These local generating stations are commonly called "waste-heat 
 stations." The first was erected in 1905, and there are now n at 
 work. 
 
 The Committee foresees, as a result of a national system of 
 electric-power supply, a great increase of the use of electricity for all 
 purposes, with many advantageous results. Factory chimneys 
 would gradually disappear. Railways would be electrified, even for 
 the haulage of goods trains. Smoke would disappear from towns, 
 and coal wagons need run no farther than to the electric-power 
 stations. Electric light would be cheap enough for the poorest, and 
 there would be a large increase in the use of electric heat and power 
 for household purposes. 
 
 As showing the importance of the scheme the report says: 
 
 It is scarcely possible to exaggerate the national importance of a 
 technically sound system of electricity supply, because it is essentially one 
 with the problem of the industrial development of the country. The 
 development of such a power system may be likened to the development of 
 the railways of a country, and it is just as impossible to secure economical 
 power generation and supply by each municipal area working independently 
 (which is the position today) as it would be to have an efficient railway 
 system if each municipal area owned its own lines and long-distance trans- 
 port were provided for by traffic and operating agreements. History shows 
 that in the early stages of railway development exactly the same process 
 of amalgamation had to be gone through.
 
 IX 
 
 TRANSPORTATION 
 
 Introduction 
 
 The two great means of transport railways and ships are 
 furnishing in this war the greatest examples of modified state socialism 
 which this country has yet seen. As to the general way in which they 
 are controlled these two" services show a fairly close family resem- 
 blance, though the forms of organization are technically quite dif- 
 ferent. The larger railroads and the larger ships have been, taken 
 possession of by the federal government and are being operated by 
 the same people, in general, who operated them before, but under 
 orders of the Railroad Administration and the Shipping Board 
 respectively. New ships and new railroad equipment are built on 
 plans made under federal direction, and in both cases the output is 
 being largely standardized. The heads of the Shipping Board and 
 the Emergency Fleet Corporation are men drawn from private busi- 
 ness, while the regional directors of the railroad regions and the federal 
 managers of the separate roads are railroad men, usually managing 
 their own roads, under the government's direction. Thus in both 
 cases private enterprise has furnished the traditions and training of 
 the personnel that is making this experiment in socialism. 
 
 Besides the points of likeness there are differences between the two 
 services. In the case of shipbuilding, the industry has been virtually 
 re-created, so great has been the expansion and the revolution in 
 methods. In the case of railroads the emphasis is on the task of 
 utilizing an existing and limited plant to its utmost capacity for war 
 purposes, while such new construction as can be completed quickly 
 enough to be of use in the present emergency can be handled by exist- 
 ing plants and existing methods. Another difference is that new cars 
 and locomotives are necessarily used by existing railroad organiza- 
 tions, while new ships built by the Emergency Fleet Corporation are 
 not turned over to pre-war shipping organizations. Great numbers 
 have been turned over to the army transport service. 
 
 It is too early to draw any but the most tentative conclusions 
 from our experience in these enterprises. The possibilities of 
 
 343
 
 344 ECONOMICS OF WAR 
 
 standardization will have a try-out on a vast scale, and we may learn 
 how to make gains without losing all elasticity and chance for personal 
 preference. It will take time, however, to show whether or not 
 standardization means stagnation in the long run, through increasing 
 the resistance to improvements. The gauge of railroads must of 
 necessity be standardized, and it has not changed since the first 
 uniform gauge was adopted. Perhaps 4 feet 8| inches is still the best 
 gauge, even though locomotives have grown fifty or a hundred fold in 
 weight, but as we have had no roads using different gauges, it is 
 impossible to prove anything either way. 
 
 Curiously enough, when the question is raised whether govern- 
 ment operation of railroads will be permanent, the first thought seems 
 often to be, not whether this would be desirable, but whether or not 
 it is inevitable. Certainly it is not easy to suppose that we shall go 
 back to pre-war conditions, for these represented really a transition 
 stage and were anything but satisfactory. Between labor, the 
 companies, and the state and federal governments the real control was 
 anything but unified, and it is natural in such a case for each party 
 to be ready to blame the others for bad conditions and not to strive 
 with the same whole-hearted determination to get results in the face of 
 discouraging conditions. Be that as it may, the roads were under- 
 equipped at the outbreak of the war and claimed that they could not 
 finance extensions unless rates were very considerably raised, while 
 a disastrous strike had recently been averted by a special act of 
 Congress granting the demands of the strikers. Altogether our 
 system of control appeared to have reached a crisis. 
 
 The return of the properties to the companies should be taken 
 advantage of to settle the standing of the companies in clear and 
 definite terms. For example, the question of the companies' right 
 to a return on investments made out of income could be settled, and 
 any settlement of such a question would be better than none, since 
 the other factors in the problem would adjust themselves to whatever 
 rule might be laid down. As for permanent lessons, it is doubtful 
 if the war can teach us much about even such an elemental thing as 
 the effect of government guaranty of the returns of private com- 
 panies; for men work very differently when they feel themselves 
 actively enlisted in serving their country at war. 
 
 We are discovering that "morale" is no less important in indus- 
 tries than in armies, and we have also discovered that the traditions 
 and morale of the familiar type of government bureau, and those
 
 TRANSPORTATION 345 
 
 which have been associated with private enterprise, with or without 
 state control, are all far from perfect. The present combination, 
 where men with the initiative and drive characteristic of private 
 enterprise are commissioned as servants of the nation (rather than 
 controlled by outside commissions), seems to be in many respects the 
 best compromise we have yet seen. For the future our problem may 
 be how to infuse the morale of public service into organizations which 
 shall still preserve the traditional initiative of private enterprise, so 
 that industry may be in essence a branch of public service, while 
 keeping the advantages of private industry in form of organization, 
 incentives, and rewards. It is not at all certain that any organization 
 can combine these qualities, but experiments may well yield some- 
 thing better than we have had in the past. 
 
 XXXIV. Great Britain's Example 1 
 
 On the same day that war was declared (August 4, 1914) the 
 railways of England, Wales, and Scotland not Ireland were taken 
 over by the government. The managers opened their sealed instruc- 
 tions and proceeded to carry them out. It had been provided in the 
 act of 1871 that full compensation should be paid to the owners for 
 any loss incurred. The government, however, did not at the begin- 
 ning announce any terms with the companies. This was left for a 
 later date. Government control, it is important to note, did not mean 
 government ownership. The lines remained the property of the 
 companies. They retained the management of their own concerns, 
 subject to the instructions of the executive committee, and the whole 
 machinery of administration went on as before. The sole purpose 
 at the beginning was to facilitate the movements of troops. But as 
 the war developed, as economy became more and more essential, the 
 scope of the Railway Executive Committee, now in supreme control, 
 became greatly extended. 
 
 Working in co-operation with the acting chairman were 12 general 
 managers of leading British lines. Under the central body were 
 groups of committees, each made up of railway experts. The War 
 Office and the Director General of Transport were in touch with the 
 
 1 By F. A. McKenzie. Adapted from "The British Railways under Govern- 
 ment Control," Railway Age Gazette (December 21, 1917), pp. 1118-21. 
 
 ED. NOTE. F. A. McKenzie (1869 ) is one of the leading English writers 
 on the war.
 
 346 ECONOMICS OF WAR 
 
 Central Committee. There was a constant interchange of ideas, but 
 from the beginning there was no attempt to supersede the railway men 
 in carrying out their work. 
 
 Under the terms on which the railways were taken over for the 
 period of the war the government guaranteed to the proprietors of 
 the railways that their net revenue should be the same as in 1913, 
 except when the net receipts for the first half of 1914 were less than the 
 "first half of 1913; in that case the sum payable was to be reduced in 
 the same proportion. The entire government traffic men and 
 freight was to be carried without any direct charge being made for 
 it or any accounts rendered. This plan was considered satisfactory 
 by both sides. In the majority of cases there had been a reduction of 
 earnings in the first half of 1914 over the previous half-year, and 
 companies were contemplating a still further reduction. The interests 
 of their shareholders being assured, they were able to devote them- 
 selves to the work of economical and efficient distribution, quite apart 
 from the usual financial problems. The one weak side of this agree- 
 ment was that it made no allowance to cover increased interest pay- 
 ments on account of new investments and new capital expenditure 
 since the war began. This point was afterward met by an arrange- 
 ment that the government should pay interest at 4 per cent on all new 
 capital invested by the railways since August 4, 1914, on new lines, 
 branches, terminals, equipment, or other facilities put into use since 
 January i, 1913. 
 
 The conclusion of the financial agreement between the govern- 
 ment and the companies automatically brought about a great economy 
 in the system of railway accounts. The reports of the companies were 
 cut down to a bare minimum, and in many cases even these reduced 
 reports were not sent to the shareholders unless they specially asked 
 for them. 
 
 Among the most important economies in handling traffic was, 
 first, the establishment of the common-user of railway companies' 
 open goods wagons. Under the old system the wagon received loaded 
 by one company from another had to be promptly returned to the 
 owning line even though there was no freight for it on its return. 
 Under the common-user arrangement it became available for loading 
 in any direction, thus reducing the haulage of empty vehicles to a 
 minimum. This system of pooling luggage cars came into force on 
 January 2, 1917.
 
 TRANSPORTATION 347 
 
 XXXV. The Task of American Railroads 1 
 
 Director-General McAdoo commands an army larger than Persh- 
 ing's army in France, 2 and second only in size and importance to our 
 entire military force on both sides of the Atlantic. The army of 
 railroad employees numbered in 1916 nearly a million and two- thirds, 
 and if it were to lose its fight against the difficulties of war-time traffic 
 the military army would be crippled and the war would be lost. The 
 demand for transportation has been so great that the roads could not 
 meet all of it, though they carried more freight in 1916 and 1917 than 
 ever before. The character of the war demand, however, has been 
 even more exacting than the amount of it: 
 
 (i) Export business enormously increased, at the same time that 
 ship sailings became fewer, more irregular, and guarded with a veil of 
 secrecy. Hence freight piled up in the ports till cars could not be 
 unloaded, and the roads lost the use of cars and of the yard space they 
 occupied. (2) Much coastwise shipping was diverted to transatlantic 
 service, leaving the railroads to. haul the freight (largely coal) that 
 had formerly gone by water. Water carriage between our eastern and 
 western seaboards virtually ceased, throwing more transcontinental 
 traffic upon the railroads. (3) War orders were largely concentrated 
 in the manufacturing section of the country, including Pennsylvania 
 and states north and east, where railroad traffic is already densest. 
 This condition was aggravated at the start by the lack of systematic 
 cataloguing of the manufacturing possibilities of different sections and 
 the lack of administrative machinery for diffusing orders as much as 
 possible. (4) The large profits on war orders tempted shippers to 
 disregard demurrage charges and use cars for storage, while the 
 general confusion led to ordering many things long before they could 
 possibly be used. (5) Troop movements are irregular and call for large 
 amounts of rolling stock at certain times and places, but generally 
 furnish little or no return load. Thus the difficulties of the railroads' 
 task have been out of proportion to its magnitude. 
 
 1 An editorial. 
 
 a That is, at the time this was written.
 
 348 ECONOMICS OF WAR 
 
 XXXVI. The Roads in Private Hands 
 i. UNDER THE RAILROADS' WAR BOARD 1 
 
 On April 5, the day before war was declared, Franklin K. Lane, 
 Secretary of the Interior, introduced and had passed by the Council 
 of National Defense the following resolution: 
 
 Resolved, That Commissioner Willard be requested to call upon the 
 railroads to organize their business so as to lead to the greatest expedition 
 in the movement of freight. 
 
 Acting in accordance with this resolution, the principal railroad 
 executives of the country met in Washington on April n, 1917, and 
 resolved that during the war they would coordinate their operations 
 in a continental railway system, merging during such period all their 
 merely individual and competitive activities in the effort to produce a 
 maximum of national transportation efficiency. The direction of the 
 continental railway system thus organized was placed by the railroads 
 in the hands of the executive committee of the Special Committee 
 on National Defense of the American Railway Association. This 
 executive committee was also known as the Railroads' War Board. 
 
 Under this resolution the railroads of the United States continued 
 to be operated under private ownership and private management 
 until December 28, 1917. 
 
 2. ACCOMPLISHMENTS UNDER PRIVATE OWNERSHIP 2 
 
 Approximately complete statistics of freight movement during 
 the first six months after the United States entered the war that is, 
 April to September, inclusive which have been compiled by the 
 Bureau of Railway Economics for the Railroads' War Board, disclose 
 that in that period the railways not only handled far more traffic than 
 in any earlier six months of their history, but also as much as in any 
 entire year prior to 1907. 
 
 'By Max Thelen. Adapted from "Federal Control of Railroads in War 
 Time," Annals of the American Academy of Political and Social Science, LXXVI 
 (March, 1918), 16-21. Copyright by the American Academy of Political and 
 Social Science, 1918. 
 
 ED. NOTE. Mr. Thelen is a prominent railway attorney and chairman of 
 the War Committee of the National Association of Railway and Utilities Com- 
 missioners. 
 
 3 Adapted from "An Unprecedented Six Months' Record," Railway Age 
 Gazette, LXIII, No. 25 (December 21, 1917), p. 1112.
 
 TRANSPORTATION 349 
 
 It will be recalled that the years 1906 and 1907 marked the climax 
 of a long period of rapid increase of railroad business which resulted 
 in the longest and most acute congestion of traffic and "shortage" 
 of cars ever known until recent months. It is therefore not without 
 significance that in the first six months of 1917, after the country 
 entered the war, the railways handled as much freight as they did 
 in the entire year 1906. 
 
 In 1915 the railways handled only 30 per cent more freight than 
 in 1906, while in 1917 they are handling approximately 100 per cent 
 more than they did in 1906. These facts illustrate not only the enor- 
 mous increase which has occurred in railway freight business during 
 the past eleven years, but also how swiftly the bulk of the increase 
 has come within the last two years. 
 
 It is interesting, as indicating the increase in the efficiency of 
 railroad operation which has occurred since 1906, to note that in that 
 year the average freight train load was only 344 tons, as compared 
 with the record of 675 tons per train made in the months April to 
 September. If the railroads had moved the traffic of these six months 
 of 1917 in the same average train load as they handled the freight of 
 1906, they would have had to render in these six months about 96 
 per cent more freight-train service than they actually did render. 
 
 The economy effected by this increase of the average train load, 
 and the resulting saving of freight-train service, is the only thing 
 which has enabled the railway system of the country to remain 
 solvent in the face of almost stationary freight and passenger rates 
 and enormously increasing expenses of all kinds. Of course economies 
 have been effected by other means than increases of the train load, 
 but it is by this means that the really big saving has been made. 
 
 3. REASONS FOR A CHANGE 1 
 
 Probably the most far-reaching action with reference to transpor- 
 tation taken by public authority in a generation or more has been the 
 President's proclamation on December 26, directing the practical 
 transfer of the railroads of the country to government control. The 
 course thus determined upon follows the publication of the findings 
 of the Interstate Commerce Commission on December 5, wherein 
 it is set forth, in reply to the roads' plea for higher rates, that such 
 higher rates would not materially assist their present condition. 
 
 1 Adapted from "Washington Notes," Journal of Political Economy, XXVI 
 (1918), p. 91.
 
 350 ECONOMICS OF WAR 
 
 From the standpoint of the government three principal reasons are 
 seen for the taking over of the lines: 
 
 1. The avoidance of obstructions to transportation due to the 
 routing and division of freight, intended to give a fair share to each 
 line in a- given territory. 
 
 2. The abolition of preferences to given shippers and kinds of 
 freight, and the centralization of control over priority in shipment. 
 
 3. The practical termination of rate controversies and labor 
 discussions as between private individuals and the placing of the roads 
 on a semi-military basis. 
 
 The railroads themselves have "received the announcement of the 
 President's action with much greater equanimity than could have 
 been expected. They undoubtedly see in the step the following 
 advantages : 
 
 1. Assurance of a moderate if not generous income in a period of 
 great uncertainty and difficulty, during which they have been caught 
 between the upper and nether millstones of fixed rates and advancing 
 costs and wages. 
 
 2. Termination of the danger that threatened them from the con- 
 tinually maturing obligations which ordinarily they would have little 
 trouble in refinancing, but which, under existing conditions, can 
 scarcely be provided for on any basis. 
 
 3. Provision of means for betterment and improvement at a time 
 when such provision can be had practically only through government 
 orders designed to place such requirements ahead of those of private 
 concerns. 
 
 Due to recognition of these considerations, investors who had 
 previously regarded the situation with the utmost pessimism have 
 shown much greater confidence and enthusiasm with respect to rail- 
 road securities, as is indicated by a rise of from five to ten points in 
 general values. 
 
 XXXVII. The Federal Organization Established 
 
 i. PHASES IN THE DEVELOPMENT OF FEDERAL 
 RAILROAD CONTROL 
 
 The phases in the development of the federal organization of 
 railroads are as follows: 
 
 i. On December 26, 1917, President Wilson through power 
 imposed in him in the Army Bill of 1916 took possession and assumed
 
 TRANSPORTATION 3 5 1 
 
 control of the railways of the country and appointed W. G. McAdoo 
 director-general. 
 
 2. Congress in January passed a railroad-control bill. 
 
 3. On April n, 1918, President Wilson issued a proclamation 
 taking over for the government the property of coastwise shipping 
 lines. 
 
 4. On May 24, Director-General McAdoo placed in charge of 
 each railroad property a federal manager whose duty it is to report 
 to the regional director. 
 
 5. On June 29, the Railroad Administration relinquished from 
 federal control nearly 2,000 short-line railroads whose control by the 
 Administration was regarded as not "needful or desirable." 
 
 2. OUTLINE OF THE RAILROAD CONTROL BILL 1 
 
 The salient features of the law may be summarized as follows: 
 Every railroad not controlled or operated by any other carrier, 
 which has heretofore competed with a railroad system over which the 
 President has taken control, or which connects with such railroad and 
 is engaged in general transportation as a common carrier, is con- 
 sidered as under federal control and entitled to the benefit of all the 
 provisions of this law. Federal control, however, does not extend to 
 street or interurban electric railways having as their principal source 
 of operating income, urban, suburban, or local interurban passenger 
 traffic, or the sale of power, heat, or light (Sec. i). 
 
 Two methods of determining just compensation for the use of the 
 properties of carriers are provided for in the law, first, by agreement 
 with the carrier, and, second, in case agreement is not made, by adju- 
 dication of boards of referees appointed by the Interstate Commerce 
 Commission, whose decisions are subject to review by the Court of 
 Claims of the United States (Sees, i and 2). 
 
 I. COMPENSATION BY AGREEMENT 
 
 The President is authorized to make an agreement with and guar- 
 antee to any carrier under federal control, making operating returns 
 to the Interstate Commerce Commission, that for each year or frac- 
 tional part of a year during the period of federal control such carrier 
 shall receive as just compensation an annual sum, payable in install- 
 ments, such sum to be equivalent, as nearly as may be, to the average 
 
 1 From a circular of the Guaranty Trust Co. of New York, 1918.
 
 352 ECONOMICS OF WAR 
 
 annual railway-operating income for the three-year period ending 
 June 30, 1917 (Sec. i). 
 
 The average annual operating income will be ascertained by the 
 Interstate Commerce Commission and certified by it to the President. 
 This certification will be conclusive of the amount for the purposes of 
 the agreement (Sec. i). 
 
 II. EXCESS REVENUE 
 
 Any railway-operating income, accruing during the period of 
 control, in excess of such just compensation, will remain the property 
 of the United States (Sec. i). The agreement shall also contain 
 adequate provisions for the maintenance, repair, renewal, and depre- 
 ciation of the property, the creation of necessary reserve funds, and 
 for any accounting and adjustments of charges and payments, during 
 and at the end of federal control, which may be necessary in order to 
 return the property of each carrier in as substantially good repair and 
 with as complete equipment as it had at the beginning of federal 
 control, and in order also that the United States may, by deductions 
 from the just compensation provided for or by other means, be 
 reimbursed for any of the above expenses of the property not justly 
 chargeable to it. In making such accounting and adjustments the 
 amounts expended or reserved by each carrier for maintenance, 
 repairs, renewals, and depreciation during the three years ended 
 June 30, 1917, and the condition at the beginning and at the end of the 
 federal control, and any other pertinent facts are to be considered 
 (Sec. i). 
 
 Carriers while under federal control shall not, without the approval 
 of the President, declare or pay dividends in excess of the regular rates 
 during the three years ended June 30, 1917. If carriers have paid no 
 regular dividends or no dividends during this period, they may, with 
 the approval of the President, pay dividends at rates determined by 
 the President (Sec. 5). 
 
 The sum of $500,000,000 is appropriated, which, together with 
 any funds available from the operating income of the carriers, may be 
 used by the President as a revolving fund to pay the expenses of 
 federal control, and, so far as necessary, the amount of just compensa- 
 tion. From these funds the President will also provide terminals, 
 motive power, cars, and other necessary equipment, which will be used 
 and accounted for as he may direct and be disposed of as Congress 
 may provide (Sec. 6).
 
 TRANSPORTATION 353 
 
 III. ADDITIONS, BETTERMENTS, AND EXTENSIONS BY THE 
 PRESIDENT 
 
 The President may order any carrier to make additions, better- 
 ments, or road extensions, and to provide terminals, motive power, 
 cars, and other equipment in connection with its property, which may 
 be desirable for war purposes or for the interest of the public. From 
 the revolving fund he may advance to the carrier all or any part of the 
 expense of additions, betterments, or road extensions, and provide 
 terminals, motive power, cars, and other necessary equipment ordered 
 and constructed by the carrier or by the President. These advances 
 are chargeable against the carrier and bear interest at the rates and 
 are payable on the terms decided upon by the President (Sec. 6). 
 
 The President may expend any amount from the revolving fund 
 that he deems desirable for the use and operation of canals or for the 
 purchase, construction, and operation of boats and other transpor- 
 tation facilities on inland, canal, and coastwise waterways. In the 
 operation and use of these facilities he may employ any agencies and 
 make any contracts that he deems necessary in the public interest 
 (Sec. 6). 
 
 IV. FINANCING OF ROADS 
 
 To provide funds requisite for maturing obligations or for other 
 proper expenditures or for reorganizing railroads in receivership, 
 carriers may, during the period of federal control, issue bonds, notes, 
 equipment trust certificates, stock, and other forms of securities, 
 secured or unsecured by mortgage, of which the President approves 
 and deems consistent with the public interest. Out of the revolving 
 fund the President may purchase for the United States such securities, 
 at prices not exceeding par, and may sell them, whenever he deems it 
 desirable, at prices not less than the cost. Securities so purchased 
 shall be held by the Secretary of the Treasury, who, under the direc- 
 tion of the President, shall represent the United States in all such 
 matters in the same manner as a private holder. The President, each 
 year, as soon as practicable after January i, shall cause to be submitted 
 to Congress a detailed report, for the preceding calendar year, of 
 receipts and expenditures in the purchase and sale of securities and 
 in the operation and maintenance of transportation facilities on 
 inland, canal, and coastwise waterways (Sec. 7). 
 
 At proper periods the President shall order the closing of the books, 
 and any net income shall be covered into the Treasury of the United
 
 354 ECONOMICS OF WAR 
 
 States to the credit of the revolving fund created by this Jaw. If 
 revenues are insufficient to meet disbursements, the deficit shall be 
 paid out of the revolving fund as the President directs (Sec. 12). 
 
 Federal control shall continue during the period of the war and 
 for a reasonable time thereafter, not exceeding twenty-one months 
 from the date of the President's proclamation of the exchange of 
 ratifications of the treaty of peace. The President in his discretion 
 may, prior to July i, 1918, relinquish control over all or any part of a 
 system of transportation, or at any time during the period of federal 
 control may agree with the owners to do so, or may relinquish all 
 systems of transportation under federal control at any time he deems 
 such action desirable. No right to compensation accrues to the 
 owners from the date of such relinquishment (Sec. 14). 
 
 V. CONFLICT OF STATE LAWS 
 
 The law is not to be construed to amend, repeal, impair, or affect 
 existing laws or powers of the states in relation to taxation or lawful 
 police regulations except where such laws, powers, or regulations may 
 affect the transportation of troops, war materials, government 
 supplies, or the issue of stocks and bonds (Sec. 15). 
 
 XXXVIII. What Federal Control Has Accomplished 
 i. GENERAL POLICY 1 
 
 The policy of the United States Railroad Administration has been 
 informed and shaped by a desire to accomplish the following purposes, 
 which are named in what I conceive to be the order of their 
 importance : 
 
 First, the winning of the war, which includes the prompt move- 
 ment of the men and the material that the government requires. 
 To this everything else must be subordinated. 
 
 Second, the service of the public, which is the purpose for which the 
 railways were built and given the privileges accorded them. This 
 implies the maintenance and improvement of the railroad properties 
 so that adequate transportation facilities will be provided at the 
 lowest cost, the object of the government being to furnish service 
 rather than to make money. 
 
 Third, the promotion of a spirit of sympathy and a better under- 
 standing between the administration of the railways and their two 
 
 'By William G. McAdoo. Adapted from "Doings of the United States 
 Railroad Administration." Statement by the Director-General on June 15, 1918.
 
 TRANSPORTATION 355 
 
 million employees, as well as their one hundred million patrons, which 
 latter class includes every individual in the nation, since transporta- 
 tion has become a prime and universal necessity of civilized existence. 
 Fourth, the application of sound economies, including: 
 
 (a) The elimination of superfluous expenditures. 
 
 (b) The payment of a fair and living wage for services rendered and a 
 just and prompt compensation for injuries received. 
 
 (c) The purchase of material and equipment at the lowest prices 
 consistent with a reasonable, but not an excessive, profit to the 
 producer. 
 
 (d) The adoption of standardized equipment and the introduction 
 of approved devices that will save life and labor. 
 
 (e) The routing of freight and passenger traffic with due regard to the 
 fact that a straight line is the shortest distance between two 
 points. 
 
 (/") The intensive employment of all equipment and a careful record 
 and scientific study of the results obtained, with a view to deter- 
 mining the comparative efficiency secured. 
 
 The development of this policy will, of course, require time. The 
 task to which the Railroad Administration has addressed itself is an 
 immense one. It is as yet too early to judge of the results obtained, 
 but I believe that great progress has been made toward the goal of 
 our ideals. All those who have had a share in this great work, includ- 
 ing especially the members of my staff and the officers and employees 
 of the railways, have shown intelligence, public spirit, loyalty, and 
 enthusiasm in dealing with problems that have already been solved 
 and in attacking those that still await solution. 
 
 With their continued co-operation I feel assured of a future in 
 which the lessons of our accumulating experience will be effectively 
 employed to humanize the science of railroading and negative the idea 
 that corporations have no souls. 
 
 2. SOME RESULTS 1 
 
 I. FINANCE 
 
 The three most important financial acts of the new Railroad 
 Administration in its first half-year were: (i) the allotment of nearly 
 a billion dollars for betterments and extensions, (2) increases in wages 
 which are expected to amount to $300,000,000 in 1918, and (3) (on 
 
 1 An editorial.
 
 356 ECONOMICS OF WAR 
 
 the day following the wage increases) sweeping increases in freight 
 and passenger rates. 
 
 The total amount allowed for capital expenditures for 1918 was 
 $937,961,318, while proposed outlays amounting to over a third more 
 were eliminated in the final revision. Of this sum, only eighteen 
 millions go to extensions, the rest being fairly evenly divided between 
 the two heads of equipment, and additions and betterments to existing 
 plant. The result should be to enable the roads to cut down their 
 expenses of conducting transportation, which have been unduly 
 swollen by the past season's congestion of freight. The funds for 
 these plant outlays come partly from the surpluses of the roads 
 themselves and partly from the "revolving fund" of $500,000,000 
 appropriated by act of Congress. 
 
 The advances in wages were based on the report of a wage com- 
 mission, with minor changes, and the largest percentage of increase 
 goes to those receiving the lowest wages. The increases are cal- 
 culated from the wages of December, 1915, and since that time the 
 roads themselves have increased wages more, in some cases, than the 
 McAdoo order increases them, especially in the higher grades of work, 
 where the men are strongly organized. The Adamson eight-hour law 
 has undoubtedly had the effect of raising wages. The advances were 
 made retroactive, taking effect January i, 1918, though the order was 
 issued May 26. The wage question is of course always open to further 
 adjustments. 
 
 The increase in rates and fares was made for the purpose of 
 meeting extraordinary increases in operating expenses, estimated at 
 from $830,000,000 to $860,000,000 for 1918, including the rise in 
 wages. Freight rates were ordered increased by 25 per cent, except 
 so far as specific increases were ordered for particular commodities, 
 such as coal, coke, and iron ores. The same order levels state rates 
 up to the interstate basis and cancels all export and import rates, thus 
 putting an end to the practise of charging less for the same haul on 
 goods that are going abroad or coming from abroad than on domestic 
 freight. Passenger fares are increased to 3 cents per mile, or 3^ cents 
 in Pullmans (in addition to the Pullman charge), and commutation 
 fares are raised 10 per cent. These new rates should yield enormous 
 increases in operating revenues over the $3,824,419,739 earned by the 
 roads in 1917. There is little danger that the roads will suffer serious 
 loss by reason of any shrinkage of traffic resulting from the increased 
 charges. Passenger fares may prove high enough to discourage
 
 TRANSPORTATION 357 
 
 unnecessary travel, but the administration appears quite ready to 
 take advantage of this opportunity to reduce passenger schedules and 
 free the roads for the more essential and more profitable movement 
 of freight. 
 
 II. OPERATION 
 
 It "was a black time when the federal administration took over the 
 roads, so far as operation was concerned. The lines were congested 
 to the point of breakdown, and blizzards and severe cold (which cuts 
 down the ability of locomotives to make steam) furnished the finishing 
 touches. The traffic became so thoroughly blocked that in the first 
 month of federal control the eastern lines did not move enough freight 
 to pay their operating expenses. 
 
 The priority system permitted the yards to fill up with more 
 freight than could be hauled, and one of the first acts of the new 
 administration was to put in its place a policy of embargoing traffic 
 which it thought it could not move. The measures that the Railroads' 
 War Board had taken to increase operating efficiency were carried 
 farther under the new management. Freight cars were made to 
 carry even heavier loads, cars were more freely ordered from one road 
 to another, and the administration's control of the routing of freight 
 was made absolute, regardless of shippers' preferences or of the 
 earnings of particular roads. The policy is to route freight over the 
 shortest line, or, if that is congested, then over the shortest line that 
 is open. A "train-lot plan" of freight moving has been used with 
 great success, the plan hinging on the willingness of the roads to give 
 up their privilege of getting what traffic they can and moving it when 
 they find it advisable not to keep the shippers waiting any longer, 
 whether the train is full or not. Passenger schedules have been still 
 further cut, and perhaps to better effect than before. Under competi- 
 tive conditions the temptation is strong to keep the through train, let 
 us say, between Chicago and Minneapolis, which competes with the 
 rival road's through train, and to let some less profitable or less 
 strategic train go. Competitive duplications in passenger schedules 
 were by no means eliminated under the Railroads' War Board, though 
 many trains were taken off relatively unprofitable branch lines where 
 there was no duplication. Freight solicitation has been stopped and 
 the city ticket offices of the different roads are being consolidated, 
 while terminal facilities are being pooled to such an extent that some 
 observers doubt if they can ever be "unscrambled."
 
 358 ECONOMICS OF WAR 
 
 One of the most hotly debated moves of the Railroad Adminis- 
 tration has been the introduction of standardized cars and engines. 
 The chief arguments in favor of this policy are: (i) It will facilitate 
 the free movement of equipment from one line to another and make 
 possible the economies of pooled equipment without the waste that 
 results if rolling stock has to be sent home for repairs or be repaired 
 in shops not fitted for it. (2) Economies in construction are expected' 
 from quantity output. The chief arguments against the plan are: 
 (i) The models will be compromises and less efficient than the best 
 now in use. Locomotives in particular are now adapted to the grades 
 and operating conditions of each particular line far more closely than 
 standardized engines could possibly be. (2) Delay inevitably results 
 when new plans must be prepared instead of utilizing those already 
 available. It appears that many of the plans for standardization 
 have had to be abandoned. Meanwhile the ordering of new engines 
 and cars was delayed for several months, with the result that no 
 new rolling stock can be delivered in 1918 until late in the autumn, 
 and then probably less than 100,000 cars, and this in the face of an 
 annual death toll of approximately 150,000 cars. 
 
 One excellent example of the difference between the way things 
 can be done under federal operation and the way they have had to be 
 done under private operation is furnished by the raising of demurrage 
 rates. Demurrage is a charge made to shippers who hold cars 
 unloaded beyond a specified time, and the rate was formerly $1.00 
 per day. The roads had long been negotiating with a view to sub- 
 stituting a sliding scale of from $2.00 to $5.00 per day, and had 
 finally got permission from the Interstate Commerce Commission and 
 several state commissions. Under war conditions shippers often 
 held cars in spite of demurrage (especially contractors whose pay was 
 to be a percentage above their costs). The Director General was 
 able, without waiting for negotiations and consents, to establish a 
 sliding scale, $3 . oo for the first day, $4 . oo for the second, and so on 
 up to a maximum of $10.00 for the eighth and subsequent days, 
 while offending shippers were put under embargoes. 
 
 Such sweeping action as this or the increase in freight and pas- 
 senger charges was made possible by three facts: (i) A central 
 authority had taken the place of the "system of checks and balances" 
 between privately owned roads and state and federal commissions 
 with their essential conflict of jurisdiction. This central power could 
 act swiftly, but even so, in certain states, there were "vested interests"
 
 TRANSPORTATION 359 
 
 in existing differentials between state and interstate rates, and these 
 were strong enough to bring about a modification of the rate order so 
 far as it disturbed these differentials. (2) The responsibility was 
 taken by an agency of government, not by the railroad companies. 
 (3) It could not increase the profits of the companies, since these were 
 fixed under the federal guaranty. These last two facts tended to 
 allay popular opposition, perhaps even more powerfully than the 
 general recognition of the need of '"putting up with things" in the 
 emergency of war. 
 
 3. PREVENTION OF TRAFFIC CONCENTRATION 1 
 
 The announcement last week by the Secretary of War, the 
 Secretary of the Navy, and Director General McAdoo of the creation 
 of a joint Exports Control Committee with complete power to control 
 the movement of export freight represents one of the most important 
 steps toward co-ordinating war transportation that has yet been taken 
 by the government. 
 
 This committee is to have authority to select the port to which 
 specific freight shall be transported for transshipment overseas for 
 the use of the Army and Navy, the allied governments, and others, 
 and it is given the responsibility of deciding the distribution between 
 the various ports of the combined amount of all exports so as to 
 facilitate its handling at any one port and to avoid congestion at any 
 one port. In order to carry out its important task with full knowledge 
 of the various requirements, the committee consists of authoritative 
 representatives of the War and Navy Departments, the Railroad 
 Administration and the shipping interests, and the Traffic Executive 
 controlling the allied traffic. 
 
 Long before the United States entered the war the results of a 
 lack of co-ordination and control of export traffic were made evident 
 in serious congestion throughout the eastern industrial section and 
 particularly at the North Atlantic port terminals. Shippers who 
 received their money for goods consigned to the allied governments as 
 soon as the freight was loaded on cars were naturally overzealous in 
 starting freight toward the ports, regardless of the possibilities of 
 handling it at destination or of the capacity of boats to carry it across 
 the ocean. At a time when the country had not yet awakened to the 
 seriousness of the situation railroads were too reluctant to place 
 drastic embargoes and, rather than risk the unpopularity of doing so, 
 
 1 Adapted from Railway Age (June 28, 1918), p. 1549-
 
 360 ECONOMICS OF WAR 
 
 tried to crowd more freight through the neck of the bottle than could 
 be accommodated. When the embargoes finally were placed it was 
 too late. More freight than could be transshipped had been carried 
 to the eastern terminals, choking the main lines as well as yard and 
 terminal tracks, and when this situation developed to such an extent 
 that it was necessary to unload freight on the ground, the congested 
 condition extended so far back toward the west that it was difficult to 
 return empty cars. The unpopularity of the embargo was so great 
 that freight would often be taken upon the lines and would then have 
 to be embargoed half-way towards its destination, and intermediate 
 lines were blocked in both directions. 
 
 This condition became steadily more acute, and, while many 
 people blamed the railroads, the railroads retorted by saying that the 
 difficulty was with the shipping situation. They were carrying 
 freight to destinations as billed, but ships were not available to take 
 away the freight they had delivered. While certain ports were 
 overcrowded, others were not being utilized to capacity, but the 
 railroads had no control over the routing of freight, and goods were 
 sent to the ports where the boats were most numerous. When efforts 
 were made to secure a larger number of sailings to the ports which 
 were not being utilized to capacity, the shipping interests said that 
 the freight offered at those ports was not sufficient to justify them in 
 sending vessels there. 
 
 Now the routing of freight has been taken out of the hands of the 
 shipper and placed in the hands of the railroads, and with the creation 
 of the Exports Control Committee there is sufficient authority to 
 direct the railroads where to put the freight and simultaneously to 
 direct the boats to go there and get it. Moreover, it is possible to 
 apply the embargo at the point of origin so that consignments will not 
 be sent to ports where they cannot be handled, but may be diverted 
 to places where they are needed and can be accommodated. This is 
 expected to develop a much more intensive use of the South Atlantic 
 and Gulf ports, which still have much unutilized capacity and still 
 greater potential capacity. 
 
 XXXIX. The Express Companies 1 
 
 The four principal express companies operating in the United 
 States, the Adams Express Company, the American Express Com- 
 pany, Wells Fargo & Company, and the Southern Express Company, 
 
 1 Adapted from Railway Age, LXIV, No. 23, June 7, 1918.
 
 TRANSPORTATION 361 
 
 are to be combined into a new company, effective on July i, to be 
 known probably as the American Railroad Express Company, which 
 will be given virtually a monopoly of the express business by a con- 
 tract with the United States Railroad Administration for the carry- 
 ing on of the express business for all the railroads under federal 
 control. 
 
 This plan, which has been worked out after several weeks of 
 negotiations between the representatives of the express companies 
 and the division of public service and accounting of the Railroad 
 Administration, has been sanctioned by the director general in place 
 of the plan earlier proposed, which it is understood was advocated by 
 the express companies, for placing the express companies under 
 government operation in the manner adopted for the railroads. 
 
 Under this arrangement there will be no government guaranty 
 of earnings, but the express company will be a private corporation 
 acting as the director-general's agent for carrying on the express 
 business. The character of the service and the character of the rates 
 will be under the director-general's control and subject to initiation 
 by him, and the government will share in any profits above 5 per cent 
 on the capital stock. 
 
 Whereas the express companies now have contracts with the 
 railroad companies by which they pay to the latter a fixed percentage 
 of their gross earnings, usually about 50 per cent, for "express privi- 
 leges," they will now have but one contract with the government, and 
 the director general will receive 50^ per cent of the gross earnings. 
 This percentage was arrived at by taking the average for ten years 
 of the payments by the express companies to the railroads. 
 
 Out of the balance of the revenues the express company will pay 
 operating expenses and taxes and, if earned, a dividend of 5 per cent 
 on the capital stock. If more than 5 per cent is available for dis- 
 tribution, out of the next 2 per cent the express company will receive 
 i per cent and the government i per cent; out of the next 3 per cent 
 available for distribution the express company will receive i per cent 
 and the government 2 per cent; any further amounts available for 
 distribution will be divided, one-quarter to the express company and 
 three-quarters to the government. 
 
 An important feature of the arrangement is that the new company 
 will be capitalized only to the extent of actual property and cash put 
 into the business, and it was stipulated by the government that this 
 should not exceed $40,000,000. The actual amount determined upon
 
 362 ECONOMICS OF WAR 
 
 is $35,000,000, including $30,000,000 issued to the old companies in 
 proportion to the physical properties involved, and $5,000,000 issued 
 at par for cash to represent working capital. 
 
 One of the points which received considerable discussion during 
 the negotiations was as to whether railroad employees should continue 
 to act as agents for the express company as station agents now do, 
 receiving as compensation a percentage commission on the business 
 handled. Under the plan decided upon, while the new express com- 
 pany is permitted, upon arranging therefor with the director general, 
 to use railroad employees in express service, the entire compensation 
 of all such employees, both for railroad and express services, will be 
 fixed and paid by the director general, and the express company will 
 compensate the director general for services rendered by such 
 employees to the express company. The Railroad Administration 
 objected to a plan which would give opportunity for competition 
 between railroad and express in the person of the agent, who might be 
 interested in diverting shipments to the express if he were to receive 
 a commission on such business. 
 
 The new arrangement will make it possible to avoid a great deal 
 of wasteful duplication of facilities and to eliminate a large amount 
 of accounting with the individual railroads, which, while necessary 
 under the old system of separate contracts between the express 
 companies and the various railroad companies, will be unnecessary 
 under the new system. 
 
 The offices of the competing companies will be consolidated or 
 otherwise readjusted to the new conditions and new routes will be 
 opened. 
 
 The agreement between the government and the express com- 
 panies recites that "whereas the director general is of the opinion that 
 the express-transportation business upon the railroads and systems 
 of transportation under federal control can be most efficiently carried 
 on through the agency of a single corporation, which shall act as the 
 sole agent of the government in conducting said business," the express 
 companies shall cause to be organized a corporation for the purpose 
 of carrying on for the director general the express-transportation 
 business upon the railroads under federal control and elsewhere as 
 may be determined by the director general.
 
 TRANSPORTATION 363 
 
 XL. The Outcome 
 
 i. UNIFIED REGULATION REQUIRED 1 
 
 There is a general impression that the laws of the country have 
 prevented unity of operation among railways, and a consistent 
 attempt has been made to lay at the door of the government the 
 failure of the carriers to cooperate in the use of their physical equip- 
 ment. The railroads have failed to "get together" merely because in 
 everything except the fixing of rates the railroad business is required 
 by law to be a highly competitive business. 
 
 It is useless to assume that the repeal of the anti-pooling clause 
 of the Act to Regulate Commerce and the modification of the Sherman 
 Law would by themselves be enough to bring about voluntary railroad 
 unity. These laws have not stood in the way of the operating unity 
 sorely needed at many terminals, and the mere repeal of these acts will 
 not affect this situation. There is no doubt that the formation of pool- 
 ing agreements would make it easier for the railroad companies to effect 
 the financial arrangements necessary to a plan of unified operation 
 under private ownership, if the private owners want such a plan. 
 Hence, if private operation is to be resumed, it is desirable that pooling 
 should be permitted; but the mere toleration of pools and rate agree- 
 ments will not lead to the voluntary unification of physical facilities 
 so long as railroad managers desire to continue their hold on their 
 particular monopoly advantages. 
 
 That some adequate system of railroad regulation can be devised 
 which will permit the railroads to prosper and give efficient service 
 at reasonable rates is not to be doubted, and it is with this goal in 
 view that the next steps in railroad regulation must be taken. The 
 United States is not prepared to adopt a program of government 
 ownership of railroads, and it is to be hoped that once the present 
 crisis is passed the railroads will be returned to private management 
 and a system of regulation be devised under which satisfactory results 
 may be obtained. We certainly shall never return to the policy 
 recently abandoned, which has proved such a lamentable failure, and 
 if government ownership is to be avoided we should begin at once to 
 
 1 By T. W. Van Metre. Adapted from "Failures and Possibilities in Railroad 
 Regulation," Annals of the American Academy of Political and Social Science, 
 LXXXVI (March, 1918), 3-13. Copyright, by the American Academy of Political 
 and Social Science, 1918. 
 
 ED. NOTE. Mr. Van Metre (1884 ) is assistant professor of transportation 
 in the School of Business at Columbia University.
 
 364 ECONOMICS OF WAR 
 
 take stock of failures and successes and to make plans for the future. 
 There are a number of radical changes that can be safely made which 
 would go far toward establishing our regulative system on a funda- 
 mentally sound basis and would render easy the working out of the 
 details of a harmonious and constructive policy. 
 
 The dual system of regulation as carried on at present inevitably 
 leads to a violation of the fundamental principles upon which regula- 
 tion is based: that rates shall be just and reasonable, and that they 
 shall not be unduly discriminatory. While it is possible technically 
 to distinguish between interstate and intrastate traffic, there is in an 
 economic sense no real distinction between them. The fact that 
 nine-tenths of railroad traffic is interstate and consequently already 
 under the jurisdiction of the federal commission would seem to indicate 
 that the remaining tenth could be safely entrusted to its authority 
 without any undue increase of its work and with a considerable gain 
 in the efficiency and uniformity of regulation. 
 
 The urgent need for a unified system of regulating the issue of 
 securities by railroad corporations and the almost unanimous belief 
 that this function should be entrusted to federal authority lead one 
 to wonder why it takes so long to secure a law by which this much- 
 needed change may be accomplished. When such a law is enacted 
 it is to be hoped that it will also include provision for some supervision 
 of the expenditure of funds derived from the sale of- authorized secur- 
 ities. There is a serious question in many minds as to the wisdom 
 with which the large investments placed in the railroad business in 
 recent years have been used. The wholesale expenditure for the 
 construction of huge passenger terminals at a time when the need for 
 improved freight terminal facilities was probably much more pressing 
 has been looked upon with some disfavor, both on account of the 
 disparity of income from the freight and passenger business and 
 because in many cases the passenger terminals represent costly 
 duplications of effort with results that do not show much progress 
 toward an ultimate solution of the problem of handling a rapidly 
 congesting passenger traffic. 
 
 There should be devised some plan by which needed increases in 
 rates can be secured with more expedition and promptness-than appears 
 to be possible under present conditions. It is not advisable that the 
 authority of regulative agencies to suspend proposed increases be with- 
 drawn, but it would probably be helpful if the time of rate suspensions 
 were made shorter than is now customary. It is of the utmost impor- 
 tance that the'credit of soundly financed railroads be maintained, and
 
 TRANSPORTATION 365 
 
 this can be done only if methods are devised for meeting promptly 
 sudden emergencies. Rates are now flexible in but one direction, 
 and it is extremely difficult for the carriers to adjust their charges so 
 as to meet the rapid increases in wages and prices of materials. 
 
 And finally, as a sine qua non of a resumption of private operation, 
 provision must be made for the permanency of the operating unity 
 now going into effect. Two things will have to be done: (i) The 
 carriers must be permitted to enter pooling agreements by means of 
 which the financial adjustments necessary to operating unity may be 
 effected; (2) the carriers must be required to combine their physical 
 facilities wherever such combination will result in improved service. 
 There is no reason for limiting the unified " continental railway 
 system" to the duration of the war; its proved advantages will be all 
 the more valuable with the return of peace. It must not be expected 
 that the railroad companies will voluntarily enter agreements for 
 unity of operation, though it is highly probable that the present 
 experience with unification under government control will render 
 compulsion less difficult. In the main the joint use of facilities will 
 be confined to terminals, where the wastes of competition have been 
 greatest. Saving must be accomplished, however, through a more 
 elastic system of routing shipments; the expensive duplication in 
 passenger service may be cut down, and the necessity for private car 
 lines and express companies parasitic organizations which came into 
 existence solely because of the lack of a unified system of operation 
 will be entirely eliminated; such companies have performed a real 
 public service in the past, but with unity of railroad operation they 
 will exist for no useful purpose. The chief economy will be effected, 
 however, through the reconstruction and reorganization of terminals; 
 it begins to appear that the time is forever past when the shamefully 
 wasteful terminal operation, which exists merely as an evidence of 
 the monopolistic power of a strongly entrenched special privilege, will 
 be permitted to stand unchallenged. The willingness or the unwilling- 
 ness of the carriers to acquiese in cooperative arrangements which 
 plainly make for increased efficiency will be the deciding factor in the 
 coming controversy over government ownership. 
 
 2. SOME INFERENCES 1 
 
 What does the experience of the railways in the war teach us? 
 One group of observers points out that it was neither unwillingness 
 nor incapacity that made it impossible for the roads under private 
 
 1 An editorial.
 
 366 ECONOMICS OF WAR 
 
 management to achieve the unity and increased efficiency that the 
 emergency demanded, but restrictive regulation. They point out 
 that the roads have been prevented from combining into unified 
 regional systems by the Sherman Law, from pooling freight by the 
 Act to Regulate Commerce, and from any radical increase of rates 
 or curtailment of service by the need of getting the sanction of many 
 commissions. Moreover, state control of capitalization has hindered 
 the roads from raising new capital in their own way (involving the 
 issue of stock beyond the amount of the actual investment), but it 
 has furnished no constructive substitute. If the roads had only been 
 freed in time (the inference goes) from these limitations, federal 
 operation might not have been necessary to enable them to meet the 
 crisis. _ 
 
 This reasoning is only partly valid. The railroads might have 
 been set free to build up a national monopoly or a series of regional 
 monopolies free from effective control as to rates or capitalization, 
 and the despotic power of this machine might have been used patriot- 
 ically and efficiently to win the war. But there would have been 
 widespread suspicion of profiteering when rates were increased and 
 service curtailed, and whether this had just grounds or not it would 
 have created a state of opinion among farmers, laborers, and others 
 that would have done incalculable harm to the efficient prosecution of 
 the war by the nation as a whole. The roads have been asking for 
 freedom and power, and the war has proved that freedom and central- 
 ized power were needed, but it does not follow that it could safely 
 have been given to private corporations, even in time of war, and still 
 less in time of peace. 
 
 Moreover, the kind of control best suited to war is different from 
 that best suited to peace. In war other things must give way to the 
 dominant need of adequate equipment and immediate efficiency. In 
 peace the long-run consequences (perhaps irrevocable) of consolida- 
 tion may give men pause in spite of obvious immediate gains, and the 
 shipper may be given the benefit of the doubt even if this cuts down 
 revenues enough to delay the provision of equipment. It may have 
 seemed clumsy to cling to the remnants of competition while develop- 
 ing such machinery for the public control of rates as might seem to 
 make competition superfluous as a protection to the public. But in 
 f#ct the system of control had not been sufficiently matured and 
 tested to justify the public in assuming that it had an all-sufficient 
 substitute for the regulative power of competition. Time would tell
 
 TRANSPORTATION 367 
 
 perhaps, but if in the meantime the roads were permitted to consoli- 
 date, there would be no turning back. So Congress felt its way slowly, 
 till its leisure for experimentation was interrupted by the Great 
 Disturber. 
 
 The increase of rates in May, 1918, is pointed to as justification 
 of the railroads' repeated claims for higher charges, and it is implied 
 that it was the inability to increase rates high enough to offer a 
 prospect of reasonable earnings to new capital which had kept the 
 roads from getting enough equipment to handle the war traffic. 
 The curious fact is, however, that the years of federal control have 
 been years of surprisingly steady increase in earnings, up to the year 
 1910, taking as a standard the ratio of net operating income to the 
 book cost of roads and equipment. The year 1911 showed the begin- 
 ning of a decline and 1915 was a very bad year, though earnings were 
 still higher than the best year of the decade 1890-99. The breakdown 
 of the railroads' financing was occasioned by this series of bad years, 
 perhaps, but the underlying cause seems to have been an undue 
 increase of bonds and a resulting narrowing of the margin of earnings 
 above fixed charges, making stocks unduly speculative and bonds less 
 secure. For this condition unwise state regulation may share the 
 blame with the railroad companies. 1 Some railroad men have been 
 virtually demanding that rates be raised till the margin of safety on 
 the existing (swollen) bond issues was as great as on former more 
 modest issues, so that present capital needs could be met by issuing 
 still more bonds, while stockholders pocketed the increased margin 
 of safety in the shape of larger dividends. This is obviously not the 
 best way out of the difficulty. 
 
 In 1916 earnings were the highest on record, and those of 1917 
 were higher yet. But the winter of 1917-18 brought heavy losses, and 
 the increase of rates made by Mr. McAdoo was no more than enough 
 to offset prospective increases in costs. Regulating commissions 
 would probably have waited to see the increases materialize before 
 granting higher rates to offset them, and this delay might have been 
 disastrous in our present emergency. But there are reasons why a 
 commission should be slow in letting private railroads raise their 
 rates, which do not apply to roads under federal operation. Granting 
 that the increase may prove unnecessarily large, Mr. McAdoo can 
 (i) put as much of the money as he likes back into the properties, and 
 
 1 For a further treatment of this problem, though not including the most 
 recent developments, see the Report of the Railroad Securities Commission.
 
 368 ECONOMICS OF WAR 
 
 (2) since he has possession of the properties the government can make 
 whatever terms seem reasonable in turning back to private ownership 
 these betterments made out of current earnings. Under private 
 ownership such betterments become the property of the companies, 
 included in the valuation on which they must be allowed a fair return, 
 and commissions may well be slow to "make the shippers pay" for 
 betterments in which these shippers have no equity and on which 
 they must go on paying dividends. Thus it is not fair to argue that 
 because certain things were done by the Federal Railroad Adminis- 
 tration, therefore it would have been right or expedient to allow the 
 roads, while still in private hands, to do these same things. 
 
 XLI. The Shipping Problem 
 i. THE WAR AND WORLD-SHIPPING 1 
 
 Gross Tons 
 
 World's shipping (except German and Austrian) August i, 1914. 42,574,537 
 
 Additional ships built, August, igi4-December 31, 1917 6,621,003 
 
 German and Austrian interned ships available for use of Allies . . 875,000 
 
 Total 50,070,540 
 
 Losses since 1914. 
 
 Due to ordinary causes 1,600,000 
 
 Due to mines, raiders, and submarines: 
 
 Allies 8,900,119* 
 
 Norway 1,031,778 
 
 Other neutrals 400,000 
 
 Total 11,931,897 
 
 Balance actual tonnage available. 38,138,643 
 
 Net decrease since 1914 .- 4,435,894 
 
 Add 2 tons constantly required to maintain each man in France 
 
 (1,500,000 menX2) 3,000,000 
 
 Shortage for merchant traffic, at least r . . . . 7,435,894 
 
 * To October, 1917. 
 
 2. GREAT BRITAIN'S SHIPPING PROBLEM, 191 f 
 
 To counteract the submarine menace, the Shipping Controller 
 has succeeded, first of all, in reorganising the shipping of this 
 country by means of better loading, by taking ships off longer 
 voyages and concentrating them on shorter voyages, and by turning 
 
 1 From a pamphlet entitled Ships, distributed by Emergency Fleet Corporation, 
 July, 1918. 
 
 a By David Lloyd George. Adapted from "Fact v. Fiction," Mr. Lloyd 
 George's Statement on Shipping and Food Supplies, House of Commons, Thursday, 
 August 16, 1917.
 
 TRANSPORTATION 369 
 
 ships round more quickly so that they should be able to make 
 more voyages in the course of the year. Although we have a 
 diminished tonnage, we have been able by these means to carry 
 more tons. Our shipping in June and July of this year (1917), 
 compared with June and July of last year, is something like 10 per 
 cent down, and as there is no diminution in the tonnage which is 
 devoted to the carriage of government material for our armies abroad, 
 this means that the diminution in the tonnage available for ordinary 
 imports is down not by 10 per cent but by 20 per cent. In spite of 
 this fact we succeeded in carrying, during the period which I have 
 indicated, 150,000 more tons in British ships. 
 
 In addition to this, the Shipping Controller has taken steps for 
 the quickening of shipbuilding. The tonnage built in this country 
 during peace times is, I think, on an average something a little under 
 2,000,000. In 1915 the shipbuilding came to 688,000 tons. In 1916 
 it was 538,000 tons. In this year a little over a million tons, nearly 
 1,100,000 tons, will be built in this country and 330,000 tons will be 
 acquired abroad, so that this year the tonnage which we shall acquire 
 will be 1,900,000. This is purely mercantile marine. Bear in mind 
 the condition under which the tonnage is built. It is the fourth year 
 of the war. There is a difficulty in labour and great difficulty in 
 material. You require steel for guns and shells for the Navy, because 
 the ship-building programme of the Navy has gone up considerably 
 in the course of the present year. In spite of that fact the shipbuilding 
 of the country in this year will not be very far from what it was in the 
 days of peace. 
 
 Even now we have not got enough tonnage for all essential 
 purposes. We have got to provide tonnage for France, Italy, and 
 Russia, as well as for ourselves, and we need more ships instead of 
 fewer ships. And I am not going to pretend that there will not be at 
 best a rate of diminution of our shipping which will embarrass us 
 in the struggle, and therefore it is essential, not merely that this 
 country should build, but that the only other countries which have 
 a great shipbuilding capacity should also build. If the United States 
 of America puts forth the whole of her capacity, and I have no doubt, 
 from what I hear, that she is preparing to do it in her own thorough 
 and enterprising way, I have no doubt at all that we shall have suffi- 
 cient tonnage not merely for this year but for the whole of 1918 and, 
 if necessary, for 1919 as well, because America can expand very 
 considerably her shipbuilding capacity if the real need ever arises 
 for her to do so.
 
 370 ECONOMICS OF WAR 
 
 3. THE SHIPPING PROBLEM OF THE UNITED STATES' 
 
 Shipping is the limiting factor in our participation in the war. 
 Not only does the number of men whom we may place in the trenches 
 depend upon the shipping available for their transport, but their 
 maintenance is also rigidly determined by shipping considerations. 
 Various calculations of the tonnage required to maintain continuously 
 each combatant in active service have been made, ranging from two 
 to fourteen gross tons per man. 2 Among the things to be shipped to 
 maintain each combatant are guns, ammunition, food, clothing, 
 hospital supplies, motors, gasoline, horses and mules, fodder, railway 
 supplies, and mail for the fighting men and the men behind the lines. 
 To maintain an American army of five million men in the field will 
 therefore require from ten to twenty-eight million tons of shipping. 
 If we choose the latter figure, it is roughly two-thirds of the total 
 world's shipping, exclusive of Germany and Austria, in August, 1914. 
 
 The shipping problem may be summarized as follows: The 
 materials and supplies for war must pass through a narrow-necked 
 bottle on the way to Europe, and the rate at which this neck expands 
 will determine the rate at which we can effectively mobilize our 
 resources for war purposes. Now, to increase our shipping capacity 
 as rapidly as is required involves not only speeding up the work in 
 existing yards but also enlarging our shipbuilding facilities by divert- 
 ing labor and capital from less essential work. It means that parts 
 of ships must be manufactured by industrial plants wherever read- 
 justment for such work is practicable. It means, further, that 
 imports and exports of nonessentials must be curtailed in many 
 instances, to the end that tonnage may be released for war business. 
 And the restrictions of these imports and exports in turn necessitates 
 readjustments in the domestic industries dependent upon such trade ; 
 the labor and capital employed in such industries must be diverted 
 to the production of forms of war materials for which they may be 
 adapted. In short, the problem before us is nothing less than the 
 organizing of all the productive resources of the United States of 
 America with a single end in view that of building a bridge of ships 
 across the Atlantic and sending across that bridge in minimum time 
 a maximum of troops and supplies. 
 
 1 An editorial. 
 
 2 From a pamphlet entitled Ships, distributed by the Emergency Fleet 
 Corporation, July, 1918.
 
 TRANSPORTATION 371 
 
 It has been estimated that in the year 1918 the United States 
 could produce three times as much munitions and materials as could 
 possibly be shipped to Europe, though this estimate has had to be 
 changed because of the release of shipping for transatlantic routes on 
 the part of both England and the United States through a restriction 
 of imports. 1 But whatever the figures, it is certain that our entire 
 program of industrial mobilization waits on shipping. 
 
 XLII. Questions of Method 
 i. SHIPBUILDING STRATEGY 2 
 
 Even to the kind of person who knows what a million tons of 
 shipping looks like, mere figures can give no adequate picture of the 
 problems raised by our shipping situation. Questions arise as to the 
 best organization for the work, the best kinds of ships to build, and 
 the best methods of construction: problems with an economic side, 
 yet not to be settled by the ready-made economic formulas. As for 
 organization, we might have relied wholly on private enterprise, but 
 there are general reasons why this method does not mobilize industry 
 as industry must be mobilized for modern war, 3 and there is no ade- 
 quate ground for ignoring these facts in the special case of shipping. 
 It does not need enormous freight rates to tell us that shipping is the 
 weakest link in the Allies' chain of war resources and should be 
 granted the very first grade of priority. 
 
 The best design of ships is partly a matter of naval tactics, calling 
 for 'ships that can escape the submarine if possible, or ships that can 
 keep afloat after being torpedoed, or ships that are uniform enough in 
 speed to lend themselves to the convoy system. It is partly a matter 
 of harmonious use of the available resources, so that the building of 
 hulls will not outstrip the building of engines, nor the program be 
 partly nullified by an unexpected shortage of some one limiting factor, 
 whether it be ways on which to build the ships, or houses for laborers 
 in the shipyards, or riveters, or crews for the ships after construction, 
 or skilled ship-carpenters or special shapes of timber for wooden ships. 
 
 1 The restriction of imports under orders No. i and No. 2 of the United States 
 Shipping Board will release shipping to maintain in France continuously in the 
 neighborhood of 200,000 men, while the great increase in troop movements from 
 April to August was largely made possible by the curtailment of British foreign 
 trade. 
 
 ' 2 An editorial. J See chaps, iii and iv, above. 1
 
 372 ECONOMICS OF WAR 
 
 All these things call for a unified plan and a national policy, in which all 
 the information that is to be had on all these matters is brought to bear 
 on the signing of every contract and the driving of every rivet. 
 
 American shipping is in the hands of the United States Shipping 
 Board, and shipbuilding is in the hands of the Emergency Fleet 
 Corporation, created and controlled by the Shipping Board but in 
 effect almost a co-ordinate arm of the federal government. Ships 
 have been commandeered from enemy owners and from neutrals, and 
 ships under construction have been taken over, even when they were 
 being built for our Allies. This, of course, carries with it an obligation 
 to see that American tonnage is utilized as effectively as allied tonnage 
 for furthering the common cause and is not used to carry nonessential 
 freight. So far (July, 1918) the ships actually built and finished under 
 contract for the Shipbuilding Corporation have been very few com- 
 pared to those requisitioned, but the construction of ships under 
 contract is growing rapidly, and as a result of such measures the 
 governments of the United States and of their Allies have control 
 of by far the greater part of the free shipping of the world. 
 
 What sort of ships should be built? Small boats of only one 
 thousand tons, were suggested, with speed enough to outrun the 
 submarines. Not very economical cargo-carriers, to be sure, but 
 the submarines could not sink so many tons of this kind of shipping, 
 and price was not the vital issue. It soon became clear, however, 
 that the nation could not afford to build such boats, not because of 
 the extravagant outlay of money, but because of the more funda- 
 mental thing of which the money outlay is only a symptom; namely, 
 the need of getting the greatest possible freight-carrying capacity 
 out of a limited supply of steel, labor, shipyard capacity, and, more 
 than all else, engines and the capacity to produce them. For as 
 Secretary Daniels said: "We [the Navy] can build hulls faster than 
 we can build machinery. The same is true of the shipping board." 
 Under these circumstances we simply could not afford to use engines 
 to drive small ships at high speed, especially as the increase in speed 
 would be very small compared with the increased ratio of horse-power 
 to tonnage. The plants making engines can turn out more horse- 
 power in large engines than in small ones, and a given amount of 
 horse-power can drive more tons of freight in large hulls than in small 
 ones. If the plan for a vast fleet of mosquito-freighters meant that 
 we should put the same cargo-carrying capacity in a more expensive 
 form, we could find the money to pay for it, but it would really have
 
 TRANSPORTATION 373 
 
 meant fewer tons of shipping turned out, since no amount of money 
 would give us engines vastly beyond our present output, steel beyond 
 our present consumption, yards with vastly more ways than we now 
 have, and men to build and man the ships and officers to navigate 
 them. For in all these respects we are already doing our best, sparing 
 no outlay. Thus we are forced to build ships large enough to be 
 economical, even though we feel that war is no time to skimp expense 
 on vital war necessities, because we must needs count the resources the 
 expenses represent. 
 
 The war demand has stimulated builders to try new forms of 
 ships, thus hastening the progress of the science of shipbuilding 
 perhaps by decades. The shortage of steel has led to the use of wood 
 and concrete, raising highly interesting structural and economic 
 problems, while the "fabricated ship" of steel is a new departure, 
 made possible by quantity production and making possible in turn 
 unheard of speed in construction. To be sure, the saving of time on 
 the ways gives an exaggerated picture of speeding-up, because the 
 building of the ship is really begun before the keel is laid, and the new 
 method means that a larger part of the work is put upon the plants 
 where the parts are made ready. It has been estimated that 90 
 per cent of the work on a "fabricated" ship can be done away from 
 the yards. But this in itself is a gain, and saving of time on the ways 
 is peculiarly important. The larger the percentage of the work that 
 is pushed back into fabricating plants and the shorter the actual time 
 on the ways, the fewer ways need be built. If the fabricating plants 
 are in existing industrial centers instead of at the shipyards, the need 
 of new housing is considerably reduced. In building re-enforced- 
 concrete ships a new kind of concrete is used, very smooth, tough, and 
 elastic. Concrete has proved its usefulness for barges and has worked 
 well with small steamers, but it has yet to be tried on a large scale 
 in transatlantic carriage, and important technical questions are still 
 unsettled. 
 
 Wooden ships raised further questions. A plan for a thousand 
 such ships was made by engineers of the Shipping Board, and wooden 
 shipbuilding was begun by the British in Canadian yards while the 
 unrestricted submarine campaign was still young. At that time the 
 supply of steel was largely pre-empted for naval vessels and other uses 
 and there was not enough available for an adequate program of steel 
 merchant ships, though later large amounts were released for this 
 purpose. Whatever could be done with wooden ships would be, for
 
 374 ECONOMICS OF WAR 
 
 some time at least, practically clear gain, since the two types do not 
 compete for materials, for labor (so far as labor immediately available 
 is concerned), or for yard space (in existing yards). 
 
 But the hand labor used in old-fashioned wooden shipbuilding is 
 well-nigh a lost art, and the special sizes and shapes of timber required 
 are not easily to be had. The Pacific Coast had tried successfully a 
 new type of ship, somewhat less graceful in shape but using a higher 
 percentage of standard sizes and shapes of timber and calling for less 
 of the expert hand-labor of the old-fashioned ship-carpenter. A ship 
 of this sort, with improvements, was designed for the Fleet Corpora- 
 tion and some contracts were let. The rival design was of the more 
 traditional sort, and the then head of the Fleet Corporation (not 
 himself a shipbuilder) seemed to feel a natural conservatism about 
 committing himself to a design that was said to be not quite "the 
 best," though admittedly perfectly seaworthy and practicable. The 
 wooden-ship program was curtailed, and not until we had been at 
 war for more than a year was a program adopted as ambitious as the 
 original project of a thousand ships. By this time, however, we have 
 learned to shape the timbers in sawmills and to do the final fitting, 
 if any is needed, with an electric "dubbing" machine or an air-driven 
 planer or bevelling side-head, thus making the old-fashioned expert 
 adze-man unnecessary. Pneumatic calking tools and paint sprayers 
 further speed the work. 
 
 Forms of contracts made further difficulty. 1 Builders wanted the 
 payment to cover cost plus 10 per cent, while the Fleet Corporation 
 wanted builders to undertake delivery at a fixed lump sum. As a 
 matter of fact, neither form of contract was the best for just this 
 emergency, but it takes time to consider and adopt new forms, and 
 since the Fleet Corporation did not have such forms already worked 
 out, there was delay. 
 
 The housing problem presented another dilemma. 2 It was an 
 unprecedented industrial mobilization, and the army must have 
 cantonments wherever existing housing could not be stretched to meet 
 the emergency need. But while houses were needed before anything 
 else if they were needed at all, it sometimes took time and experience 
 to prove that they were needed; that the workmen could not "find a 
 place somewhere" satisfactorily, and that it did not pay to force them 
 to ride long distances to their work in overcrowded conveyances. 
 
 1 See "Forms of Contracts," selection LVI, 4. 
 
 2 See Section LX.
 
 TRANSPORTATION 375 
 
 In all these matters designs of ships, forms of contracts, and 
 housing policy we have "lost" time, not because there was not 
 enough knowledge in the country to meet the emergency, but rather 
 because the existing knowledge was not in the places and in the form 
 in which it would do the most good. The authorities had not pos- 
 sessed themselves of it, focussed the light from many sources on the 
 task of emergency mobilization, and achieved in advance and at 
 leisure the matured judgments and formulated plans which might 
 have prevented costly mistakes and far more costly delays. 
 
 Construction has gone ahead as fast as our economic and govern- 
 mental system could push it, but not as fast as our resources and 
 technical knowledge would have permitted if we had had organized 
 preparedness of ideas, statistics, contract forms, and plans. We have 
 had no economic general staff to make plans, in times of peace, for 
 the economic mobilizations of war, but if preparedness for war is to be 
 our future destiny, it will be plain that such economic mobilization 
 plans are, if anything, more important for the United States than the 
 purely military plans which our existing war college is charged to 
 provide. How such plans can best be provided, utilized, modified, 
 and supplemented, or perhaps even discarded, in emergenices is a 
 difficult question of administration. Under the wrong system 
 bureaucratic fossilization might do even more harm than our unpre- 
 paredness, which may have caused some waste motion but has 
 nevertheless achieved results larger than many an official would have 
 dared to plan for. 
 
 2. A SHIP BUILT IN TWENTY-SEVEN DAYS 1 
 
 The fastest job of shipbuilding ever done was the construction of 
 the steel steamship "Tuckahoe," 5,500 tons, dead weight, at Camden, 
 NJ. Her keel was laid on April 8, 1918, she was launched on May 5, 
 just 27 days, 3 hours, and 43 minutes after the laying of the keel, and 
 10 days later, on May 15, was delivered, complete in every detail, after 
 a trial trip, to the United States Shipping Board. One week later she 
 was starting on her first voyage with cargo. The best previous record 
 for the launching of a steel, ocean-going ship was 55 days, made at 
 Seattle earlier in the spring of this year; the average time, even under 
 forced speed, is about 100 days. 
 
 The rapid construction of the "Tuckahoe" is a demonstration 
 of the possibilities inherent in the method of shipbuilding that has 
 
 1 Adapted from World's Work (July, 1918), p. 329.
 
 376 
 
 ECONOMICS OF WAR 
 
 come to be known as the "fabricated" ship that is, a ship built to a 
 standard plan, with every part cut and fitted before being put into 
 place, whether at rolling mills many miles away from the shipyard or 
 in shops directly connected with the yards. It happens that the 
 New York Shipbuilding Corporation, which built the "Tuckahoe, " 
 has its own fabricating plant, although not of sufficient capacity to 
 keep up a supply of standard parts for all the ships it has under 
 construction at one time. At Hog Island, Port Newark, and most of 
 the other new emergency shipyards, dependence is placed for stand- 
 ardized parts on steel mills situated elsewhere. 
 
 XLIII. The Race between Building and Sinking 
 i. A YEAR'S DECLINE IN SHIPPING LOSSES 
 
 The world's shipping suffered a net loss of 2,632,279 tons from 
 the beginning of the war to April i, 1918, the greater part of this 
 having occurred since the beginning of the unrestricted submarine 
 
 CROSS 
 TONNAGE 
 1,000,000 
 
 900,000 
 
 1917 
 APR. MAY JUNE JULY AUG. SEPT. 
 
 1918 
 OCT. NOV DEC. JAN. FEU. MAR. APR. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ,'\ 
 
 TOT A I 
 
 
 
 
 
 
 
 
 
 
 
 
 700,000 
 
 600,000 
 500,000 
 400,000 
 300,000 
 200.000 
 100.000 
 
 
 A LI 
 
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 EUTKA 
 
 I.. ANL 
 
 B1UTI! 
 
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 ^^ 
 
 \^~- 
 
 ~-^~- 
 
 - . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 warfare which brought America into the war. This loss is partly due 
 to England's having increased her naval building at the expense of 
 merchant tonnage. While naval construction must not be neglected, 
 some building capacity can be turned back to merchant shipbuilding 
 in case of extreme need. However, in April, 1918, Great Britain and 
 the United States built 40,000 tons more shipping than was lost, and 
 American construction is still rapidly increasing.
 
 TRANSPORTATION 377 
 
 2. OUR GREAT SHIPBUILDING VICTORY 1 
 
 In an Independence Day speech Secretary of the Navy Josephus 
 Daniels said in part: 
 
 The gross tonnage of merchant ships built in the United States since the 
 commencement of the European War is 2,722,563 tons, 1,736,664 gross tons 
 of which have been built since the entry of the United States into the war. 
 In addition to the tonnage thus built, 650,000 tons of German shipping 
 have been taken over. This does not include the tonnage acquired in 
 Dutch, Japanese, and other vessels. It will be of further interest to know 
 that to-day there will be launched in the great shipyards of this country 
 over 400,000 dead-weight tons. These figures are in addition to those 
 previously given. 
 
 At San Francisco on July 4, Mr. Charles M. Schwab, director- 
 general of the Emergency Fleet Corporation, said: 
 
 In 1915 all the shipyards in America turned out 215,602 dead-weight 
 tons of shipping. The next year our output jumped to 520,847 tons. In 
 1917 the hot pace continued until we very nearly doubled the output of the 
 previous year, completing a total of 901,223. I am confident now that if 
 we pull together and every man stays on the job we will produce more than 
 3,000,000 dead-weight tons in 1918 the greatest output of any nation in 
 the world in a single year. 
 
 3. RESULTS OF SHIPPING PROGRAM, JULY, i 9 i8 2 
 
 WASHINGTON, July 9. Completion of twenty-three ships of 
 122,771 dead- weight tons in the first week of July made a total of 223 
 new vessels built under the direction of the Shipping Board. Their 
 aggregate tonnage is 1,415,022. Of the new fleet, 218 vessels already 
 are in actual service. 
 
 The July production is at the rate of more than 3,000,000 tons for 
 the remainder of the year, and if this pace is maintained by the 
 rapidly expanding shipyards the year's output will be close to 5,000,- 
 ooo dead-weight tons. 
 
 The first week's total in July comprised fourteen requisitioned steel 
 vessels and five contract steel vessels, with an aggregate tonnage of 
 108,271, and four wooden ships of 14,500 tons. 
 
 A total of 1 24 wooden ships has been launched to date. Twenty- 
 four steel ships have been built on contract, the - remainder being 
 requisitioned vessels. 
 
 1 Adapted from the Literary Digest (July 13, 1918), p. n. 
 
 2 Adapted from the Chicago Herald Examiner, July 10, 1918.
 
 378 ECONOMICS OF" WAR 
 
 Chairman Hurley, after a visit to the White House to-day, 
 announced that the Shipping Board had let contracts for ninety-two 
 army transports. 
 
 Deliveries will be made before December 31, 1919. A number 
 of the transports are building on the Pacific coast. 
 
 LONDON, July 9. Speaking in the House of Commons to-day, 
 Sir Leo Money, parliamentary secretary to the ministry of shipping, 
 said the percentage of ships lost while homeward bound to the United 
 Kingdom since January i, 1918, was rather more than i per cent. 
 The losses of food ships for the same period was less than i . 4 per cent. 
 
 The result of the convoy system, Sir Leo declared, continued to 
 improve. Since January, 1917, when the system was put into effect, 
 42,000,000 gross tons had been convoyed to British and French ports 
 with a loss up to June 29 of 1.29 per cent. This included loss by 
 bad weather. 
 
 XLIV. How the Allies Control International Shipping 1 
 
 In order to organize the economic resources and the national 
 machinery of production of other friendly nations in co-ordination 
 with our war-time nationalization of industry, food, railways, and 
 capital, for effective concentration of these to war's purposes, our 
 government has the War Trade Board, the Food and Fuel Adminis- 
 trations, the Foreign Exchange Control, and the Shipping Commission 
 all working closely together in policy and method. The result seems 
 to be a pretty well-centralized management of the big foreign activities 
 connected with our economic mobilization. 
 
 Shipping men of extensive activities have the opportunity of 
 seeing something of the way this works. The United States govern- 
 ment, in co-operation with its Allies, now has at service pretty nearly 
 every ship of any nation that sails the oceans. By an agreement with 
 Norway, Holland, and Sweden over two million tons of their shipping 
 have been directly chartered. We have agreed not to send some ships 
 into the war zone. They are working over peaceful areas of the world 
 for us. But through control of bunker-coal supplies, or by the right 
 to refuse entrance and clearance to shipping in our own harbors, we 
 are able to hold out inducements such as to make it possible for our 
 consulates even in neutral countries to have practical first say over 
 
 1 Adapted from an editorial in The Americas, March, 1918. Copyright by the 
 National City Bank, New York.
 
 TRANSPORTATION 379 
 
 available ships. Our War Trade Board would refuse license to ship 
 coal except under agreement by which the Shipping Board controls 
 even foreign supplies of it. A vessel in a foreign harbor whose services 
 are desired for our government's purposes finds it impractical to refuse. 
 A ship sailing from a United States port does so under license, and with 
 its arrangements for return voyage all made for it by order of the 
 Shipping Board, unless, indeed, the Board finds more urgent service 
 after it has gone and cables new orders for the return. In addition 
 to the employment of shipping for taking out and bringing in cargoes 
 in accordance with the wide-stretching plan of international war- 
 industry, we have obligated ourselves to supply certain European 
 neutrals with food, and in recent weeks, on government order, wheat 
 has been coming by ship-loads from Argentina for transshipment at 
 some Atlantic port. It comes up in the neutral vessels, which cannot 
 enter the war zone, and is transshipped to ships of the American, 
 British, or French flags for crossing the Atlantic. The Food and 
 Fuel Administrations are of course interested and in consultation. 
 So are the organizations of the War Department whose business it is 
 to keep war-production going. They probably use judgment, as week 
 after week brings new conditions, whether they most need hides, or 
 mahogany, or manganese, or wool, or nitrate, and in co-operation the 
 different parts of the executive machinery work together to do the big 
 business without interference of orders.
 
 X 
 WAR FINANCE 
 
 Introduction 
 
 It is significant that war finance finds so tardy a consideration in a 
 study of the economics of a world- war. In the old days preparedness 
 for conflict largely depended upon the size of the war chest possessed 
 by the king. With funds in hand he induced the service of mercenary 
 legions and procured the necessary supplies in foreign as well as 
 domestic markets. Under these circumstances money appeared the 
 very essence of military strength. At the beginning of the present 
 war this inherited view of the significance of money colored the think- 
 ing alike of statesman, financier, and layman. In those long-ago days 
 of 1914, how ominous seemed that war chest of $30,000,000 at Span- 
 dau ; and how encouraging the statement of Lloyd George that while 
 England might raise the first 100,000,000 no more easily than 
 Germany, it would be the last 100,000,000 that would win the war, 
 and here England's financial superiority would manifest itself. With 
 what confidence at the time of our entrance into the war did we not 
 view our own financial strength: we could raise billions of revenue for 
 the use of Uncle Sam and furnish in addition billions of "credit" to 
 our distressed Allies. If the problems that have been under considera- 
 tion in the preceding chapters of this volume have not already revealed 
 to every student of war that money is not a basic factor that it is 
 merely a convenient, if not always a satisfactory, mechanism for 
 accomplishing the fundamental work that needs to be performed it 
 is believed that the first division of this chapter will serve to indicate 
 the true function of finance. 
 
 While the service performed by money is a secondary or inter- 
 mediate one, it is none the less important that war be financed on 
 sound principles; for ill-conceived financial methods may delay the 
 mobilization of industry, impair the effectiveness of the entire eco- 
 nomic organization, and cause the grossest injustice as between 
 different classes of people. It is the purpose of Sections XL VI to 
 L to present the leading views and opinions on the complicated 
 questions here involved. 
 
 380
 
 WAR FINANCE 381 
 
 The readings show that conflicting views still prevail in respon- 
 sible quarters on even the basic principles. The explanation of this 
 is largely attributable to a confusion of financial with industrial 
 problems. Thus the banker argues (selection XL VI, i) that we 
 must let the next generation pay the bills, while the economist 
 (selection XL VI, 2) insists that under conditions where it is impos- 
 sible to borrow from a neutral world, war costs can be met only by 
 present sacrifices. It is argued on the one hand that all businesses 
 must be kept prosperous in order that revenue may be abundant 
 (selection L, i) and on the other that the maintenance of pros- 
 perity in nonessential industries means a "treacherous" (albeit 
 unwitting) assistance to the enemy (selection L, 2). 
 
 Another difference of opinion is owing to a difference in point of 
 view. To some, war finance is viewed primarily with reference to 
 principles of justice between income classes; to others the questions of 
 equality of sacrifice and ability to pay, while not to be omitted from 
 the reckoning, are nevertheless of subordinate importance as com- 
 pared with a rapid mobilization of the nation's industries for the 
 supreme and time-pressing task in hand. There appears to be, 
 however, an increasing disposition to view the financial problem, not as 
 a thing apart, but as an aspect of the one essential requirement an 
 effective mobilization of industry. 
 
 The successive Liberty Loan campaigns have resulted in inter- 
 mittently sweeping the investment markets clean of funds for the 
 uses of ordinary business. The result of this has been twofold: 
 first to render more difficult the undesirable competition of nonessen- 
 tial industries against the government; and secondly to hamper 
 essential businesses, whose continuance is of vital importance to the 
 government. It was to render assistance to these necessary industries 
 that the War Finance Corporation (Section LI) was formed. This 
 is confessedly an experiment in finance. As yet, however, it appears 
 to have been of little service. In many quarters, indeed, it is regarded 
 as an agency of great potential danger. Its future history will be 
 viewed with much interest by students of finance generally.
 
 ?2 ECONOMICS OF WAR 
 
 XLV. The Function of War Finance 
 
 i. POPULATION, WEALTH, INCOME, AND DEBTS OF 
 BELLIGERENT COUNTRIES 1 
 
 Country 
 
 Population 
 
 Wealth 
 
 Income 
 
 Borrowings 
 
 A. Entente Allies: 
 United Kingdom 
 
 AC, 2 TO,"? 3O 
 
 $80,000,000* 
 
 $10,500,000* 
 
 $19,000,000* 
 
 France 
 
 30,601, zoo 
 
 70,000,000 
 
 6,000,000 
 
 11,000,000 
 
 Russia 
 
 178,378,800 
 
 50,000,000 
 
 6,500,000 
 
 13,000,000 
 
 Italy 
 
 36,120,118 
 
 25,000,000 
 
 4,000,000 
 
 3,000,000 
 
 Belgium and Serbia 
 
 10, ??<, 68? 
 
 12,000,000 
 
 1,250,000 
 
 
 Portugal and Rumania . . 
 
 1 3,461;, 004 
 
 7,000,000 
 
 600,000 
 
 
 United States 
 
 102,826,309 
 
 220,000,000 
 
 38,000,000 
 
 
 
 
 
 
 
 Entente nations 
 
 426,008,04.'; 
 
 $464,000,000 
 
 $66,850,000 
 
 $46,000,000 
 
 
 
 
 
 
 B. Central Powers: 
 Germany 
 
 64,Q25,QQ^ 
 
 $87,000,000 
 
 $10,500,000 
 
 $15,500 ooo 
 
 Austria-Hungary 
 
 49,458,421 
 
 40,000,000 
 
 5, 500,000 
 
 7,000,000 
 
 Turkey and Bulgaria. . . . 
 
 25,611,416 
 
 7,000,000 
 
 1,000,000 
 
 1,130,000 
 
 Central nations 
 
 I?Q, 005,8^0 
 
 $134,000,000 
 
 $17,000,000 
 
 $23,630,000 
 
 
 
 
 
 
 * ooo omitted 
 
 2. CAN CAPITAL BE CONSCRIPTED? 2 
 
 A cabled despatch from London, published in the Evening Sun, 
 October 9, 1917, described a startling fiscal innovation which it was 
 asserted was to be proposed by the government of Great Britain: 
 "England," ran this cable, "is preparing to conscript capital liter- 
 ally The British Government to-day has practically decided 
 
 to take the next step and levy directly upon capital. Barring a change 
 of opinion in the meantime on the part of those responsible for the 
 British financial policy, such a levy will be made soon after the war 
 ends." Of course the report has aroused comment in England as 
 well as here. Has it any foundation ? 
 
 Even should the war be brought to a speedy end, it is said, Great 
 Britain will be obliged to raise by taxation 500,000,000, or about 
 $2,500,000,000, of which about one half will be required for the regular 
 
 1 Table prepared by R. R. McElvare and Louis Gottlieb, of Columbia Uni- 
 versity. In War Finance Primer, National Bank of Commerce, New York, 
 May, 1917. 
 
 2 Adapted from Business Digest, December 12, 1917.
 
 WAR FINANCE 383 
 
 running expenses of the government and the other half to meet the 
 interest on the war debt. 
 
 The plan seems to have been definitely formulated first by the 
 Round Table a group of the most intellectual and influential students 
 of political and economic problems in the British Empire. The 
 following excerpt from their organ, The Round Table, indicates the 
 operation of the scheme: 
 
 The difficulty of applying the method of a levy on capital is probably 
 not so great as appears at first sight. Take, for instance, the case of the 
 United Kingdom. The total capital wealth of the community may be 
 estimated at about 24,000 millions sterling. To pay off a war debt of 3,000 
 millions sterling would therefore require a levy of one-eighth. Evidently 
 this could not be raised in money, nor would it be necessary. Holders of 
 war loans would pay their proportion in a simple way, by surrendering one- 
 eighth of their scrip. Holders of other forms of property would be assessed 
 for one-eighth of its value and be called on to acquire and to surrender to 
 the state the same amount of War Loan scrip. To do this they would be 
 obliged to realize a part of their property or to mortgage it. But there is 
 no insuperable difficulty about that. 
 
 Another exponent of the conscription plan is Mr. Alfred G. Gardi- 
 ner, editor of the London Daily News. He, like the Round Table, 
 has decided that there is no other way open to the government except 
 that of the conscription of an important part of the wealth or capital 
 of the British rich and well-to-do. An idea of how he would go about 
 the matter may be derived from the following passage in his article, 
 "How to Pay for the War": 
 
 The capital of the individuals of the nation has increased during the war 
 from 16 thousand millions to 20 thousand millions. A ioper cent levy on this 
 would realize two thousand millions. It would extinguish debt to that 
 amount, and reduce the interest on debt by 120 millions. In doing so it 
 would nearly balance our budget and preserve our national solvency. The 
 levy would be graduated say, 5 per cent on fortunes of 1,000 to 20,000, 
 10 per cent of 20,000 to 50,000 up to 30 per cent on sums over a 
 million [The individual] would pay it in what ever form was con- 
 venient, in his stocks or his shares, his houses or his fields, in personalty or 
 realty. 
 
 The partisans of the conscription program are described as "con- 
 siderable groups of the working class on the one hand, and the social- 
 istic or semi-socialistic improvers of society, on the other."
 
 384 ECONOMICS OF WAR 
 
 3. THE PLACE OF MONEY IN WAR FINANCE 1 
 
 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 deter- 
 mined 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 your 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 to us 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 require- 
 ments of food, clothing, and munitions of war. It was Bismarck, I 
 think, who said: "If you will give me a printing-press, I will find you 
 the money. ' ' No doubt 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 in my opinion 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. 
 
 Therefore, though the mechanism of finance is exceedingly impor- 
 tant, the vital thing both for a country itself and for its Allies, is that 
 it should produce and so have available everything required for war, 
 both for itself and for them. This may seem an elementary fact, but 
 I lay stress on it because it is to my mind fundamental and the key 
 
 1 By R. H. Brand (see p. 191). From an unpublished address before the 
 American Bankers Association, September, 1917.
 
 WAR FINANCE 385 
 
 to the actions of a government at war. If the goods are not there or 
 cannot be obtained from other countries in some way or other, no 
 method of financing will avail at all. The all-important thing is 
 therefore the annual production of the people for war, and the amount 
 of that production which is left over after satisfying civil consumption 
 and which is available for the war needs of the nation itself or of its 
 Allies. In other words, the all-important thing is that the government 
 should assist in the development of the maximum productive capacity 
 of the nation, should direct that productive capacity into channels 
 suitable for war, and should restrict entirely the consumption of 
 nonessentials. 
 
 4. HOW THE GOVERNMENT USES THE MONEY 1 
 
 Someone has said I think it was Napoleon that three things 
 are necessary to wage a war successfully: money, more money, and 
 still more money. There is a great deal of truth in this statement in 
 ordinary wars, but as applied to the United States in the present 
 conflict it is entirely misleading. Money is of paramount importance 
 when a nation may buy its war supplies from abroad. England and 
 France, for instance, before our entrance into the war, purchased 
 with money vast quantities of war supplies from the United States. 
 But it is impossible for us to use money, to any great extent, in buying 
 goods from other nations, for the simple reason that the entire com- 
 mercial world is now at war. With his money Uncle Sam can buy 
 war supplies only from himself. There are of course a few exceptions 
 to this, such as nitrates and rubber, but, substantially speaking, 
 Uncle Sam must produce all the things which he is to use in the war. 
 We, the people, turn funds into the Treasury and then Mr. McAdoo 
 buys from us the supplies needed. The amount that he can buy is 
 determined, in practice, by the amount of war supplies we have 
 produced. Similarly, when we extend credit to our Allies we really 
 say to them, We will furnish you with materials and supplies now and 
 you may pay for them after the war is over. This point must be 
 strongly emphasized; for many people fancy that furnishing credit 
 to our Allies means merely sending them money, or perhaps some sort 
 of draft or credit instrument. In the last analysis it always means 
 that we send them goods, which they are to pay for at some future 
 time. 2 
 
 1 An editorial. * Cf. Section XVII, p. 178.
 
 386 ECONOMICS OF WAR 
 
 5. RELATION OF BANK CREDIT TO WAR FINANCE 1 
 
 There is something so plausible and insidious about the idea of 
 financing the war by having the banks create new credit that the 
 stern alternative of cutting down the use of credit for other purposes, 
 and of curtailing all business but that which supports the war, has a 
 poor chance of popular favor beside it. 
 
 What is the objection to a pyramid of credit, based upon govern- 
 ment bonds and consisting, first, of individual credit, second, of 
 member bank credit, and, finally, of reserve bank credit, all backed 
 by the taxing power and the power to issue money ? What can be 
 better than such a combination as this? Why not finance the war 
 in this way ? 
 
 The answer is that this pyramid of credit cannot add one day's 
 work to the industrial resources of the country. The entire program 
 upon which the government is proposing to spend about $20,000,000,- 
 ooo this year is all a matter of days' work. In times of peace the 
 labor of the country is employed in private operations. The pro- 
 duction consists in part of necessaries for immediate consumption, in 
 part of luxuries, and in part of additions to the productive equipment. 
 Now comes the war, and the government wants to take over a great 
 portion of the working force and also asks the people to turn into the 
 Treasury money enough to pay it. The rational way of complying 
 with this request would seem to be, first, to cut out the production of 
 luxuries or nonessentials; second, to cut down the additions to per- 
 manent improvements and equipment, restricting them to such only 
 as will aid in carrying on the war and the essential industries; third,' 
 to keep enough people employed upon necessaries to support the 
 country and the Army, and to put all the others on war work; fourth, 
 to turn into the Treasury through taxes and loans the money which 
 was previously paid to the people now released from private service 
 to war work; since we are no longer expending it in the old way we 
 can let the government have the use of it. The account balances. 
 The country has simply diverted purchasing power from one class of 
 work to another. 
 
 The other way of meeting the government's appeal for help is 
 to say, as considerately as possible and with all possible assurance of 
 patriotism, that we are sure that if allowed to continue our industries 
 and occupations as usual we shall be able to do a great deal more for 
 
 'Adapted from the February (1918) circular of the National City Bank of 
 New York.
 
 WAR FINANCE 387 
 
 the government than we possibly can if we are interfered with; 
 therefore we offer to cooperate in setting up this pyramid of credit and 
 challenge the world to show wherein this credit is defective or insuffi- 
 cient. We, as individuals, will give our notes to our bankers, the 
 latter will lend us the credit with which to buy government bonds, and 
 we will deposit the bonds with our notes as collateral security; the 
 bankers can rediscount these notes at the Federal Reserve banks, and 
 thus recoup themselves for the advances they have made; and, finally, 
 the Federal Reserve banks, on the strength of the government bonds 
 in their possession and by virtue of the power to issue money, can 
 furnish the currency to pay all bills. 
 
 The object of this elaborate scheme this pyramid of credit is 
 to supply the government with the means to go off and fight the war by 
 itself, leaving us, the people, to go on with business as usual, undis- 
 turbed. The only weakness in the scheme is that it does not provide 
 the government with army, navy, or equipment. These can be had 
 only by taking men labor out of peace employments and placing 
 them in the employ of the government. But when this is done, they 
 go off our private pay-rolls and upon the government's pay-rolls, and 
 if we will now pay into the Treasury what we formerly paid to them, 
 or for the things they were making, there will be no need for a pyramid 
 of credit. 
 
 XLVL Can the Cost of the War Be Postponed? 
 
 i. THE BURDEN SHOULD BE SHIFTED TO THE 
 FUTURE 1 
 
 There are two main sources through which the financing of a war 
 may be accomplished. One is the sale of securities bonds and war 
 savings stamps; the other, the collection of taxes. It is not simply 
 a matter of getting the money or credit to pay war bills, but how to 
 get it with the greatest assurance that we are adding to our fighting 
 efficiency. 
 
 Experience teaches that it is not best to put an undue strain 
 upon any business organization by using its working capital too closely. 
 The better policy is to go into the money market and borrow new 
 capital, if the business needs expanding, either by making loans at the 
 
 1 By George M. Reynolds, from the Chicago Tribune, July 8, 1918. 
 ED. NOTE. Mr. Reynolds is president of the Continental and Commercial 
 Bank of Chicago, and one of the best-known bankers in America.
 
 388 ECONOMICS OF WAR 
 
 bank or by selling securities. In this war enterprise the government, 
 made up of all the people and all the industries in the country, repre- 
 sents the business organization,, which, necessarily, has been expand- 
 ing tremendously since we entered the war, and the problem is, How 
 far can we go in using up the working capital of the people and the 
 industries through the tax-levying power, which takes this working 
 capital without leaving an equivalent against which loans might be 
 secured ? 
 
 If we pay taxes we have nothing left but the receipt; if we buy 
 government bonds we have the obligation of the richest government 
 on earth, an obligation that is good as collateral for the loan of new 
 credit to replace that used in paying for the bonds. A man with a 
 hundred, a thousand, or a hundred thousand dollars' worth of Liberty 
 bonds feels the optimism born of the possession of property, whether 
 he expects to use the bonds as collateral or not; -and in this struggle 
 we must not quench optimism, for it is back of the national morale 
 which strengthens the Army and Navy. 
 
 We now have all the worries and hardships of the actual fighting, 
 and we ought to avoid making them unduly burdensome. It is only 
 just that we spread the financial problem over a number of years 
 through obtaining a very liberal part of our war funds by the sale of 
 bonds. 
 
 The administration, the Treasury, and the Congress are in posses- 
 sion of more of the facts than the rest of us and are better able to 
 decide how far we may safely go in levying taxes. The principle to 
 be observed, and no doubt the one they will endeavor to follow, is 
 that taxes should not be so heavy as to curtail production. 
 
 2. THE BURDEN CANNOT BE POSTPONED 1 
 
 The most basic fact which must be borne in mind in discussing 
 this problem is that, for the people considered as a whole, domestic 
 borrowing postpones no burden to the future. This really follows 
 at once from the fact that only goods produced before or during the 
 war or men living during the war can be used in conducting the 
 conflict. We cannot shoot a shell to be made in 1930. The future 
 is not here to bear burdens. Of course borrowing abroad does make 
 it possible to postpone the burden of the home country. 
 
 1 By E. Dana Durand. Adapted from "Taxation versus Bond Issues for 
 Financing War," Journal of Political Economy, XXV (November, 1917), 883-916. 
 
 ED. NOTE. Mr. Durand, professor of political economy at the University 
 of Minnesota, is now serving as expert in the Food Administration.
 
 WAR FINANCE 389 
 
 Borrowing at home, so far as a nation as a whole is concerned, is 
 precisely similar to borrowing by an individual from himself. The 
 reason the individual may gain by borrowing is because he borrows 
 from another person. Would John Smith gain anything by writing 
 a note to this effect: "Fifty years from date I and my heirs promise 
 to pay to myself and my heirs $1,000 with interest at 6 per cent"? 
 So far as the nation as a nation is concerned, a government bond issued 
 at home is precisely similar to such a note in its effect. 
 
 This idea that the burden of war expenditures can be deferred to 
 future generations is the supreme fallacy of finance. Many a business 
 man whom we have every reason to consider sincere insists that he 
 is willing to bear his full and just share of the war burdens, but adds 
 that he can see no fairness in making the present generation bear the 
 entire cost of the war, when the future generations are equally to 
 profit by it. The future generations will, to be sure, have their burden 
 from this war. They will have, in all probability, a somewhat 
 depleted heritage of capital. But the future generations cannot repay 
 to the present generation its outlay in the conduct of the war. 
 
 Conceive, for example, that the present generation should wholly 
 pass away in forty years. If war bonds still remained unpaid, the 
 next generation would have to bear taxes to pay interest and principal. 
 But it would be paying to itself; it would have inherited the 
 bonds as well as the taxes. What it 'paid would not be a burden on 
 the people of that generation as such. It would not be repaying 
 the present generation. The fact that generations gradually merge 
 into one another does not change in the slightest the logic of the 
 matter. 
 
 The same argument which applies to the future generations applies 
 as well to the future years of the present generation. Professor 
 Seligman, among others, is not disposed to favor long-term bonds, but 
 urges short-time bonds in preference to taxes for a large part of the 
 war expenditure. He says it would be easier for the people to pay 
 for the war in ten years than in three, assuming that it is over in three 
 years. As a matter of fact, for the people considered as a whole it 
 would not be one whit easier. What the people as a whole receive as 
 interest and principal repayment, that they must also pay. They 
 defer no burden by the short-time bonds. 
 
 The controversy which is now raging between the advocates of 
 taxation and the advocates of bond issues as a means of war financing 
 results in part from lack of clear thinking and in part from the con- 
 flicting interests of individuals and classes. Confusion of thought is
 
 3QO ECONOMICS OF WAR 
 
 probably the principal source of conflict. There is no economic 
 subject as to which fallacies are more widespread and deep-seated. 
 
 We shall clarify our thought if with some precision we consider, 
 first, the sources from which funds for war expenditures can be drawn. 
 It should be observed that this inquiry comes substantially to the 
 same thing as an inquiry regarding the sources from which the labor 
 and the commodities for war uses can be obtained. What the govern- 
 ment needs for war is not money but men and goods. 
 
 The only important source of funds for war expenditure consists 
 of the surplus of current income the excess of the income of the 
 people above their other expenditures during the actual war period. 
 This again is the same thing as saying that it is chiefly by the diversion 
 of the current productive power of the nation to war channels that 
 the war must be provided with men and supplies. The surplus of 
 income represents the surplus of labor performed and commodities 
 produced during the war which are not used for non-war purposes. 
 
 A surplus of current income available for war expenditure may be 
 obtained in three ways: first, by an increase of production through 
 speeding up; second, by saving in consumption; and third, by 
 reducing the investment of new capital in non-war enterprises. 
 
 It has been estimated by the National City Bank that approxi- 
 mately $5,000,000,000 of the annual income of the country is in normal 
 times devoted to new investments. It is a familiar fact that many 
 persons of large income invest annually from half to nine-tenths of 
 their income. Much as we should prefer not to check our industrial 
 progress, we must remember that the very fate of all our past invest- 
 ments indeed the fate of the nation itself is at stake in the war, and 
 that, purely from the material standpoint, it is good economy to spend 
 what is necessary to save them, even if we temporarily forego industrial 
 expansion. It is probable, in fact, that the largest one source of funds 
 for the conduct of the war will have to be found in the diversion of the 
 surplus income which ordinarily goes into investment. 
 
 Sources of war revenue other than the surplus of current national 
 income are, for the most part, either not available for the United 
 States or comparatively unimportant. 
 
 In the first place, it is evident that a war might be financed in part 
 by the accumulation by the government of great quantities of muni- 
 tions and other supplies during previous times of peace. That means 
 preparedness. That our government has done very little in this 
 direction is all too obvious.
 
 WAR FINANCE 391 
 
 In the second place, a war may be financed to some extent by 
 borrowing abroad, by securing the surplus of the income of foreign 
 countries on promise of repayment out of future income of the home 
 country. It is obvious that the United States could not now, if it 
 would, use this means of war finance; on the contrary, it is under the 
 necessity of itself lending heavily to its Allies. 
 
 In the third place, some writers, lay considerable stress on the 
 thought that previous accumulations of private capital may furnish 
 an important means of war finance. Professor Seligman, for example, 
 in his recent brochure, How to Finance the War, suggests that there 
 may be a large loan fund in existence, the accumulated profits of 
 recent years which have not yet been invested, the use of which in 
 payment of subscriptions to the loan involves simply a change of 
 investment from private enterprise to government service. 
 
 This suggestion rests in considerable part on a confusion between 
 individual economy and the economy of society as a whole. There 
 is not at any one time a very large uninvested surplus of previous 
 income. The individual may have a large amount, say, of last year's 
 income deposited in a bank or invested in a temporary loan. He 
 expects to withdraw the deposit or to collect the loan later and to 
 make a more permanent investment. For him it is an available 
 surplus. Meantime, however, the money is being used. It is repre- 
 sented by fixed or circulating capital in the hands of borrowers from 
 the bank or from the individual capitalist. If the owner of the 
 surplus income withdraws it from the bank or from the loan to buy 
 government bonds or otherwise finance the war, the borrowers must, 
 primarily from the surplus of their current income, repay what they 
 have borrowed. Current income must, for the most part, foot the 
 bill. 
 
 Again, Professor Henry C. Adams suggests that, while we cannot 
 convert fixed capital into war supplies, it is possible to do so with 
 circulating capital. Such a process, however, has very narrow limits. 
 Circulating capital, in the last analysis, consists essentially of partly 
 finished products, of stocks of finished consumable goods, and of 
 finished capital goods of certain kinds not yet actually in productive 
 use. The total of such products and goods in the country at any one 
 time probably represents only a fraction of one year's income. Many 
 of them are not adapted to war uses. Besides, only a comparatively 
 small part of them can be dispensed with. They are, in the main, a 
 part of the necessary means of conducting business. At the utmost,
 
 392 ECONOMICS OF WAR 
 
 it would scarcely be possible to finance more than part of the first 
 year of a war through the use of previously accumulated circulating 
 capital. 
 
 Another way, comparatively unimportant, in which previously 
 accumulated capital may be made a source of war revenue is by 
 allowing fixed capital to depreciate during the war. However, so 
 far as such fixed capital is used in necessary production, a policy of 
 this kind would soon prove disastrous. It would before long result 
 in a reduction of current income. 
 
 The conclusion seems to be, therefore, that the surplus of current 
 income must be the principal source of funds for the financing of the 
 present war. The fundamental question is whether that surplus shall 
 be obtained for government use by borrowing it or by taxation. 
 
 XL VII. Bonds or Taxes in What Proportion? 
 i. CONSCRIPTION OF INCOME 1 
 
 Conscription of men should logically and equitably be accom- 
 panied by something in the nature of conscription of current income 
 above that which is absolutely necessary. The obligation that each 
 citizen furnish the state in time of war a large portion of his current 
 income manifestly would impose no more oppressive burden than the 
 obligation of military service. To be sure, the pressing necessity 
 which leads to compulsory service is absent, since it is possible to 
 finance a war by means of borrowing. Yet as a permanent war- 
 finance policy borrowing has limitations which should exclude it from 
 any comprehensive scheme of military preparedness. Modern wars 
 are so enormously costly that a country which resorts to borrowing 
 has not merely created for itself a difficult problem of taxation after 
 the return of peace; it has also placed itself in a financial position 
 which will make it exceedingly difficult to find the money to maintain 
 and improve its military establishment in future years. Purely as a 
 military measure, then, the conscription of income during a war should 
 be adopted, unless such a policy would prove in any way a serious 
 obstacle to the effective conduct of hostilities. 
 
 The injustice of treating those who provide the funds for war 
 purposes more generously than those who risk life itself will not be 
 
 1 By O. M. W. Sprague. Adapted from "The Conscription of Income," 
 Economic Journal (March, 1917), pp. 5-6. 
 
 ED. NOTE. Mr. Sprague is professor of political economy at Harvard Uni- 
 versity.
 
 WAR FINANCE 393 
 
 questioned. Consider for a moment the contrast under the borrowing 
 method of war finance between a soldier in receipt of an income of 
 500 pounds before a war and his neighbour who remains at home in 
 continued receipt of a similar amount. The civilian reduces his 
 expenditure in every possible way and subscribes a total of 800 
 pounds to a war loan. He is rewarded with a high rate of interest, to 
 which his soldier neighbour must contribute his quota in higher taxes 
 if he is fortunate enough to return from the front. The contrast 
 becomes still greater if, as often happens, the income of the stay-at- 
 home increases during the war and if he is able to secure a superior 
 position. On the other hand, the soldier often finds it difficult to 
 secure a position as good as that from which he was taken at the 
 beginning of the war. 
 
 2. TAX POLICY IS MOST EQUITABLE 1 
 
 While domestic bond issues postpone no burdens to the future as 
 such, they do make possible a readjustment of the war outlay as. 
 between individuals and classes in the community. The really 
 fundamental questions involved in the issue of taxation versus 
 borrowing as a means of war finance are questions of social justice in 
 the distribution of burdens. The war must be paid for now, but there 
 may be a reassessment of expenses among us afterward. For instance, 
 those who have paid more in the first place may be recouped by those 
 who have paid less. We shall all have bought our chips, but we may 
 still play to see who gets and who loses them. 
 
 If we could assure ourselves that the distribution of taxes after 
 the war would be as just as the distribution of taxes during the war, 
 there would be little choice between taxation and borrowing, were it 
 not for the fact that, by inflating prices, bond issues cause injustice 
 as between individuals and classes, a point which will be discussed 
 later. 
 
 Most of what will be said with regard to the relative advantages 
 of bonds and of taxation has particular reference to that part of war 
 expenditures which is paid for, in the first instance, out of the surplus 
 of the current income of the people. To the extent that previously 
 accumulated capital can be and is to be taken for financing the war, 
 it should be obtained by borrowing and not by taxation. It may be 
 suggested, however, that if the advantages of taxation over borrowing 
 
 1 By E. Dana Durand. Adapted from "Taxation versus Bond Issues for 
 Financing the War," Journal of Political Economy, XXV (November, 1917), 
 893-902.
 
 394 ECONOMICS OF WAR 
 
 as a means of securing the surplus of current income should appear 
 material, we ought seriously to question the wisdom of trying to induce 
 men to contribute out of their capital by offering bonds, many of 
 which of course will be bought at the same time by others out of 
 income. At any rate, the policy of issuing bonds for this purpose 
 may well be confined to the early stages of the war, during which, in 
 any case, it is difficult to get the taxing machinery into shape to collect 
 adequate funds. 
 
 The two fundamental questions in the issue of taxation versus 
 borrowing are: In the first place, is the ultimate assessment of the 
 burden of war expense on a highly progressive principle socially just ? 
 In the second place, is it feasible to collect by taxation any such pro- 
 portions of the income of the several classes as it would be necessary 
 to collect if no bonds were issued ? 
 
 We certainly could not collect the entire cost of the war by taxa- 
 tion unless we levied taxes at highly progressive rates. Is this a fair 
 distribution? Or would it be more fair that part of the moneys 
 which the more well-to-do contributed should be later repaid to them 
 by the less wealthy ? 
 
 Most of us, business men and economists alike, believe in some 
 measure of progression in the taxes for war purposes, whether levied 
 during the war or after its close. The only difference among us is 
 usually a matter of degree. If, as is pretty generally conceded, the 
 principal measure of just distribution in taxation is the ability to pay, 
 the degree of sacrifice involved in the payment, the rich man unques- 
 tionably may properly be called on to pay a materially larger propor- 
 tion of his income as a tax than the poor man. To take from a man 
 who has an income of $600 a tax of $60 cuts distinctly into his standard 
 of living; it makes him forego what are virtual, if not absolute, 
 necessities. To take from a man who has an income of $100,000 a 
 tax of $10,000 involves little, if any, reduction in his standard of 
 living; in all probability it means merely a reduction in the invest- 
 ments which he makes out of income a slowing up in the rate of 
 accumulation of his wealth and of increase in his income. The 
 sacrifice of the poorer man is far greater than that of the richer. 
 
 The principle of equality of sacrifice justifies a very considerable 
 measure of progression in tax rates, even for ordinary peace expendi- 
 tures. For war expenditures the argument in favor of progression 
 is still stronger, and a more rapid rate of progression is justifiable. 
 For in war time the need of the nation is so great that it calls upon 
 multitudes of its citizens for the greatest of all sacrifices, that of their
 
 WAR FINANCE 395 
 
 very lives. The welfare of the entire country, both for the present 
 and for the future, is at stake. It is the duty of every citizen to share 
 in war's burdens to his utmost. There is no definable limit to his 
 obligation. The citizen who contributes even his entire income 
 beyond what is necessary to subsistence itself does less than the citizen 
 who contributes himself to the nation. 
 
 If conscription of men is justifiable, conscription of income is a 
 logical corollary. This slogan has been attacked in some quarters 
 on the ground that it assumes that only the poorer men will be con- 
 scripted to fight. It is urged, and rightly enough, that, as a matter 
 of fact, the rich are equally subject to conscription, and indeed are 
 quite as likely as the poor cheerfully to devote their lives to the 
 nation's service. But has this criticism any real validity? The 
 principle of conscription implies the justice of demanding from each 
 citizen all that he can give, both of personal service and of money 
 contribution, not the one as a substitute for the other. It is the duty 
 of the poor man, if called upon, to give what he can spare from his 
 income, and his life as well, and it is the duty of the rich man to do the 
 same. We ask of each citizen to sacrifice his all, if need be, for his 
 fellow-men and his posterity. 
 
 In discussing the social justice of a system of war financing we 
 may properly consider, moreover, the ultimate effect upon the distri- 
 bution of wealth and income among classes of the community. 
 Many, if not most, of us believe that, quite regardless of the methods 
 by which the more well-to-do have obtained their wealth or obtain 
 their present incomes, the inequality in income as among the various 
 classes is greater than is socially desirable. A tremendous gap lies 
 between the penury of the millions and the affluence of the few. We 
 should dislike to see any action of the government in connection with 
 the war which would increase this disparity of income. 
 
 Now it is evident that, if the war is financed by bonds with a view 
 afterward to providing for the debt service by taxes less highly pro- 
 gressive than would be necessary if the expenses were met by taxation 
 during the war itself, the result would be ultimately to make the 
 rich richer. Part, at least, of the saving which they undertook during 
 the war in order to contribute to the government's needs would ulti- 
 mately be repaid to them out of taxes levied upon the poorer classes. 
 Their capital would thus become greater than it was before the war. 
 After the taxes for repaying war bonds had ceased, the annual income 
 of the rich bond-buyer would be actually greater than before the war. 
 On the other hand, if during the war itself highly progressive taxes
 
 396 ECONOMICS OF WAR 
 
 were levied sufficient to meet the war expenditures, they would not 
 serve, in any appreciable degree at least, permanently to lessen the 
 inequality of income. They would not make the rich permanently 
 poorer. This statement assumes that the taxes would be paid out of 
 income, not out of capital an assumption which requires but insig- 
 nificant qualification. The sacrifice of all classes would be temporary 
 for the period of the war. only. After the war expenditure ceased 
 each class would be in the same relative position as before. Only 
 during the war would the income of the rich be reduced more than that 
 of the poor. 
 
 The tax policy, then, is more likely than the bond policy to mean 
 the ultimate payment of war burdens in the manner which is socially 
 equitable. 
 
 In one very minor respect perhaps the reassessment of war 
 expenses after the war, made possible by the bond plan, may con- 
 tribute to justice. There are at all times occurring changes in the 
 incomes of individuals. Great fortunes disappear. The newly rich 
 man of the future will of course be a beneficiary of the results of the 
 war. It might be considered fair perhaps that out of his new riches 
 he should contribute large taxes toward the bonds held by those who 
 furnished funds during the war. However, these changes in the 
 distribution of income are not so great as is sometimes supposed. 
 Particularly if the war is financed by short-time bonds, the great bulk 
 of the nation's income will, during the period of bond repayment, be 
 distributed in substantially the same fashion as at present. The really 
 important question regarding the just assessment of war burdens does 
 not arise out of changes in the distribution of income, but out of the 
 inequality in the distribution of income. The important thing is that 
 there should be a fair apportionment of taxation as between the richer 
 and the poorer classes. It is much to be feared that it would be less 
 possible to secure such a fair apportionment if the war expenditures 
 are reassessed after the war under the bond plan than if they are 
 settled, once for all, under the policy of "pay as you go." 
 
 3. A CRITICISM OF HEAVY TAXATION 1 
 
 An effort has been made to commit the United States to the policy 
 of financing the war exclusively by taxation. It is seriously contended 
 that, except for such funds as are immediately needed, the whole 
 
 'By Charles J. Bullock. Adapted from "Conscription of Income," North 
 American Review (June, 1918), pp. 895-98. 
 
 ED. NOTE. Mr. Bullock is professor of economics at Harvard University.
 
 WAR FINANCE 397 
 
 expense should be met by increasing taxation to whatever extent may 
 prove necessary. This is supposed to be entirely practicable and 
 is claimed to be the only plan consistent with social justice. 
 
 The first argument in favor of this proposal is that, except in so 
 far as a country can borrow money abroad and with it purchase 
 supplies in other lands, the whole burden of war must in any event be 
 met as it goes along, whether we resort to loans or to taxation. The 
 real cost of war consists of the food, clothing, arms, munitions, and 
 the like that must somehow be purchased and then consumed in 
 military operations. This burden cannot be passed along to the next 
 generation, but must be borne day by day as the war proceeds. Why 
 not then finance it exclusively by taxes and avoid the delusion that 
 by employing loans we are in fact passing any part of it on to our 
 successors ? 
 
 Such reasoning, so far as it goes, is correct. But it does not 
 reckon with all the factors in the problem. It deals only with the 
 real costs of war conceived in terms of material commodities and 
 ignores the distinction between these real costs and the money costs 
 into which they must be translated before we can reason in terms of 
 actual life. We cannot take it for granted without careful investi- 
 gation that in a complex state of society where business is transacted 
 by an intricate system of exchange based upon the institutions of 
 money and credit it is possible for a government by means of taxation 
 to transfer abruptly, let us say, $5,000,000,000 from the pockets 
 of taxpayers to the firing line without producing undesirable results 
 and perhaps disaster. It is as if an engineer who wished to gather 
 up a vast supply of water from distant sources and convey it to a 
 reservoir in a great city should conclude that it was merely a matter 
 of transferring so many gallons of water from one point to another and 
 should give no thought to the sources from which the supply was 
 drawn or to the apparatus through which it was distributed. 
 
 The question is one of the proper distribution of strain upon a 
 complicated business mechanism which is now adjusted to work in 
 certain ways and can be altered only gradually if we would avoid 
 disaster. There are in the United States many people who have 
 capital to lend and can readily arrange to have still more within a 
 short time if the government resorts to loans. Borrowing from such 
 persons will exert a certain strain upon our economic organization, 
 because what the government borrows will not be available for invest- 
 ment in industry. There are certain other people who have large 
 incomes of which a part would ordinarily be spent for personal
 
 398 ECONOMICS OF WAR 
 
 consumption and a part must be invested if industry is to go on. The 
 smallest immediate strain would probably be occasioned by borrowing 
 from the free capital of the business community. We can, however, 
 without disturbance to industry, levy heavy taxes which will reach 
 income that would otherwise be devoted to personal consumption, and 
 we can steadily increase the amount of such taxation as time goes on. 
 The most serious strain is that which would arise from "conscripting" 
 income that would otherwise be devoted to the maintenance and 
 development of industry; and this we should seek to minimize, even 
 though we may not be able wholly to avoid it. The whole machine 
 must be readjusted if a long war is to be financed, and we shall wreck- 
 it if we apply undue pressure at the wrong point, especially during the 
 first year. 
 
 The second argument for exclusive reliance upon taxation is that 
 public loans are likely to lead to inflation, which, of course, will 
 increase the cost of living and the cost of conducting the war. When 
 bonds are floated, credit is extended by banks to subscribers, and the 
 securities, when issued, become collateral for loans. Thus public 
 borrowing leads to an expansion of bank credit and tends to raise the 
 general level of prices. That this may happen to some extent cannot 
 be doubted; but it is to be remembered that such loans must presently 
 be repaid, and that many borrowers will economize in expenditures in 
 order to make such payment. To the extent that this occurs, private 
 expenditures will be curtailed and the credits given by banks will be 
 canceled without causing inflation. Furthermore it is not to be 
 overlooked that, in view of the large demand for food and other com- 
 modities during the next year it is desirable that production shall be 
 kept at a maximum and that higher prices will conduce to this result. 
 The evil then is not so great as might be supposed, and it has important 
 compensations. 1 
 
 Since we are going to conscript many men for service at the front, 
 where some of them must sacrifice their lives, it is argued that we 
 must similarly conscript the wealth required for war expenditures 
 rather than obtain it from loans attracted by the lure of interest. 
 Conscription of income is declared to be the logical accompaniment 
 of conscription of men, and loans are held to be contrary to the plainest 
 dictates of justice. 
 
 If this were merely another way of stating, although with unneces- 
 sary circumlocution-, that in time of war every citizen should hold his 
 
 1 ED. NOTE. Cf. selection XLVIII below.
 
 WAR FINANCE 399 
 
 life and property at the disposal of the government, we could accept 
 it as entirely true and also entirely useless as a principle of war finance. 
 The sacrifice of life and the sacrifice of property are things essentially 
 disparate, to which the idea of equality is wholly inapplicable. To 
 men who lose their lives at the front we can offer nothing but grateful 
 remembrance and suitable provision for those whom they leave 
 behind. Upon those who stay at home we must impose the duty of 
 providing the necessary supplies, but we can derive no rule of con- 
 tribution from a comparison of the two kinds of sacrifice. 
 
 4. DESTRUCTION OF CAPITAL: A BUSINESS VIEW 1 
 
 There are sound reasons why an important share of the expenses 
 of the war should be raised by taxation during the war. Most lines 
 of business are under extraordinary stimulus, profits are larger than 
 usual, wages are generally higher, and the employment of the people 
 is very complete. Therefore the country can afford to pay taxes now 
 better perhaps than it will be able to in the years following the war, 
 when it may be suffering from reaction. Moreover the industrial 
 capacity and labor supply of the country are occupied with war busi- 
 ness to such an extent that it is impossible to go ahead with construc- 
 tive work in other lines as usual. The current income of the country 
 must of necessity be given over largely to the government, either 
 through loans or taxation, to enable it to carry on the war, and the 
 proportion between loans and taxation should not be governed by a 
 desire either to favor or to penalize wealth, but by the probable 
 effects upon the general welfare, through the results upon industry, 
 employment, and the ability of the country to meet conditions after 
 the war. No taxation conceivably possible after the war will be as 
 important to the masses of the people as the possible difference 
 between a state of general industrial activity, with full employment 
 to all the people, and a state of industrial depression such as this 
 country experienced in the winter of 1914-15. Everybody will be 
 able to pay his share of the taxes if the industries are busy and still 
 have a better living than he will have if the industries are depressed. 
 
 The catch phrases which are used show the same want of compre- 
 hension of the fundamental relations of society which is responsible 
 for most of the ill-feeling and friction in the industrial world. The 
 agitation is all based upon the assumption that private wealth is 
 
 1 Adapted from the monthly bulletin of the National City Bank of New York 
 on Economic Conditions, Governmental Finance, etc., June, 1917.
 
 400 ECONOMICS OF WAR 
 
 devoted to the owners, and that if it is taken away from them, even 
 though destroyed, nobody else is a loser. The whole idea is that 
 the proposed taxation will reach hidden hoards, or possibly curtail the 
 luxurious living of the rich, with apparently no appreciation of the 
 fact that it will fall upon the industrial fund, the capital available for 
 the support of industry. 
 
 Is the public interested in the industrial fund ? Is it interested 
 in the production of things for the public market ? This is an oppor- 
 tune time to ask if it is interested in the supply and price of things of 
 common consumption. Is the public interested in the development 
 and improvement of industry, in the multiplication of power plants, 
 and the enlargement of industrial capacity and output ? Is it inter- 
 ested in the facilities for transportation? If it is agreed that the 
 public is interested in these things then the proposal to withdraw 
 capital in great amounts from these purposes should be considered 
 with regard to its effect upon the public interests instead of being 
 treated as though the individual title-holders were alone concerned. 
 
 If this reasoning is correct the community should beware how it 
 seizes for current use upon the capital which is certainly destined for 
 the industrial fund. To a very great extent it must be done, but it 
 is not to be done in the spirit of eager confiscation with which in some 
 quarters it is advocated at the present time. It would be folly to 
 seize it upon the theory that the public is really acquiring anything 
 at the expense of the rich owner, for under no conceivable circum- 
 stances will the taxation encroach upon the portion of his income which 
 is devoted to his own support. Indeed the common argument for 
 the seizing of large incomes is that it will involve no sacrifice to the 
 owners. This is true; the sacrifice is from a fund destined to public 
 use, and at the expense of society as a whole in the future. 
 
 5. THE CRUX OF THE PROBLEM IS LARGE 
 PRODUCTION 1 
 
 The truth is that the government is now taking, either through 
 loans or taxation, practically the whole of the savings margin of the 
 community, and that the only way of increasing the amount it can 
 get is through increasing either the total product of industry or the 
 
 1 Adapted from "Washington Notes," Journal of Political Economy, XXVI 
 (June, 1918), 666-67. 
 
 ED. NOTE. This reading apparently represents the view of the Treasury 
 officials after a year's experience in the administration of war finance.
 
 WAR FINANCE 401 
 
 amount of it that is saved. Some increases in productiveness may be 
 possible, although they must of course contend with the steady drain 
 of labor into the fighting forces. Savings can undoubtedly be largely 
 increased and must be if greater outlay on war is to be provided for. 
 The raising of funds through any other means would imply nothing 
 more than inflation of credit and the raising of prices, processes 
 neither of which would be of the slightest advantage to the govern- 
 ment and would be of immense disadvantage and injury to the public. 
 The problem of government financing is thus not, as was erroneously 
 supposed by a large number of economists at the beginning of war, a 
 choice between loans and taxation as methods of getting government 
 revenue, but a problem of encouraging the development of a surplus 
 of wealth that can be made available by either means for government 
 purposes. There is grave danger that in the new taxation plans this 
 point might be lost sight of and a mere theoretical preference for taxa- 
 tion be allowed to counterbalance a need for larger income. 
 
 At the opening of the war there was a distinct tendency in many 
 quarters to regard the effect of loans and taxation as distinctly dif- 
 ferent from one another. It is now apparently quite generally 
 admitted that this is a distinction without a difference, and that the 
 whole question between loans and taxation depends upon whether the 
 funds furnished in either case are likely to be the result of saving or of 
 bank borrowing. Taxes paid by a contributor from the proceeds of 
 loans obtained by him would be an agency in " inflation," whereas a 
 government bond sold to an investor who purchased it from funds 
 saved out of his current income would not be. This modified view 
 of the case largely does away with the cruder theories expressed early 
 in the war and based upon the view that taxation practically always 
 tended to keep down prices, while loans in a similar way tended to 
 advance them. Experience is showing that there is no basis for any 
 such view, and the prevailing view of the general problem is being 
 modified accordingly, as just indicated. 
 
 6. WAR FINANCE AND WAR PRODUCTION 1 
 
 The argument of the preceding selection that the great problem 
 of war finance is not one of proportions between bonds and taxes, 
 but rather one of encouraging the development of a surplus of wealth 
 that can be made available for government uses by either means is 
 somewhat beside the point. The problem is not one of increasing the 
 
 1 An editorial.
 
 402 ECONOMICS OF WAR 
 
 production of total wealth so that the government can collect abun- 
 dance of revenue; the problem is rather to increase the production of 
 the right forms of wealth in order that the army may have the mate- 
 rials for fighting. We might easily derive an abundance of revenue 
 from the production of luxuries and nonessentials generally; indeed 
 the lesson of the past year indicates that we could thus get a super- 
 abundance of revenue. But this would not give us what we need. 
 Exclusive of loans to our Allies, the government planned to spend 
 during the fiscal year ending June 30, 1918, $12,316,000,000. In fact, 
 the government had spent in the seven months from June 30, 1917, 
 to January 31, 1918, only about $3,150,000,000. That is, in seven- 
 twelfths of the year the government had been able to spend only 
 three-twelfths of what it planned to spend. With coffers filled to 
 overflowing the government could not buy the supplies needed, for 
 the simple reason that not sufficient energy had been devoted to the 
 production of war supplies. We could, moreover, have raised much 
 greater sums if necessary. 
 
 This is of more than academic interest. During the periods of 
 Liberty Loan campaigns the investment field was swept clear of 
 funds for business uses. There were essential lines of business that 
 were hampered by a lack of funds, merely because the government had 
 mortgaged their use in advance of its requirements. Large excess 
 revenue in the hands of the government, moreover, leads to public 
 extravagance. Many attacks have been made against the govern- 
 ment in England on this score during the present war. It is well 
 known also that a considerable percentage of those employed in 
 Washington are receiving much higher compensation than they 
 ever received in civilian occupations. With all too many of them this 
 enlarged earning power results in extravagant consumption. The 
 same phenomenon also applies to "rich war laborers." This extrava- 
 gance results in diverting productive power to nonessential uses. 
 
 The Treasury is estimating now that it can raise $24,000,000,000 
 for the year 1918-19, because this figure represents the total of the 
 savings of the American people and American corporations. It 
 represents, however, merely monetary savings; and there is no 
 assurance that the production of war supplies will equal $24,000,000,- 
 ooo. Until we understand that monetary savings are not tantamount 
 to production of war supplies we will make no rapid progress in the 
 science of war finance. It is quite possible that this coming year we 
 shall again raise more funds than necessary, with resultant hampering
 
 WAR FINANCE 403 
 
 of essential industry. The Treasury Department appears to be 
 thinking still in terms of money rather than in terms of industrial 
 production. The transformation of monetary savings into the pro- 
 duction of war supplies requires much time, for it necessitates the 
 readjustment of a highly complex industrial mechanism from peace 
 production to war production. 
 
 There is of course the consideration to be reckoned with that 
 heavy taxation and bond issues heavier than is immediately neces- 
 sary result in more quickly forcing a retrenchment in consumption 
 of luxuries and thus hasten the necessary readjustment of industry. 
 This is true, however, only in so far as the taxation falls on consump- 
 tion; it is not true when it falls mainly on the income of corporations. 
 The consideration therefore holds for the kinds of taxation but not 
 for the total amount. It holds for the placing of bonds and thrift 
 stamps among the rank and file but not for bond subscriptions of 
 corporations. It holds for taxation of consumption but not for taxa- 
 tion of excess profits in war manufacture. In the main the necessary 
 readjustments are best and first effected by more direct means, by 
 priorities in the matter of raw materials and transportation, and by 
 plant conversion at the request of the government. 1 The essential 
 requirement of war finance, so far as total revenue is concerned, is to 
 ascertain the amount of war supplies that will be procurable and then 
 adjust the income to the outgo. This is what is sometimes known as 
 making a government budget. Our financial policy unfortunately 
 has thus far had regard mainly to monetary revenue; it should be 
 co-ordinated with the production of war supplies. 
 
 XL VIII. War Finance and Currency Inflation 
 i. THE MEANING OF INFLATION 2 
 
 The continued high prices and the apparent tendency of prices to 
 advance to still higher levels have brought about a more active dis- 
 cussion of the theory of prices and conditions tending to raise them 
 than has existed at any time within perhaps twenty-five years. 
 Foremost in this discussion is the question whether "inflation" is or 
 is not the result of the operation of the Federal Reserve System, and 
 if so in precisely what way. Much of the current discussion has 
 apparently been based upon vague or indefinite ideas of the meaning 
 
 1 See selections XXVII, 6 and 7. 
 
 2 Adapted from "Washington Notes," Journal of Political Economy, XXVI 
 (June, 1918), 667.
 
 404 ECONOMICS OF WAR 
 
 of "inflation," but there is now considerable evidence that a more 
 general consensus of opinion and agreement as to definitions is in sight. 
 "Inflation," in the sense in which the term is now being used by 
 the more careful writers on the subject, is taken to signify the increase 
 of bank credits not represented by any immediate addition to current 
 wealth. Thus, for example, if the government borrows by an issue of 
 bonds, such bonds being 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 com- 
 munity not represented by any corresponding addition to wealth, 
 whether, of a salable or available form or otherwise. Here there is an 
 "inflation," or exaggeration of, or addition to, the actual purchasing 
 power of the community as compared or contrasted with the amount 
 of goods in existence. From this point of view the measure of 
 "inflation" is afforded by the total new holdings of bonds in banks 
 which have become the basis for credits on the books of such banks, 
 used or applied to the purchase of goods and services. Particularly 
 is this true in those cases where the purchasing power so used takes a 
 form which is available as "reserve" against other credits to be 
 granted by the banks. Thus, for example, if the banks which pur- 
 chased bonds in the illustration already given at once rediscount their 
 own notes secured or protected by these bonds, at Federal Reserve 
 banks, they thereby obtain a credit on the books of Federal Reserve 
 banks which will sustain, theoretically at least, several times its own 
 amount in the form of credits on the books of the banks which have 
 been granted the rediscount. This means that the credit so granted 
 may serve several times as a medium of purchasing power employed in 
 gaining control of goods and services. In so far as paper secured by 
 government bonds has been discounted on a semi-permanent or 
 renewal basis, the Federal Reserve System may thus be regarded as 
 serving as a means of "inflation." 
 
 2. INFLATION THROUGH BORROWING ON BONDS 1 
 
 The essential difference between raising money from the public 
 by taxation and raising it by the issuance of bonds is the resulting 
 inflation. Inflation is a word that is much used but not always 
 
 1 By F. A. Delano. Adapted from "Fundamental Principles of Financing the 
 War," Economic World (June 22, 1918), p. 883. 
 
 ED. NOTE. Mr. Delano is a member of the Federal Reserve Board.
 
 WAR FINANCE 405 
 
 
 
 understood. In its simpler and most readily comprehended meaning 
 it is that form of inflation of the currency which was common in our 
 Civil War, when the government, instead of printing its promises to 
 pay in the form of investment bonds, printed them in the form of 
 currency notes. Under that method of inflation a government wishing 
 to buy a million dollars' worth of produce, or to pay a million dollars 
 in wages, would simply print a million dollars of its own "promises 
 to pay," and these promises to pay in the form of currency would there- 
 after pass from hand to hand as money. The extent to which this 
 sort of inflation may go without wrecking the financial structure of a 
 nation depends entirely upon the wealth of the nation and the con- 
 fidence which the public or other nations have in its ability to keep its 
 promises. The usual symptoms of such methods of inflation are the 
 disappearance of metallic money and the general advance in the 
 prices of commodities. In this terrific war most of the European 
 nations have resorted to this or similar methods of inflation; and 
 because the operations of various governments have been united 
 through banking transactions and by reason of interdependence and 
 close international relationship, even those nations entirely uncon- 
 nected with the war have felt the effects of inflation. As a result 
 there has been in effect in the last three and one-half years a world- 
 inflation the like of which has never before occurred. 
 
 To illustrate : 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 undoubt- 
 edly 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. 
 
 It is doubtful if we in our country could have avoided inflation, no 
 matter how hard we had stuck to the plan of higher taxation or the 
 "pay-as-you-go" policy, but we may as well frankly admit that 
 while our financial policy has been conservative the great increase in
 
 406 ECONOMICS OF WAR 
 
 our currency issues has contributed to the general inflation. True, 
 we have not issued currency or government promises to pay in the 
 form of circulating notes, but we have issued bonds and we have 
 permitted and indeed could not have forbidden the use of these 
 bonds as collateral for bank credit. Thus, while the government has 
 not paid for "goods and services" with its own circulating notes, it 
 has issued its promises to pay in the form of bonds and it has permitted 
 these bonds to be hypothecated for currency; and thus, through' our 
 banking system, it has created a machinery under which the owner 
 of government bonds might secure bank credit with which he might 
 pay by check or in currency for what he bought. We have thus far 
 in this country been able to hold down the issuance of currency by 
 maintaining a high gold reserve against it, and there is no national 
 currency that is on a stronger basis; but to deny that the issuance of 
 government bonds to raise funds to pay for goods and services 
 results in inflation would exhibit an unwillingness to look the facts 
 in the face. 
 
 While the effects of inflation are manifestly bad, it would be unfair 
 not to admit that inflation has some good effects. In so far as it 
 increases the prices of commodities generally, it results in compulsory 
 economies (except where wages or money incomes increase in like 
 proportion) and in this sense operates as a sort of tax on consumption. 
 Hence, if it be true, as we have contended, that economy is necessary 
 in war times, it might be urged that a heavy consumption tax was a 
 most desirable method of bringing about enforced economies. A just 
 answer to that suggestion seems to be that such a form of consumption 
 tax falls with great severity upon citizens in general because it adds 
 to the cost of the necessities of life; upon the wage-earner it falls 
 heavily unless and until he is able to get his wages advanced in pro- 
 portion to the amount of the inflation ; and upon those dependent on 
 moderate fixed incomes or fixed salaries it is an unduly heavy burden. 
 It affects, of course, all corporations or individuals engaged in manu- 
 facturing and other industrial enterprises, but it may in many cases 
 be passed on by them to the consumer in the shape of increased prices. 
 For those corporations which, by reason of contract or law, are 
 required to accept a fixed compensation, it is very burdensome. 
 Perhaps the most serious indictment against the results of inflation 
 is the fact that it dislocates all the delicate inter-relations between 
 wages, compensation, payment for services, prices of commodities, 
 etc.; and, although brought about by the operations of the govern-
 
 WAR FINANCE 407 
 
 ment itself, its effect is to raise prices against the government, thereby 
 increasing the necessity for still further taxation or borrowing. In 
 other words, it establishes what may be termed a vicious cycle, in 
 that it first raises prices and by so doing creates the necessity of 
 raising more money, and so still further raises prices again. 
 
 Our conclusions must therefore be: 
 
 First, that the government needs rigid economy of all its citizens 
 to win the war; that it requires it, not only because it needs money to 
 command and pay for goods and services, but because every self-denial 
 will release some good or some service which the government can use 
 to good advantage. Second, it is clear, not only that taxation is the 
 best way for citizens to support their government, but that taxes 
 intelligently applied will do much to produce the very savings of which 
 we have been speaking. Lastly, taxation and the resultant savings 
 are the only means to mitigate the perils and pitfalls of inflation. 
 
 3. THE EVILS OF INFLATION 1 
 
 The danger of the loan policy is that, by deluding itself with a 
 notion that it is putting the burden onto the future, it will, through 
 resort to fatuous and easy expedients, put the burden both on the 
 present and on the future. This will happen if the loan policy, failing 
 to induce a commensurate increase in the savings fund of the nation, 
 degenerates, through the abuse of banking credit, into inflation 
 raising prices against the great body of consumers as well as against 
 the government, thus needlessly augmenting the public debt and 
 increasing the cost of living just as taxes would. The policy of 
 financing war by loans, therefore, will be but a fragile and deceptive 
 and costly support unless every dollar obtained by the government is 
 matched by a dollar of spending power relinquished by the community 
 in other words, will fail and develop into inflation unless the dollars 
 which are subscribed to the bonds of the government are real dollars, 
 the result of real savings and of real retrenchment. The danger 
 to be feared in undertaking to finance our war by credit is that 
 sophistry and financial legerdemain may lead us to attempt to carry 
 the operation through as an operation in banking finance instead of 
 as an operation in saving and investment. The doctrine is already 
 current in the country, with the sanction of some leading bankers, 
 
 1 By A. C. Miller. Adapted from "War Finance and the Federal Reserve 
 Banks," in Financial Mobilization for War, pp. 145-49.
 
 408 ECONOMICS OF WAR 
 
 that our war cannot be financed except by credit expansion running 
 to the limits of inflation. Being dealers in banking credit, they 
 naturally take the view that the expansion of credit in question will 
 properly have to be an inflation of banking credit; for this is the new 
 and most recent form of inflation which the gigantic war in Europe 
 has been bringing to the front as a device in war finance. 
 
 Inflation as an expedient of public finance has long been practiced, 
 although it has never had the sanction and approval of those whose 
 business it has been to lay down canons of finance rather than to 
 engage in the practice of finance. The record of our own great wars 
 and the records of the great wars of other nations in modern times 
 show pretty uniformly that timidity in facing the serious realities of 
 war finance has usually developed a situation from which escape was 
 finally sought through the desperate and costly expedient of govern- 
 ment currency inflation. Such was our disastrous experience in the 
 Civil War, when resort was had to the greenback currency, which 
 was nothing but a device of inflationism, and some $500,000,000 was 
 thereby added to the cost of the war which might have been avoided 
 had the government's financial operation been maintained on a strong 
 and healthy basis to say nothing of the demoralization wrought in 
 business and the hardships and iniquities inflicted upon the great body 
 of defenseless workingmen and consumers. Clear and specific as 
 the teachings of that experience are to those who can learn from 
 history, it will remain for this war to demonstrate whether or not the 
 lesson has been fully taken to heart. Inflation still has seductive 
 potentialities for the pundits of paper finance. Even if we do not 
 avowedly repeat the costly mistakes of our Civil War by ventures in 
 the field of government currency inflation, we may yet reach a similar 
 result and land the community in a similar plight through the more 
 subtle and less vulgar process of banking inflation. 
 
 The same process, only in a vastly intensified degree, has been 
 going on in the belligerent countries of Europe and has given rise 
 repeatedly to the gravest expressions of solicitude by those who are 
 engaged in looking through the tissues of paper finance to the inexor- 
 able economic facts. All of the belligerent countries of Europe, in 
 one degree or another, have undertaken to finance the war by bank 
 borrowing, with inflation results that, for the most of them, make a 
 tragic record of hardship for the masses and needless augmentations of 
 the nations' debts, and will leave behind, at the close of the war and 
 for the next generation, a heritage of unspeakable financial confusion.
 
 WAR FINANCE 409 
 
 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 pros- 
 perity 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. 
 
 XLIX. Taxation Policy 
 i. THE FIRST YEAR OF WAR TAXATION 1 
 
 I. THE INCOME TAX 
 
 The change in rates imposed by the War Revenue Act of October 3, 
 1917, as compared with the act of September 8, 1916, is of a threefold 
 character: an increase of the normal tax, a lowering of the exemption, 
 and a rise in the scale of progression. A supplementary normal tax 
 
 1 By Edwin R. A. Seligman. Adapted from "The War Revenue Act," 
 Political Science Quarterly, XXXIII (March, 1918) , 1 7 ff. Copyright by the editors 
 of the Political Science Quarterly, 1918. 
 
 ED. NOTE. Mr. Seligman is professor of political economy at Columbia 
 University.
 
 410 ECONOMICS OF WAR 
 
 of 2 per cent is imposed, bringing the total to 4 per cent. The law 
 furthermore provides for a reform that had been widely urged by 
 those who considered the exemption of $3,ooo-$4,ooo entirely too 
 high. Accordingly, in the case of the supplementary normal tax the 
 exemption is reduced to $1,000 for unmarried and $2,000 for married 
 persons. The law also provides for an additional exemption of $200 
 for each child under eighteen years of age or incapable of self-support 
 because of mental or physical defect. 
 
 In order to counterbalance this reduction, which will bring into 
 the toils of the law millions of new taxpayers, the rates on the higher 
 incomes are sharply increased. The original law, it will be remem- 
 bered, had provided for a so-called additional tax (popularly called the 
 surtax, or sometimes the supertax) on all incomes over $20,000, 
 ranging from i to 8 per cent on the highest amounts. The law of 
 1916, as we have noted, increased the graduated scale so as to run 
 from i to 13 per cent. The new law reduces to $5,000 the amount at 
 which graduation begins and provides an entirely different scale, 
 ranging from i to 50 per cent, for the supplementary additional tax. 
 The result is that the maximum rate is now 67 per cent, that is, 2 
 per cent supplementary normal tax, 13 per cent old additional tax, 
 and 50 per cent new additional tax. 
 
 This is the highwater mark thus far reached in the history of 
 taxation. Never before in the annals of civilization has an attempt 
 been made to take as much as two-thirds of a man's income by taxa- 
 tion. In comparing our present income tax with the British, more- 
 over, it is to be noted that our rates are much higher on the larger 
 incomes and much smaller on the lower and moderate incomes. The 
 American scale is an eloquent testimony to the fact, not only that 
 large fortunes are far more numerous here than abroad, but also that 
 there is greater appreciation of the democratic principles of fiscal 
 justice. For the overwhelming trend of modern opinion is clearly in 
 the direction of applying to excessive fortunes the principle of faculty 
 or ability to pay. It still remains to be seen, however, whether the 
 new law, with its exceedingly high rates, will turn out to be as work- 
 able administratively and as productive fiscally as a somewhat lower 
 scale would have been. 
 
 The second change in the law is the virtual abandonment of the 
 stoppage-at- source method of collection. It will be remembered that 
 the two leading types of income tax that had developed during the last 
 generation were the so-called lump-sum method of Prussia and the
 
 WAR FINANCE 411 
 
 scheduled method of Great Britain. The Prussian system, which 
 rested finally upon accurate official assessment, depended for its 
 success upon an incorruptible civil service and the fear instilled into 
 the average taxpayer of making false returns. Great Britain had 
 long since abandoned the scheme and had substituted the plan of 
 imposing the responsibility of the tax upon the person who paid the 
 income rather than upon the recipient. As between the unchecked 
 lump-sum and the stoppage-at-source method it is clear that under 
 American conditions the latter was preferable. At the close, however, 
 of the discussion in 1913, an alternative plan was suggested, to which 
 the present writer gave the name of information-at-source, designed 
 to achieve the substantial purposes of the collection-at-source method 
 without its discomforts and complications. This alteration has now 
 been finally adopted in essence. The law makes the tax collectible 
 from the recipient of the income, but imposes upon the payers of 
 income the obligation to give full information of the amount and 
 conditions of payment. Information is required from corporations 
 as to dividend payments, from brokers as to details of transactions, 
 and, in general, from all persons making payment to any other person 
 of any "fixed or determinable gains, profits, and income over $800." 
 Only two exceptions are permitted. Withholding at the source is 
 retained for the original normal tax in the case of income accruing 
 to non-resident aliens and of interest on tax-free bonds. The latter 
 exception was inserted as a concession to bondholders who, relying 
 upon the promise of the corporations to assume the tax, had paid so 
 much more for the bonds. It is to be regretted, however, that the 
 law fails to include the provision, found in the British statute, which 
 prohibits for the future the inclusion of such tax-free covenants in 
 corporate bonds. 
 
 On the fundamental question of what constitutes income the new 
 law does not take any fresh stand. This still remains a difficulty, 
 which, however, not only is shared by many other income-tax laws, 
 but is traceable to an inadequate analysis. The distinction between 
 capital and income has received far less scientific attention than it 
 deserves. It may be said that there are at least three different con- 
 ceptions of income found in economic literature: the one emphasizes 
 the idea of regularity or recurrence; the second accentuates the idea 
 of product or return from an enduring source; the third, or net-profit 
 theory, lays stress on the surplus of what comes in over what goes 
 out. It is impossible here to discuss the widely divergent practical
 
 412 ECONOMICS OF WAR 
 
 consequences of these theories. It may be said, however, that until 
 economists have decided which of the three is correct, the interpre- 
 tation of the law is bound to create endless trouble. Some of the 
 chief difficulties of the interpretation are still associated with the 
 question of stock dividends and depreciation in the market value of 
 securities. 
 
 Up to this point we have discussed the individual income tax. 
 The law, however, provides, as before, also for a corporate income 
 tax. In addition to the existing normal tax of 2 per cent, a supple- 
 mentary tax of 4 per cent is imposed upon the income of every cor- 
 poration, joint-stock company or association, or insurance company, 
 but not including partnerships. The result is that corporations will 
 hereafter pay a tax of 6 per cent on their income. In computing the 
 tax, however, all dividends received by one corporation from another 
 taxable corporation are deductible an important concession to 
 holding companies but a concession limited to the supplementary 
 tax. The limitations on the deduction for interest and taxes referred 
 to above in the case of individuals are applicable also to corporations, 
 as is the provision permitting the crediting to income of the excess 
 profits levied in the same year. 
 
 Corporations, however, are subject to a further tax of 10 per cent 
 on the amount of profits remaining undistributed six months after 
 the end of the year. Income actually invested in business or in 
 federal bonds is exempted from this additional tax; but if it transpires 
 that profits retained for employment in the business are not so 
 employed or are not reasonably required therein, they shall be 
 subject to a tax of 15 per cent. It may be conjectured that these 
 provisions will lead to a speedy distribution of all corporate profits 
 that should properly go to the stockholders. 
 
 In any fair estimate of the present law five defects may be noted, 
 some of them survivals, some of them additions. 
 
 The first weakness is the failure to introduce differentiation 
 between earned and unearned income. An attempt was made to 
 persuade Congress to adopt this distinction, which, as is well known, 
 was initiated in Great Britain almost a decade ago. The reason 
 advanced for the refusal the fear of further complicating the tax 
 is far from convincing. Simplicity gained at the expense of equity 
 is not to be admired. The situation is in fact aggravated by the 
 extension of the excess-profits tax to professional incomes, as a result 
 of which earned incomes, instead of being taxed less, will actually be
 
 WAR FINANCE 413 
 
 taxed more than unearned incomes. This is of course a travesty of 
 justice. 
 
 The second defect is that returns, instead of being demanded from 
 everyone, are required only from the non-exempt classes, that is, from 
 those whose income exceeds $i,ooo-$2,ooo or $3,000-^4,000 respec- 
 tively. This, coupled with the failure to compel a return of income 
 from government tax-free bonds, will prevent the collection of valu- 
 able information as to the total social income and its distribution. 
 A return, including the entire income, should be required, as is almost 
 uniformly the case elsewhere, from every citizen. 
 
 Third, the provision as to the calculation of looses and gains is 
 still inequitable. On any one of the three different theories of 
 income referred to above, our present practice of counting certain 
 gains as income and of refusing to allow for corresponding losses is 
 not only indefensible, but sure to create gross inequalities. 
 
 In the fourth place, the treatment accorded to dividends is highly 
 questionable. Dividends must indeed be reported by individuals and, 
 although not subject to the ordinary normal tax, are liable to both the 
 supplementary normal tax and the additional taxes. A new section, 
 however, provides that dividends are taxable at the rates prescribed 
 for the years in which the corporate profits are accumulated. This 
 is unjust because the dividends ought to be considered income when 
 received, irrespective of when the profits were earned. If the war 
 should last several years and be attended by an increase of war taxes, 
 it is likely that many wealthy stockholders will escape by the fact of 
 the corporate profits having been originally earned in the period 
 before the high taxes were imposed. Moreover the law will probably 
 be so complicated as not to be easy of enforcement. For the rate of 
 the tax will depend upon the amount of total income in any one year, 
 and the identical amount of dividend may form an entirely different 
 proportion of that income from year to year. It will be increasingly 
 difficult, therefore, to administer the provision. In the meantime 
 great confusion will ensue. 
 
 The final defect is that no machinery has yet been devised to 
 check the returns from individuals engaged in business or occupations. 
 In the case of large corporations and partnerships, as well as individual 
 incomes from securities, the system of information-at-source, together 
 with the observance of modern accounting rules, will in all probability 
 ensure fair accuracy in the returns. But where neither of these safe- 
 guards is applicable, a large loophole is left open. Where the rates
 
 414 ECONOMICS OF WAR 
 
 of taxation are as high as at present, the dangers of evasion are 
 multiplied; and evasion means not only loss of revenue but inequality. 
 Much has been done elsewhere to institute checks designed to di- 
 minish this danger. While some of the statements advanced in and 
 out of Congress as to the widespread evasions in the present law are 
 clearly exaggerated, there is still room for decided improvement in 
 administration. 
 
 II. THE EXCESS-PROFITS TAX 
 
 Although the income tax, both old and new, is designed to provide 
 about the same revenue as the excess-profits tax, the latter is the novel 
 part of the law. What is its significance ? 
 
 The first point to be emphasized is that it is a business tax. The 
 criteria that may be employed in classifying taxes are manifold. For 
 the purpose, however, of explaining this new impost it will suffice to 
 observe that taxes on wealth are susceptible of a threefold division. 
 The tax may be on either property or income, on either individuals or 
 corporations, on either persons or things. It is this last distinction 
 which is of consequence here the distinction which the lawyers make 
 between taxes in personam and in rem. Among the "things" on 
 which taxes may be imposed are land, capital, and business. The 
 excess-profits tax is one on tlie business, irrespective of the person who 
 conducts it. It is like the real estate tax in New York, assessed on the 
 land without regard to the owner. The objection, therefore, is not 
 valid that because the tax is imposed on profits it constitutes double 
 taxation in superimposing one income tax upon another. This is the 
 same confusion of thought which has led some writers to object to the 
 inclusion of a corporate income tax in a law which endeavors to reach 
 the entire income of the individual. The corporate income tax, like 
 the excess-profits tax, is a tax on the business, not a tax on the individ- 
 ual; a tax on a thing, not on a person. 
 
 In the second place, the excess-profits tax is not a war-profits tax, 
 if by this term we mean a tax imposed upon the additional profits 
 resulting from the war. This constitutes its chief difference from the 
 war-profits taxes levied in other countries. 
 
 The almost simultaneous institution of the war-profits taxes 
 abroad is easy of comprehension. Never before in the history of the 
 world have such gigantic sums been expended by belligerents or have 
 such colossal gains been made by private individuals in belligerent 
 and neutral countries alike. It was a natural feeling that no private
 
 WAR FINANCE 415 
 
 enterprise should be permitted to make inordinate gains out of the 
 misery of humanity, and that the community should be entitled to a 
 great part of the profits for which no individual enterprise is really 
 responsible. The consequence was that the government everywhere 
 put in a claim to a large share of these profits due to the war. The 
 proportion has risen in some countries to 80 or 90 per cent, and the 
 war profits have in general been defined as the excess of profits during 
 the war over those during a pre-war period. 
 
 The reason which induced Congress to modify this principle was 
 that not a few of our largest business enterprises had been making 
 immense profits in the pre-war period, and that, inasmuch as their 
 profits, both past and present, were scarcely being touched by the 
 corporate income tax, these enterprises would virtually be exempt, 
 while their more unfortunate competitors, who had done relatively 
 poorly during the pre-war period, would be heavily burdened. The 
 decision was therefore reached to levy the tax, not on war profits as 
 such, but on excess profits in general. Although the tax is called the 
 "war excess-profits tax," the term really means the tax on excess 
 profits levied during the war, just as the terms "war excise taxes" or 
 "war income tax" mean the respective taxes levied during the war. 
 
 The significant fact, however, is that nothing is said about the 
 limitation of the tax to the period of the war. In the war-profits 
 taxes abroad the taxes cease automatically with the end of the war, 
 for where there is no war there can be no war profits. It is entirely 
 possible, however, for our tax to continue after the war, just as it is 
 possible that fiscal exigencies may compel the continuance, in whole 
 or in part, of our war income tax or of our war excises. It will be seen, 
 therefore, that we have here, ready to hand, a potential source of the 
 future income which will be so sorely needed hereafter, and for which 
 European statesmen and publicists have been dimly groping. 
 
 When, however, we come to consider the precise way in which 
 this new business tax has been worked out, we find that it is open to 
 serious criticism. In all the European laws the taxes are not on war 
 excess profits but on excess war profits; that is, on the excess of war 
 profits over peace profits. Since, however, our plan is to tax excessive 
 profits in general rather than the excess over a pre-war standard, the 
 criterion had to be lodged elsewhere than in pre-war profits. Unfortu- 
 nately the criterion of normal profits is declared to be a certain per- 
 centage of the capital employed, the pre-war period being utilized 
 only incidentally in ascertaining this normal percentage. That is to
 
 416 ECONOMICS OF WAR 
 
 say, in computing excess profits the law takes the excess over a so- 
 called deduction or normal amount, consisting of a fixed sum ($3,000 
 for domestic corporations, or $6,000 for partnerships, citizens or 
 residents), together with an amount equal to the percentage of the 
 invested capital represented by the average annual income during the 
 pre-war period, provided that this percentage shall in no case be less 
 than 7 nor more than 9 per cent of the capital. The pre-war period 
 is held to be the period from 1911 to 1914. In case the business was 
 not in existence in those years, the deduction is fixed at 8 per cent 
 instead of the 7-9 per cent. And in case there was no income or a 
 very low . income during the pre-war period, the criterion is the 
 percentage of capital earned by a similar or representative business. 
 
 From this base line of normal profits are computed the excess 
 profits, the tax rising progressively with the excess, being fixed at 
 20 per cent on the excess profits up to 15 per cent; 35 per cent on the 
 excess from 15 to 20 per cent; 35 per cent on the excess from 20 to 25 
 per cent; "45 per cent on the excess from 25 to 33 per cent; and 60 
 per cent on the excess profits over 33 per cent. 
 
 It is obvious that the important point here lies in the computation 
 of capital, for with one exception income is defined precisely alike in the 
 excess-profits and the income-tax laws. The greater the amount of 
 the "invested capital" as compared with a given income, the smaller 
 will be the percentage and the tax. What constitutes invested capital, 
 however, is so elusive as to be virtually impossible of precise computa- 
 tion. Not only will there be gross inequality between businesses 
 which enjoy the same income but which are variously capitalized, thus 
 putting extra taxation on small and conservatively capitalized con- 
 cerns, but all manner of opportunity will be afforded for evasion of the 
 law. The effort made to define capital in the law is unavailing. 
 Invested capital is defined as actual cash paid in, the actual cash value 
 of tangible property, and the paid-in or earned surplus employed in 
 the business. Patents and copyrights are included up to the par value 
 of the stock paid therefor, and the same rule is declared applicable to 
 the good- will, trade-marks, and franchises or other intangible property, 
 provided that if purchased before 1917 the amount is limited to 20 
 per cent of the capital. The inadequacy of these provisions is mani- 
 fest. 
 
 It has been contended, in defense of the law, that it is on the whole 
 immaterial whether the criterion be sought in income or in capital; 
 for capital, we are told, is nothing but capitalized income. In reality,
 
 WAR FINANCE 417 
 
 however, capital is not capitalized income; capital is the capitaliza- 
 tion, not only of present income, but of anticipated future income, 
 which is a very different thing. If, as frequently happens, the antici- 
 pated future income does not materialize, there is a vital difference 
 between a tax on capital and a tax on income. The objection to the 
 law still remains, as before, that the choice of capital not only con- 
 stitutes a clumsy attempt to reach taxable ability, but introduces a 
 gross inequality in principle and a deplorable uncertainty in adminis- 
 tration. While something may no doubt be done to clear up the 
 ambiguities and to remove some crass inequities, enough will remain 
 to deprive the measure of a claim to scientific or practical validity. 
 
 The most serious objection to the law, however, has yet to be 
 mentioned. Even assuming that the above difficulties were removed, 
 that the capital could be accurately estimated, and that it varied in 
 amount proportionally with the income even on these unlikely 
 assumptions the tax would still be defective. 
 
 This is due to the criterion chosen for the basis of the graduated 
 scale. Something can be said for a graduated tax on income; some- 
 thing can even be said for a graduated tax on capital ; but it is difficult 
 to say anything in defense of a tax which is graduated on the varying 
 percentage which income bears to capital. To penalize enterprise 
 and ingenuity in a way that is not accomplished by a tax on either 
 capital or income this is the unique distinction of the law. For 
 in the first place, while it is true that excess profits are sometimes the 
 result, in part at least, of the social environment, they are not infre- 
 quently to be ascribed to individual ability and inventiveness. 
 While it is entirely proper that a share of the profits should go to the 
 community, it is not at all clear that the tax should be graduated 
 according to the degree of inventiveness displayed. But there is a 
 still more important consideration. Almost all large businesses have 
 grown from humble beginnings, and it is precisely in these humble 
 beginnings that the percentage of the profits to the capital invested 
 is apt to be the greatest. The criterion selected, therefore, is the one 
 best calculated to repress industry, to check enterprise in its very 
 inception, and to confer artificial advantages on large and well- 
 established concerns. Nothing could be devised which would more 
 effectively run counter to the long-established policy of the American 
 government toward the maintenance of competition. 
 
 What then is the alternative ? If the excess-profits tax has come 
 to stay, as is probably the case, a slight change in the criterion
 
 418 ECONOMICS OF WAR 
 
 employed would accomplish the desired result. What is needed is 
 that the excess-profits tax should become a progressive income tax. 
 It is significant that this is actually done already where the capital 
 criterion is impossible. The law provides that in every business 
 without any capital, or with only a nominal capital, a tax of 8 per cent 
 should be paid on the income, in addition to the income tax. This 
 provision has indeed the awkward result of making earned income 
 pay at a higher rate than unearned income, but it is none the less 
 significant. The individual income tax is levied on a highly progres- 
 sive scale, but the corporate income tax is proportional. All of the 
 desirable ends sought to be achieved by the excess-profits tax would 
 be reached by converting the corporate income tax into a progressive 
 tax. Graduation would then be applicable in both cases, the only 
 difference being that while the test of ability to pay would be sought 
 for the individuals primarily in the sacrifice imposed, it would be 
 found for the business primarily in the privilege enjoyed. 
 
 2. THE TREASURY PROGRAM FOR 1918-19' 
 
 In an announcement dated June 1 2 the Secretary of the Treasury 
 has made public what is practically the program of the Treasury 
 financing for the coming year. The new plan is practically an exten- 
 sion of the system adopted in February last whereby large quantities 
 of Treasury certificates are offered to the banks at short intervals in 
 amounts roughly proportionate to their resources. The banks are 
 expected to purchase and hold these certificates pending the floating 
 of an issue of long-term bonds whose proceeds are then used to fund 
 the maturing certificates. The expenditures of the government, as 
 nearly as can be estimated, will require the sale of certificates of 
 indebtedness up to the first of November, 1918, aggregating approxi- 
 mately $6,000,000,000. This would involve the issue every two 
 weeks of about $7-50,000,000 of certificates substantially similar in 
 character to those issued prior to the Third Liberty Loan, except that 
 they will have various maturities not exceeding four months. For 
 the months of July and August that program will be followed as nearly 
 as possible. The first issue of the certificates will be dated June 25, 
 will mature October 25 with interest at 4^ per cent, and similar issues, 
 it is expected, will be made on Tuesday of every other week following 
 June 25. 
 
 1 Adapted from "Washington Notes," Journal of Political Economy, XXVI 
 (July, 1918), 744-48.
 
 WAR FINANCE 419 
 
 It is contemplated, however, that at a convenient and favorable 
 period during the summer an offering will be made to the general 
 public directly and through the banks of an amount yet to be deter- 
 mined, perhaps $2,000,000,000 of certificates of suitable maturities 
 for use by taxpayers in paying next year's taxes, viz., taxes payable 
 June, 1919, levied under existing and pending legislation. To the 
 extent that certificates of that character are sold, substantially an 
 equivalent reduction in the amount of the regular fortnightly sale of 
 certificates issued in anticipation of the next Liberty Loan will be 
 effected. Early information of the estimated requirements of the 
 Treasury is being conveyed to all the banks of the country, and, 
 through them, to those who expect to make payment of taxes in 1919. 
 They will be asked to make arrangements promptly and of such a 
 character that no delay will be experienced in the sale and distribution 
 of Treasury certificates of both issues. The Federal Reserve banks 
 will advise all national and state banks in their respective districts 
 of the amount of certificates which they are expected to take from time 
 to time in pursuance of this program a sum which can be figured 
 roughly to equal 2\ per cent of gross resources of each bank and trust 
 company for every period of two weeks, or a total of 5 per cent 
 monthly. It will be remembered that in the February program the 
 amount which the banks were asked to take was substantially equal 
 to 2 per cent of the gross resources for each period of two weeks, or a 
 total of 4 per cent monthly. 
 
 The total number of bi-weekly offerings of certificates to be made 
 to the banks will somewhat depend upon the amount to be raised 
 from the public through the sale of tax certificates as described above. 
 The proposal thus placed before the banks is practically equivalent 
 to a doubling of the financing of the past spring and winter, and its 
 eventual success will clearly depend upon the ability to float a pro- 
 portionately enlarged Liberty Loan, which will be the fourth of the 
 series. Assuming that this next Liberty Loan is placed a about the 
 time the first issue of the certificates matures, the loan would evidently 
 be offered toward the end of September. Could the country at that 
 time successfully purchase and absorb, say, six billions of Liberty 
 bonds ? The placing of the new financing upon practically this scale 
 is clearly necessary if the present financial and military program is to 
 be carried out. Possibly the most serious doubt in this connection 
 is furnished by the question whether it is in fact feasible and prac- 
 ticable to spend the amount of money which is to be raised without
 
 420 ECONOMICS OF WAR 
 
 merely increasing prices of commodities to a corresponding degree 
 and thus really defeating or at least not advancing the essential object 
 of the plan. 
 
 NEW TAXATION 
 
 It is of course recognized that the whole success of a financial 
 program upon so great a scale must depend upon the laying of a 
 satisfactory foundation for it by means of new taxation. Up to a 
 very recent date it had been assumed that no such new taxes would be 
 levied during the current year, and the Secretary of the Treasury had 
 expressed this belief in his Annual Report. The increasing necessities 
 of the goverment and the growing demands of the allied countries 
 established a basis for suggesting the alteration of this tentative 
 understanding, and such suggestions have been confirmed by the 
 growing conviction that the present income and excess-profits law is 
 unsatisfactory and would be unworkable were it not for the unusual 
 co-operation of the community under the stress of war conditions. 
 This situation led to the outspoken declaration of the President in his 
 address to Congress on May 27, when he took definite action in favor 
 of a new measure of taxation, whose necessity has now been reluctantly 
 accepted by Congress. 
 
 In a letter to the chairman of the Ways and Means Committee 
 dated June 5, the Secretary of the Treasury furnishes some detailed 
 data designed to substantiate the belief that immediate action is 
 requisite. The statistical tabulations submitted show that in March, 
 
 1917, the expenditures were in round figures $100,000,000. In May, 
 
 1918, they were $1,508,195,000. If there should be no further increase 
 during the coming fiscal year, the cash expenditures upon the May 
 basis would be more than $18,000,000,000. If, as seems inevitable, 
 the increase in expenditures should continue at the rate of $100,000,000 
 per month for the next six months, or until December, 1918, and if 
 thereafter the monthly expenditures should remain stationary until 
 June 30, 1919, the Treasury would have to finance expenditures 
 aggregating $24,000,000,000 during the fiscal year ending June 30, 
 1919; or, to put it in another way, if the average monthly expenditure 
 should exceed that for the month of May, 1918, by 335 per cent, it 
 will be necessary to provide $24,000,000,000 in the fiscal year 1919. 
 
 In the fiscal year ending June 30, 1918, cash disbursements will 
 amount to between $12,500,000,000 and $13,000,000,000. Of this
 
 WAR FINANCE 421 
 
 amount about one-third will have been raised by taxes and two-thirds 
 by loans, all of which will be represented by long-time obligations, that 
 is, bonds of the First, Second, and Third Liberty Loans and War 
 Savings Certificates. On the strength of* this showing it would thus 
 appear that with taxes producing their present yield it would be 
 necessary to raise, by borrowing, during the fiscal year 1919 about 
 $20,000,000,000. The danger or impossibility of such an attempt is 
 obvious and hence the development of a plan to raise at least $8,000,- 
 000,000 from taxation. In order to get the amount required the 
 Secretary of the Treasury makes the following suggestions : 
 
 1. That one-third Of the cash expenditure to be made during the 
 fiscal year ending June 30, 1919, be provided by taxation. According to 
 estimates this would involve raising $8,000,000,000 through taxation. 
 
 2. That a real war-profits tax at a high rate be levied upon all war 
 profits. This tax should be superimposed upon the existing excess-profits 
 tax in such a way that the taxpayer should be required to pay whichever tax 
 is the greater. The existing excess-profits tax should be amended in certain 
 important particulars o as to remove inequalities. 
 
 3 . That there should be a substantial increase in the amount of normal 
 income tax upon so-called unearned incomes. Under existing law earned 
 incomes above certain exemptions are taxed 4 per cent as an income tax and 
 8 per cent as an excess-profits tax, making a total of 12 per cent, while 
 7/wearned incomes, derived from securities, etc., are taxed only 4 per cent. 
 The 8 per cent tax should be recognized as an income tax and the rate of 
 12 per cent (4 per cent normal and 8 per cent excess profits) should be 
 retained in respect to earned incomes, while a higher rate than 12 per cent 
 should be imposed on unearned incomes. 
 
 4. That heavy taxation be imposed upon all luxuries. 
 
 The program thus outlined, taken in conjunction with the immense 
 borrowing plan, will come close to doubling the burdens imposed upon 
 the community during the past year and again raises the question 
 whether there is a savings margin in the country large enough to 
 provide means for carrying any such load. Up to date the highest 
 estimate of produced wealth over consumption, i.e., savings, has been 
 $18,000,000,000. If $24,000,000,000 is to be obtained, there must 
 therefore be either an increased production or a decreased consump- 
 tion amounting to $6,000,000,000. That the amount required can be 
 obtained by either method is naturally gravely to be doubted, and the 
 alternative that of merely bidding up prices through urgent demand 
 for goods presents itself as a danger.
 
 422 ECONOMICS OF WAR 
 
 3. CRITICISM OF PROGRAM FOR 1918-19' 
 
 Speaking generally, the financial program adopted by Congress on 
 entering the war was a sound program. The lesson taught by the 
 financial management of the war of 1812 and that of 1861 seems to 
 have been learned. Exclusive reliance for the needed revenue was 
 placed neither on loans nor on taxes; nor was the amount to be raised 
 by new taxes limited to the interest on new issues of bonds. The rule 
 followed seems to have been to secure as much as possible by taxation 
 and to rely for the remainder upon the use of public credit. This is a 
 sound rule. Other things being equal, there is no question of the 
 superiority of taxes over loans as a means of securing capital, espe- 
 cially if that capital is destined to go up in smoke. The student of 
 finance can be readily persuaded that $i should be collected by taxa- 
 tion for each $2 secured by loans. 
 
 It is not enough, however, that an adequate amount of money be 
 secured through taxes. The task of the financier is more exacting. 
 He must exercise great care as to the kinds of taxes used and the rates 
 imposed. The money contributed by taxes must be secured this year 
 in such a way that an equal amount, or perhaps an added amount, can 
 be secured the next year, the year following, and so On, until the 
 exigency has passed. The fund from which taxes are taken should, 
 like the widow's cruse of oil, be ever full. This is the kernel of the 
 problem of war financiering. 
 
 In the main, also, the so-called "war taxes," levied by the acts of 
 September 8, 1916, and October 3, 1917, may be approved, when 
 regarded from the point of view of social justice or of economic analy- 
 sis. In one respect, the principle on which they rest is new to the 
 American people. They are a frank recognition of the fac that a 
 part of the product of every business is a co-operative or social product, 
 and that the government, which stands for the collective interests of 
 all, should supply its exigency needs by taking back from each what 
 the- co-operative work of all has produced, but which the market has 
 failed to distribute. There is no other defense of the excess-profits or 
 the income taxes. 
 
 Provided the extraordinary demand of the war can be satisfied 
 by such portion of the social product as can be soaked up by income 
 taxation, the argument for the exclusive use of such taxes is at least 
 
 1 By Henry C. Adams, in the Chicago Tribune, June 8, 1918. 
 ED. NOTE. Mr. Adams is professor of taxation and finance at the University 
 of Michigan.
 
 WAR FINANCE 423 
 
 plausible. Raise the rates and make the taxes already in operation 
 more prolific. This seems to be the chief feature of Secretary Mc- 
 Adoo's plan of getting the $8,000,000,000 from taxes for the next 
 fiscal year. Is it a good plan ? 
 
 There are two reasons why the taxes named above should not be 
 made the exclusive basis of a system of war taxes. In the first place 
 it should be noted that the success of the surplus-profits and differen- 
 tial income taxes during the first year of the war is no proof that they 
 will serve equally well the second year or the third year. The 
 business conditions and bookkeeping results of the years 1916 and 
 1917 were peculiar. It by no means follows that 1918, 1919, and 1920 
 will show the same results. Consider, for example, the so-called 
 national savings. 
 
 For the years 1900 to 1910, according to King's estimate based on 
 census figures, the average annual savings of the United States were 
 $2,000,000,000. For the half-decade prior to 1915, it is said annual 
 savings ranged around $5,000,000,000. In 1916, the corporate 
 surplus and increment of values, called savings, are estimated at 
 $16,000,000,000, and for 1917, $18,000,000,000. No great stress is 
 laid on these figures as figures. They may be wide of the mark, but 
 the trend which they show is typical of the computations on which 
 reliance was placed for the levy of the income taxes of 1916 and 1917, 
 and on which Secretary McAdoo now relies for obtaining $8,000,- 
 000,000 by improving the income-tax machinery. 
 
 Whence come these enormous profits ? Do they stand for a real 
 product ? Or are they mere figures for which there is no correspond- 
 ing material fact, at least to their full amount ? If the savings given 
 above measure an actual industrial attainment of the American 
 business world, there is no need of broadening the basis of taxation in 
 order to collect sufficient funds to meet ever-increasing expenditures; 
 if, on the other hand, these figures are the work of incomplete analysis, 
 a system of taxation built on them must, sooner or later, encounter 
 serious difficulties. 
 
 It is only necessary to place by the side of these figures, which are 
 said to measure the savings of the years 1916 and 1917, the increase in 
 wholesale prices of the same years to disclose the nature of the incom- 
 plete analysis on which they rest. The movement in wholesale prices 
 during the eight years from 1910 to 1917, inclusive, is given in the 
 following table, taken from an article on "Inflation," recently pub- 
 lished by Dr. Kemerer. The table shows that for the six years 1910
 
 424 ECONOMICS OF WAR 
 
 to 1916 wholesale prices in the United States were practically stable; 
 in 1916 they show an advance of twenty-five points, and in 1917 of 
 seventy-eight points, above the base. From the outbreak of the war 
 in 1914 to 1917 prices rose 75 per cent, but this rise was confined to 
 the two years 1916 and 1917. 
 
 INDEX NUMBERS OF WHOLESALE PRICES 
 
 Year Index Number 
 I9IO ' 99 
 
 I9II 97 
 
 1912 ioi 
 
 1913 192 
 
 1914. . . ioi 
 
 i9 J S ' ioi 
 
 1916 125 
 
 1917 178 
 
 It is certainly significant that the two years that show abnormal 
 profits are the same years that show abnormal prices. I cannot go 
 into this analysis to show how much of the ^increased saving" of the 
 years named was due to increased industrial activity and how much 
 to inflation of wholesale prices. My conclusion is tenable, whatever 
 the ratio disclosed. This parallel between the movement in savings 
 and the movement in prices cannot be a coincidence. Some portion 
 and a considerable portion of the $18,000,000,000 surplus of 1917 
 is due to the 75 per cent increase in prices and will disappear when 
 increased prices have reacted fully on costs of production. To that 
 extent the productivity of the surplus-earnings and differential income 
 taxes, as shown in 1917, will disappear. 
 
 4- 
 
 When imposed early in a war, excess-profits taxes that do not leave 
 open an inducement to transfer from peace to war business will be 
 suicidal, so long as we rely upon profit margins as the method of 
 industrial shifting. Will the point at which the tax begins make 
 allowance for increased risks, or will it be at a flat rate, making no 
 discrimination between standardized peace business and uncertain 
 war manufacture ? If the latter, the business manager who contem- 
 plates a shift from peace to war manufacture will usually not be willing 
 to make the change. This is one of the points that our friends who 
 
 1 An editorial.
 
 WAR FINANCE 425 
 
 urge taxation " to the bone," especially on war business, quite generally 
 overlook. 
 
 The development of a scientific system of taxation in time of war 
 must take as its point of departure the industrial requirements of the 
 situation; and ordinary peace-time principles of finance may have 
 to assume a position of secondary importance. Thoroughgoing 
 reorganization of industry is even more imperative than distributing 
 the burdens of taxation among the various classes of society according 
 to their relative abilities to pay at the moment. For the ability of 
 any or all to pay ultimately may be dependent upon immediate 
 industrial mobilization. Taxation may be made an effective instru- 
 ment for promoting rapid industrial reorganization or it may be made 
 an agency that works at cross-purposes with -the paramount require- 
 ments of the situation. In this connection it should be observed that 
 the argument for conscription of income does not start with this 
 point of view. It runs rather in terms of equality of sacrifice. The 
 real corollary of conscription of men for military purposes is not 
 conscription of income but conscription of men and of capital for the 
 industrial army. Conscription of the use of capital, not of capital 
 itself, is a significant distinction. 
 
 5. ARGUMENT FOR TAXES ON LUXURIES 1 
 
 The tax on "retail sales" is recommended, not only to raise 
 additional revenue, but for the equally important purpose of dis- 
 couraging wasteful consumption and unnecessary production. It 
 would be superfluous at this stage of the war to dwell upon the 
 fact that waste and extravagance are akin to treason. We pay 
 lip homage to this truth, but we neglect its practice. We are not 
 yet cutting our personal budgets sufficiently to make the excess of 
 national production over national consumption equal to the needs of 
 the government. 
 
 The retail-sales tax distinctly labels the taxed article as luxurious 
 and serves notice that the government's ban is upon it. The specific 
 tax on luxuries, however, is paid by the producer or dealer and is 
 likely to reach the consumer concealed in the form of an increased 
 price. At this time it is necessary, not only to tax extravagance, but 
 to make the tax known and felt by the taxpayer. It is for this reason 
 
 1 Adapted from a Memorandum of Possible Sources of Revenue suggested 
 by the Treasury Department and submitted to the Ways and Means Committee, 
 1918.
 
 426 ECONOMICS OF WAR 
 
 that despite some administrative objections a tax upon retail sales is 
 so distinctly worth while. 
 
 Assuming the correctness of this general attitude, it seems to 
 follow that the retail-sales tax to be effective must be heavy. The 
 really needy consumer is amply protected by exempting from the tax 
 altogether those classes of articles which the poor actually buy or need 
 to buy. Other articles must be taxed vigorously if the tax is not to be 
 interpreted as legitimatizing extravagance. Place a 20 per cent tax 
 on nonessentials and the consumer will pause before buying. Impose 
 only a 10 per cent tax and he will frequently satisfy his conscience by 
 purchasing the article and paying the tax. This aspect of the question 
 seems vital. Whether 20 per cent is high enough to discourage 
 extravagance is a question; that 10 per cent is too low, under existing 
 conditions admits of little question. 
 
 It is highly important that the consumption of unnecessary things 
 be given up, in order that both capital and labor may be liberated for 
 the production of those things which the government needs for the 
 prosecution of the war. 
 
 For the same reason, it is important that the usual consumption of 
 even necessary things should be curtailed. An industrial condition 
 adapted to peace demands must give place to an industrial condition 
 adapted to war demands before the business activities of the nation 
 can be said to be mobilized for war. Processions and brass bands 
 cannot accomplish this result, nor an appeal to patriotism, nor the 
 wielding of the big stick. There is one way, and one way only, of 
 attaining this result, and that is through the prices of things that 
 people buy. 
 
 If, now, the government could secure a portion of the revenue it 
 needs by taxes that work their way into prices in such a manner as to 
 direct the consumption of the people, and, consequently, their pro- 
 duction, along proper lines, the by-product of such a financial policy 
 would be even more significant than its direct product. Indeed, 
 without this by-product no financial program can succeed. A sound 
 financial policy alone will not obtain the needed funds, nor obtain 
 them in such a way that future revenues may be taken from the same 
 source; a sound financial policy must, in addition to such results, 
 exert a positive influence for the accomplishment of that industrial 
 readjustment which the advent of a great war makes necessary. The 
 federal income-tax laws have no such influence, and for this reason 
 are to be condemned as exclusive war taxes.
 
 WAR FINANCE 427 
 
 The general conclusion of the foregoing comments may be sum- 
 marized as follows: 
 
 The initial burden of a war is the industrial transition from a 
 condition of peace to a condition of war. Every act of government 
 that touches business, and especially taxation, should be shaped to 
 the accomplishment of that transition. The excess-profits and dif- 
 ferential income taxes are over the top of the problem, and, conse- 
 quently, are incompetent as war taxes. The new war taxes to be 
 passed by the present congress ought to be written from a more 
 comprehensive point of view. They ought to be regarded as a part 
 of a systematic program of war financiering. 
 
 L. The Thrift Problem, or The Consumer's Dilemma 
 i. THE APPEAL TO SPEND 
 
 A.' SAMPLE ADVERTISEMENTS 1 
 
 Most newspapers in Massachusetts have opposed the idea of 
 devoting a maximum amount of the national resources to winning the 
 war. On their advertising pages they have urged people to buy the 
 very things the government asks us not to buy; in their news columns 
 they have suppressed the message of the national government urging 
 thrift; and editorially they have not supported the government policy. 
 The following quotations are from Boston papers of April 6 to May 4, 
 the period of the Third Liberty Loan drive. 
 
 Among various advertisements are: "There must be increased 
 activity in all business." "Spend all you can afford .... dress as 
 
 well as you can don't show yourself a miser War is not won 
 
 by killing business of any kind." Or again, "If people are going to 
 judge by clothes (and they're going to whether or not you happen to 
 like it) why not wear clothes that will make them judge you a 
 World-Beater instead of a Gutter-Pup! .... Wearing poor clothes 
 is just as foolish as," etc. " Clothes are going to cost a whole lot more! 
 You don't need a rabbit's foot .... to get in out of the rain! All 
 you need is good old COMMON SENSE. Common sense enough to 
 buy the clothes you're going to need while present values are still 
 
 obtainable Good clothes are not only going to be high they're 
 
 going to be WELL NIGH UNOBTAINABLE!" 
 
 1 By Sinclair Kennedy. Adapted from an open letter, entitled "Why Massa- 
 chusetts Lags," dated June 4, 1918. 
 
 ED. NOTE. Sinclair Kennedy is the author of Pan Angles.
 
 428 ECONOMICS OF WAR 
 
 A typical article states: ''Economy in clothes is not pursued to a 
 great extent for several reasons. One is that we all realize that to 
 some extent trade must run in its usual channels. We must not cut 
 down too stringently on any sort of spending, for fear we may create 
 
 a sort of panic and bring hardship for some classes of workers 
 
 But last year's skirts! Dear me, they are quite impossible, most of 
 them." 
 
 An editorial remarks, "Economies of dress are at maximum in 
 savage communities, but the 'simple life' is obtained there at the cost 
 of civilization itself." 
 
 Compare these with the appeal of the government distributed by 
 the National War Savings Committee: "Are you wearing out your 
 old things? By so doing you are saving labor and material that 
 should be employed for war work To dress or live extrava- 
 gantly in war times is not only 'unpatriotic, it is bad form 
 
 Remember that laying in a supply for the future may be good house- 
 keeping in peace times in war times it is unpatriotic, hoarding, and 
 hinders the government. Don't question whether you can afford it, 
 but whether the country can afford to let you have it." 
 
 The day after the Third Liberty Loan drive terminated a Massa- 
 chusetts paper printed an article concerning automobiles, warning its 
 readers not to believe all the stories about the automobile industry, 
 "particularly dispatches from Washington." It stated that it was 
 patriotic for motorists to use up gasolene in their cars and said, "If 
 you are thinking of buying a car, go ahead and do it. There will be 
 fuel enough and tires enough to guarantee you a great many miles of 
 enjoyable riding." 
 
 Compare this with the government appeal: "Do you save gaso- 
 lene, rubber, and skilled labor by cutting out all unnecessary use of 
 motor cars? Gasolene is one of the most important war supplies. 
 Every gallon counts. Rubber is also in demand. Chauffeurs are 
 needed on government work." 
 
 B. ARE YOUR ECONOMICS ON STRAIGHT? 1 
 
 Are you one of those who preach that our duty at this time is to 
 skimp and save and deny ourselves all but the bare necessities of life ? 
 
 Are you for the "sackcloth and ashes" stuff or do you realize 
 that it is just because we are the most luxury-loving people on earth 
 that we are also the richest and therefore have been called upon to 
 
 1 By E. Le Roy Pelletier. Adapted from "Are Your Economics On Straight ? " 
 Leslie's Weekly (May n, 1918), p. 659. Copyright by E. Le Roy Pelletier, 1918.
 
 WAR FINANCE 429 
 
 finance and to fight to a finish this most "extravagant" of all wars? 
 Listen No man ever made a fortune by saving. No community 
 ever got rich by limiting its people to the bare necessities of life. All 
 surplus wealth is derived from the manufacture and sale of luxuries. 
 Limit yourself to the use of necessities only and you'll stop the pro- 
 duction of all but necessities. For all progress, all civilization, all 
 wealth, beyond the bare needs of the moment are the direct result 
 of the production and sale of luxuries. 
 
 We hear a lot nowadays to the effect that we Americans are a 
 wasteful and extravagant people. Yet when the war had been 
 precipitated by the most "frugal" people on earth except the more 
 primitive races of savages we, the "extravagant" nation, were asked 
 to finance and to prosecute the war to a successful finish. And we 
 expect to do this from the surplus left from our extravagance. Yes! 
 And it is because of our very "extravagance" that we have the money 
 to do it. Being the most luxury-loving, luxury-enjoying, luxury- 
 demanding people on earth, our surplus is the greater. Civilization, 
 culture, progress, impose on those who crave them both mental and 
 physical effort. Stop the effort and you retrograde to the status of 
 the Hottentot. 
 
 China is wonderfully rich in natural resources yet her people are 
 deplorably poor. If China has the resources, why are not the Chinese 
 wealthy ? Why, the Chinese have worn the same styles of clothing 
 for a thousand years and have subsisted on one diet plain rice! The 
 Japs tried the same forms of "frugality" for centuries and just man- 
 aged to subsist. When they began to copy American " extravagance " 
 they became a world-power. 
 
 Oatmeal put up in a box with a fancy name and sold for four times 
 its value as oatmeal is a familiar form of American "extravagance." 
 But a box of it would resurrect India. And if you could persuade the 
 Chinese to eat "compote de riz" instead of just rice, there'd be hope 
 for them, too! From the wealth created by their "extravagance" 
 they would become rich. 
 
 There's small profit in the production and sale of raw materials. 
 One or at most a few share in that profit. Save the crude ore if 
 you will deny yourself the luxury of a watch or a motor car but 
 what will you do with the ore then ? Where derive the wherewithal 
 for even the necessities of life ? 
 
 This idea that in order to finance a war we must designate as 
 " nonessentials " those industries from which our greatest help, both 
 material and financial, come, shows a deplorable lack of knowledge of.
 
 430 ECONOMICS OF WAR 
 
 the very fundamentals of economic principles. Buy the piano you 
 want; buy the diamond necklace; buy the automobile and thereby 
 keep American workmen busy and enable them to do their part, which 
 they are only too eager to do, in helping finance the war. 
 
 It's all wrong this idea that in order to finance the war we must 
 deprive ourselves of all but the bare necessities of life. Rank sophis- 
 try those phrases "an old suit of clothes is a badge of honor," and "a 
 dollar paid for a ball for a boy to play with is a traitor dollar." But 
 this preaching that we must don sackcloth, cover ourselves with 
 ashes, bow down in grief, deny ourselves the luxuries to which we have 
 been accustomed and thereby stop their manufacture and sale 
 that's contrary to all laws of economics. Let's get down to first 
 principles let's correct our angle on economics, for we are missing 
 the mark, most of us. The facts are camouflaged and we are shooting 
 at a dummy. 
 
 C. INDIVIDUAL VERSUS NATIONAL WELFARE 1 
 
 On August 5, 1914, the day after war was declared, I increased 
 our advertising space. From that day I have been buying all the 
 advertising space available. I would do more advertising today if 
 I could get the space. We are limited only by the limitations of the 
 newspapers. We are taking right now every inch they will give us 
 and at rates that would make us in the states turn somersaults and 
 fall over backwards. I am paying at the rate of $i per agate line 
 for display space right now. I will take more space if they will give 
 it to me and at that rate. I probably will pay more before the war 
 is over. But I will take all they will give. 
 
 The first four months of this year have been the biggest four 
 months in our history. This growth has come because we have forced 
 it. At the beginning of this year we were the sixteenth largest house 
 of the kind in the world. At the end of this year we will be the sixth. 
 Within two years after the new store building is completed we will 
 be first. 
 
 A big factor a very big factor in this record has been and will 
 continue to be newspaper advertising. We never could have broken 
 through these traditions over here without it. We had to use all 
 
 1 By Harry Gordon Self ridge. Statement given to the London press on 
 June 30, 1918. 
 
 ED. NOTE. Mr. Selfridge is the American merchant who has "captured" 
 London with American methods. He has often been quoted in the United States 
 since our entrance into the war as "an authority on the business side of war."
 
 WAR FINANCE 431 
 
 we could to break down prejudices. We made people stop, look, and 
 listen. Then the store itself did the rest. We now talk to millions 
 of people every day through our advertising columns, and they believe 
 in us, trust us, respond to that advertising quickly and continue to 
 be our customers in all kinds of weather. The large business enter- 
 prise that is not going the limit in advertising just now is making a 
 huge mistake. 
 
 Now, more than at any other time, it is necessary to push the 
 display advertising. If retrenchments appear necessary they should 
 be made in every other department but the publicity one the 
 newspaper-advertising one. These prices they are soaking us now 
 for space are simply awful but I'll take more space if they will give 
 it to me. 
 
 D. KEEP BUSINESS NORMAL 1 
 
 The United States has agreed to do its full part in the war. If 
 it is to do its full part it must protect itself against panic. Certain 
 tendencies are now making themselves felt which are likely to make 
 the people over-apprehensive and to produce commercial insecurity 
 if they are not halted. We must produce all the provisions we can. 
 We must avoid waste as a patriotic duty. These are movements to 
 enlarge the commercial activities of the nation, not to contract them. 
 The United States directors of the International Association of Rotary 
 Clubs therefore appeal to the people of the United States to keep 
 business as nearly normal as possible. 
 
 But those who promise a rigid closing down of normal purchases 
 to the line of bare necessity are promising a course which will choke the 
 flow of our trade down to the lowest livable minimum. If the women 
 of the United States stop buying clothes in order to give money to 
 any one of a hundred worthy war causes we shall very shortly have a 
 series of failures among American merchants dealing in woman's 
 ready-to-wear garments. Business is a great chain of interlocking 
 enterprises. If the grocers fail, or the house-furnishers, or the dealers 
 in any other commodity, their failure brings something of disaster into 
 every other field of commerce. The reasonable prospect, therefore, 
 of the cries now being soujided for restrictions beyond the stoppage 
 of waste is a general disturbance of business conditions which will 
 threaten the whole nation with calamity. 
 
 Great Britain adopted a slogan at the outset of the war which 
 American business men will do well to make their own at this stage 
 
 1 By the International Association of Rotary Clubs, representing all types of 
 business, with organizations in more than two hundred American cities.
 
 432 ECONOMICS OF WAR 
 
 of our participation in the same war. It was "Business as Usual." 
 If the country can continue its general business substantially as usual 
 it can meet the new war taxes and subscribe to the new war causes 
 somewhere nearly in accordance with its means. But if there is a 
 panic, the return from the taxes and the subscriptions to the relief 
 movements will both suffer heavily. The Rotary Clubs of the 
 United States believe that citizens render patriotic service in this 
 situation who close their ears to propositions menacing the normal 
 business conditions of the country. Workingmen who desire to 
 continue at work, merchants who desire to keep open their stores as 
 usual, manufacturers producing wares other than munitions, have a 
 common need and a common opportunity to serve their families, their 
 country, and their war by silencing everywhere alarms over the effect 
 of the war upon business and unconsidered movements for economy. 
 The surest way to preserve American prosperity is to maintain normal 
 industrial, commercial, and social activities. 
 
 2. THE APPEAL TO SAVE 
 
 A. LUXURIES AND EXTRAVAGANCE IS TREACHERY 1 
 
 Luxuries and extravagance must go completely out of fashion 
 they should, in fact, be considered little short of treachery. There 
 is not enough capital, labor, transportation, or raw material to go 
 around if those industries which are not essential to the conduct of 
 war are continued at their normal productiveness. Every unessential 
 industry which continues in operation must be considered as bidding 
 against the nation for its life's blood. Every unessential industry 
 which burns coal deprives the essential industries by just so much 
 of the supply available for their purposes. Every man who buys a 
 new overcoat is bidding against Uncle Sam, who is buying overcoats 
 for soldiers. And every dollar spent on a luxury is helping to support 
 an unessential industry in the competitive consumption of essentials. 
 
 B. CONSUMPTIVE SLACKERS* 
 
 If I were to stand on the street corner or some other public place 
 and lift up my voice in impassioned oratory to persuade men to stay 
 out of the Army and the war industries, saying to them, "Don't 
 
 1 Adapted from Third Liberty Loan Committee of the Federal Reserve Bank 
 of New York. 
 
 3 By Thomas Nixon Carver. In New York Evening Post, February u, 1918. 
 
 ED. NOTE, Mr. Carver is professor of political economy at Harvard Univer- 
 sity.
 
 WAR FINANCE 433 
 
 enlist! Don't go into the shipyards! Don't go into the munition 
 factories! Don't go into the coal mines! Don't work for the rail- 
 roads! Don't go onto the farms to help produce food!" I should 
 certainly be mobbed, if the police did not take me to jail, and I should 
 deserve all the rough treatment that I should receive. 
 
 There are other and more effective ways than street oratory of 
 persuading men to stay out of the industries which are essential to 
 the running of this war. . Street oratory seldom accomplishes any- 
 thing, and the street orator who tries to keep men out of the war 
 industries is not a very serious menace, though he ought clearly to 
 be abated as a public nuisance. If I really wanted to accomplish 
 such a disloyal purpose as to keep men out of the war industries, I 
 should spend as much money as I could for nonessentials and should 
 advise everyone else to do the same. I should publish articles advis- 
 ing against too much economy and should do all in my power to get 
 people to spend their money for nonessentials. I should advertise 
 nonessentials in as alluring forms as I could invent. Every dollar 
 which is spent for these things will hire someone to make and sell 
 them, and the more these things are bought the more man power will 
 be hired to stay in the nonessential and out of the essential industries. 
 That is a much more effective, as well as a much safer, way of keeping 
 men out of the war industries. 
 
 I am not a believer in mob violence, but if there is anyone- who 
 deserves to be mobbed, it is not these poor simpletons who make 
 ineffective speeches against working in the war industries, though 
 they are bad enough: it is rather those respectable people, some of 
 them in positions of high authority, who still persist in advising people 
 that they must continue spending their money freely for things which 
 they do not need, in order that business may not be disarranged. 
 
 C. THE FUNCTION OF WAR SAVINGS 1 
 
 The war savings movement is not a campaign to sell bonds in small 
 denominations; the war savings movement is essentially a movement 
 to release labor and capital meaning, by capital, farms, and mines, 
 and factories, and railroads, and ships, and all things concerned with 
 
 1 By D wight W. Morrow. Adapted from "The Meaning of the War Savings 
 Movement," in Economic Conditions of Winning the War (Proceedings of the 
 Academy of Political Science in the City of New York), VII, 711-14. Copyright 
 by the Academy of Political Science, 1918. 
 
 ED. NOTE. Mr. Morrow, a prominent attorney associated with J. P. Morgan 
 & Co., New York, is director of the War Savings Committee for New Jersey.
 
 434 ECONOMICS OF WAR 
 
 production and distribution meaning, by labor, those who render 
 service of any and every kind. The war savings movement is essen- 
 tially a movement to put the entire national output, over and above 
 the requirements of healthy and efficient sustenance, at the disposal 
 of the government in order that it may be abundantly supplied with 
 all things needed at the point of contact with the enemy. 
 
 It is the purpose of the War Savings Committee in this country 
 to do something of the work that was done and is being done by the 
 War Savings Committee of England, to bring that fact home to all 
 the people of the United States the fact that war is a most unusual 
 business for a peace-loving nation. When the War Savings Com- 
 mittee started in England, when they expressed the very ambitious 
 purpose of teaching political economy to all the people of a nation, 
 they were laughed at. Yet that is what they attempted. They went 
 before the people of England with a simple and fundamental proposi- 
 tion: "No one ever spends anything without making someone else 
 work for him. No one ever spends anything without making someone, 
 somewhere, somehow, work for him. Just now in the present emer- 
 gency every time the individual spends money for something he does 
 not need he deprives the government of something, some goods or 
 some services, that it needs to fight the enemy. That is the lesson 
 that the War Savings Committee have worked to bring home to every 
 family in England, and their efforts have been rewarded with a very 
 large measure of success. 
 
 A direct result of that lesson was what Mr. Blackett well refers 
 to as the gospel of goods and services. We hear a great deal of talk, 
 about wars being fought with money. Wars are not fought with 
 money. Wars are fought with goods and services. When fought by 
 a nation which has been organized almost entirely for peace, wars are 
 fought by services rendered and goods produced, in very large measure, 
 during the war. That is what is known as the gospel of goods and 
 services. 
 
 They speak of it as a gospel because the doctrine has been spread 
 with something of the enthusiasm which accompanies religious move- 
 ments. It means simply this, that at a time when a government is 
 demanding more goods and more services than the country can 
 produce, those who are requiring unessential goods and services for 
 personal use are doing a direct harm to the government by their 
 competition with it. It makes no difference whether a man or a 
 woman or a child can afford to command goods or services or not;
 
 WAR FINANCE 435 
 
 the nation cannot afford to have the individual command goods and 
 services for nonessentials when goods and services are required at 
 the point of contact with the enemy, and required before they are 
 too late. 
 
 The war savings campaign, which will grow stronger and stronger 
 as the war goes on, means much more than a direct money contribu- 
 tion to the prosecution of the war. The saving of money is not of the 
 greatest importance. The saving of money is a means to an end. 
 The world must save the things that money stands for: goods and 
 services. The world must save capital and labor. When the people 
 of this country get the habit of thinking in terms of goods and services 
 instead of in terms of money the government's task of carrying on 
 the war will be rendered much easier. Moreover, the results of that 
 thinking will surely continue after the war. Surely the new ideals, 
 the new habits of living, which we shall have acquired will contribute 
 their full measure of strength to the rebuilding and the upbuilding 
 of things and of men in the days of peace that are to come. 
 
 LI. The War Finance Corporation 
 
 i. REASONS FOR ORGANIZATION OF THE WAR FINANCE 
 CORPORATION 1 
 
 Just at the close of January the Secretary of the Treasury 
 announced a project for the establishment of a so-call'ed " War Finance 
 Corporation" designed to support and confirm banking and industrial 
 credit. On February 9 he appeared before the Senate Finance 
 Committee for the purpose of advocating the adoption, of the plan 
 in a definite form. The proposed measure is intended to meet the 
 conditions produced by the decline of securities and the possible effect 
 of withdrawals of funds from savings banks unable to liquidate their 
 long-term investments. 
 
 The government's borrowings, particularly during the period 
 immediately preceding and following each Liberty Loan, have tended 
 to pre-empt the credit facilities of the banks and often to prevent 
 them from giving needed and customary help to quasi-public and 
 private enterprises. In not a few cases some such enterprises engaged 
 in work more or less directly essential to the war have been prevented 
 from obtaining the advances necessary to enable them to perform 
 
 1 Adapted from "Washington Notes," Journal of Political Economy, XXVI 
 (February and April, 1918), 206, 409-10.
 
 436 ECONOMICS OF WAR 
 
 essential service because bank credits ordinarily available are being 
 absorbed by the government itself. 
 
 To accomplish these ends there is planned a corporation with a 
 capital of $500,000,000 subscribed by the government and authorized 
 to issue its own obligations to eight times that amount, or $4,000,- 
 000,000. These obligations might be issued to any one or all of three 
 classes of borrowers: (i) to banks which have made advances to, or 
 become purchasers of, the paper or obligations of enterprises deemed 
 essential or contributory to success in war; (2) to savings banks 
 requiring assistance; and (3) in exceptional cases directly to enter- 
 prises which are engaged in war work. Notes issued by the concern 
 would be given to such banks or private undertakings against the 
 latter's own obligations secured as circumstances might permit. 
 
 The War Finance Corporation bill, which passed the House of 
 Representatives on March 21, was signed by the President on April 
 5, and thus becomes law. In a number of respects it has been sub- 
 jected to important modifications since its first introduction in 
 Congress. One which is of most importance to the Federal Reserve 
 System is found in the provision relating to the conditions under which 
 paper collateraled by obligations of the War Finance Corporation 
 may be admitted to discount at Federal Reserve banks. In effect, 
 what has been done by the legislators has been to apply two methods 
 of restriction or regulation, the one seeking to make plain the fact 
 that short-term commercial paper is still to have the preferred position 
 at Federal Reserve banks, the obligations of the War Finance Cor- 
 poration being given a secondary status by the establishment of a 
 differential rate of i per cent against them; the other being the limita- 
 tion of War Finance discounts to those cases in which a bank present- 
 ing such paper is able to state that it is not possessed of commercial 
 paper available for use as a basis for rediscount. 
 
 The obligations of the War Finance Corporation are necessarily of 
 a nature intended for investment rather than for banking uses, and 
 the opening of Federal Reserve banks to them must consequently be 
 regarded merely as a provision designed to strengthen their technical 
 position and to set at rest the attitude of the government with respect 
 to them rather than a provision adopted in the expectation that any 
 considerable volume of business in such paper would actually be 
 undertaken by Federal Reserve banks. Assuming that they are thus 
 in effect an emergency resource, it is not to be expected that they would 
 come in large volume to Federal Reserve banks, and it is to be hoped
 
 WAR FINANCE 437 
 
 that they would not find a permanent lodgment in any considerable 
 quantities in the banks in general. Among the provisions now incor- 
 porated in the final draft of the War Finance Corporation measure is 
 one which removed the power granted by the original bill to Federal 
 Reserve banks to undertake open-market operations in the securities 
 of the War Finance Corporation. Such advances as they make on 
 the securities of this corporation must now, therefore, be dependent 
 upon the application and indorsement of a member bank a situation 
 which merely limits the possibility of operations designed purely to 
 aid the market. 
 
 The powers of the War Finance Corporation remain very large, 
 and the connection between it and the Federal Reserve System is close 
 enough to permit, theoretically at least, a very considerable draft to be 
 made upon the Federal Reserve banks unless the new corporation is 
 conducted with great care and conservatism. 
 
 2. WAR FINANCE CORPORATION UNIMPORTANT 1 
 
 The War Finance Corporation is organized and ready to do busi- 
 ness, but a serious difficulty has been encountered in dealing with 
 the class of cases for which it seems to have been chiefly designed, 
 which consists of corporations in need of capital either for refunding or 
 expansion purposes. It had been assumed bankers would provide 
 the capital wanted in such instances and then recoup themselves by 
 borrowing upon their own notes through the War Finance Corpora- 
 tion, which, above its own capital of $500,000,000, would obtain 
 credit at the Federal Reserve banks. But it develops, as might have 
 been foreseen, that bankers are unwilling to expand their liabilities 
 in this manner. Commercial bankers would be outside their proper 
 field of operations in lending their credit for the purpose of providing 
 fixed capital, and investment bankers would find the policy equally 
 impracticable. Their business is not to carry investments but to 
 distribute them, and they need to have their capital in hand. 
 
 The fact is that loans of the character contemplated do not belong 
 in commercial banks or in the reserve banks, and it was a mistake to 
 plan for the handling of them through this channel. They should 
 go to the investment market, and if they cannot stand alone there 
 have such help as may be necessary from the War Finance Corpora- 
 tion or the government. It is true that the government does not like 
 
 1 From monthly bulletin of National City Bank, New York, July, 1918.
 
 438 ECONOMICS OF WAR 
 
 to divide the public market at this time with other applicants for 
 capital and should not do so except as the services of other applicants 
 are of public importance; but if their services are indispensable and 
 their needs imperative, there is no escape from it, and it is useless to 
 camouflage the situation by throwing them upon .the reserve banks. 
 The largest of these demands are for refunding purposes, and these 
 do not reduce the supply of capital on the market. Now that the 
 government, through its control not only of flotations but of the indus- 
 tries, virtually has control over the capital reservoir, it loses practically 
 nothing by allowing refunding offerings to go to the public, and their 
 success is mainly a question of terms. 
 
 Presumably the public-utility companies can handle themselves 
 by meeting market conditions if their credit is supported by fair 
 treatment on the part of the communities in which they are located. 
 It is perfectly evident that the public utilities are in a hard situation, 
 with their income restricted by fixed rates of compensation and their 
 expenses increasing under war conditions. The situation is so plain 
 that the public should not hesitate to meet it. Since the federal 
 government has become responsible for railroad earnings it has been 
 prompt to recognize the necessities and to safeguard itself with a 
 liberal margin to spare. The example should be adopted by munici- 
 palities to the extent of allowing a fair readjustment of earnings to 
 expenditures. If, beyond doing this, something more is necessary in 
 some instances, the capital and credit of the War Finance Corporation 
 may be properly used.
 
 XI 
 PRICES AND PRICE CONTROL 
 
 Introduction 
 
 The subject of price levels and their movements is a particularly 
 fruitful field for economic fallacies, because it is so easy to think of 
 the problem in terms of prices alone, whereas the fundamental facts 
 are the volume of production of commodities and the sharing of those 
 commodities among the people. Prices are only an instrument in 
 bringing this about. Now a shortage of production cannot be turned 
 into prosperity for producers in general (including wage earners and 
 lenders) by freedom to raise prices, and, on the other hand, the con- 
 sumer cannot be saved from all the effects of a shortage merely by 
 keeping prices down. A revolution in prices does mean increasing 
 the cost of the war, as the report of the British Committee indicates 
 (Section LVII), and injustice between classes, as is shown in the 
 reading on "The Necessity for Price Control." It also makes 
 necessary a general raising of wages, and this means friction, strikes, 
 and the stoppage of work. 
 
 It is becoming the fashion to say that in controlling prices the 
 government is "repealing ,the law of supply and demand" this 
 statement being probably most often made by persons who would 
 have some trouble in stating accurately just what the law of supply and 
 demand is. It is true that prices are fixed at different levels from 
 those which would have resulted from leaving supply and demand un- 
 controlled by anything save the prices that free bargaining would fix, 
 but it is not true that prices can be fixed without any reference to the 
 necessity of making supply and demand equal. If prices are to be 
 kept down, it can only be by furnishing some other method than that 
 furnished by high prices for stimulating supply and for apportioning 
 the shortage. The attempts of government to influence prices act 
 within limits, as Mr. Sidney Webb (selection LIII, 3) indicates, 
 and these limits are set by their ability to stimulate production 
 and cut down consumption in other ways than by raising prices 
 (selection LV, i). In time of war, patriotism has great power for both 
 purposes. The Food Administration has enlisted both producers and 
 
 439
 
 440 ECONOMICS OF WAR 
 
 consumers as members, pledged to co-operate in its policy. However, 
 the control of the consumer can be made more drastic and certain by 
 working through the producer, and our typical policy seems to be to 
 put the producer on rations, so to speak, and let him satisfy his cus- 
 tomers as best he may. If his prices are kept down, he will have 
 to face an excess of demand over supply, and must handle it as best 
 he can. 
 
 There are almost as many kinds of price-fixing as there are com- 
 modities. The mere letting of government contracts controls prices, 
 and the concentrated buying for our Allies controls them more power- 
 fully. There is control by agreement as in the case of metal, control 
 by legislation as in the case of wheat (backed by the power to pur- 
 chase), control by executive order as in the case of coal, control by 
 arbitration as in the case of milk, and there is control of prices through 
 control of profits as in the case of meat packers, flour millers, and 
 dealers in general. There are guaranteed minimum prices to stimulate 
 production, and maximum prices to protect consumers. Control of 
 profits takes as its standard a margin of so much per barrel for flour, 
 a percentage return on capital or on sales for meat packers, or the 
 pre-war level for dealers in many essential commodities. Each of 
 these policies is different from the others in its possible effects. If 
 one price is fixed, it must be high enough to pay the "marginal" 
 producer, and thus yield high profits to those who have advantages 
 of one sort or another (selection LIV, i); but in the case of coal 
 the favored producers are forced to share their gains with the con- 
 sumer, even though this means selling better coal at a lower price in 
 the same market. (See Van Hise, Some Cases of Price Control.} 
 Similarly, dealers in food stuffs who had bought at low prices have 
 been forced to sell cheaper than their competitors who had bought 
 the same commodity at a different time and at a higher price. This 
 policy is possible, as Van Hise points out, because the demand is 
 strong enough to take the whole supply at the highest prices, so that 
 consumers who get lower prices are favored, as they would not be in an 
 open market, by being presented with a share of the "producers' 
 surplus." 
 
 Many knotty questions are raised. What is a farmer's invest- 
 ment in his land, and what is a fair return on it ? If the land is taken 
 at its present market value, should the farmer get 5 per cent on that 
 value, if the farming class have for years bought land at prices as 
 high as thirty times the worth of the yearly net income from it?
 
 PRICES AND PRICE CONTROL 441 
 
 This seems obviously fair to many people, but it would lead to an 
 endless spiral of rising prices. If a piece of land yields $1,000 and 
 is worth $30,000, its owner could demand an increase in prices that 
 would net him $1,500. After he had got this increase, his land would 
 sell for $45,000 and his next season's demand, would be for prices 
 that would net him $2,250, after which the price of his land would 
 rise again, and so on. Other problems arise in calculating investment 
 and profits and in standardizing products. The rules on these 
 matters, which the readings contain, are but faint foreshadowings of 
 what would be necessary if price control were to be general and per- 
 manent. In taking the producers' books as they stand there is 
 injustice, because accounting practice differs from one producer to 
 another, and a uniform accounting system must be prescribed if 
 this sort of unfairness is to be prevented. 
 
 In general the control of prices in war differs radically from the 
 price control of peace times, particularly in America, and methods 
 have been used which would seem like intolerably rough-and-ready 
 makeshifts to one trained in the circumspect procedure of our courts 
 and commissions. For one thing, war-time control of temporary 
 competitive gains due to shortage does not attempt to cut margins 
 of profit nearly so fine as peace-time control of the more permanent 
 and relatively safe gains due to a natural monopoly. The willing- 
 ness of producers to co-operate has possibly enabled the government 
 to get results by methods that could not be used permanently. 
 But, on the other hand, it is also possible that something of the free- 
 dom and "get- there" quality of war-time regulation may remain to 
 color the policies of the future. The ultimate outcome will doubt- 
 less be determined, as the war policy has been, by experimenting and 
 by meeting the problems of the future as they arise. 
 
 III. The Revolution in Prices 
 i. THE RISING PRICE LEVEL 1 
 
 Some idea of the shrinkage of the dollar since the coming of the 
 war can be got from the index-number of wholesale prices published 
 by the U.S. Bureau of Labor Statistics (July, 1918). The commodi- 
 ties covered are grouped into farm products, food, clothing, fuel and 
 light, metals and metal products, building materials, chemicals and 
 
 1 An editorial.
 
 442 
 
 ECONOMICS OF WAR 
 
 drugs, furniture and house furnishings, and miscellaneous. The 
 percentage in average price-increase since 1913 is as follows: 
 
 1913 
 
 1914 
 
 1915 
 
 1916 
 
 1917 
 
 IQlS 
 
 Jan. 
 
 Feb. 
 
 Mar. 
 
 IOO 
 
 99 
 
 IOO 
 
 123 
 
 175 
 
 I8 S 
 
 187 
 
 187* 
 
 * Based on preliminary figures. 
 
 2. FUNDAMENTAL CAUSES AND EFFECTS 
 OF THE RISE 1 
 
 The gradual growth in the expenditure upon the war is due, not 
 only to new services and increased demands, but also, in no small 
 degree, to the increase in prices. It may be calculated very roughly 
 that an all-around increase of 10 per cent in wages and in the cost of 
 commodities purchased at home now involves an increase in the 
 national expenditure of about 130,000,000 pounds a year. 
 
 Your committee have consequently found themselves obliged to 
 extend their inquiry into the causes of the increase in prices and the 
 possible checks that may be applied. 
 
 The chief causes are: The expansion of credits during the war; 
 the demand for commodities exceeding the supply and the inade- 
 quacy of Government action to control prices; increases of wages and 
 consequent increase in the cost of production; increases in the rates of 
 profit; unfavorable rates of exchange in some countries from which 
 supplies are imported. 
 
 Some of these are at once effects of the increase of prices and causes 
 of further increases. It would be difficult, and it is also unnecessary, 
 to determine what is the order of importance of these various factors. 
 But it is certain that among the most important is the expansion of 
 credits. The responsibility for the rise of prices, so far as it is due to 
 this cause, rests partly with the Government and partly with the pub- 
 lic. There have indeed been very large increases in taxation, and 
 vast loans have been raised from the savings of the people. But to 
 the extent to which this policy has not been pursued and instead fresh 
 credits have been created, the Government has given the power to 
 
 1 From a report made by a select committee of the British House of Com- 
 mons, reported in the Economic World (March 30, 1918), p. 441.
 
 PRICES AND PRICE CONTROL 443 
 
 the public to spend more freely on things, instead of investing in 
 Government securities, raises prices against itself. 1 
 
 Demands from the working classes for war bonuses or wage 
 increases are based, as a rule, on one or more of the following grounds : 
 
 a) The cost of living has increased and wages must be increased 
 also in order to enable the working-class family to pay its way. 
 
 b) The employing class is making large profits out of the war, 
 and so long as they do so, it is legitimate that the working classes 
 should do the same. 
 
 c) The demand for labor exceeds the supply, and it is inevitable 
 therefore that wages should rise. 
 
 d) The worker's output has been increased, and he is entitled to a 
 higher wage in consequence. 
 
 e) Increases have been given in one industry or in one grade, and, 
 in order .to prevent inequality or unfairness, increases must follow in 
 other industries or grades as well. 
 
 We shall examine each of these points in turn. 
 
 It is generally agreed that with the great increase in the cost of 
 living which has taken place during the war whatever may be its 
 causes it would have been- neither just nor practicable to have kept 
 wages at their pre-war level. We have formed no estimate of the 
 extent of the rise of wages which has taken place, nor its relation to the 
 increased cost of living. The rise has not been equally distributed, 
 and to arrive at the facts would have involved a prolonged and detailed 
 inquiry into the movement of wages in all the industries, and in all 
 the grades of labor in each industry throughout the country. We 
 therefore express no opinion on these points. Moreover, on the 
 other side of the account, the extent to which the cost of living has in 
 fact increased does not appear to have been ascertained with any 
 certainty. 
 
 Increases of wages have in some cases been secured apart from 
 any question of the cost of living through advantage being taken of 
 the shortage of labor supply in relation to the demand. However 
 legitimate this may be in time of peace, it should be remembered 
 that in existing circumstances it is a direct cause of further rises in 
 prices, and of further increases in national expenditure. At the same 
 time, it is essential that if labor is asked to forego the advantages of 
 its economic position from motives of patriotism, the same measure 
 should be effectively applied to capital. 
 
 1 ED. NOTE Cf. selection XLVIII, 3.
 
 444 ECONOMICS OF WAR 
 
 So far as increased earnings follow increased output due to 
 greater effort or skill, they do not involve increase in the cost of 
 production or in prices, though they would have the effect of pre- 
 venting a reduction. 
 
 It is the case that increases of wages in one trade or grade have 
 been used as a reason for further increase in others, on the ground of 
 similarity, and apart from questions of cost of living. Hitherto 
 there has been no effective check on this competition. Several dif- 
 ferent authorities have been dealing with wage questions in different 
 industries independently of one another, although it has been obvious 
 that the course taken by any one of them must tend to be used as a 
 precedent for the rest. We find, indeed, that there is frequently 
 wanting a proper co-operation between Government departments in 
 dealing with labor, which sometimes passes into active competition. 
 
 Fresh cycles of wage advances succeed one another. Each one 
 results in further increases of prices or in preventing a reduction of 
 prices. An individual trade may obtain, by a wage advance, tempo- 
 rary relief from the increase in the cost of living, but only, as a rule, at 
 the expense of all other trades. And the gain is short-lived, for the 
 result is a demand from the others for similar advances, which raise 
 the cost of the commodities which they produce also. The producers 
 are raising prices against themselves as consumers. Meantime the 
 cost of the war is vastly increased. We are deeply impressed by the 
 seriousness of the position in this respect, and are convinced that if 
 the process continues the result can hardly fail to be disastrous to all 
 classes of the nation. 
 
 Our recommendations in respect to those aspects of the question 
 of prices which are dealt with in this report are as follows : 
 
 1. Whatever measures are possible should be taken by the 
 Government to avoid the creation of new credits in financing the war. 
 
 2. An inquiry should be set on foot to ascertain what has been 
 the actual increase in the cost of living to the working classes, and 
 how far it has been counterbalanced by advantages apart from wage 
 advances due to war conditions. 
 
 3. The measures for the limitation of profits should be continued 
 and strengthened, and should be made more widely known to the 
 people. 
 
 4. The strongest case should be required to be established before 
 any advance of wages is conceded on any ground other than the 
 rise in the cost of living. Nor should it be regarded as a rule and we
 
 PRICES AND PRICE CONTROL * 445 
 
 have no reason to think that labor in general desires that it should 
 that wage earners, in receipt of not inadequate pay before the war, 
 should be exempted from all share in the economic sacrifices involved 
 by a state of war. 
 
 5. A single policy under the general direction of one authority 
 should be adopted in all industries in the determination of wage 
 questions. 
 
 3. AGGRAVATING FACTORS 1 
 
 The causes of mounting prices. The fundamental cause of the 
 mounting prices is that which has already been explained, an unusual 
 and extraordinary demand from abroad for all essential commodities. 
 However, this has been only one factor in the process. 
 
 When it was once appreciated that there was a relative shortage 
 of the essential commodities, the home purchasers, instead of buying 
 ordinary amounts, purchased in advance of their needs. Thus the 
 family, instead of buying flour by the sack, bought a number of bar- 
 rels, or, in some cases, bought flour for years ahead. The same is true 
 in regard to sugar. Similarly during the spring and summer of 1917, 
 when it was appreciated that there was a shortage in coal, many 
 manufacturers were trying to protect their businesses by accumulating 
 reserves to carry them through the winter. The same was true of 
 those who desired coal for heat. The consequence was that the 
 demands of purchasers were far beyond what would have been neces- 
 sary to meet actual needs had the ordinary procedure been followed. 
 This frenzy of excessive buying has greatly aggravated the situation. 
 
 Another most important cause of the enhancing prices was that 
 a time when there is great demand is especially advantageous for 
 speculators to accumulate great stores of goods of various kinds and 
 hold them for advances in prices. This was done on a great scale 
 throughout the country for every essential commodity. 
 
 Finally, when the conditions are as above, it is especially easy for 
 those in a given line of business at a particular locality to co-operate 
 to push prices upward and thus greatly increase the profits of their 
 business. This also was done on a vast scale for many commodities. 
 
 Based upon the first factor, the second, third, and fourth factors 
 have come in, each with reinforcing power, to accelerate prices. 
 
 1 By Charles R. Van Hise. Adapted from Conservation and Regulation in the 
 United States during the World War, p. 33. 
 
 ED. NOTE. Charles R. Van Hise is president of the University of Wisconsin.
 
 446 ECONOMICS OF WAR 
 
 The tendencies above described, once started, are cumulative, and 
 the enhancement of prices goes on with increasing velocity. The 
 prices of foods are advanced; the employees must have higher pay 
 because of the increased dost of food; the raw materials for manu- 
 factured articles are advanced; the manufacturer charges a higher 
 price for his articles because he must pay more for his labor and an 
 increased price for his raw materials. The cycle thus completed is 
 begun again with food, and so on indefinitely, with the result that 
 prices have been and still are rising beyond all reason, like a spiral 
 ascending to the sky. 
 
 4. INCREASING PAY TO BALANCE INCREASED PRICES 1 
 
 The committee recently appointed to make a further investigation 
 of increased living costs established a basis for its report by deter- 
 mining: 
 
 1. The percentage of various annual salaries expended as of the 
 year 1915 for food, clothing, and rent. 
 
 2. The percentage of increase in average price of these items 
 during the last six months of the present calendar year over the 
 calendar year 1915. 
 
 i Increased living costs have been mostly evidenced in the price 
 of food and clothing. Carfare, insurance, light, etc., have not as yet 
 reflected any noticeable increase, and rent to only a relatively small 
 degree. 
 
 The average index number as established by the committee for the 
 six months ending December 31, 1917 (December estimated), shows 
 an increase of 86 . 2 per cent over the average index number for the 
 calendar year 1915. The committee has been at some pains to sub- 
 stantiate these findings. 
 
 The committee has throughout its considerations attempted to 
 arrive at a conclusion which would conservatively, rather than 
 liberally, compensate for the actual increase in living costs. Chapin's 
 table was accepted with but minor adjustments. It represents 
 workingmen's living standards, which are admittedly lower than 
 those which must be maintained by the bank clerk. The 85 per cent 
 increase in food and clothing prices is considered equitable, but con- 
 servatism has prompted that a flat 80 .per cent increase in these 
 items be accepted as a basis of compensation at this time. The 
 80 per cent increase in food and clothing prices, of course, applies 
 
 1 Adapted from reports of committee of Bankers' Trust Company, New York.
 
 PRICES AND PRICE CONTROL 447 
 
 only to those who have been continuously in the employ of the com- 
 pany since June 30, 1916, when living costs first showed a material 
 advance. The basis of compensation for employees engaged after 
 June 30, 1916, is determined upon the percentage increase in clothing 
 and food prices as indicated by the average index number for the 
 month in which the employee is engaged in relation to the average 
 index figure for the six months to be compensated for. The basis is 
 detailed in Schedule "H." An increase of 10 per cent over 1915 has 
 been considered equitable to compensate for increased rentals, includ- 
 ing fuel. 
 
 The committee recommends that compensation for the six months 
 ended December 31, 1917, be distributed in a lump sum on the basis of 
 the above findings. 1 
 
 The abnormal upward trend of prices, 2 both wholesale and retail, 
 in recent months has indicated the probability that wholesale prices 
 increase more rapidly in a period of expansion than do retail prices. 
 Presumably, the retailer purchases some months in advance of his 
 requirement for goods, and at prices then prevailing. The com- 
 mittee is persuaded that at present considerable divergence would be 
 found if an actual increase in wholesale and retail prices could be 
 determined. The percentage increase found by the committee in its 
 last report (covering the six-months period July-December, 1917) 
 was reduced 6 per cent in consideration of the probability of such 
 divergence. 
 
 It seems evident that the causes which have resulted in price in- 
 creases already realized will be intensified if present requirement for 
 war products continues. The committee questions if Bankers' 
 Trust Company, which cannot in these times be assured of profits 
 commensurate with the decrease in the purchasing power of money, 
 should, in equity, continue a policy which, for the duration of the war, 
 would relieve its employees in every instance entirely from the com- 
 mon duty of retrenchment and reduced uses of essentials, which should 
 now be a voluntary and willing sacrifice by all. 
 
 The modified basis of extra remuneration here recommended is 
 calculated to meet the foregoing considerations. Distribution is 
 calculated upon a 60 per cent increase in retail cost of food and clothing 
 
 1 This is from a report of December 15, 1917. 
 
 2 From Compensation for Increased Living Costs, report of committee covering 
 the six-months period ending June 30, 1918.
 
 448 ECONOMICS OF WAR 
 
 and a 10 per cent increase in rentals. The 60 per cent increase in 
 food and clothing costs was arrived at by careful weighing of much 
 independent data of retail-price changes, by examination of individual 
 family accounts, and by comparison of wholesale and retail prices of 
 many, items the retail cost of which could be fairly sustained. 
 
 The committee recommends that those in receipt of salaries of 
 $1,100 to $1,299 P er annum receive the highest percentage of com- 
 pensation, as it still feels that this class carries the greatest burden. 
 
 The following abbreviated table, preferred by the editors, is based 
 on the two reports of the Bankers' Trust Company committee, from 
 which extracts are given above, and indicates the methods used in 
 calculating compensation. The bonuses apply to employees hired 
 before July i, 1916, and those employed later receive less, on a gradu- 
 ated scale. The reason for being particularly liberal with salaries 
 from $1,100 to $1,299 seems to be that these are the lowest salaries 
 paid to married men with families to support. Salaries above $2,500 
 received the same number of dollars increase as those of $2,500. 
 
 
 
 INCREASED COST OF 
 
 w > 
 
 R cf ad 
 
 s+ 
 
 W W_L 
 
 > o ' 
 
 g 
 
 
 ESTIMATED PER- 
 CENTAGE OF SALARY 
 EXPENDED FOR 
 
 FOOD AND CLOTH- 
 ING ABOVE 1913 
 AVERAGE PER- 
 
 << 
 a. H) 
 W < 
 
 W >'-i-i 
 
 H g 
 
 2 a 
 
 (0 H 
 
 g 
 
 a 
 
 
 
 CENTAGE OF 
 
 
 
 
 Q 
 
 I 
 
 
 SALARY 
 
 W o 2 
 ft O 1 5 
 
 _ -o 
 
 55 w O 
 ,_, WCL,(_j 
 
 W 
 
 SALARY BASIS 
 
 
 
 ,_, X M I 
 
 HH Q T \ 
 >-H W 1 - 1 
 
 I I PJ y 
 *~"* r^l ^ 
 
 ^ ^i^ 
 
 
 
 
 
 IN DOLLARS 
 
 
 
 IV 
 
 V 
 
 _ o 'u 
 
 % > 
 
 
 u M 
 
 
 
 
 Last Half 
 
 First Half 
 
 Q m ** 
 
 H 3 ft K 
 
 ET;z 
 
 O W < ,, 
 B > 3 2 
 
 
 
 Food and 
 Clothing 
 
 III 
 Rent 
 
 of 1917, 
 80% of 
 Column 
 
 of 1918, 
 60% of 
 Column 
 
 w z t 
 
 J2 
 
 OU 
 
 
 il 
 
 
 
 
 II 
 
 II* 
 
 
 pt) 
 
 |MOU 
 
 H 
 
 500- 599. . 
 
 57-4 
 
 25 
 
 45-92 
 
 34-44 
 
 2-5 
 
 48.42 
 
 36.94 
 
 35-o 
 
 1,100-1,199. . 
 
 60.5 
 
 25 
 
 48.4 
 
 36-3 
 
 2-5 
 
 5-9 
 
 38.8 
 
 40.0 
 
 1,200-1,299. . 
 
 62.0 
 
 24 
 
 49.6 
 
 37-2 
 
 2-4 
 
 52.0 
 
 39-6 
 
 40.0 
 
 2,400-2,499. . 
 
 57-0 
 
 20 
 
 46.5 
 
 34-2 
 
 2.O 
 
 47.6 
 
 36.2 
 
 30.6 
 
 2.SOO. . 
 
 55-0 
 
 2O 
 
 44.0 
 
 33-0 
 
 2.0 
 
 46.0 
 
 35-o 
 
 30.0 
 
 
 *Reason for lowering basis from 80% to 60% is given in report. 
 
 LIII. The Need for Control 
 i. THE NECESSITY FOR PRICE CONTROL 1 
 
 The conduct of war on an extensive scale is invariably accom- 
 panied by a rapid rise in the cost of living. The increase in prices is 
 not confined to supplies that are required in great quantities by the 
 
 1 By Harold G. Moulton. Adapted from "Some Dangers of Price Control," 
 City Club [Chicago] Bulletin, September 10, 1917.
 
 PRICES AND PRICE CONTROL 449 
 
 armies in the field; it seems to apply with more or less severity to all 
 classes of goods, to practically everything that enters into the general 
 consumption of the people. The high cost of living, therefore, becomes 
 one of the most acute of the internal problems connected with war; 
 and the regulation of prices in the interests of the masses is regarded 
 as one of the most important duties of the government. 
 
 There appear to be two lines of reasoning perhaps one might 
 better say two sorts of reactions-^that favor government control of 
 prices. One is a popular argument and the other may be called for 
 want of a better term a "scientific" argument. In the view of the 
 general public high prices in war time are in considerable measure 
 the result of manipulation by traitorous malefactors who take advan- 
 tage of the government's needs and the public's ignorance and lack 
 of organization who reap where they have not sown, who make 
 fortunes, indeed, without rendering any equivalent in service to 
 society. The control of prices in the interests of the many as against 
 the machinations of the few, therefore, makes a simple and elementary 
 appeal to our notions of right and wrong, to our sense of plain fairness 
 and justice. 
 
 Closely associated with this reason for price control is the idea 
 that large profits should not be permitted, even when they do not 
 result from manipulation, monopolizing, or unfair practices, for the 
 simple reason that it is unpatriotic to reap advantage in any way from 
 the government's needs. "Profiteering" becomes in war time a 
 new form of evil, one which should be suppressed with a strong hand. 
 
 The more carefully reasoned argument for price control recognizes 
 that the causes of rising prices cannot be wholly ascribed to the 
 machinations of speculators, traders, middlemen, and monopolists, or 
 to an enormous government demand; that it depends, indeed, mainly 
 upon fundamental underlying conditions, upon the demand for and 
 supply of commodities in general, or, as some would prefer to put it, 
 upon the quantity of money and credit available for purchasing such 
 goods. But the "scientific" argument for price control does not 
 depend upon the causes of rising prices; it merely accepts the fact 
 of high prices and uses this fact as a point of departure. The real 
 arguments are : First, that the high prices which the government has 
 to pay for the materials it needs greatly increases the money cost of 
 the war and necessitates a heavier burden of taxation than would 
 otherwise be required. Second, the high prices that the public is 
 compelled to pay for commodities that enter into general consumption
 
 450 ECONOMICS OF WAR 
 
 result in lowering the standard of living of the masses, in consequence 
 of the failure of wages and salaries to advance with equal rapidity. 
 This loss of consuming power falls with unusual severity upon people 
 of moderate incomes, upon those least able to stand the burden, and 
 hence is one of the most important of the indirect burdens of war. 
 Indirectly, these losses may be regarded as costs of the war, costs which 
 fall in inverse ratio to ability to pay, thus violating the most funda- 
 mental principle of just taxation. Price control is, therefore, a 
 necessary corrective of the inequalities of war burdens. 
 
 Pushing this economic argument still farther, price control is 
 necessary in order to prevent the poor from having inadequate con- 
 sumption of wealth. The masses of society must be kept above the 
 level of mere subsistence, in order that all may be physically efficient 
 and mentally alert for the onerous business of war. Indeed, when a 
 nation is pressed to the wall in a war of attrition, price control, 
 together with a distributive dictatorship for the necessities of life, 
 becomes an indispenable agency for equalizing wealth, for parcelling 
 out the national store of goods in accordance with the physical 
 requirements of people, rather than according to the fatness of their 
 respective pocketbooks, thereby postponing as long as possible the 
 date of final exhaustion. 
 
 Finally, price control has its political purpose. Just distribution 
 of the burdens of war and alleviation of the economic pressure upon 
 the lower classes serves to suppress the rising tide of discontent and 
 internal dissension; it helps to maintain a united front and to buttress 
 the courage of all classes at home; while at the same time it affords 
 small comfort or hope to the enemies abroad. In a prolonged struggle 
 it is indispensable as a means of maintaining the morale of the people. 
 
 2. WHERE PRICES ARE UNCONTROLLED 1 
 
 LIST OF PRICES PAID IN PETROGRAD 
 
 Rubles 
 
 Potatoes, per pood (36 pounds) 150.00- 200.00 
 
 White flour, per pood 400.00- 500. oo 
 
 Black bread (privately), per pound. . . : 10.00- 12.00 
 
 Eggs (very scarce), per piece i . oo- i . 20 
 
 Salted herrings, per piece 2 . 50- 3 . oo 
 
 1 ED. NOTE. From a letter written by a prominent American business man 
 from Stockholm, June 24, 1918. A ruble is equal to about 50 cents. These 
 prices are in paper money, which was at this time worth about 10 cents on a 
 dollar.
 
 PRICES AND PRICE CONTROL 451 
 
 LIST OF PRICES PAID IN PETROGRAD Continued 
 
 Rubles 
 
 Veal (very scarce), per pound 12. oo- 16 . oo 
 
 Beef (not to be had for any price) 
 
 Sugar (varies greatly; has been as much as 100 rubles 
 
 per pound) now per pound 35 . oo- 45 . oo 
 
 Lard (comparatively cheap), per pound 18. oo- 25 .00 
 
 Butter (comparatively cheap), per pound 16.00- 20.00 
 
 Milk (very scarce), per bottle 2 . 50- 3 . oo 
 
 Fresh cabbage, per pound 8 .00- 10. oo 
 
 Hens (kuritzy), each 30.00- 40.00 
 
 Pair of low quality boots 200.00- 250. oo 
 
 Pair of socks of lowest quality 40. oo- 50. oo 
 
 One ordinary business suit low quality 1500.00-1600.00 
 
 Hay, per pood 180.00- 200 . oo 
 
 Oats, per pood 300 . oo- 350. oo 
 
 Horses that fall in the streets, and there are many of them, are 
 utilized for food; animals of less prominence, it is said, are utilized for 
 sausages. 
 
 3. BRITISH EXPERIENCE 1 
 
 The British government has taken action to correct the inequali- 
 ties of rising prices, first, by raising wages, and secondly, by seeking 
 to arrest the rise of prices. By public exhortation and private 
 counsel, by governmental influence and social pressure, and finally by 
 act of Parliament, the British government has intervened actually to 
 compel employers in nearly all industries to concede rises of wages 
 war advances and war bonuses to the railway workers, to the workers 
 in shipyards and munition factories, to every person employed in the 
 whole engineering industry, to the couple of million women employed 
 on all kinds of war stores, to the million coal miners, to all the govern- 
 ment employees getting less than 150 pounds ($750) a year, to the 
 school teachers, the farm laborers, and the rest. Altogether, it is 
 estimated that the rate of wages has been increased in Great Britain, 
 taking the whole wage-earning class, by about 20 to 25 per cent on an 
 average. This falls far short of the increase in the cost of living, so 
 that the rate of wages, measured by what it would purchase, has 
 fallen considerably under the influence of war. 
 
 1 By Sidney Webb. Adapted from the Atlantic Monthly (July, 1917), 
 pp. 19-21. 
 
 ED. NOTE. Sidney Webb is the foremost English student of labor problems.
 
 452 ECONOMICS OF WAR 
 
 The British government has also assumed the control of the rail- 
 ways and mines, of all the flour mills, of all the merchant shipping, 
 and of all the munition factories; it has made itself the sole importer 
 of sugar and wheat, and has become an importer on a huge scale of 
 meat, rice, and many other things; it has taken over all the wool, 
 leather, copper, and other raw materials; its Ministry of Munitions is 
 now three times as great in its turnover as the largest single industrial 
 enterprise in the world, not excluding the most extensive American 
 trust. And wherever the government controls the supply, it fixes in 
 one way or another both the wholesale and the retail price of the com- 
 modity, so as to limit the advantage that any dealer can take of the 
 urgent needs of the consumer. No one doubts that this policy has 
 been extremely successful in preventing prices, at particular times and 
 in particular places, from soaring sky-high; nor does any instructed 
 person imagine that a "law of maximum," without control of supply 
 would be otherwise than ruinous to the poorer consumers. 
 
 What has been successful in Great Britain in economizing supplies 
 has been a widespread appeal to the whole nation to limit its con- 
 sumption of wheaten bread (4 pounds per week), meat (2^ pounds per 
 week), and sugar Q 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 govern- 
 ment 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. 
 
 In the main, however, the government has been unable to prevent 
 a staggering rise in prices of food-stuffs, which now reaches close upon 
 100 per cent all round; and consequently its obligation to secure an 
 adequate increase of wages has been recognized. The average increase 
 of 20 to 25 per cent, to which the employers have been compelled, has 
 been eked out by (a) the liberal scale of separation allowances paid to 
 the dependents of all men called to the colors, and of pensions given 
 to the discharged men, these two items now amounting to five hundred
 
 PRICES AND PRICE CONTROL 453 
 
 million dollars a year of direct government subvention ; (b) the absorp- 
 tion into wage-earning industry, not only of all the unemployed men, 
 but also of a large number of youths of either sex from 12 or 13 up- 
 ward, of women married and unmarried, and even of old men who had 
 been superannuated thus greatly increasing the number of separate 
 wage earners in the average household; and (c) the rapid spread of 
 piecework in place of time work, and a general increase in the hours 
 of labor, resulting, at the cost of greatly increased effort and strain, 
 in a considerable increase in total earnings apart from any change in 
 the wage rate. 
 
 The outcome seems to be that, in contrast with all previous wars, 
 and with all other governments, the British government has this time 
 been, up to the present, fairly successful in staving off any general 
 fall in the standard of life of its people a notable result of the advance 
 in the United Kingdom of economic knowledge and of democratic 
 influence. It will be interesting to see with what success America 
 tackles the very similar economic problem with which it is now con- 
 fronted. 
 
 4. DO BIG PRICES GET THE MOST WORK DONE ?' 
 
 "Economy is a good thing in its place, but it must not get in the 
 way of the supreme need of victory. We must pay liberally, because 
 the paramount thing is to get results." This point of view contains 
 much truth, and for that very reason it is peculiarly necessary to show 
 that reasonable economy is still very important from this very point 
 of view that of the vital necessity for getting the most work done. 
 The evil results of paying extravagant prices for government work 
 and supplies are not fully realized, largely because most people think 
 of them merely in terms of dollars and cents paid out from the federal 
 treasury. Since the liberty loans have been successful and since the 
 early expenditures fell far short of estimates, many probably feel 
 that a little extra expense, while undesirable, is no very serious matter. 
 
 Nothing could be more dangerously fallacious. The government's 
 inability to spend the amount of its estimates is the last thing in the 
 world to be satisfied about. It is tangible evidence that our limits 
 in this war are not those of dollars, but those of labor and materials. 
 It means that our financial provisions and estimates have outrun 
 our ability to turn labor and capital from the pursuits of peace to 
 
 1 An editorial.
 
 454 ECONOMICS OF WAR 
 
 those of war. We would gladly spend more money if we could get 
 correspondingly more war work done. Unnecessary profit-taking, or 
 "profiteering," whether by capital or labor, is one obstacle to this 
 turning of energy and materials into war channels. We do not lack 
 funds, but we do lack competent labor in the places where it is needed 
 in war work. Our supply of labor cannot be indefinitely increased, 
 and its per capita efficiency is necessarily diminished by sudden 
 shiftings to unfamiliar work. Any failure to make the best use of this 
 limited supply of competent and mobilized labor is a loss that cannot 
 be made good by any amount of government expenditure, government 
 borrowing, or government taxation. 
 
 Apparently, wages were raised for such skilled shipbuilding labor 
 as riveting past the point where increased wages call forth less work 
 rather than more. Men have been able to earn over $100 a week 
 in extreme cases, and at one time there were complaints that they 
 loafed on the job or worked irregularly, taking days off to spend 
 their wages, and drifting from plant to plant. This indicates that 
 sudden and unwonted lavishness in wage payments is not merely an 
 extravagance it defeats its own end, in that it does not get the work 
 done. 
 
 Profiteering (either by labor or by capital) works to the same result 
 in a different way. It increases the unnecessary consumption of the 
 profiteers, and this tends to keep more labor working to produce 
 these nonessential goods than would otherwise be the case. Thus 
 the nonessential industries tend to bid against the essential ones for 
 the limited supply of labor, and thus virtually bid against the govern- 
 ment and against the successful prosecution of the war. If non- 
 essential industries are so rigidly controlled that it becomes impossible 
 for them to use more labor and materials because of profiteers' expendi- 
 tures than they would otherwise use, and impossible for the profiteers 
 to spend any large part of their excess income on consumption goods, 
 then a large part of this income must necessarily come back to the 
 government in loan subscriptions. Thus in England the nouveau-rich 
 laborer or contractor cannot hire other laborers to make him a piano, 
 because the government does not allow pianos to be made. He can 
 merely employ dealers and piano-movers to get him a second-hand 
 piano which some war-pinched middle-class household has been forced 
 to sell. If all unnecessary production were treated in this way the 
 prosecution of the war would not be seriously interfered with by any 
 ordinary profiteering (except through the hostility and sense of 
 injustice that is sure to be aroused), and the question of profiteering
 
 PRICES AND PRICE CONTROL 455 
 
 would be chiefly a question of justice. As things stand, however, the 
 question is also one of efficient mobilization of our labor power to meet 
 the needs of war, and from this point of view it is nearly as bad to 
 make profits unnecessarily large as to make them so small or uncer- 
 tain that no one will undertake the risks involved in doing the work 
 that must be done. When the ship-worker knocks off work to spend 
 his last week's wages, he is not merely depriving the country of the 
 worth of his own labor, but he is hiring people to amuse him who 
 might otherwise be building ships themselves, or doing some other 
 war work. The same is true of the capitalist profiteer spending his 
 profits. Profiteering is the way to prevent national mobilization. 
 
 LIV. The Case against Control 
 i. PRICE CONTROL AND INDUSTRIAL MOBILIZATION 1 
 
 It is the purpose of this paper to direct attention to some serious 
 dangers in connection with price regulation in the form in which it will 
 likely be developed in the coming months. The agitation for the reg- 
 ulation of prices usually develops rather late in a war, but in the 
 present conflict we are beginning very early, not only to agitate the 
 question, but also to develop the machinery necessary to effective 
 control. This in part is owing to the world-wide effect of the long- 
 continued struggle in Europe, the enormous rise in prices abroad hav- 
 ing found concurrent reflection in rapidly rising prices in the United 
 States during the past two years; and in part it is due to mere imi- 
 tation of the policy of the nations of Europe. 
 
 This early development of price control raises an exceedingly 
 difficult problem, because under our voluntary system of industrial 
 mobilization we rely upon prices and profits to attract industry into 
 government service. If we keep prices down, particularly in war 
 industries, will it "pay" business men to divert the productive 
 power of the country to war business ? We may consider a concrete 
 case. 
 
 Several forms of price control have been suggested in one source 
 or another, but the one that is most commonly advocated, the one 
 that makes the strongest appeal to conservative public opinion, is 
 price control based on cost of production. It is believed that indus- 
 tries, even those producing war supplies, are entitled to "reason- 
 able" profits. And "reasonable" profits have to be reckoned from a 
 
 1 By Harold G. Moulton. Adapted from "Some Dangers of Price Control," 
 City Club [Chicago] Bulletin, September 10, 1917.
 
 456 ECONOMICS OF WAR 
 
 basis of cost. Let us assume that 6 per cent is a reasonable profit; then 
 a plant producing a commodity at a unit cost (including selling costs) 
 of $i .00 should be permitted to sell at not more than $i .06. To the 
 uninitiated the problem of price control seems, therefore, a relatively 
 simple problem. 
 
 I shall here pass over the difficult, if not impossible, problems 
 involved in ascertaining the precise unit cost in any particular establish- 
 ment, and confine myself to the problem of the varying costs in differ- 
 ent plants engaged in the same line of activity. Plant A has a cost of 
 $i .00; plant B of $i . 10, and plant C of $i .20. These differences of 
 cost may be due to various causes: Difference in location, difference 
 in management, difference in volume of output, etc. But it is clear 
 that the product of all is imperatively required. Price control, there- 
 fore, must not force any of them out of business. Now if the price 
 fixed were $i .06 it would give a reasonable profit to plant A, but it 
 would not even cover costs for plants. B and C. The price must 
 obviously be high enough to give a "reasonable" profit to the plant 
 with the highest cost of production, with marginal cost, to use the com- 
 mon term of the economist. This means concretely, in the case 
 before us, a price of $i . 26. It should be noted, however, that this 
 obviously means more than "reasonable" profits for all plants whose 
 cost is less than $1.20. It means in certain cases enormous rates 
 of dividend for certain peculiarly efficient or peculiarly fortunate 
 establishments. 
 
 This necessity of basing prices on the marginal or highest cost of 
 production in existing plants has been discussed in various quarters of 
 late. But thus far I have been unable to find any recognition of the 
 necessity of using as the basis of price fixing a cost that is actually 
 higher than the marginal cost in existing factories. What do I mean ? 
 I mean that not only must price control not drive existing factories 
 out of the production of war supplies, but that it must not cut off the 
 inducements to business men to shift from non-war industries to war 
 business. We have seen that the paramount necessity is industrial 
 reorganization, the shifting of labor .and capital from lines of activity 
 that are unimportant for war purposes to the lines that are impera- 
 tively necessary. Price control, in the interests of the general con- 
 suming public, or as a means of lessening the money costs of the 
 government for materials, must not be allowed to stand in the way of 
 industrial mobilization. Let us consider the possible dangers. 
 
 X is a manufacturer of a commodity that is unimportant for war 
 purposes. His plant could be made over into an establishment for
 
 PRICES AND PRICE CONTROL 457 
 
 the manufacture of war supplies at a cost of $100,000. He reasons 
 that since he has had no experience in this particular line of manu- 
 facture his management will not be very efficient the first year. 
 Furthermore, his location is not favorable for this business, and his 
 transportation costs for raw materials and unfinished products will, 
 therefore, be unusually heavy. He knows that there is a scarcity of 
 labor that is skilled in this line of work and that to get laborers at all 
 he must offer high enough wages to induce them to leave steady posi- 
 tions elsewhere and cast their lots with him for a period of indefinite 
 duration. He must, therefore, count on highly paid yet inefficient 
 labor. He estimates his total outlay and finds that his cost would 
 approximate $i .40 per unit, as compared with a top cost of $i .20 
 for existing plants in that line. That is to say, his cost would be $i .40 
 if he could charge off depreciation on this $100,000 expended in 
 rehabilitation at the usual rate. But the duration of the war is 
 uncertain. It may be that he will have to re-rehabilitate his factory 
 before he actually has a chance to manufacture war supplies. In 
 any event there is sure to be a heavy, but indefinite, obsolescence 
 factor, which must be added as one of the costs of production. The 
 exact total obviously becomes guesswork; but, let us assume that X 
 could know that it would be not more than $i .60. This is a high 
 cost, but prices of war materials have been soaring rapidly and they 
 bid fair soon to reach $i . 75 in this line. X has about decided to make 
 the plunge, when Congress begins to discuss the problem of high prices 
 and to insist that they must come down. X decides that he had better 
 wait for a time and see what happens. Eventually, after many 
 precious months have elapsed, we work out a fair price based on the 
 marginal cost in existing factories a price of $i .26, to use the illus- 
 trative case given above. Do we need to inquire further whether X 
 will decide to manufacture war supplies ? 
 
 2. PRICE FIXING BY GOVERNMENT 1 
 
 Let us consider what is involved in the fixing of prices by law or 
 executive fiat. If an omnipotent and omniscient being were to fix 
 all prices, it is conceivable that the results to the whole community 
 might be advantageous, although many individuals would be ruined. 
 The President of the United States is not such a being, nor is Congress, 
 
 1 By David MacGregor Means. Adapted from the Unpopular Review, 
 April-June, 1918. 
 
 ED. NOTE. Mr. Means (1847 ) i an editorial writer and frequent contrib- 
 utor to reviews and magazines.
 
 458 ECONOMICS OF WAR 
 
 nor all the great and costly horde of federal and state and city adminis- 
 trators with all their inspectors and subordinates and prosecuting 
 attorneys. If there is no omniscient being to fix prices, there must 
 be a great many ordinary human beings, some ignorant, some arbi- 
 trary, some acting on one theory, some on another, and some on none. 
 
 The coal famine is a startling illustration of what follows when 
 rulers try to compel their subjects to do business from benevolence. 
 When we went to war it was evident that more coal than usual would 
 be needed, and miners and dealers put up prices to a Very high figure. 
 Coal is an absolute necessity. Consumers will pay almost any price 
 rather than go without it, and producers and dealers took advantage 
 of the demand. The matter was in the first place taken charge of 
 by Secretary Lane, and after consulting with men representative of the 
 industry it was agreed that three dollars a ton was a price at which 
 soft coal could be produced and sold in normal quantities although 
 it was then selling for five or six dollars and the business was not 
 seriously interrupted. Secretary Baker and Secretary Daniels then 
 appeared in the proceeding, and it was at once decided that the coal 
 miners were not benevolent enough. A price of two dollars a ton 
 instead of three was ordered, and the business was demoralized. 
 Some mines could not be worked on that basis. Laborers had to be 
 paid very high wages and were hard to get at that. It was not until 
 October 27, when the situation became alarming, that Dr. Garfield, 
 who had been made fuel controller on August 24, admitted that the 
 attempt to do business on benevolent principles was a failure, and the 
 price of soft coal was raised. It has since been several times increased. 
 
 It was too late. What had happened meanwhile ? In some parts 
 of the. country the normal production of coal had been reduced. In 
 many parts the usual stock had not been laid in. Some coal miners 
 did not supply their best coal, but worked their inferior veins. Some 
 coal was not carefully picked over, and gave out little heat, as many 
 householders found out to their ultimate distress. The price of coke 
 was not fixed; it rose to six dollars a ton or more. Now three tons 
 of bituminous coal will produce, approximately, two tons of coke. 
 Three tons of coal, sold for two dollars a ton, brings six dollars. Two 
 tons of coke, sold for six dollars a ton, brings twelve dollars. One 
 must be more than ordinarily benevolent to sell coal at a loss when 
 coke can be sold at such a profit. 
 
 Dr. Garfield seems to have meant to favor the consumers of coal 
 at the expense of the producers. He has no doubt caused loss to some
 
 PRICES AND PRICE CONTROL 459 
 
 producers; but he has caused greater loss to many consumers. The 
 poorest of them have suffered most. They have had to pay very high 
 prices. Some of them could get no coal at any price. They have 
 had to pay great sums for stoves and gas and oil. Millions of our 
 people depend on kerosene for light and heat. Owing to the great 
 demand for gasolene, kerosene had been cheap. It was almost the 
 only cheap thing consumed by the poor. But the sudden demand 
 for it raised its price, and those who depended on it were thus taxed 
 because the production and distribution of coal had been interrupted 
 by the attempt to fix its price. 
 
 What would have happened if the government had not fixed the 
 price of wheat ? In the first place the competition of the government 
 buyers could have been stopped. There might have been one pur- 
 chasing agent, and the existence of a cash buyer with unlimited funds 
 able to absorb a third of the supply would itself have steadied the 
 market. Speculators would have been cautious. The government 
 had the power, since exercised, to take most of their profits away from 
 them. It could have made all parties report their excessive profits 
 every month, instead of postponing their collection till next June. 
 Existing laws forbade combinations of dealers, and no single person 
 can fix the price of such a staple as wheat, or long maintain it at an 
 artificial price. There have been "-corners" of wheat "on the spot." 
 Some of them have been profitable to the men who managed them, 
 others not. Some of them have at once collapsed. None of them 
 has long maintained an abnormal price, as is proved by the fact that 
 the price of bread has seldom risen to or been maintained at such a 
 price. But when there is an actual dearth of wheat the price of bread 
 must normally rise, and it is desirable that it should. 
 
 To refer to Adam Smith, the wheat grown in one year must last 
 till the next. If there is a scant harvest, the usual consumption of 
 bread must be diminished or there will be famine before midsummer. 
 Consumers must be pinched now, or they will be starved then. If 
 the price of bread had been allowed to rise by a half last spring 
 it would perhaps not have risen so much consumption would have 
 been at once checked. The bakers would have bought less flour, 
 the millers would have ground less. A very high price for wheat 
 could not have been maintained unless the buying of the government 
 maintained it. It might be said that a very high price would not have 
 been abnormal. There was a military necessity our Allies had to be 
 helped, cost what it might. Great profits would have been made,
 
 460 ECONOMICS OF WAR 
 
 but they would have gone to the farmers, who would thus have been 
 encouraged to increase their production the following season. 
 
 But great expenses would have been avoided. The cost of the 
 army of food administrators is enormous. Their interference with 
 the natural course of prices has done little good ajid much harm. 
 Hoarding in our climate absolutely necessary as a safeguard against 
 famine prices and an important regulator of consumption has been 
 penalized with little present gain and much later loss. Tons of printed 
 matter containing all sorts of counsels and prescriptions and appeals 
 and threats, many of them conflicting, many simply foolish, have 
 burdened the mails and postered the walls and windows of our build- 
 ings. The government issued a proclamation setting up standard 
 prices for staple groceries, bought for cash and carried away by the 
 buyer. A company in New York City, supplying the wealthier class, 
 advertises that its prices average lower than the government's, while 
 it allows credit and delivers goods. 
 
 In a literal sense, man does not live by wheat bread alone. There 
 are many substitutes. If flour doubles in price, people who live in the 
 country and bake their own bread will buy less flour and use more of 
 the other products of their land, and more of their land for these 
 products milk, poultry, nuts, fruits, vegetables. In the eastern 
 states many farmers have this year raised their own wheat. Millions 
 of our people like nothing better than cakes made from corn or oats 
 or buckwheat. Millions in the cities, if they found that a five-cent 
 loaf was to cost ten cents, would reduce their consumption of bread. 
 Many have done this from patriotism or benevolence; a great many 
 more would have done it when a high price made it for their own inter- 
 est. This year, fortunately, the crop of potatoes is large, but they have 
 not come freely to market. The price of bread being held down by 
 our rulers, people ate bread rather than potatoes. The city dealers 
 dared not hoard potatoes; they might be "commandeered." Potatoes 
 are spoiled by frost; wheat is not injured. The relative cheapness 
 of bread caused the farmers early in the season to hoard their pota- 
 toes; the early coming of winter and its severity has locked up these 
 hoards. They may be later released ; but all the time the consump- 
 tion of bread has been abnormally stimulated by fixing the price 
 too low. 
 
 But could the common people have paid more for their bread ? It 
 is said that Mr. Woolworth, in a recent conversation with the archi- 
 tect of the splendid building with which they have adorned the city
 
 PRICES AND PRICE CONTROL 461 
 
 of New York, asked him how much iron was used in the structure. 
 Mr. Gilbert reported the quantity as over 27,000 tons. "Last 
 year," said Mr. Woolworth, "I sold in my stores more than that 
 weight in candy." Now with the money which people paid for that 
 candy they could have bought from 50,000,000 to 100,000,000 loaves 
 of bread the number varying with weight and price; and there are 
 many sellers of candy besides Mr. Woolworth. In the fiscal year 1916 
 some twenty-one billions of cigarettes were consumed; in 1917 
 nearly thirty-one billions, costing perhaps $250,000,000 "one half- 
 pennyworth of bread to this intolerable deal of sack." 
 
 We wish Mr. Hoover success in his aim. Perhaps it has not been 
 attained, but possibly it will be attained. We shall believe him if he 
 says it will be; but perhaps it might have been better attained by 
 letting our people attend to their own interests under the natural 
 law of supply and demand, rather than by compelling them to obey 
 the arbitrary orders of a great number of petty dictators, very few of 
 whom possess Mr. Hoover's wisdom* and none of whom commands the 
 enthusiastic devotion that he has so honorably deserved. 
 
 LV. General Estimates of American Policy 
 
 i. GOVERNMENT PRICE-FIXING IN THE UNITED 
 STATES 1 
 
 Economists have generally condemned legally fixed prices, point- 
 ing out the danger of stopping production if the price is held down, 
 the ease of evasions, etc. History is full of cases where price laws 
 have merely forced retailers to close their shops and left the market 
 empty. 
 
 But at present the price-fixing policy seems to be working well 
 with wheat and flour, anthracite and copper, although it has probably 
 done much harm and little good in the case of bituminous coal. Even 
 in this place there are possibilities of improvement, and the control 
 over coal shipments, denying coal to nonessential industries, may 
 turn out to be one of the most important parts of the whole scheme. 
 
 In ordinary times prices guide and control production. If prices 
 rise in some lines, production increases there, drawing labor and capital 
 away from industries where prices have not risen. If the state 
 
 1 By B. M. Anderson, Jr. Adapted from the Economic World (January 5, 
 1918), p. ii. 
 
 ED. NOTE. Mr. Anderson is assistant professor of political economy at Har- 
 vard University.
 
 462 ECONOMICS OF WAR 
 
 interferes with prices it must provide a substitute for the price- 
 control of industry. A mere legal fiat fixing prices must be a failure 
 in the absence of effective control over the whole chain of industrial 
 processes leading up to the price. 
 
 This control has come through law, moral pressure, public opinion. 
 In war time a patriotic people generates a rich fund of social energy, 
 which can be used to encourage and coerce men to make sacrifices. 
 If men will fight and risk death to meet the group's demand, to be 
 able to hold up their heads among their fellows, they will also produce 
 copper without profit for the same reason if the social pressure can 
 be made strong enough. 
 
 It is easy to put pressure on conspicuous men and great corpora- 
 tions. Copper and anthracite presented an easy problem. But the 
 farmers are numerous, obscure, and scattered. It is virtually impos- 
 sible to coerce them. A high price of wheat was necessary there. So 
 with laborers. They cannot be coerced. High wages are necessary. 
 Bituminous-coal mines are numerous and scattered. The cut in 
 price was far too drastic there, although on the whole the trade was 
 more scared than hurt, since existing contracts were respected, and 
 the bulk of the output has not been sold at the government's prices. 
 Jobber's margins have probably been put too low, and the jobbers 
 have probably not been as active and efficient in routing bituminous 
 coal as would have been the case had their margins been wider. 
 Part of the railway congestion might have been avoided had the 
 jobbers been more active and less interfered with. 
 
 One great gain, and a necessary part of the price-fixing scheme, 
 has been the rationing of supplies, so that they would go where most 
 needed. It is politically impossible to draft labor from the non- 
 essential industries to the production of munitions and necessities of 
 life. Yet this can be indirectly but effectively accomplished by refus- 
 ing coal, copper, steel, cars, etc., to the nonessential industries. 
 This is probably the most important feature of the general scheme. 
 
 2. A YEAR OF FOOD ADMINISTRATION 1 
 
 No problem in the first year of the Food Administration's history 
 has involved considerations of such subtle and far-reaching importance 
 as the matter of price-fixing. The Food Administration both is and 
 
 'By Thomas H. Dickinson. Adapted from the North American Review, 
 July, 1918. 
 
 ED. NOTE. The author, associate professor of English at the University of 
 Wisconsin, is now a member of the Food Administration.
 
 PRICES AND PRICE CONTROL 463 
 
 is not at the same time a price-fixing body. 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 .00 per bushel at the principal interior primary mar- 
 kets. 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 1 1 of the law authorizes the President to purchase 
 and store and sell wheat and flour, meal, beans, and potatoes. Mani- 
 festly 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. 
 
 There are many evidences that price-fixing has come to lodge 
 itself as an unwelcome factor in the program of the Food Adminis- 
 tration. 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 essen- 
 tially 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 Administra- 
 tion was brought into existence and the services it was created to 
 perform. The Food Administration is a war agency. Its chief pur- 
 pose 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 Administra- 
 tion directly or indirectly into the market. As the agent and corre- 
 spondent of the army, the navy, the Allies, and the neutrals in the 
 American food markets the Food Administration wields a power of
 
 464 ECONOMICS OF WAR 
 
 purchase which, indiscriminately handled, would amount to cornering 
 the market. 
 
 In such a situation a double set of responsibilities arise, the 
 responsibility toward its clients, the army, navy, and allied and neutral 
 nations, and responsibility toward the mass of the American people, 
 with whom, in fact, the Food Administration, in its capacity as 
 agent, would be coming into competition and "bulling" the market. 
 In fact, these responsibilities are one, but unless their dual nature is 
 accepted the interests of the one or the other will soon be found to 
 suffer. These responsibilities can be met only in case the Food 
 Administration accepts fully the powers its commanding place in the 
 market awards to it as opportunities for service to the producer and 
 the consumer. 
 
 Its responsibility toward the official agencies of the war the Food 
 Administration accepted through the establishment of a Division of 
 Co-ordination of Purchase which works in companionship with the 
 Federal Trade Board and the interested purchasing agencies. To 
 each of these the Food Administration helps to allocate stocks of 
 food; it helps further by distributing orders equitably to different 
 trade agencies. But the Food administration cannot stop there. 
 This is but the beginning of its service and its responsibility. Beyond 
 the supplying of stocks to official buyers it has the far-reaching respon- 
 sibility of maintaining a steady and increasing flow from the producers 
 and of maintaining the morale and the nutrition of the mass of the 
 population which is supporting the war. The Food Administrator 
 had from the beginning repudiated the idea of high prices as an incen- 
 tive to saving. Conservation was always possible by high prices, but 
 this was the conservation of starvation. It was the conservation that 
 laid its heaviest burden on those least able to bear it. Though it has 
 not been possible to lower war-time prices to peace-time standards, 
 the Food Administration has exerted all its force to keep prices from 
 reflecting the abnormal pressure on the market. In striving for this 
 end the Administration was setting aside one of the strongest instru- 
 ments for enforcing saving by the ultimate consumer. Though 
 America has not gone as far as England has gone in the matter of 
 bread, the effort has been made to protect the worker against high 
 prices, even to absolve certain sections of the community from some 
 of the sacrifices demanded of their better conditioned neighbors. 
 While this principle has been justified both here and abroad in the 
 morale of the people, it is clear that the end so sought is not entirely
 
 PRICES AND PRICE CONTROL 465 
 
 consistent with a program of universal saving of food. America has 
 had to become accustomed to the idea that while a great proportion 
 of our population is willing conscientiously to join the program of 
 conservation, there are others to whom the increased wages of war- 
 time have brought higher standards of living, who neither will nor 
 can reasonably be expected to conserve. 
 
 LVI. Significant Phases of Control 
 i. CONTROL OF MEAT PACKING 1 
 
 I. RULES FOR LICENSEES WITH ANNUAL SALES EXCEEDING 
 
 $100,000,000 
 
 ARTICLE II. REGULATION OF PROFIT 
 
 Section 3, Ratio of profit to investment. Licensee shall so 
 conduct his business that the annual profit of business of Class i 
 shall not exceed nine per cent of the investment therein, as hereinafter 
 defined, and that the annual profit of business of Class 2 shall not 
 exceed fifteen per cent of the investment therein, as hereinafter 
 defined; no limitation being placed upon the profit of business of 
 Class 3 ; provided, however, that in no case shall the profit on business 
 of Class i exceed the limitation based on sales provided for packing 
 concerns having sales of less than $100,000,000 per year. The limita- 
 tion of profit in the one class of business is independent of the limita- 
 tion of profit in the other, and no deficiency in the profit of business of 
 one class shall be made up by so conducting the other as to obtain an 
 excess of profit above the limitation specified. 
 
 Provided, that licensee shall correctly segregate the investment 
 and the profits of each branch or department of his business, and, in 
 doing so shall be subject to the same rules as are hereinafter provided 
 with respect to segregation between the three classes of business dis- 
 tinguished in Section i. 
 
 Section 8. Profits How computed. In computing his profits 
 on business of Class i and Class 2 for the purpose of Section 3, licensee 
 shall observe the following regulations: 
 
 i. Existing methods to be continued. Except as expressly pro- 
 vided in this section, or as hereafter expressly authorized or directed 
 by the chief of the meat division, licensee shall continue to compute 
 the profits of his business and of the several departments thereof in 
 
 1 From United States Food Administration, Meat Division, Rules and Regula- 
 tions Relating to the Profits of Slaughtering and Meat Packing Concerns, Chicago, 
 1917.
 
 466 ECONOMICS OF WAR 
 
 accordance with the same methods and principles as he shall have 
 employed during the twelve-month period preceding November i, 
 1917; and he shall not adopt any method or device which will conceal 
 or understate the full and true profit thereof, or which will divert the 
 profit properly accruing to licensee to any other person or corporation, 
 or which will divert the profit properly attributable to business of 
 one class to business of another class. 
 
 2. Interest. No deduction shall be made from profits on account 
 of current payments or accruals of interest on bonds, notes, bills or 
 accounts payable, or any other interest, for payments or accruals of 
 dividends on any class of capital stock of licensee or for provisions for 
 sinking funds, nor shall such payments, accruals, or provisions be 
 charged to operating expenses; 
 
 Provided, That any excess payment of interest on bonds, notes, 
 bills or accounts payable above a rate of five per cent per annum may 
 be charged to operating expenses, said excess to be computed on the 
 basis of the aggregate of such indebtedness of all kinds and the aggre- 
 gate interest thereon. 
 
 4. Transfer values. Any material or product transferred by 
 licensee from any department falling under one of the classes distin- 
 guished in Section i to a department falling under another class, or 
 any material or product sold by licensee to or purchased by licensee 
 from any corporation or concern in which licensee is directly or indi- 
 rectly interested, shall be valued in the accounts at its true and fair 
 market price or market value. Such price or value shall be taken as 
 of the date of the actual physical transfer or delivery, and the time of 
 such transfer or delivery shall continue to be fixed in accordance with 
 the practice of licensee in the year preceding November i, 1917, unless 
 otherwise authorized or directed by the chief of the meat division. 
 This same rule shall, unless otherwise authorized by the chief of the 
 meat division, be observed in respect to materials transferred from 
 any department to any other department. 
 
 5. Depreciation. Reasonable provision for depreciation of build- 
 ings, machinery, and equipment may be deducted, but such provision 
 shall not, except with express approval of the chief of the meat divi- 
 sion, exceed the normal and customary provision therefor heretofore 
 made by licensee, and the chief of the meat division reserves the righ t 
 to reduce any such provision which he deems excessive. 
 
 6. Repairs and maintenance. Only reasonable expenditures for 
 repairs, renewals, and maintenance of buildings, machinery, and 
 equipment may be charged to operating expenses, and in no case
 
 PRICES AND PRICE CONTROL 467 
 
 shall additions to or improvements of such property which increase its 
 permanent capital value be charged to operating expenses, unless by 
 express authorization of the chief of the meat division. 
 
 ii. Salaries. No unreasonably large or excessive salary or other 
 compensation or bonus paid to any officer, director, stockholder, firm 
 member, or proprietor of licensee shall be treated as part of operating 
 expenses. 
 
 II. RULES FOR LICENSEES WITH ANNUAL SALES OF LESS THAN 
 
 $100,000,000 
 
 ARTICLE II. REGULATION OF PROFIT 
 
 Section 1. Ratio of profits to sales. Licensee shall so conduct 
 his business that the profit thereof, or of that part thereof not ex- 
 pressly excluded from this limitation, shall not exceed two and one- 
 half per cent of the gross value of sales. 
 
 Section 7. Profits how computed. In computing his profits 
 for the purpose of Section i, licensee shall observe the following 
 regulations: 
 
 i. Existing methods to be continued. Except as expressly pro- 
 vided in this section, or as hereafter expressly authorized or directed 
 by the chief of the meat division, licensee shall continue to compute 
 the profits of his business and of the several departments thereof in 
 accordance with the same methods and principles as he shall have 
 employed during the twelve-month period preceding November i, 
 1917; and he shall not adopt any method or device which will conceal 
 or understate the full and true profit thereof, or which will divert the 
 profit properly accruing to licensee to any other person or corpora- 
 tion, or which will divert the profit properly attributable to business 
 subject to limitations under Section i to business not so subject. 
 
 2. LIVE STOCK AND FEED PRICES 
 
 We believe that definite, stimulative action is immediately neces- 
 sary if the pork supply of the nation and the nation's Allies is to be 
 sufficient to meet demands. 
 
 There is a marked feeling of uncertainty evident on the part of 
 the producer. This is manifest in the large number of unfinished 
 
 1 Adapted from Report of Commission A p pointed by the United Stales Food 
 Administration to Investigate the Cost of Producing Hogs. Addressed to Herbert C. 
 Hoover, October 27, 1917.
 
 468 ECONOMICS OF WAR 
 
 hogs now going to market. There is a big tendency to market 
 potential breeding stock breeding stock that is essential to further 
 increase. The feeling of unrest and uncertainty on the part of the 
 producer is greatly accentuated by the recent marked drop in price 
 of live hogs. First and above all, confidence should be instilled so 
 that producers will feel that when their hogs are finished for market 
 they will sell at a fair price at least sufficient to cover the actual 
 cost of production and a fair profit. 
 
 The Commission finds that the approximate, equivalent value 
 of twelve bushels of No. 2 corn is necessary to produce 100 pounds 
 of average live hog under average farm conditions. 
 
 We further believe that the equivalent value of at least 14.3 
 bushels of corn must be paid for 100 pounds of average hog in order 
 that production may be stimulated 15 per cent above the normal. 
 
 The best emergency method of stabilizing the market and pre- 
 venting the premature marketing of light, unfinished pigs and breeding 
 stock, we firmly believe, is to establish immediately a minimum 
 emergency price for good to select butcher hogs of $16 per hundred 
 pounds on the Chicago market. For the purpose of immediately 
 stimulating production of swine for the next year, we recommend 
 that a ratio be immediately established and announced at once, same 
 to go into effect February i, 1918. 
 
 At this time 100 pounds of average hog is selling for the current 
 equivalent value of only 7 .4 bushels of corn. It is easy to see and 
 fully comprehend why there has been a marked decrease in production' 
 and why thousands of light, immature, and unfinished hogs have been 
 or are being rushed to market. In the periods of heavy loss, the 
 future production of the industry is threatened. 
 
 It is the emphatic opinion of this Commission that, to secure 
 increased production under present abnormal conditions, definite 
 assurance of a fair price of hogs should be given to producers by the 
 Food Administration, and that the widest possible publicity be given 
 to whatever action is taken with reference to the hog situation. 
 
 B' 
 
 The questions raised in the above report involve general prin- 
 ciples of a very far-reaching character. The policy recommended has 
 two sides, for to stimulate pork production through a high ratio 
 between the price of pork and the price of corn means that more 
 
 1 An editorial.
 
 PRICES AND PRICE CONTROL 469 
 
 corn is fed to hogs and less is left for human beings. Thus in order 
 to be sure that such stimulation is wise we must be sure not only 
 that more pork is needed but that it is needed more than the corn 
 (and anything else having an alternative use that goes to the making 
 of a hog) is needed for other purposes. 
 
 In order to send more wheat to the Allies the American people 
 are required to eat more corn and other grains, but the 1917 corn 
 crop was much of it "soft" and unmarketable. Under such circum- 
 stances we could not feed more of the good corn to people and at the 
 same time feed more to hogs and beef cattle. Since corn is used 
 most largely in the later stages of live-stock raising, what seems to 
 be needed is the raising of more hogs and cattle, without attempting 
 to fatten them to the very heavy weights. A study of cost of pro- 
 duction in terms of corn throws light on how to stimulate corn feeding, 
 but it needs a different kind of study to tell how to minimize corn 
 feeding and still stimulate production as much as possible. 
 
 Prices of live stock must be high to stimulate production. If 
 corn and other grains are to be partly diverted from live-stock 
 feeding and used as human food, the consumer must bid against the 
 live-stock feeder, and that means paying a high price. If the stock 
 feeders against whom the consumer is competing have behind them 
 a guarantee of a ratio of hog price to corn price that will make their 
 business profitable no matter how much they pay for corn, and if the 
 price of corn is not limited, the consumer might be forced to bid 
 almost any amount without in the end getting any more corn than before, 
 because his competitor's bidding power would be absolutely unlimited. 
 Hence the project of a fixed ratio between corn and hogs appears 
 unwise and will probably not be carried out. 
 
 In general, the Food Administration has given assurance that it 
 will pay high enough prices for hogs and cattle to make production 
 profitable, with the understanding that it does not guarantee a profit 
 on the operation of buying in the market light animals to be fattened 
 with corn. 
 
 3. SOME CASES OF PRICE CONTROL 1 
 i. Copper. The first important regulatory action of the War 
 Industries Board was fixing the price of copper. The statement 
 issued September 20, 1917, in regard to this action is as follows: 
 
 1 By Charles R. Van Hise (see p. 445). Adapted from Conservation and Regu- 
 lation in the United States during the World War. Prepared for the United States 
 Food Administration.
 
 470 ECONOMICS OF WAR 
 
 After investigation by the Federal Trade Commission as to the 
 cost of producing copper, the President has approved an agreement 
 made by the War Industries Board with the copper producers fixing 
 a price of twenty- three and one-half cents per pound f.o.b. New York, 
 subject to revision after four months. Three important considerations 
 were imposed by the board: First, that the producers would not reduce 
 the wages now being paid, notwithstanding the reduction in the price 
 of copper, which would involve a reduction in wages under the " slid- 
 ing scale" so long in effect in the copper mines; second, the operators 
 shall sell to the Allies and the public copper at the same price paid 
 by the government, and will take the necessary measures, under the 
 direction of the War Industries Board, for the distribution of the 
 copper and to prevent it from falling into the hands of speculators 
 who would increase the price to the public; and third, the operators 
 pledge themselves to exert every effort necessary to keep up the 
 production of copper to the maximum of the past, so long as the 
 war lasts. 
 
 2. Iron and steel. After prolonged conferences with the manu- 
 facturers of iron and steel, the War Industries Board and the steel 
 men agreed on maximum prices for a number of commodities, which 
 agreements were approved by the President. 
 
 In connection with the above, the iron and steel manufacturers 
 have agreed to adjust the maximum prices of all iron and steel prod- 
 ucts other than those upon which prices have been agreed, to the 
 same general standard as those which have been announced. 
 
 In fixing maximum prices it was stipulated, as in the case of 
 copper, first, that there should be no reduction in the present rate 
 of wages; second, that the prices above named should be made to 
 the public and to the Allies, as well as to the government; and third, 
 "ftiat the steel men pledge themselves to exert every effort necessary 
 to keep up the production to the maximum of the past, as long 
 as the war lasts. 
 
 By the secretary of the War Industries Board, Lieutenant Bing- 
 ham, I am informed that the agreements entered into with regard to 
 copper and iron are handled in the following manner: 
 
 "The Raw Materials Division of the War Industries Board has 
 appointed a Director of Copper Supply and a Director of Steel Supply. 
 The copper and steel interests have appointed Trade Committees 
 who, under the supervision of the directors each in his department, 
 allocate government orders in the various trades and use their influence
 
 PRICES AND PRICE CONTROL 471 
 
 to prevent purchases being made by either department or by an indi- 
 vidual outside of the government at prices above those agreed to by 
 their industry. 
 
 "Should any individual or corporation sell any of the articles 
 upon which a price has been fixed at prices above those fixed, the 
 Trade Committee can use its influence to secure the reduction of that 
 price to the fixed price, or if necessary can call upon the War Industries 
 Board which, through its priority Division, can be able to bring 
 sufficient pressure to bear on the seller to cause him to come into line. 
 There has been very little trouble of this kind and likewise very little 
 material sold at the prices fixed as yet, due to the fact that all pro- 
 ducers of copper and steel were sold ahead at old prices for a, consider- 
 able period." 
 
 The War Industries Board derives its power from the Council of 
 National Defense, and that Council has no authority whatever to 
 compel agreement in fixing prices. 
 
 In agreeing to fix lower prices than had prevailed, these men 
 were doubtless moved by patriotic motives. However, the facts 
 recited show that the prices to which they have agreed are such as to 
 give them great profits beyond those which have obtained antecedent 
 to the war, even when allowance is made for large deductions from 
 these profits because of the excess war tax. 
 
 It should be remembered that the War Industries Board, in 
 acting for the public in fixing prices, was obliged to take into account 
 the shortage of steel and the necessity of the largest possible pro- 
 duction. They were obliged to agree to a price which allows a profit 
 sufficient for practically all of the furnaces and mills of the country 
 to operate. Also in those industries in which there has been no 
 governmental regulation or agreements regarding prices, profits 
 have been much larger than before the war; and it was necessary 
 to take this fact into account. A reduction in prices which in itself 
 was a gain was accomplished. 
 
 While the arrangements regarding prices were amicably made, 
 it should be remembered that the public pressure for fair prices for 
 iron and steel was supported by the threat of legislation, at least so 
 far as iron was concerned. 
 
 3. Coal. (a) Principles invoked. The Fuel Administration has 
 the problem of fixing the price of coal sufficiently high so that there 
 will be a large production, without going to a price that will make it 
 possible for the very poor small mine, remote from facilities, to operate.
 
 472 ECONOMICS OF WAR 
 
 If the price were fixed high enough so that all of these could work, 
 this would result in taking from the public many millions of dollars 
 which should not be paid. The problem is to strike the nice balance 
 which will result in the greatest benefit to the people of the United 
 States; a price high enough so that there shall be increased production 
 over that of previous years, but nqt so high as to place too heavy a 
 burden of cost upon the people. 
 
 In fixing the prices for bituminous coal it is to be noted that a 
 different principle has been followed from that used in connection with 
 wheat by the Food Administration. For wheat a basis is fixed for a 
 certain quantity of wheat at the central interior markets, and prices 
 for other grades and for other localities depend upon well-recognized 
 differentials due to quality and transportation. The only deviation 
 from this principle for wheat is that of California. The price there 
 was fixed at a higher rate than was required under these principles. 
 
 However, in the case of coal, the plan of the Fuel Administration 
 has been to fix the price so that each operator shall receive a limited 
 profit. Hence the price is relatively low for coal from the thick seams, 
 easily and cheaply mined, and high for the thin and poor seams from 
 which it is more expensive to mine. 
 
 The difficulty of the problem may be illustrated by the very small 
 mine which under ordinary circumstances would not be able to operate. 
 Many of these properties do not even have railroad facilities; these 
 are known as "wagon mines." In consequence of their lack of facil- 
 ities they cannot produce coal as cheaply as the larger mines with 
 better facilities; hence if they are operated at all, it is necessary for 
 them to receive a high price for their product, which is no better, 
 indeed is likely to be on the average poorer, than that from the large 
 mines. 
 
 While differences in prices exist for like products in the same 
 districts, it has been the aim of the Fuel Administration not to make 
 the differentials greater than necessary in order to secure a great 
 production. The larger part of the variations in the prices announced 
 for bituminous coals are due to difference in quality of the coal and to 
 freight differentials. 
 
 The fact that a ton of coal from different mines having the same 
 thermal capacity may be sold at variable prices has occasioned no 
 especial difficulty, because there is a greater demand for coal than 
 can be met, and consumers readily pay a price necessary to secure the 
 coal.
 
 PRICES AND PRICE CONTROL 473 
 
 The practice followed is in complete contravention to economic 
 theories accepted before the war. If a mine were rich and con- 
 veniently located it gained a much larger profit per ton than did the 
 poor mine badly located. The owner of the better property gained 
 all the advantages of cheapness of operation and convenience in 
 transportation. Even with the prices fixed this is still the situa- 
 tion .to a considerable extent, but the effect of the price-fixing is 
 to reduce the differences between the gains of the rich and the poor 
 mine. 
 
 Under the fuel law another method of attack would have been 
 possible. The law authorized the government to be the exclusive 
 buyer and seller of the coal of the country. Had this authority been 
 used, the coal mined would have been sold to the Fuel Administrator 
 at a fair profit for each operator. The coal, then the property of the 
 Fuel Administration, could have been pooled and sold at prices 
 dependent upon its value, taking into account its thermal power, its 
 other qualities, and its position in the country in regard to freight and 
 demand, the prices being fixed so as to return to the Fuel Adminis- 
 tration its cost with a sufficient amount to cover administration. 
 Indeed, this was the plan of the Federal Trade Commission, except 
 that the plans of the Commission went even farther and required the 
 operation of the mines. 
 
 Had this suggested procedure been followed, the inequality of 
 cost of the same quality of coal at the same place would have been 
 avoided. However, the Fuel Administration would have had the 
 extremely difficult problem of determining the cost of the production 
 of coal at each mine, dependent as this is upon so many complex 
 factors, including the cost of labor, reduction of the value of the mines 
 due to extractions of material, the depreciation of permanent property, 
 the interest on the investments, etc. 
 
 The method would also have placed upon the Fuel Administration 
 the entire burden of apportioning and marketing the coal, a gigantic 
 undertaking. While, therefore, the method of buying coal by the 
 government and pooling the same might be theoretically advan- 
 tageous, its difficulties were such that the alternative of price-fixing 
 was chosen. 
 
 (b) Jobbers' margins. Operators who maintain their own sales 
 department, whether in their own name or under a separate name, and 
 dispose of coal directly to the dealer or consumer, shall not charge any 
 jobber's commission. A jobber must be entirely independent of the
 
 474 ECONOMICS OF WAR 
 
 operator, in fact as well as in name, in order to be entitled to charge a 
 jobber's commission. 
 
 Free coal shipped from the mines subsequent to the promulgation 
 of the President's order fixing the price for such coal shall reach the 
 dealer at not more than the price fixed by the President's order, plus 
 only the prescribed jobber's commission (if the coal has been pur- 
 chased through a jobber) and transportation charged. 
 
 A jobber who had already contracted to buy coal at the time of the 
 President's order fixing the price of such coal, and who was at that 
 time already under contract to sell the same, may fill his contract to 
 sell at the price named therein. 
 
 (c) Retail margins. On October i it was ordered that the gross 
 margins for the retailer of any size or grade of coal or coke for each 
 class of business shall not exceed the average gross margin added by 
 such dealer for the same size or grade for each class of business during 
 the calendar year 1915, plus 30 per cent of said retail gross margin 
 for the calendar year 1915; provided, however, that the retail gross 
 margin added by any retail dealer shall in no case exceed the average 
 added by such dealer for the same size, grade, and class of business 
 during July, 1917. This margin is the maximum and the retailer may 
 accept smaller margins. It gives dealers no price-incentive to 
 conserve coal, rather to speed up their turnover and keep stocks as. 
 narrow as possible. 
 
 4. FORMS OF CONTRACTS 
 
 INTRODUCTION 
 
 This subject has received practically no attention from econo- 
 mists. The war is bringing it into the foreground for various reasons, 
 (i) When perhaps one-fourth or one-third of the nation's work is 
 being done for the government, the question becomes obviously a 
 public one where before it had been primarily a private business 
 affair the public importance of which it was easy to forget. (2) Forms 
 of contracts react on the efficiency with which the work is done, and 
 this is no longer regarded as a purely private concern of the two parties 
 to the contract and no one else. It has become a matter of vital 
 national interest, or rather, its national importance has been more 
 vividly realized. (3) Forms of contract react on rates of wages and 
 prices of materials and other goods, and these the nation is already 
 trying to control and mold into a unified scheme.
 
 PRICES AND PRICE CONTROL 475 
 
 I. NEEDS OF THE SITUATION IN THE EARLY STAGES OF WAR 
 
 War work done in the midst of rapidly rising prices and wages and 
 general disturbance calls for forms of contracts that will, 
 
 1. Give the contractor reasonable security against big upward 
 movement in wages and prices of materials. 
 
 2. Adapt itself to possible unforeseen changes in the amount and 
 kind of work called for to "extras" which may be found necessary 
 after the contract has been placed. 
 
 3. Furnish an incentive to reasonable economy an incentive of 
 a sort that shall (a) stop short of putting the contractor under undue 
 pressure to skimp in ways that might injure the quality of his work ; 
 (6) be independent of competitive bidding; (c) be automatic in its 
 action and not dependent on government oversight to check waste. 
 
 The first requirement needs no explanation. It calls for some 
 form of contract which assures the contractor that all his costs will 
 at least be covered, in all cases where they cannot be (a) foreseen with 
 reasonable accuracy; (b) prevented from changing by the contractor 
 getting options on materials or buying them in advance; (c) prevented 
 from changing by public control of wages and prices; (d) compensated 
 for in some other way. 
 
 The second requirement may be met by fixing unit prices for all 
 the different sorts of work that are called for, and adding prices for 
 possible extras so far as it can be foreseen that contingencies may arise 
 in which they will be called for. For any work not covered by the 
 lists of possible extras, terms could be left open, to be adjusted on a 
 reasonable basis as the contingency might arise. Such a method as 
 this, however, can be satisfactory only to the extent that disturbances 
 of prices and wages have been adequately taken care of in some 
 other way. 
 
 The third requirement, that of a reasonable incentive to economy, 
 is of crucial importance, (a) Lump-sum contracts may give an undue 
 incentive to parsimony in doing the work, and where this cannot 
 be adequately checked by inspections and tests, this form of contract 
 may lead to harmful results. This is especially true when unforeseen 
 changes in costs put the contractor in danger of making an absolute 
 loss, for a man will give short measure to avoid a loss when he would 
 scorn to do so merely to increase his profits. If the margin has been 
 cut very fine in competitive bidding the danger is increased, this 
 being one of the bad results of fixing a competitive price on something 
 that is not yet made, so that its quality is still to be determined within
 
 476 ECONOMICS OF WAR 
 
 limits set by specifications and inspection. Even where the contractor 
 is in no danger of absolute loss he still pockets the entire amount 
 saved by economy or by parsimony. 
 
 The first Quebec Bridge, which fell in 1907, was built under this 
 form of contract, and the members were made so light that engineers 
 were astounded when the strain sheet was made public. The investi- 
 gating commission found that the bridge would have had to be con- 
 demned, even if it had not collapsed during construction. Where the 
 lives, health, and safety of soldiers, sailors, and workmen depend on 
 the thoroughness with which work is done, builders and manufacturers 
 must be liberal in the essentials of quality and contracts must be so 
 drawn that they can afford to be. The specifications for govern- 
 ment work are not and cannot be made so infallible and prophetic as 
 to provide for everything, and if they could, inspection would still be 
 fallible. 
 
 Under a fixed-price contract the contractor is under no great 
 stimulus to let the quality of his work exceed the letter of the require- 
 ments. If he does, the expense is so much loss to him. This contract 
 is best suited to thoroughly standardized articles which do not take 
 too long to make, so that prices can be revised for the future, if con- 
 ditions require it, without making the revision retroactive on the 
 one hand, or on the other hand causing ^the contractor serious loss. 
 
 (6) Competitive bidding is the common method of seeing that the 
 government gets some benefit out of the cheapness with which work 
 is done under a lump-sum or a fixed-unit-price contract. Under 
 very disturbed conditions this does not work well, for two main 
 reasons, of which the government officials seem to be well aware. 
 Such bidding leads each competing contractor to try to secure an 
 option on materials and thus creates a demand for options out of all 
 proportion to the actual demand for goods from which it arises. This 
 tends to inflate prices unnecessarily. So far as the contractor cannot 
 protect himself against rising prices by getting options, he must seek 
 protection in his bid. He cannot afford to bid as low as if every 
 contract were sure to net exactly the average profit, because (if he 
 is financially responsible) an absolute loss will hurt him more than a 
 profit of the same amount will help him. Those who have to do 
 with contracts say that under such conditions the bids are so high that 
 the work is made more expensive by this form of competition. 
 
 (c) If the form of contract does not in itself furnish an incentive 
 to economy it is hard for government inspection to bring it about
 
 PRICES AND PRICE CONTROL 477 
 
 directly and maintain the quality of products. If glaring cases of 
 disorganization, padded payrolls, or lack of obvious business method 
 and system are found, something can be done, but in the early stages 
 of putting a peaceful and individualistic democracy on a war footing, 
 conditions are so confused that methods of production cannot be 
 standardized beyond a certain elementary minimum. For economy 
 beyond this minimum reliance must be put, largely, either on patriot- 
 ism or on a financial incentive or on both together. 
 
 II. FORM OF CONTRACT ADAPTED TO THESE NEEDS: A SIMPLE BASIS 
 FOR ECONOMY-SHARING CONTRACTS 
 
 The simplest way to meet the difficulty of rising prices and wages 
 is by some form of cost-plus contract. At present those interested in 
 contracting are advocating the increased use of such contracts, largely 
 for this reason, but also because of dissatisfaction with the results of 
 competitive bidding on fixed-price contracts. If such a contract is 
 combined with an economy-sharing feature, it will furnish a stimulus 
 to economy without carrying it to such unhealthy lengths as does a 
 system under which the contractor runs a serious risk of not covering 
 his actual expenses. Such an incentive to economy has the special 
 advantage that it does not depend in any way on competitive bidding, 
 though competitive bidding may be used, if desired, without forcing 
 the contractors to get options ahead in order to protect their costs and 
 so inflating the costs unnecessarily in the way already mentioned. 
 The simplest basis for such a contract would be this: the contractor 
 should receive his costs, plus some fraction, say one-third, of the 
 amount by which cost falls short of an agreed sum, but in no case less 
 than a specified minimum lump sum in excess of cost. This has been 
 recommended by the United States Department of Commerce. 
 
 III. COST-PLUS-LUMP-SUM CONTRACTS 
 
 Many government contracts appear to have been let on this 
 basis. While not affording a positive incentive to economy, it avoids 
 offering a positive incentive to waste. The United States Depart- 
 ment of Commerce, in recommending this form of contract, urges that 
 it be combined with the economy-sharing feature. 
 
 IV. CONTRACTS SUBJECT TO REVISION 
 
 It is possible to let a contract without specifying the price, leaving 
 this to be determined later. Or contracts can be let at a specified 
 price subject to revision in case conditions change so as to call for it.
 
 478 ECONOMICS OF WAR 
 
 Where the contractor has confidence in the reasonableness of the 
 government's agents, such contracts may work well. The spirit of 
 co-operation which prevails in many quarters is probably an adequate 
 basis on which to make many contracts of this kind, but they cannot 
 meet all cases. 
 
 V. COST-PLUS-PERCENTAGE CONTRACTS 
 
 The basic disadvantage of such contracts is obvious the more 
 the work costs, the bigger are the profits. This is clearly against all 
 business principles, and is never really necessary, no matter what the 
 character of the work. If the contractor is patriotic enough to want 
 to see government work done as efficiently and economically as 
 possible, such a contract puts his patriotism at war with his pocket- 
 book and makes it cost him money to indulge in that virtue. It 
 implies no slur on the patriotism of contractors to wish to see it 
 relieved of this burden. 
 
 The profits on such a contract can be increased in many ways: 
 
 1. By padding the salary roll. This has been charged more than 
 once. 
 
 2. By yielding to demands for increased wages. Hence every 
 holder of such a contract becomes fair game for such demands. It is 
 not easy to refuse a man what costs you less than nothing. It has 
 been noted that the letting of such contracts is the signal for demands 
 from all concerned. 
 
 3. By encouraging labor to demand more than it otherwise would 
 have demanded. Some observers have thought they detected a more 
 than ordinarily sympathetic attitude of employers toward the em- 
 ployees in the matter of the outcome of wage awards. 
 
 4. By limiting the output of labor. This is said to have been done 
 by action of the employer under a cost-plus-percentage contract. 
 
 5. By paying liberal prices for materials. 
 
 6. By wasteful use of materials. 
 
 7. By hiring an unnecessarily large working force, both salaried 
 staff and wage earners. 
 
 8. By accepting poor material, causing increased costs in work- 
 ing it. 
 
 9. By inadequate maintenance or operation of parts of the equip- 
 ment, leaving the worker with an imperfect machine or tool to work 
 with (e.g., if air-pressure for pneumatic riveters were to fall below 
 normal for some reason it might be a source of profit rather than of loss).
 
 PRICES AND PRICE CONTROL 479^ 
 
 10. By holding railroad cars and accumulating unnecessary demur- 
 rage charges. 
 
 11. Even wasteful routing of freight, heinous as that seems under 
 present conditions, would be a profitable policy under this form of 
 contract. 
 
 There is no justification for putting contractors at such a dis- 
 advantage in their attempts to secure reasonable terms from labor 
 unions and sellers of materials; neither does the patriotism of the 
 majority justify using a form of contract under which the minority 
 can profit by policies running all the way from positive fraud and 
 collusion in swelling expenses to such impalpable things as failure to 
 use the utmost vigilance and system in organizing the work and in 
 keeping the inevitable wastes of such work down to the lowest prac- 
 ticable level. 
 
 VI. CONCLUSION 
 
 Different kinds of contracts will always be suited to different 
 kinds of work, and no one form that would be best for all purposes 
 can be selected. The fixed-price form is the simplest, and to the 
 extent that the government succeeds in stabilizing wages and the 
 prices of metals and other basic materials, this form of contract 
 becomes easier to use, especially if the manufacturers themselves are 
 getting their methods standardized and their costs in labor and 
 materials reasonably uniform and predictable.
 
 XII 
 
 Introduction 
 
 It has become increasingly clear, as the war has been prolonged, 
 that the issue of the conflict largely rests in the hands of the humble 
 toiler back of the lines every phase of military effort being funda- 
 mentally dependent upon the whole-hearted support of labor. The 
 laboring man himself was one of the first to learn this lesson, and with 
 ever-growing confidence he has raised his head and spoken with a 
 new-found dignity. And more and more the responsible governments 
 of the world have harkened to the voice of labor in the counsels of 
 nations. It is now a common saying that the war has meant the 
 emancipation of labor and that we have already entered upon a new 
 era of industrial democracy. 
 
 The selections in this chapter touch only the high spots in the 
 relationship of labor to the war. The first section is designed to 
 indicate the task that confronted non-militaristic countries at the 
 outbreak of the war in enlisting the support of labor. International- 
 ists, syndicalists, pacifists, anti-imperialists, what not, had to be 
 taught that the purpose of the Allies in this struggle was not ignoble, 
 but one that was in accord with the rights and the aspirations of 
 common men everywhere. The second section shows the nature of 
 the problems that arise in connection with the effective mobilization 
 of man power. And the third division of the chapter discusses the 
 conditions that surround labor in war time, together with the policies 
 that are being formulated to deal with these conditions as they 
 arise. 
 
 Whatever be the ultimate results of labor's newly acquired posi- 
 tion, it is certainly not too much to say that we shall never go back 
 to the chaotic conditions that prevailed before the war. Many of 
 the agencies and policies that have been born of the war will become 
 permanent. And on every hand there is evidence of a new conception 
 of industrial relations a conception that is forward looking, that 
 recognizes that ill-balanced social development is incompatible with 
 democratic institutions. 
 
 480
 
 LABOR AND THE WAR 481 
 
 LVII. Attitude of Labor toward the War * 
 i. THE REAL PACIFISM BEFORE THE WAR 1 
 
 I have reserved for myself the interesting task of presenting to you 
 our anti-patriotic conception called "Herveism." My role has been 
 limited to interpreting the ideas and sentiments which I have seen 
 spring up among the proletarian and peasant class, and of which I 
 have only been the doctrinaire, the theorizer, and latterly, in spite 
 of myself, the standard-bearer and symbol. 
 
 These anti-patriotic ideas, moreover, are somewhat new among the 
 masses of organized workers. And like all new ideas, they shock 
 public opinion; they seem shocking to you. That was the fate of 
 early Christianity, and also of the republican idea, at the time when 
 republicans were regarded, in the remotest parts of the country, as 
 monsters gorged with blood. 
 
 At an age when the critical spirit is not yet developed in us, we 
 hear, as children at the family table, accounts of horrible misdeeds 
 committed by the Germans or the English, or feats of valor accom- 
 plished by the French. The little Germans at the same moment 
 hear about all sorts of crimes committed by the French, the English, 
 or the Russians. 
 
 We are taught that France is the land of the brave, the country of 
 generosity and chivalry, and the refuge of liberty; the same things 
 are said of their countries to the little Germans, the little Russians, 
 and the little Japanese; and we all, in the innocence of our hearts, 
 believe them. 
 
 For New Year's gifts our fathers, and even our mothers, give us 
 lead soldiers, toy guns, drums, clarions, and trumpets. 
 
 And when this" beautiful education has already made us patriots 
 in embryo, the school the secular public school quite as much as the 
 schools of the religious orders puts the finishing touch to the work 
 of driving patriotism into our heads. Do you remember those history 
 manuals in which on every page some scene of carnage or the portrait 
 of some warrior was cynically displayed ? To complete the work of 
 making the perfect patriot, to poison his whole system, nothing more 
 
 1 By Gustave Herve. The speech from which the excerpts here presented are 
 taken was translated from French into English and circulated in this country by 
 the I.W.W. as early as 1912. 
 
 ED. NOTE. This selection reveals an attitude toward all war that had been 
 steadily growing among revolutionary groups in recent times.
 
 482 ECONOMICS OF WAR 
 
 is necessary than to let him become intoxicated with military pomp, 
 which is still more impressive than the pomp of religion. This time 
 the impression is not produced by priestly vestments, resplendent 
 with gold and precious stones; these are replaced by costumes of 
 gaudy colors, with gold lace, plumes, and feathers. 
 
 The music of the church organs is replaced by the still more 
 intoxicating music of drums and trumpets. 
 
 Instead of religious processions, we now have those imposing 
 military reviews, which we have all run after in our time in order to see 
 the march past, in the heat and dust, of those interminable ranks of 
 instruments of slaughter and of young men, the flower of the nation, 
 marked for future butcheries. Then, when the rag on the end of a 
 stick, which represents the sacred emblem of the country, passes by, 
 a wave of religious emotion passes over the throng of patriots, and they 
 devoutly bare their heads, just as their great-grandfathers bared their 
 heads before the Holy Sacrament. 
 
 As for us, the revolutionary socialists, we have repudiated the 
 flag on which are displayed in letters of gold the names of so many 
 butcheries. 
 
 Flags are only emblems; they have no value beyond what they 
 represent. What, then, do we mean by a country or a nation? 
 What are all the countries of today ? 
 
 Allow me, gentlemen of the jury, to make use of an illustration, a 
 sort of parable, which will enable you better to understand our 
 sentiments. 
 
 Countries all countries or nations whatever may be the govern- 
 ment ticket with which they are labeled are composed of two groups 
 of men, one by far the less numerous, the other embracing the immense 
 majority of the people. 
 
 The first group is seated at a well-spread table, where nothing is 
 lacking. At the head of the table, at the place of honor, are seated 
 the great financiers. Some are Jews, yes; others are Catholics; 
 others, again, are Protestants or Freethinkers. They may be in 
 disagreement on religious or philosophic questions, and even on 
 questions of interest, but, as against the great mass of the people they 
 work together like thieves at a fair. 
 
 On their right and on their left are the cabinet ministers, the 
 great officials of all the state services civil, religious, and military 
 not forgetting the paymaster-generals, at salaries of thirty, forty, 
 or sixty thousand francs a year; a little farther away the Council of
 
 LABOR AND THE WAR 483 
 
 the Order of Advocates and the gentlemen of the courts of law, includ- 
 ing their precious auxiliaries, the solicitors, notaries, and bailiffs. 
 
 And then there are the big shareholders of the mines, factories, 
 railways, and shipping companies, and the big stores, great squires 
 and great landed proprietors, they are all at that table; all those who 
 have only a few sous are there also, at the end of the table; they are 
 the small fry, who have, however, all the prejudices and all the 
 conservative instincts of the big capitalists. 
 
 Far away from that table I perceive a herd of beasts of burden, 
 condemned to forbidding, dirty, dangerous, and mindless toil, without 
 respite or repose, and, above all, without security for the morrow; 
 small tradesmen, nailed to their counters on Sundays and holidays, 
 and more and more crushed out every day by the competition of the 
 big stores; small industrial employers, ground out of existence by the 
 competition of the big factory owners; small peasant proprietors, 
 brutalized by long hours of labor, sixteen to eighteen hours a day, and 
 only working to enrich the big middlemen, flour merchants, wine 
 agents, and sugar refiners. Still farther off from the table of the 
 prosperous I see the great mass of the proletarians, those who for their 
 whole fortune have only their arms and their brains working men 
 and women of the factory, exposed to long periods of unemployment; 
 petty officials, clerks, and other employes, obliged to bow their heads 
 and hide their opinions; domestic servants of both sexes, flesh for 
 toil, flesh for cannon, flesh for lust. 
 
 Behold your countries! 
 
 Monstrous social inequality, monstrous exploitation of man by 
 man; that is what a country is nowadays, and that is what the workers 
 take off their hats to when the flag is carried by. 
 
 If tomorrow your financiers and your diplomats were unable to 
 come to terms with those of Germany, your patriotism (at 8 per cent !) 
 would be only too happy to see us, the French and German workers, 
 marching against each other, butchering each other by the hundred 
 thousand, in order to find out whether Morocco should belong to the 
 capitalists of Paris or to those of Berlin. 
 
 We know, as you see, the mysterious and interested sources of 
 your patriotism. Yes, you are quite right, from your point of view, 
 in trying to cultivate among the enslaved workers the worship of your 
 countries and of your flags; to maintain the domination of your class 
 you are well-advised in propagating among the masses these patriotic 
 sentiments which veil class antagonisms and make the sheep believe
 
 484 ECONOMICS OF WAR 
 
 that they are of the same race, the same family, and the same country 
 as the wolves who devour them. 
 
 For us there are only two countries in the world that of the 
 privileged and that of the disinherited, or rather that of the con- 
 servatives and that of the rebels, whatever language they may speak, 
 or whatever the land may be which chanced to give them birth. Our 
 compatriots are not the capitalists here, who would have us massacred 
 if they could, just as they massacred our fathers in the Commune. 
 Our compatriots are the conscious proletarians, the socialists, the 
 revolutionaries of the whole world, who wage everywhere the same 
 battle as ourselves for the establishment of a better society. And in 
 full agreement with them we only await the opportunity in this 
 Europe, where the railways, the telegraph, cheap newspapers, and 
 the same capitalist system have suppressed distance and rendered 
 uniform the conditions of life, to found that free European federation, 
 prelude to the great human federation in which the countries of today 
 will be absorbed, just as the ancient provinces became absorbed in the 
 France, England, and Germany as we know them now. 
 
 2. ATTITUDE ON THE EVE OF HOSTILITIES 1 
 
 A. MANIFESTO TO THE BRITISH PEOPLE 2 
 
 The long-threatened European war is now upon us. For more 
 than one hundred years no such danger has confronted civilization. 
 It is for you to take full account of the desperate situation and to act 
 promptly and vigorously in the interest of peace. You have never 
 been consulted about the war. 
 
 Whatever may be the rights and wrongs of the sudden, crushing 
 attack made by the militarist Empire of Austria upon Servia, it is 
 certain that the workers of all countries likely to be drawn into the 
 conflict must strain every nerve to prevent their governments from 
 committing them to war. 
 
 Everywhere Socialists and the organized forces of labour are 
 taking this course. Everywhere vehement protests are made against 
 the greed and intrigues of militarists and armament-mongers. 
 
 1 ED. NOTE. These selections, consisting of manifestoes and opinions, have 
 been compiled by G. D. H. Cole, in Labour in War Time, pp. 24-59. Published 
 by G. Bell and Sons, Ltd., London, 1915. The authorities for the statements are 
 duly indicated. 
 
 2 Issued August i, 1914, by the British Section of the International Socialist 
 Bureau.
 
 LABOR AND THE WAR 485 
 
 We call upon you to do the same here in Great Britain upon an 
 even more impressive scale. Hold vast demonstrations against war 
 in every industrial center. Compel those of the governing class and 
 their press who are eager to commit you to co-operate with Russian 
 despotism to keep silence and respect the decision of the overwhelm- 
 ing majority of the people, who will have neither part nor lot in such 
 infamy. The success of Russia at the present day would be a curse 
 to the world. 
 
 There is no time to lose. Already, by secret agreements and 
 understandings, of which the democracies of the civilized world know 
 only by rumour, steps are being taken which may fling us all into the 
 fray. 
 
 Workers, stand together therefore for peace! Combine and 
 conquer the militarist enemy and the self-seeking Imperialists to-day, 
 once and for all. 
 
 Men and women of Britain, you have now an unexampled oppor- 
 tunity of rendering a magnificent service to humanity, and to the 
 world ! 
 
 Proclaim that for you the days of plunder and butchery have gone 
 by; send messages of peace and fraternity to your fellows who have 
 less liberty than you. Down with class rule. Down with the rule 
 of brute force. Down with war. Up with the peaceful rule of the 
 people. 
 
 [Signed on behalf of the British Section of the International Socialist 
 Bureau] 
 
 J. KEIR HARDIE 
 ARTHUR HENDERSON 
 
 B. THE VOICE OF THE CROWD 1 
 
 That this demonstration, representing the organized workers and 
 citizens of London, views with serious alarm the prospects of a 
 European war, into which every European power will be dragged 
 owing to secret alliances and understandings which in their origin were 
 never sanctioned by the nations, nor are even now communicated to 
 them; we stand by the efforts of the International Working Class 
 Movement to unite the workers of the nations concerned in their 
 efforts to prevent their governments from entering upon war, as 
 expressed in the resolution passed by the International Socialist 
 
 1 Resolutions adopted with enthusiasm at an anti-war mass-meeting in Trafal- 
 gar Square, August 2, 1914.
 
 486 ECONOMICS OF WAR 
 
 Bureau; we protest against any step being taken by the government 
 of this country to support Russia, either directly or in consequence 
 of any understanding with France, as being not only offensive to the 
 political traditions of the country but disastrous to Europe; and 
 declare that as we have no interest, direct or indirect, in the threat- 
 ened quarrels which may result from the action of Austria in Servia, 
 the government of Great Britain should rigidly decline to engage in 
 war, but should confine itself to efforts to bring about peace as 
 speedily as possible. 
 
 C. LABOR OFFICIALLY SPEAKS 1 
 
 August 7, 1914 
 
 DEAR SIR: We beg to inform you that a special meeting of the 
 national executive of the Labour Party was held on August 5 and 6 
 to consider the European crisis, when it was decided to forward to 
 each of the affiliated organizations the following resolutions: 
 
 That the conflict between the nations of Europe in which this 
 country is involved is owing to Foreign Ministers pursuing diplomatic 
 policies for the purpose of maintaining a balance of power; that our 
 own national policy of understandings with France and Russia only 
 was bound to increase the power of Russia both in Europe and Asia, 
 and to endanger good relations with Germany. 
 
 That Sir Edward Grey, as proved by the facts which he gave to 
 the House of Commons, committed, without the knowledge of our 
 people, the honour of the country to supporting France in the event 
 of any war in which she was seriously involved, and gave definite 
 assurances of support before the House of Commons had any chance 
 of considering the matter. 
 
 That the Labour movement reiterates the fact that it has 
 opposed the policy which has produced the war, and that its duty is 
 now to secure peace at the earliest possible moment on such conditions 
 as will provide the best opportunities for the re-establishment of 
 amicable feelings between the workers of Europe. 
 
 That without in any way receding from the position that the 
 Labour movement has taken in opposition to our engaging in a Euro- 
 pean war, the executive of the party advises that, while watching for 
 the earliest opportunity for taking effective action in the interests of 
 peace and the re-establishment of good feeling between the workers 
 
 1 A letter of the Executive Committee of the Labour Party, containing resolu- 
 tions passed by the Committee.
 
 LABOR AND THE WAR 487 
 
 of the European nations, all Labour and Socialist organizations 
 concentrate their energies meantime upon the task of carrying out the 
 resolutions passed at the Conference of Labour organizations held 
 at the House of Commons on August 5, detailing measures to be taken 
 to mitigate the destitution which will inevitably overtake our working, 
 people while the state of war lasts." 
 [Signed] 
 
 W. C. ANDERSON, Chairman 
 ARTHUR HENDERSON, Secretary 
 
 D. THE WAR MUST BE FOUGHT 1 
 MY DEAR MR. MAYOR: 
 
 I am very sorry indeed that I cannot be with you on Friday. My 
 opinions regarding the causes of the war are pretty well known, 
 except in so far as they have been misrepresented; but we are in it. 
 It will work itself out now. Might and spirit will win, and incalculable 
 political and social consequences will follow upon victory. 
 
 Victory, therefore, must be ours. England is not played out. 
 Her mission is not accomplished. She can, if she would, take the 
 place of esteemed honour among the democracies of the world, and 
 if peace is to come with the healing on her wings, the democracies of 
 Europe must be her guardians. There should be no doubt about that. 
 
 Well, we cannot go back, nor can we turn to the right or to the left. 
 We must go straight through. History will, in due time, apportion 
 the praise and the blame, but the young men of the country must, for 
 the moment, settle the immediate issue of victory. Let them do it 
 in the spirit of the brave men who have crowned our country with 
 honour in the times that are gone. Whoever may be in the wrong, 
 men so inspired will be in the right. The quarrel was not of the 
 people, but the end of it will be the lives and liberties of the people. 
 
 Should an opportunity arise to enable me to appeal to the pure 
 love of country which I know is a precious sentiment in all our hearts, 
 keeping it clear of thoughts which I believe to be alien to real patriot- 
 ism I shall gladly take that opportunity. If need be I shall make it 
 for myself. I want the serious men of the Trade Union, the Brother- 
 hood, and similar movements to face their duty. To such men it is 
 enough to say "England has need of you"; to say it in the right way. 
 
 1 A letter by Mr. MacDonald, who, because of "disagreement with some of 
 his colleagues on certain aspects of the European crisis," resigned the leadership 
 of the Labour Party during the crisis. The letter is dated September n, 1914.
 
 488 ECONOMICS OF WAR 
 
 They will gather to her aid. They will protect her, and when the war 
 is over they will see to it that the policies and conditions that make it 
 will go like the mists of a plague and the shadows of a pestilence. 
 
 Yours very sincerely, 
 
 J. RAMSAY MACDONALD 
 
 E. MANIFESTO TO THE TRADE UNIONISTS OF THE COUNTRY 1 
 GENTLEMEN: 
 
 The Trade Union Congress Parliamentary Committee, at their 
 meeting held yesterday, had under consideration the serious position 
 created by the European war and the duty which Trade Unionists, 
 in common with the community in general, owe to themselves and 
 the country of which they are citizens. 
 
 They were especially gratified at the manner in which the Labour 
 Party in the House of Commons had responded to the appeal made to 
 all political parties to give their co-operation in securing the enlistment 
 of men to defend the interests of their country, and heartily indorse 
 the appointment upon the Parliamentary Recruiting Committee of 
 four members of the party, and the placing of the services of the 
 national agent at the disposal of that committee to assist in carrying 
 through its secretarial work. 
 
 The Parliamentary Committee are convinced that one important 
 factor in the present European struggle has to be borne in mind, so 
 far as our own country is concerned namely, that in the event of the 
 voluntary system of military service failing the country in this its 
 time of need, the demand for a national system of compulsory military 
 service will not only be made with redoubled vigour, but may prove 
 to be so persistent and strong as to become irresistible. The prospect 
 of having to face conscription, with its permanent and heavy burden 
 upon the financial resources of the country, and its equally burden- 
 some effect upon nearly the whole of its industries, should in itself 
 stimulate the manhood of the nation to come forward in its defence, 
 and thereby demonstrate to the world that a free people can rise to 
 the supreme heights of a great sacrifice without the whip of conscrip- 
 tion. 
 
 Another factor to be remembered in this crisis of our nation's 
 history, and most important of all so far as Trade Unionists and 
 Labour in general are concerned, is the fact that upon the result of 
 
 1 Issued at the beginning of September, 1914.
 
 LABOR AND THE WAR 489 
 
 the struggle in which this country is now engaged rest the preservation 
 and maintenance of free and unfettered democratic government, 
 which in its international relationships has in the past been recognized, 
 and must unquestionably in the future prove to be the best guarantee 
 for the preservation of the peace of the world. 
 
 The mere contemplation of the overbearing and brutal methods 
 to which people have to submit under a government controlled by a 
 military autocracy living, as it were, continuously under the threat 
 and shadow of war should be sufficient to arouse the enthusiasm 
 of the nation in resisting any attempt to impose similar conditions 
 upon countries at present free from military despotism. 
 
 Long life to the free institutions of all democratically governed 
 countries ! 
 
 Yours faithfully, 
 
 THE PARLIAMENTARY COMMITTEE 
 
 F. THE ACCEPTANCE OF WAR 1 
 
 The British Labour movement has always stood for peace. 
 During the last decade it has made special efforts to promote friendly 
 relations between the peoples of Great Britain and Germany. Depu- 
 tations of Labour representatives have taken messages of good- 
 will across the North Sea despite the obstacles to international 
 working-class solidarity which existed. In turn, German Labour 
 leaders on similar missions have been welcomed in this country by 
 organised workers. A strong hope was beginning to dawn that out 
 of this intercourse would grow a permanent peaceful understanding 
 between the two nations. 
 
 But this hope has been destroyed, at least for a time, by the 
 deliberate act of the ruler of the military Empire of Germany. The 
 refusal of Germany to the proposal made by England that a con- 
 ference of the European powers should deal with the dispute between 
 Austria and Servia, the peremptory domineering ultimatum to Russia, 
 and the rapid preparations to invade France, all indicate that the 
 German military caste was determined on war if the rest of Europe 
 
 1 This manifesto was issued October 15, 1914, "to clear away once and for all 
 misconceptions which have been circulated as to the attitude of the British Labour 
 movement." "It was signed by most of the Labour Members of Parliament, by 
 the Parliamentary Committee of the Trades Union Congress, by the Management 
 Committee of the General Federation of Trade Unions, and by other Labour 
 Leaders." G. D. H. Cole, op. cit., p. 55.
 
 4QO ECONOMICS OF WAR 
 
 could not be cowed into submission by other means. The wanton 
 violation of the neutrality of Belgium was proof that nothing, not 
 even national honour and good faith, was to stand between Germany 
 and the realisation of its ambitions to become the dominant military 
 power of Europe, with the kaiser the dictator over all. 
 
 The Labour Party in the House of Commons, face to face with this 
 situation, recognised that Great Britain, having exhausted the 
 resources of peaceful diplomacy, was bound in honour, as well as by 
 treaty, to resist by arms the aggression of Germany. The party 
 realised that if England had not kept her pledges to Belgium, and had 
 stood aside, the victory of the German army would have been prob- 
 able, and the victory of Germany would mean the death of democracy 
 in Europe. 
 
 Working-class aspirations for greater political and economic 
 power would be checked, thwarted, and crushed, as they have been 
 in the German Empire. Democratic ideas cannot thrive in a state 
 where militarism is dominant; and the military state with a sub- 
 servient and powerless working class is the avowed political ideal of 
 the German ruling caste. 
 
 The Labour Party, therefore, as representing the most democratic 
 elements in the British nation, has given its support in Parliament to 
 the measure necessary to enable this country to carry on the struggle 
 effectively. It has joined in the task of raising an army large enough 
 to meet the national need by taking active part in the recruiting 
 campaign organised by the various Parliamentary parties. Members 
 of the party have addressed numerous meetings throughout the 
 country for this purpose, and the central machinery of the party has 
 been placed at the service of the recruiting campaign. This action 
 has been heartily endorsed by the Parliamentary Committee of the 
 Trades Union Congress, which represents the overwhelming majority 
 of the Trade Unionists of the country. The Committee, in a mani- 
 festo on the war, states: 
 
 "The mere contemplation of the overbearing and brutal methods 
 to which people have to submit under a government controlled by a 
 military autocracy living, as it were, continuously under the threat 
 and shadow of war should be sufficient to arouse the enthusiasm of 
 the nation in resisting any attempt to impose similar conditions upon 
 countries at present free from military despotism." 
 
 The policy of the British Labour movement has been dictated by 
 a fervent desire to save Great Britain and Europe from the evils that
 
 LABOR AND THE WAR 491 
 
 would follow the triumph of military despotism. Until the power 
 which has pillaged and outraged Belgium and the Belgians, and 
 plunged nearly the whole of Europe into the awful misery, suffering, 
 and horror of war, is beaten, there can be no peace. While the 
 conflict lasts England must be sustained both without and within; 
 combatants and non-combatants must be supported to the utmost. 
 The Labour movement has done and is doing its part in this para- 
 mount national duty, confident that the brutal doctrine and methods 
 of German militarism will fail. When the time comes to discuss the 
 terms of peace the Labour movement will. stand, as it always has stood, 
 for an international agreement among all civilised nations that dis- 
 putes and misunderstandings in the future shall be settled, not by 
 machine guns, but by arbitration. 
 
 3. THE ATTITUDE OF AMERICAN LABOR 
 
 A. THE WAR A LABORER'S WAR 1 
 
 There have been some of our people here and there who have 
 asserted that this is a capitalists' war, that it is a Wall Street war, that 
 it is a munitions manufacturers' war. I wonder if those people have 
 stopped to examine the policy that has been pursued by the govern- 
 ment since war was declared, and before it was declared, before they 
 made utterances of that kind. If this is a capitalists' war, then it 
 follows that the administration at Washington Congress and the 
 President have been dominated by capitalism, and, if they were 
 dominated by capitalism in declaring war, it would follow that they 
 would be dominated by capitalism in pursuing the war. And yet, 
 what are' the facts ? 
 
 Instead of permitting the capital of the country to secure profits 
 at will, one of the first powers granted to the war administration was to 
 fix the prices at which capitalists should sell the products of labor 
 the selling price of coal at the mines was fixed, the price of wheat was 
 fixed, the prices of certain metal products were fixed, the price of 
 copper was fixed; but in no instance has there been any attempt on 
 the part of the administration to fix the maximum price that should 
 be paid for labor. And when it came to fixing the price of copper at 
 23! cents per pound the only stipulation that was included by the 
 War Industries Board handling the proposition was that the fixing 
 
 1 By William B. Wilson. From Labor's Relation to the World War, pp. 7-8. 
 Published by the United States Department of Labor. 
 
 ED. NOTE. Mr. Wilson is the Secretary of Labor in the present administration.
 
 49 2 ECONOMICS OF WAR 
 
 of Ihe price at 23^ cents per pound must not result in the lowering of 
 the rate of wages that was established under the former prices. And 
 yet there are people who, in the face of these facts and hundreds more 
 that I might cite if I would take the time, want to intimate that this 
 is a capitalists' war, a Wall Street war, and a war of the munitions 
 manufacturers. My friends, this is a war of the people of the United 
 States for the preservation of their institutions. And for the purpose 
 of preserving these institutions we are gathering together armies. 
 We are sending the flower of our youth into the training camps and 
 over the seas into France to protect those who remain at home. 
 
 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 economi- 
 cally, 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 senti- 
 ment, 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 pre- 
 paredness, 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
 
 LABOR AND THE WAR 493 
 
 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 pro- 
 tected 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 conti- 
 nental America from invasion or aggression as enunicated 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 parti- 
 cipation in the conflict, with no desire for American aggrandisement 
 or territorial expansion, would be the natural messenger of peace to 
 war-worried Europe. 
 
 For a considerable time the feeling has been prevalent in this 
 country that all wars were fought in the interests of the capitalist 
 class; that labor had everything to lose and nothing to gain by 
 engaging in war. This sentiment has obtained not alone among the 
 laboring classes but among a large element of independent thinkers 
 outside of labor's ranks. When America entered the world-war the 
 sentiment was freely expressed that Wall Street, being heavily 
 involved in loans to the allied European nations, and feeling the war 
 going in favor of the central powers, had plunged this government into 
 the conflict to assure victory to the allied forces and thus secure the 
 collection of their loans to the Allies. The sentiment was echoed 
 and re-echoed upon the public rostrum and upon the street, in all 
 sincerity upon the part of many, in the shallowest hypocrisy upon the 
 part of the agents of Germany, who saw in the propaganda an effective 
 argument in the program of dissension among American workers. A 
 little calm reflection ought to convince every thinking person that 
 American capital had most to gain by keeping the United States out 
 of the war. 
 
 Before we entered the war there was no governmental restriction 
 upon war profits in this country. Europe was at its wits' end for 
 supplies and turned to the United States, the greatest manufacturing 
 country on earth. Price was no object if the American manufacturers 
 could deliver the goods in record time. There was profiteering in 
 those days and on a tremendous scale. When America entered the 
 war things changed. It would be an insult to your intelligence to say 
 that profiteering has ceased, for it has not, but it has tremendously 
 decreased. Governmental price fixing is still in its initial stages. The
 
 494 ECONOMICS OF WAR 
 
 process is slow because we little realize the tremendous ramifications 
 of American industry, all the complex factors that enter into cost 
 of production in our great industrial system. The United States 
 Government wishes no manufacturing or supplying concern to run 
 at a loss, nor does it want the worker robbed of his rightful share. It 
 takes time and careful, scientific study to determine all the elements in 
 cost of production and determine a selling cost that will be fair to all, 
 but that is the policy of the government in its program of price fixing 
 of commodities needed in war prosecution and the sustenance of the 
 American people on a decent living basis. 
 
 It is worthy of note that in not a single instance in this country has 
 the government attempted to say what should be the maximum price 
 of wages. In every instance where a wage dispute has existed in a 
 war industry the government, if called into the dispute, has used 
 patience in inquiring into the nature of the dispute and has endeavored 
 to adjust the controversy on a basis acceptable to the workers 
 involved. 
 
 B. A DECLARATION OF PRINCIPLES 1 
 
 The American Alliance for Labor and Democracy in its first 
 national conference declares its unswerving adherence to the cause 
 of democracy, now assailed by the forces of autocracy and militarism. 
 As labor unionists, social reformers, and Socialists we pledge our loyal 
 support and service to the United States Government and its Allies 
 in the present world conflict. 
 
 We declare that the one overshadowing issue is the preservation 
 of democracy. Either democracy will endure and men will be free, 
 or autocracy will triumph and the race will be enslaved. On this 
 prime issue we take our stand. We declare that the great war must 
 be fought to a decisive result; that until autocracy is defeated there 
 can be no hope of an honorable peace, and that to compromise the 
 issue is only to sow the seed for bloodier and more devastating wars 
 in the future. 
 
 We declare our abhorrence of war and our devotion to the cause 
 of peace. But we recognize that there are evils greater and more 
 intolerable than those of war. We declare that war waged for evil 
 ends must be met by war waged for altruistic ends. A peace bought 
 by the surrender .of every principle vital to democracy is no peace, but 
 
 1 Adopted unanimously by the American Alliance for Labor and Democracy 
 at its first national conference at Minneapolis, September 5-7, 1917.
 
 LABOR AND THE WAR 495 
 
 shameful servility. Our nation has not sought this war. As a 
 people, we desired peace for its own sake, and we held fast to our 
 traditional principle of keeping aloof from the political affairs of 
 Europe. Our President, with a forbearance and a patience which 
 some of us thought extreme, exhausted every honorable means in 
 behalf of peace; and the declaration of war came only after many 
 months of futile efforts to avoid a conflict. This war, so relentlessly 
 forced upon us, must now be made the means of insuring a world-wide 
 and permanent peace. 
 
 We declare that in this crisis the one fundamental need is unity 
 of action. The successful prosecution of the war requires that all 
 the energies of our people be concentrated to a common purpose. 
 After more than two years of exhaustive deliberation, in which every 
 phase of our relation to the great world-problem has been thoroughly 
 debated, the constitutional representatives of the people declared the 
 nation's will. Loyalty to the people demands that all acquiesce in 
 that decision and render the government every service in their 
 power. 
 
 We strongly denounce the words and actions of those enemies of 
 the Republic who, falsely assuming to speak in the name of labor and 
 democracy, are now ceaselessly striving to obstruct the operations 
 of the government's purposes. In traducing the character of the 
 President and of his advisers, in stealthily attempting to incite 
 sedition, and in openly or impliedly counseling resistance to the 
 enforcement of laws enacted for the National Defense, they abuse the 
 rights of free speech, free assemblage, and a free press. In the name 
 of liberty they encourage anarchy, in the name of democracy they 
 strive to defeat the will of the majority, and in the name of humanity 
 they render every possible comfort to the brutal Prussian autocracy. 
 If the sinister counsels of these persons were followed, labor would be 
 reduced to subjection and democracy would be obliterated from the 
 earth. We declare that the betrayal of one's fellow-workers during a 
 strike finds its exact counterpart in the betrayal of one's fellow- 
 citizens in time of war, and that both are offenses which deserve the 
 detestation of mankind. 
 
 This war, which on our part is waged for the preservation of 
 democracy, has already set in motion vast forces for the furtherance 
 and extension of democracy. Revolutionary changes have been made 
 changes which reveal the power and determination of a democratic 
 people to control its own economic life for the common good. We
 
 496 ECONOMICS OF WAR 
 
 declare that peace shall not be another name for reaction, but that 
 the gains thus far made for labor should be maintained in perpetuity. 
 
 We declare that industrial enterprises should be the servants and 
 not the masters of the people; and that in cases where differences 
 between owners and workers threaten a discontinuance of production 
 necessary for the war, the government should assume complete 
 control of such industries and operate them for the exclusive benefit 
 of the people. 
 
 We declare that the government should take prompt action with 
 regard to the speculative interests which, expecially during the war, 
 have done so much to enhance prices of the necessaries of life. To 
 increase the food supply and to lower prices the government should 
 commandeer all land necessary for public purposes and should tax 
 idle land in private possession on its full rental value. 
 
 We declare that the right of the wage earners to collective action 
 is the fundamental condition which gives opportunity for economic 
 freedom and makes possible the betterment of the workers' condition. 
 The recognition already given to this principle should be extended and 
 made the basis of all relationships, direct or indirect, between the 
 government and wage earners engaged in activities connected with 
 the war. 
 
 We declare that the wage earners must have a voice in determining 
 the conditions under which they are to give service, and that the 
 voluntary institutions that have organized the industrial, commercial, 
 and transportation workers in time of peace shall be unhampered in 
 the exercise of their recognized function during the war that labor 
 shall be adequately represented in all the councils authorized to 
 conduct the war and in the commission selected to negotiate terms 
 of peace. 
 
 Believing that the material interests of the nation's soldiers and 
 sailors and of their dependents should be withdrawn from the realm 
 of charity and chance, and that health and life should be fully insured, 
 we indorse the soldiers and sailors' insurance bill now before Congress. 
 
 We declare for universal equal suffrage. 
 
 Fully realizing that the perpetuity of democratic institutions is 
 involved in freedom of speech, of the press, and of assemblage, we 
 declare that these essential rights must be guarded with zealous care 
 lest all other rights be lost. We declare, however, that where expres- 
 sions are used which are obstructive to the government in its conduct 
 of the war, or are clearly capable of giving aid or comfort to the
 
 LABOR AND THE WAR 497 
 
 nation's foes, the offenders should be reprimanded by the constituted 
 authorities in accordance with established law. 
 
 Inspired by the ideals of liberty and justice herein declared as a 
 fundamental basis for national policies the American Alliance for 
 Labor and Democracy makes its appeal to the working men and 
 women of the United States, and calls upon them to unite in unani- 
 mous support of the President and the nation for the prosecution of 
 the war and the preservation of democracy. 
 
 LVIII. Problems in the Mobilization of American Labor 
 i. THE CHALLENGE TO AMERICAN LABOR 1 
 
 A. GREAT BRITAIN 2 
 
 The British trade union movement, having first decided to support 
 the war, immediately applied itself to the ways and means by which 
 it could best do it, and the first thing we did was to declare there 
 should exist during the period of the war an industrial truce. That 
 is to say, that with the war raging as it was it would be madness and 
 folly to have side by side with that war raging an industrial war in our 
 own country, and we entered into an agreement with the employers 
 whereby they, on the one hand, agreed that they would not interfere 
 with or reduce the conditions prevalent at the time, in return for 
 which we, on the other hand, agreed that we should not attempt to 
 set up any new standard conditions, and that truce was practically 
 agreed to by the whole of the organized workers of Great Britain. 
 
 B. FRANCE 3 
 
 To do a good day's work is no longer enough; one must do all 
 there is to be done. The worker's effort is on the same plane of 
 necessity as military effort. During the Battle of Verdun, at a 
 certain forge for "155" shells, the man's day passed at one bound to 
 eighteen hours, and to such speed that the proportion of sick and 
 exhausted reached 1 1 per cent. The soul of his labor lifts the work- 
 man above fatigue, and social equity is dominated by the duty to 
 keep for France her just place in the world. France has been con- 
 strained to an experience which has revealed her to herself. She will 
 
 1 Reprinted in American Industry in War Time (March 10, 1918), pp. 8-9. 
 
 2 A statement by Hon. James H. Thomas, General Secretary, National Union 
 of Railway Men of Great Britain and Ireland. 
 
 3 A statement by The New Republic, July 21, 1917.
 
 498 ECONOMICS OF WAR 
 
 know how to make her force endure by maintaining in industry the 
 power invented for battle. 
 
 C. ITALY 1 
 
 The response of Italian labor, both field and factory, to the 
 emergency of war and the necessity of industrial mobilization has 
 been splendid. Our munition works and transportation systems, for 
 example, are all under full military discipline and every man employed 
 in such an industry is rated as a soldier. But he gets the pay of a 
 mechanic that prevails in that industry. It seems unjust, I know, 
 that a soldier whose work it is to fight at the front receives about 
 five cents a day, while the soldier whose training fits him for shop work 
 may get five dollars, but there seems no other way. We have had no 
 strikes, no labor troubles of any sort, since the war began, and we do 
 not fear any. 
 
 2. CONSERVE OUR INDUSTRIAL ARMY 2 
 
 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 overfatigue 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 co-operate in maintaining, for the protection of those 
 who serve in this time of stress the industries of the nation (who as experience 
 
 1 A statement by Dr. Francesco Saverio Nitti, member of the Italian Parlia- 
 ment and. member of the Italian War Mission to the United States. 
 
 3 Congress' announcement of its attitude toward standards of legal protection 
 for workers in time of war, issued March 23, 1917, by the Executive Committee 
 of the Association of Labor Legislation. From Labor Laws in War Time, no. i, p. i.
 
 LABOR AND THE WAR 499 
 
 abroad has shown are quite as important to military success as the fighting 
 forces), the following essential minimum requirements: 
 
 I. SAFETY 
 
 i . 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 occu- 
 pational 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 
 \vorking 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 employments, and employment certificates. 
 
 2. Determination of specially hazardous employments to be forbidden 
 to children under sixteen. 
 
 vi. WOMAN'S WORK 
 
 i. 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.
 
 500 ECONOMICS OF WAR 
 
 3. Immediate investigation of the sickness problem among the workers 
 to ascertain the advisability of establishing universal workmen's health 
 insurance. 
 
 VIII. LABOR MARKET 
 
 i. 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 co-operating with the labbr departments in drafting and 
 enforcing necessary regulations to put the foregoing principles into full effect. 
 
 3. THE ORGANIZATION OF MAN POWER 1 
 
 The purpose of this article is to attempt to bring simplicity and 
 understanding to the industrial situation in the United States at the 
 present time. It is an attempt to set down what has happened, is 
 happening, and is going to happen to the fundamentals of the business 
 and industrial structure of the country. It begins and ends with man 
 power, for that is what it all comes back to. If the discussion be kept 
 in terms of man power, it will be within the comprehension of any 
 understanding, for the whole problem becomes merely one of addition 
 and subtraction under our present conditions, chiefly subtraction. 
 
 "Man power" is frequently used in military discussion as meaning 
 the total number of soldiers a nation can bring together. More 
 broadly, and more properly, it is the entire strength of a nation, 
 military and industrial. In this more correct sense the man power 
 of the United States is 35,000,000 the 35,000,000 men, women, and 
 children who do the country's work, who serve it in the army, who 
 dig its coal, who raise its crops, who run its trains, who build its roads, 
 who make its powder, who turn out its munitions. 
 
 This 35,000,000 man power is our all. It is the whole measure, 
 and the true measure, of our wealth. It is the measure of our effect- 
 iveness in war and peace. It is the total to put it in terms of our 
 national card game of our pile of chips in the fight with Germany. 
 We cannot increase it. To a certain extent we can mobilize it more 
 effectively and manage it more economically. But we shall always*- 
 
 1 By Mark Sullivan. Adapted from "Man Power," Collier's Weekly (June 22. 
 1918), pp. 1-2; 35-38. Copyright by P. F. Collier & Son, Inc., 1918. 
 
 ED. NOTE. Mr. Sullivan was until recently editor of Collier's Weekly.
 
 LABOR AND THE WAR 501 
 
 come back to this 35,000,000, and no more, as the measure of this 
 nation's capacity to work, to fight, to accomplish, to do. 
 
 Now let us see just what has happened to this 35,000,000 since the 
 war began. The first thing to bear in mind is that with the beginning 
 of the European War the greatest source of increase for our man 
 power was cut off. We used to get an increase of a million man power 
 a year through immigration. We now get substantially nothing. 
 Few people recognize the significance, in a business and economic 
 sense, 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. We 
 have gone on as if this source of our labor were a perpetual fountain. 
 We have not stopped to consider the business and economic and social 
 changes which must come about when the fountain runs dry, and we 
 are compelled to adapt ourselves to a condition very strange to us. 
 Moreover, an immigrant raised to maturity, with all the expense of 
 his nurture and training paid by his own country, delivered at our 
 gates free of charge as a working unit of man power, was a valuable 
 asset. 
 
 After the cessation of the accustomed increase from immigration 
 the most obvious thing that has happened to our man power is that 
 2,000,000 of it, between the ages of twenty-one and thirty-one, have 
 gone into the army, and are no longer at their accustomed posts in 
 factories, mines, offices, and farms. This 2,000,000 is the best of 
 our man power. It was at the age of greatest vitality. The loss of 
 it to our industries is greater than the mere figures indicate. Two 
 million man power (a year from now it will be 3,000,000, two years 
 from now it will be 5,000,000) out of our total 35,000,000 have ceased 
 completely to be normal producers of goods. Incidentally, as soldiers 
 they have become larger consumers than they were before of food, 
 clothes, and other materials. 
 
 Here, then, is the first subtraction: 2,000,000 from 35,000,000 
 leaves 33,000,000. But this is only the first, and not the largest, of 
 many subtractions. 
 
 Subtract another half million for the navy. 
 
 Subtract another half million for shipbuilding. 
 
 At this point it might be appropriate to ask some of the "business 
 as usual" advocates just how business can be as usual, just how 
 32,000,000 man power can do the amount of work and business usually
 
 502 ECONOMICS OF WAR 
 
 done by 35,000,000. As a matter of fact, we do not have even 
 32,000,000 man power left available for business as usual. For the 
 deductions just pointed out are not by any means all the deductions 
 that have occurred. They are not even the largest deductions. I 
 have set them down first merely because they are the most obvious. 
 They are the best ones for illustrating the thing that is happening. 
 They involve actual dislocations of man power men who go away, 
 not only from their accustomed pursuits, but also from their accus- 
 tomed homes. But it must be remembered that man power can be 
 diverted without being dislocated. A man may continue to live in the 
 same house, and use the same pick, and work in the same mine, and 
 get his wages from the same boss; but if the ton of ore he digs finds its 
 ultimate destination in rifles instead of piano wires, he is a unit of 
 man power subtracted from its normal uses. And these diversions 
 are enormous. 
 
 As to the precise number who have gone and are now going from 
 their normal pursuits into powder making and bullet making and rifle 
 making and gun making and the like, it is not possible to give figures 
 as exact as in the case of the army and navy. But it is possible to 
 arrive at some convincing estimates. Consider, for example, one 
 of the minor war industries, airplane making. Ultimately, if we do 
 what we ought to do, we shall have at least 50,000 aviators in France. 
 It is estimated that one aviator on the fighting front will require 
 forty men back of the line for repairs and in the factories as mechanics 
 and gathering spruce and in other ways producing the materials. 
 Based on that estimate, we shall, during the present and coming year, 
 take another 2,000,000 out of our man power for building our air 
 fleet, and keeping an adequate supply of these unusually intricate 
 and unusually breakable machines flowing toward the front in France. 
 
 But airplane making is merely one of the minor of the several war 
 industries which are taking millions away from the usual pursuits 
 of our normal 35,000,000 of man power. In one concern, Bethlehem 
 Steel, nearly 100,000 employees, about 90 per cent, are engaged on 
 government orders. This is fairly typical of the steel business as a 
 whole. During May and for three months preceding, 85 per cent of 
 the entire steel trade of the United States was engaged in war work. 
 And until the war ends this proportion is sure to increase rather than 
 diminish. 
 
 But it is not necessary to go through all the tedious computations 
 of the number of our man power- which has been taken for powder
 
 LABOR AND THE WAR 503 
 
 making, for shell making, for rifle making, and the like. The figures 
 change from day to day, and the change is always in the direction of 
 increase. The sum of it is pretty accurately known to those whose 
 business it is to form expert judgments on such subjects. For example 
 it has been pointed out that the total amount of wealth produced in a 
 year is about $40,000,000,000. Set down alongside this fact the other 
 fact that the appropriations made by the United States Government 
 for the present year are $19,000,000,000. That is to say, the govern- 
 ment is going to buy, for war purposes (allowing for some millions for 
 duplications) about one-half of the entire productive capacity of the 
 country. In other words, the government is going to hire for war 
 work, and take away from normal pursuits, nearly one-half the entire 
 man power of the country. That would be between 15,000,000 and 
 16,000,000 of our man power. Others estimate the number, for the 
 present, as somewhat lower. They say that although it is true that 
 the country, in an industrial way, is now more than 50 per cent at war, 
 various considerations reduce the total of man power diverted. A 
 little later on, they say, the diversion will amount to 50 per cent. 
 
 . Out of all the mass of figures, exact and estimated, the one net 
 fact, the " red-ink" fact, as the accountants express it, is this: as 
 compared with normal peace-time production there is a labor shortage 
 in the United States of at least 15,000,000 man power. Such a short- 
 age from normal as 15,000,000 is not a shortage at all, but a famine, 
 and it is this famine in man power which underlies all other famines. 
 
 Already "the farms are crying for labor. The mines are crying 
 for labor. The shops are crying for labor. The railroads are crying 
 for labor. The manufactories are crying for labor. There is shortage 
 of labor everywhere." 
 
 With a shortage of 15,000,000 man power, or nearly one-half of 
 our whole, it is so obvious that we cannot have "business as usual" 
 that even the most hopeful of the boosters must admit it. But these 
 learned economists of the retail millinery and bric-a-brac trades are 
 invincible optimists. At this point doubtless they will say: "We!^ 
 with a 50 per cent shortage in our man power we can at least have 
 business 50 per cent as usual." But they cannot. Right here comes 
 the distinction between "essentials and nonessentials." We are not 
 going to be able to get this one-half of our man power to fight the war 
 as soldiers and workmen by taking an even half from the production 
 of each of our normal peace-time lines of goods. For there are some 
 things we can't get along without. There are some of our normal
 
 504 ECONOMICS OF WAR 
 
 peace-time products which we must have. Indeed, in war they are 
 more necessary to have than in peace. These particular businesses 
 must go on as usual, or above usual. These are the essential 
 industries. Of these the biggest and most obvious is farming. 
 
 The farms of the United States, this year and^so long as the war 
 lasts, must supply food not only for the population which normally 
 depends on our farm products, but, in addition, for large portions of 
 the population of France, England, Italy, Belgium, and some neutral 
 countries. They must do this or some of our Allies must starve. 
 Now, farming is at all times our biggest consumer of man power. In 
 peace times the number of man power engaged in it is about 12,000,000 
 about 6,000,000 farm owners and 6,000,000 farm laborers. Whether 
 this number of man power engaged in farming has been increased 
 during the war, I do not know. It is a fact that the quantity of farm 
 products has been enlarged. The farmers of the United States planted 
 and harvested last year the largest acreage on record. In addition 
 the American farmer increased the number of horses in the country 
 (in spite of the shipments abroad for war purposes) ; he raised more 
 cows; he raised more beef cattle; he raised more pigs. 
 
 From this it may fairly be argued that the portion of our man 
 power engaged in farming must have increased. But assume that it 
 remains at the normal 12,000,000. Then we have this condition: 
 About 18,000,000 of our man power either has been or soon will be 
 diverted for war; out of the remaining 18,000,000, 12,000,000 are 
 engaged in farming. Seen in this cold statistical light, the prospects 
 of "business as usual" do not look very up-and-coming. 
 
 Of the 18,000,000 man power required for war, none can be taken 
 from farming. They must come from somewhere else. 
 
 Now, there is one other of our great occupations which must be 
 kept up to the normal man power. It must be kept up to normal; it 
 ought to be increased. The railroads are a most essential war 
 industry. And they are in a bad way. We had a transportation 
 failure last winter which caused us much inconvenience and held back 
 our war work. Besides, those competent to speak about the situation 
 say that the coal problem of last winter was really a transportation 
 problem, that the coal famine was due to a lack of cars. The man 
 power normally engaged in railroad work is about 2,250,000. The 
 late James J. Hill, before the war began, said the railroads ought to 
 have a billion dollars a year spent on them for five years to bring them 
 up to good condition. That is the same as saying that even in
 
 LABOR AND THE WAR 
 
 505 
 
 peace times the railroads needed a million more man power. And 
 it is not only the railroads. It is the same in every branch of the 
 transportation industry. 
 
 Few people have observed a most striking evolution that is just 
 beginning in America. The Philadelphia Public Ledger carries two 
 columns of advertisements of daily motor-truck express service 
 between Philadelphia and New York, with tri-weekly services to 
 smaller cities. Regularly, every day, 640 motor trucks carry freight 
 on schedule on the public roads between New York and Philadelphia. 
 The Post Office Department has just inaugurated daily motor-truck 
 package services in the country districts for thirty to fifty miles 
 outside Philadelphia, Baltimore, and Washington. All this is merely 
 a hint of what is coming. And not only will more man power be 
 needed to build these trucks and drive them and load them that is 
 only a fraction of the need. Of the 18,000,000 man power needed 
 for the war, none can be taken from the transportation industries. 
 They must come from somewhere else. With only 35,000,000 man 
 power to start on, with 15,000,000 of that diverted to war work; with 
 12,000,000 engaged in farming; with 2,250,000 engaged in trans- 
 portation, and more needed under these conditions the idea of 
 business as usual is out of the question. 
 
 Beat the devil around the bush as we may, we shall always arrive 
 at the same point; namely, a fixed total of 35,000,000 man power, and 
 under present conditions a shortage of from 15,000,000 to 18,000,000. 
 
 That is the main, central fact. That is the essential truth. 
 
 4. IMMIGRATION AND MAN POWER 
 
 The following figures, taken from the tables compiled by the 
 Commissioner General of Immigration, indicate the influence exerted 
 by the war upon the man power of the country. 
 
 
 Total 
 Immigration 
 
 Farm Labor 
 
 Other Unskilled 
 Labor 
 
 IOOO . . 
 
 ^43,84 3 
 
 100,404 
 
 37,6oo 
 
 IQIO. . . 
 
 8l7,6lQ 
 
 3 00,48? 
 
 107,3^4 
 
 IOII . . 
 
 ^I2,o8< 
 
 I74.QO3 
 
 67,371 
 
 IQI2 
 
 401,763 
 
 IQO.S24 
 
 127,496 
 
 IOI? . . 
 
 8K.3O1 
 
 334,227 
 
 26,573 
 
 IQI4. . 
 
 769,276 
 
 291,877 
 
 25,578 
 
 IQIS 
 
 150,070 
 
 22,858 
 
 125,079 
 
 1016. . 
 
 1215,041 
 
 21,683 
 
 23,803 
 
 IQI7 . . 
 
 216,408 
 
 21,683 
 
 23,803 
 
 
 

 
 506 ECONOMICS OF WAR 
 
 5. WHAT ORGANIZATION OF THE LABOR MARKET 
 
 CAN DO 1 
 
 When the announcement was made that a soldiers' cantonment 
 was to be built in Ohio, at Chillicothe, and that some 20,000 workers 
 would be needed to build the camp in the time allotted by the govern- 
 ment contract, the state was ready with an organization to handle the 
 project. It had a double problem: first how to get the men, and then 
 to make sure that the industries of the state would not be dislocated 
 by the withdrawal of such a large force for army work. 
 
 Ohio's director of employment tackled both of these problems 
 with characteristic vigor. He went immediately to the military 
 authorities and to the contractor who was to build the camp and 
 offered the services of Ohio's employment system in securing the 
 necessary help. He warned them of the dangers of promiscuous 
 advertising for help, told them how it would endanger operations of 
 other industries, how men might be led 'to the camp for whom there 
 was no work at all, and how an oversupply of labor might be created 
 at the camp while yet the particular kind of skill needed might not be 
 there. The management, of course, wanted to be sure that it could 
 get all the labor that would be necessary, and when the director of 
 employment, who knows the labor market conditions of the state 
 thoroughly, practically guaranteed to deliver all the necessary labor, 
 the contractor and the military authorities agreed to hire all their 
 help through the employment service of the state. All the men sent 
 to work at the camp would be consigned to the public employment 
 office located in Chillicothe and a branch office was established at the 
 cantonment about two miles from town. 
 
 As soon as the arrangement had been made and even before the 
 work of building had been begun, the central office at Columbus sent 
 instructions to all the twenty-one offices in the state explaining the 
 method by which the labor force would be supplied, and listing the 
 kinds of workers that would probably be needed. Each office was 
 requested to begin registering men who would want to go to the camp 
 to work. All those registered were to hold themselves in readiness to 
 go to Chillicothe promptly when notified. To get men to register, 
 
 1 By William M. Leiserson. Adapted from "The Labor Shortage and the 
 Organization of the Labor Market," The Survey, XL, 65-66. Copyright by the 
 Survey Associates, Inc., in 1918. 
 
 ED. NOTE. Mr. Leiserson is a close student of American labor problems and 
 has contributed many valuable articles to scientific magazines.
 
 LABOR AND THE WAR 507 
 
 labor unions of the various trades needed were communicated with, 
 notices were posted in the employment offices, and advertisements 
 were inserted in newspapers, carefully guarded to prevent men from 
 going directly to the cantonment and flooding the town before the 
 work began. 
 
 When the work was about to begin the builders of the camp 
 notified the Chillicothe employment office that on a certain day they 
 would need so many hundred laborers and carpenters and gave the 
 wages and other terms of employment. This information was 
 immediately telephoned to the central office in Columbus, and the 
 director went over the reports from his branches to see from what 
 offices he could draw the necessary men to fill this order. To the 
 superintendents of the employment offices which were in a position 
 to supply the help, he wired to begin sending laborers and carpenters, 
 giving each his quota as to how many were wanted from his office and 
 asking each to report that same day how many were sent before the 
 close of business. Within a few hours men were moving to Chillicothe 
 in an orderly fashion, with definite assurances of work when they got 
 there and of the terms on which they would be employed. And that 
 same evening the central office in Columbus knew how many men had 
 been sent by each office. In the morning the Chillicothe office 
 reported as to how the men were arriving as well as the additional 
 needs of the camp management. The director was then in a position 
 to notify the branch offices how many men they would each be 
 expected to send that day. In about twelve weeks over 17,000 men 
 were in this way sent to work at the Chillicothe encampment from 
 the state offices. 
 
 It was not always possible to keep those who were hiring the men 
 to abide by their agreement to employ labor only through the employ- 
 ment offices. They feared constantly that they would not get enough 
 help. They were accustomed to advertising for thousands of men and 
 getting a hundred, and they could not feel confidence in an organiza- 
 tion that claimed ability to supply all labor as needed. Unknown to 
 the employment offices they sent agents out to try to get help. This 
 -confused matters for a while. But the number who came to work at 
 the camp without going through the employment offices did not 
 exceed one-fifth of the total employed. Then they feared they 
 would not get the help fast enough, and they insisted on paying trans- 
 portation for the men. In vain did the director of employment assure 
 them that all the men would be forthcoming, that plenty could be
 
 508 ECONOMICS OF WAR 
 
 secured from within the state and that any workers who could not 
 pay the two or three dollars to go to Chillicothe would not be much 
 good and would not be steady employes. In all probability the 
 nature of the contract cost plus a percentage had something to do 
 with the insistence on paying transportation charges. At any rate 
 about $10,000 was spent in this way and as a result the "turnover" 
 of labor was unnecessarily increased. The directors of Ohio's employ- 
 ment system were able to prevent paying fares for men to come from 
 outside the state; but within the state, carpenters, plumbers, and other 
 skilled men earning more than $6 a day, as well as laborers, had their 
 fare paid to the job. 
 
 With all of these difficulties the Ohio employment system was 
 nevertheless able to demonstrate the great saving and efficiency that 
 might be secured by hiring labor through a centralized organization 
 that could control the supply. The labor "turnover" was much 
 smaller than on most jobs of the kind, the work did not suffer for lack 
 of labor, and no oversupply was attracted to the city. 
 
 But Ohio's employment service was not satisfied with all this. 
 While it was still engaged in shipping men to the camp it began to 
 work on plans for distributing that army of 20,000 workers over the 
 state when this work at the camp should be finished. Agents were 
 sent to Chillicothe to register men as they were preparing to quit 
 and instructions were issued to all the branch employment offices to 
 visit employers in their communities, tell them of the classes of labor 
 that would soon be released, and get orders for help that could be 
 supplied from Chillicothe. Lists of the men working at Chillicothe 
 were made, with their occupations and experience, and sent to each of 
 the employment offices. These offices learned the demand from 
 employers in their cities for the various classes of labor, and made 
 arrangements for getting the men from Chillicothe. In this way the 
 workers at the army camp are now being distributed in an orderly 
 manner and all the idleness and waste that ordinarily follow the 
 completion of a big project of this kind are eliminated. 
 
 6. UNITED STATES EMPLOYMENT SERVICE 1 
 
 For more than a year it has been our pride that not our armies and 
 navies only but our whole people is engaged in a righteous war. We 
 have said repeatedly that industry plays as essential and honorable 
 
 1 By Woodrow Wilson. The President's Announcement, June 17, 1918.
 
 LABOR AND THE WAR 509 
 
 a role in this great struggle as do our military armaments. We all 
 recognize the truth of this, but we must also see its necessary implica- 
 tions namely, that industry, doing a vital task for the nation, must 
 receive the support and assistance of the nation. We must recognize 
 that it is a natural demand almost a right of anyone serving his 
 country, whether employer or employe, to know that his service is 
 being used in the most effective manner possible. In the case of 
 labor this wholesome desire has been not a little thwarted owing to 
 the changed conditions which war has created in the labor market. 
 
 There has been much confusion as to essential products. There 
 has been ignorance of conditions men have gone hundreds of miles 
 in search of a job and wages which they might have found at iheir 
 doors. Employers holding government contracts of the highest 
 importance have competed for workers with holders of similar 
 contracts, and even with the government itself, and have conducted 
 expensive campaigns for recruiting labor in sections where the supply* 
 of labor was already exhausted. California draws its unskilled labor 
 from as far east as Buffalo, and New York from as far west as the 
 Mississippi. Thus, labor has been induced to move fruitlessly from 
 one place to another, congesting the railways and losing both time 
 and money. 
 
 Such a condition is unfair alike to employer and employe, but 
 most of all to the nation itself, whose existence is threatened by any 
 decrease in its productive power. It is obvious that this situation 
 can be clarified and equalized by a central agency the United States 
 Employment Service of the Department of Labor, with the counsel 
 of the War Labor Policies Board as the voice of all the industrial 
 agencies of the government. Such a central agency must have sole 
 direction of all recruiting of civilian workers in war work and, in taking 
 over this great responsibility, must at the same time have power to 
 assure to essential industry an adequate supply of labor, even to the 
 extent of withdrawing workers from nonessential production. It 
 must also protect labor from insincere and thoughtless appeals made 
 to it under the plea of patriotism, and assure it that, when it is asked 
 to volunteer in some priority industry, the need is real. 
 
 Therefore, I, Woodrow Wilson, President of the United States of 
 America, solemnly urge all employers engaged in war work to refrain 
 after August i, 1918, from recruiting unskilled labor in any manner 
 except through this central agency. I urge labor to respond as 
 loyally as heretofore to any calls issued by this agency for voluntary
 
 510 ECONOMICS OF WAR 
 
 enlistment in essential industry. And I ask them both alike to 
 remember that no sacrifice will have been in vain, if we are able to 
 prove beyond all question that the highest and best form of efficiency 
 is the spontaneous co-operation of a free people. 
 
 7. THE NEED OF HOUSING 
 
 A. A SHIPBUILDER SPEAKS 1 
 
 I should like to call attention to the need of an adequate govern- 
 ment program for the housing of new employees of shipyards, muni- 
 tion factories, etc. A committee of the Council of National Defense 
 has reported favorably on the building of such houses by the govern- 
 ment, but congressional action is needed, and the President should 
 be made to feel that public opinion would be behind the government 
 in undertaking this radical policy. 
 
 As president of the Newburgh Shipyards, Inc., engaged in build- 
 ing steel ships for the government, I have had enormous difficulties 
 to contend with in securing enough labor to come to Newburgh, N.Y., 
 on account of the great shortage of houses there. In the next two 
 months we shall need two thousand more employees to man our ship- 
 yard properly, and there is not a vacant house in Newburgh in which 
 to put them. The same conditions, or worse, are present at many 
 other shipyards and munition factories. For efficient operation of 
 the industries, the workmen must be taken care of in decent houses. 
 
 Private capital cannot be expected to build these houses now. 
 England met a similar situation last year by appropriating fifty 
 million dollars for government housing projects. At least a hundred 
 million dollars is needed immediately in America for the same purpose. 
 This will not be a Socialistic venture; it will be a war measure of the 
 utmost importance. 
 
 B. CONDITIONS IN NEW ORLEANS 2 
 
 I speak of conditions here in New Orleans with which I am most 
 familiar, and of the period immediately preceding our entrance into 
 the war. Unskilled labor was earning then from $i . 50 to $2 .00 a day, 
 perhaps $40.00 a month on the average after deducting time lost; 
 making the payment of even $8 .00 a month rent a difficult matter for 
 
 1 By Thomas C. Desmond. A letter published in The New Republic, XIII 
 (November 24, 1917), 98. 
 
 2 By Roland Otis. Adapted from a letter published in The New Republic, 
 XIII (December 22, 1917), 216.
 
 LABOR AND THE WAR 511 
 
 a man of family, while it was not possible to rent a small four-room 
 and bath house for less than $16.00 just double of what he could 
 afford to pay. 
 
 I have tried, myself, to plan a small four-room house that would 
 be within the means of the better paid laborer, at least; but I found 
 that a house of the simplest kind, with two very small independent 
 bedrooms, bath, living-room, and kitchen, with everything eliminated 
 but the absolutely essential, could not be built for less than $1,500, to 
 which must be added the cost of a site, say $200,- a total investment of 
 $1,700; allowing 6 per cent on the investment and adding taxes 
 (3 per cent on 80 per cent of value), depreciation, and repairs, lost 
 rents, etc., these costs would call for a rent of about $17 a month. 
 That my costs were not unreasonably high is confirmed by the 
 prevailing rents here for small houses for a four-room house without 
 bath, with the rooms arranged one behind the other (making the 
 bedrooms mere passage-ways to the back of the house), and toilet 
 in the backyard, the. rent is $12 to $13; the same type of house with 
 bath and porch rents for $16 to $17, with very few of these last being 
 built because they fail to earn 7 per cent, the current rate of interest 
 here on small property. It .is certain that here in New Orleans the 
 unskilled laborer finds it impossible to live in a decent house; even 
 if his wife works, the most they can hope for is to occupy one of the 
 $12 a month houses houses inadequately ventilated and flimsily 
 built, red hot in summer and cold as outdoors in winter, with no 
 privacy for the bedroom, no bath, and the toilet in the backyard. 
 
 In other parts of the United States conditions do not seem to be 
 very different: the Octavia Hill Association, of Philadelphia, although 
 buying the land at wholesale and building a group of forty houses at 
 once, eliminating all profits of land speculators or building con- 
 tractors, building houses of the simplest character without a dollar 
 wasted anywhere, have not been able to earn the current rate of 
 interest on their investment; the experience of the Woodlawn Co., of 
 Wilmington, Del., is similar, as is also that of the Washington Sanitary 
 Housing Co. and of other semi-benevolent companies whose state- 
 ments I have seen. They have all failed to earn adequate dividends, 
 and it has been very difficult for them to enlist additional capital for 
 any new construction. It is true some large employers of labor are 
 furnishing good housing at rents within the reach of their unskilled 
 labor; but it is certain they cannot be earning the current rate of 
 interest on the investment; and at the best, the number of laborers
 
 512 ECONOMICS OF WAR 
 
 so housed constitutes an inconsiderable fraction of the total number, 
 and can have little if any influence on the solution of the problem. 
 
 The problem of decent housing for our laborers will never be 
 solved by private enterprise, although the much berated land sharks, 
 speculative builders, and selfish manufacturers have little if anything 
 to do with our failure. The reason is simple enough our laborers do 
 not earn enough to pay for decent housing. If they cannot earn more 
 than they have been earning in the past, then they must continue to 
 be housed like cattle; that is all, unless the state is prepared to pay 
 part of the cost of housing as it now pays for education and medical 
 attention. It is a very large question, and we surely need all the help 
 that we can get from the English experiments in housing the munition 
 workers. 
 
 LIX. War-Time Labor Conditions and Policies 
 
 i. INDUSTRIAL UNREST IN GREAT BRITAIN 1 
 
 A comparison of the reports shows that there is a strong feeling of 
 patriotism on the part of employers and employed throughout the 
 country and they are determined to help the state in its present crisis. 
 Feelings of a revolutionary character are not entertained by the bulk 
 of the men. On the contrary, the majority of the workmen are 
 sensible of the national difficulties, especially in the period of trial 
 and stress through which we are now passing. 
 
 While the eight reports agree as to the main causes of industrial 
 unrest, important differences appear in the emphasis laid by the 
 various commissions upon specific causes. 
 
 i. All the commissions put in the forefront, as the leading cause 
 of unrest, the fact that the cost of living has increased disproportion- 
 ately to the advance in wages, and that the distribution of food 
 supplies is unequal. Commissioners are unanimous in regarding this 
 as the most important of all causes of industrial unrest. Not only 
 
 'By the Rt. Hon. G. N. Barnes, M.P. Adapted from "Summary of the 
 Reports" of the several divisional committees appointed by the Prime Minister 
 "to enquire into and report upon industrial unrest." The summary was presented 
 to the Prime Minister, July 17, 1917. The report as a whole, including the separate 
 reports from particular districts, has been republished under the title "Industrial 
 Unrest in Great Britain," as Bulletin No. 237, pp. 0-14, by the United States Depart- 
 ment of Labor Statistics. 
 
 ED. NOTE. G. N. Barnes (1859 ) has been Pensions Minister since 1916. 
 In 1917 he was made a member of the War Cabinet.
 
 LABOR AND THE WAR 513 
 
 is it a leading cause of unrest in itself, but its existence in the minds 
 of the workers colors many subsidiary causes, in regard to which, in 
 themselves, there might have been no serious complaint. 
 
 2. The operation of the Munitions of War act has undoubtedly 
 been a serious cause of unrest, in particular the restriction upon a 
 workman as regards the selection of his sphere of labor. If the 
 leaving-certificate restriction is removed the leading cause of dis- 
 satisfaction under this heading will cease to exist. There will still 
 remain, however, one element which is very important, because it 
 projects itself into the after-war settlement. That is the complaint 
 that sufficient attention is not being paid by employers to article 7 
 of Schedule n of the 1914 act. Changes of working conditions, more 
 especially the introduction of female labor, have been made without 
 consultation with the work people. 
 
 3. All the reports refer in general terms to what is called the want 
 of co-ordination between government departments dealing with labor; 
 but probably much of what is said on this head may have been written 
 under a misconception and without a clear understanding of depart- 
 mental administration. It seems hardly possible that any single 
 department could during the war carry the whole of the immense 
 problems of the supply departments which have bearing upon the 
 control of labor. Apart from the suggestion that one central authority 
 should be set up, the reports contain proposals for the formation of 
 informal local boards to settle local disputes, or for the appointment 
 of a local commissioner with technical knowledge to settle disputes 
 other than those arising on questions of wages. A proposal which 
 finds general favor is that workshop committees should be set up. 
 
 4. Causes of unrest which are reported as acute in certain districts, 
 but are not universal, include: 
 
 a) The want of sufficient housing accommodation in congested 
 areas especially in Scotland, Wales, the Northeast, and certain parts 
 of the Northwest and Southwest areas. 
 
 b) The liquor restrictions, which operate as a cause of unrest in 
 some districts but not in others. For example, in the West Midlands 
 area the need for a further supply of beer of an acceptable quality is 
 urgent, and to some extent the same is true in London and Swansea; 
 on the other hand, in Scotland the subject was never mentioned. 
 
 c) Industrial fatigue, which is not a universal cause of unrest. 
 There is a general consensus of opinion that Sunday and overtime 
 labor should be reduced to a minimum, that holidays should not be
 
 514 ECONOMICS OF WAR 
 
 curtailed, and that the hours of work should not be such as to exclude 
 opportunities for recreation and amusement. 
 
 5. The great majority of the causes of industrial unrest specified in 
 the reports have their root in certain psychological conditions. Want 
 of confidence is a fundamental cause, of which many of the causes given 
 are merely manifestations. It shows itself in the feeling that there 
 has been inequality of sacrifice, that the government has broken 
 solemn pledges, that the trade-union officials are no longer to be relied 
 upon, and that there is a woeful uncertainty as to the industrial 
 future. The reports abound in instances of the prevailing feeling 
 that pledges are no longer observed as they were in pre-war days. 
 Allusions to "scraps of paper" are painfully numerous. Perhaps 
 sufficient allowance has not been made for the difficulties which have 
 beset all in authority through the ever-changing phases of industrial 
 conditions owing to the war. 
 
 6. The reports bear a striking testimony to the value of the pro- 
 posals made in the report of the subcommittee of the reconstruction 
 committee, dealing with the relations of employers and employed. 
 Broadly speaking, the principles laid down appear to have met with 
 general approval. 
 
 2. THE EFFECTS OF THE WAR UPON BRITISH LABOR 1 
 
 I. THE LOYALTY OF ORGANIZED LABOR 
 
 We have first to notice the extent to which the British labor move- 
 ments has, almost whole-heartedly, supported the war. The whole- 
 hear tedness and loyalty with which the British trade unions (which 
 have over four million members and .accumulated funds exceeding 
 six million pounds sterling) have supported the war has been made 
 manifest, first, by their devoted assistance in the voluntary recruiting 
 for the army, and, secondly, by their abandonment for the sake of 
 increasing the output of munitions, etc., of all trade union rules and 
 practices that could be thought to hamper the production of munitions 
 of war. 
 
 When it became evident that an enormously increased output of 
 munitions of war was required, the trade unions were asked by the 
 government to give up, for the duration of the war, all their rules and 
 customs in any way interfering with maximum production. Without 
 
 1 By Sidney Webb (see p. 451). Adapted from "British Labor under War 
 Pressure," North American Review, CCV, 874-84. Copyright, 1917.
 
 LABOR AND THE WAR 515 
 
 a single exception the trade unions agreed to this request. They 
 formally laid aside all restriction of output; all limitation of the 
 working day; all refusal to work overtime, at night or on Sunday; 
 all objection to the introduction of labor-saving machinery; all 
 resistance to the admission to their trades of non-unionists, unap- 
 prenticed men, laborers, boys, and even women; all opposition to the 
 substitution of piecework payments for hourly rates, and all 
 reluctance to co-operate in teams as component parts instead of each 
 workman completing his own task. They gave up the right to strike 
 and submitted to compulsory arbitration. They even accepted in 
 the Munitions of War Acts of 1915 and 1916, in order to secure con- 
 tinuity of production, the position of being forbidden to leave their 
 employment under a heavy penalty. Never has there been, in any 
 community, a greater or a more complete sacrifice for the common 
 good. The result has been that at the cost of greatly increased 
 hours of labor and greatly increased strain and effort of the manual 
 workers the output per operative has been enormously increased 
 throughout the whole kingdom, by means of a great increase of 
 machinery. By this sacrifice on the part of the British labor move- 
 ment British manufacturing industry has been, in these two years of 
 war, very largely revolutionized more completely changed in fact 
 than at any time since the great industrial revolution of 1780-1825. 
 
 II. ECONOMIC POSITION OF WAGE-EARNING CLASS 
 
 Having noted the patriotic efforts of the British labor movement, 
 we have now to record the results of the war on the economic position 
 of the wage-earning class. This war has, at almost all points, baffled 
 the prophets; and in no department have the results been more 
 unexpected than in the economic field. Thus, all previous wars of 
 magnitude have been accompanied by terrible financial suffering 
 among the mass of the people. One of their most frequent results 
 a social injury enduring for a whole generation has been the degrada- 
 tion of the standard of life among the wage earners. The last war 
 waged by the United Kingdom on anything like the scale of the present 
 Armageddon the Napoleonic conflict that lasted almost unceasingly 
 from 1793 to 1815 reduced the British working class to a very general 
 destitution, exhausted -popular savings, filled the prisons, brought 
 down wages to the barest subsistence level, and destroyed for many 
 years every vestige of either industrial or political power among the 
 wage-earning class. On the outbreak of the present war many people
 
 516 ECONOMICS OF WAR 
 
 naturally expected widespread unemployment and distress among 
 practically all the poorer classes. The trade unions, it was said, 
 would soon be bankrupt and powerless. The political influence of 
 organized labor, it was predicted, would be swept aside as completely 
 as its industrial strength. The great Co-operative Movement, with 
 its network of distributive stores and growing manufacturing depart- 
 ments, would, it was supposed, suffer at least an arrest of development, 
 and might have its resources seriously impaired. The Friendly 
 Societies, entangled in the gigantic scheme of National Insurance, 
 would, it was feared, find their accumulated funds drained dry. In 
 short, many people looked, on the outbreak of war, for ruin and misery 
 among the mass of the working people. Certainly, no one would 
 have predicted that, after a war of such magnitude and intensity had 
 been waged for over two and one-half years, the wage-earning popula- 
 tion of the United Kingdom would find itself, as a whole, actually 
 better off financially than it was in the years of prosperity that imme- 
 diately preceded the war. Yet this is today undoubtedly the fact. 
 
 In spite of a rise of prices of foodstuffs now approaching 100 per 
 cent; in spite of an average increase in the total cost of living of the 
 typical wage-earning family which may be put at 60 to 70 per cent; 
 in spite of the levy of new taxation on the wage-earning class to the 
 extent, it is estimated, of at least fifty millions sterling per annum, 
 there is every sign of the British manual working class, taken as a 
 whole, being considerably better off in 1917 than in 1913. Money 
 wages have risen, practically everywhere, in one form or other, 
 sometimes only by 10 or 20 per cent, but in exceptional instances by 
 60 or 80 per cent. It is true that the rates of wages have never (or 
 hardly ever) risen to the same extent as the prices of commodities, or 
 the cost of living. But, with relatively few exceptions, the average 
 family income has increased more than the rate of wages. More 
 members of the household are, in most families, earning money there 
 are no unemployed men, and no intervals in which no wages are 
 earned; the girls are at work as well as the boys, the superannuated, 
 and the invalids; in hundreds of thousands of cases the wives as well 
 as the spinsters and widows. Moreover, piecework earnings have 
 been widely substituted for fixed weekly wages; there has been a free 
 advancement of laborers and of women from unskilled to skilled rates; 
 the working hours have often been lengthened, bringing increased 
 earnings; and overtime and Sunday duty have been freely adopted 
 up to the very verge of excessive strain. The loss of family income
 
 LABOR AND THE WAR 517 
 
 consequent on the absorption of five million men into the army and 
 navy has been made good by the payment from public funds of. 
 separation allowances and pensions on a scale of quite unprecedented 
 liberality. The disabled soldiers, in particular, of whom already 
 many tens of thousands have been discharged, are being provided for 
 in ways unknown in any previous campaign. 
 
 The total result is that, while a considerable number of cases of 
 individual suffering exist, taking the wage-earning population of the 
 United Kingdom as a whole, far from feeling the strain of war it 
 exhibits today every indication of unparalleled prosperity. 
 
 III. BRITISH LABOR POLICY 
 
 This remarkable result, so far, of such a calamity as the present 
 war, has, of course, not "come about of itself." It has been the 
 outcome of the measures which have been deliberately taken by the 
 government and Parliament, supported generally by public opinion, 
 and acquiesced in by the employers and the propertied classes. And 
 this policy of deliberately maintaining unimpaired, at whatever cost 
 to the Treasury, the standard of life of the manual working wage 
 earners in consonance with the teaching of the political economists 
 that any degradation of this standard of life is the worst injury that a 
 nation can suffer has undoubtedly been made possible, as an achieve- 
 ment of economic statesmanship, only by the industrial and political 
 strength, and the persistent pressure, of the British labor movement. 
 
 The measures taken as the outcome of this economic statesman- 
 ship have been many and varied. 
 
 We must note, to begin with, the definite refusal to allow any use 
 to be made, for any war need, of the 'demoralizing machinery of the 
 Poor Law, which has lost all credit and has for a decade merely been 
 awaiting abolition in favor of up-to-date separate organizations for 
 the appropriate treatment of the lunatic, the sick, the widows and 
 orphans, and the unemployed. What the British labor movement 
 demanded, and what public opinion indorsed, was a policy of pre- 
 vention instead of relief. Under the apprehension of widespread 
 unemployment and distress, a new organization, entirely unconnected 
 with the Poor Law, was set up throughout the whole Kingdom in 
 August, 1914, in connection with the municipal and county authorities, 
 and a fund was raised by voluntary subscriptions to supplement the 
 public assistance that the government undertook to provide from 
 moneys to be voted by Parliament. The government adopted as its
 
 Si8 ECONOMICS OF WAR 
 
 policy, as demanded by the whole labor movement, the strengthening 
 of the labor market by the immediate undertaking by the local 
 authorities of those public works of definite utility that might other- 
 wise have been executed during the ensuing decade. 
 
 This marks an epoch in the history of unemployment in the 
 United Kingdom. Within a few weeks, however before the new 
 policy of prevention could be put into force, and even before it was 
 commonly understood it became evident that no widespread unem- 
 ployment among men was to be feared. Unemployment among 
 women workers lasted for a few months, during which it was sought in 
 pursuance of a like policy, not to start the old eleemosynary "relief 
 works," but to organize public orders, and where necessary to supply 
 full maintenance to the women who could not immediately get 
 employment, conditional on their attending at centers for domestic 
 economy and other training. For the last two years the difficulty has 
 been to get enough workers; and the greater part of the fund sub- 
 scribed is hoarded for use when peace comes. 
 
 The influence of the changed opinions on economic matters, and 
 of the strength of the organized labor movement, is seen in the 
 remarkable series of government decrees by which the workers' 
 standard of life has been protected from degradation. 
 
 We had first the high rates of pay by far the highest in Europe 
 and the extraordinarily liberal rations granted to the soldier; and 
 then the separation allowances paid to his wife and family, or other 
 dependents, on a scale hitherto unheard of, and amounting now to 
 nearly a hundred millions sterling annually. Next we had a series 
 of orders as to pensions for disabled men and the widows and orphans 
 of those who die. Then came an equally progressive series of orders 
 securing proper wages for the millions of munition workers, not only 
 in the government's own establishments but also in the ten or fifteen 
 thousand private establishments turned to war service. The rates 
 of pay thus secured are, so far as the lower grades are concerned, still 
 far from being satisfactory to the British labor movement; but their 
 extortion from a reluctant government, and their imposition on still 
 more reluctant capitalists, has done an enormous amount to raise the 
 standard of life, especially among women workers. Meanwhile the 
 government, on the successive demands of the trade unions concerned, 
 has, at its own expense, raised the wages of the half million railway 
 workers by ten shillings per week, amounting to about 13,000,000 a 
 year for this industry alone; and has awarded increases to millions
 
 LABOR AND THE WAR 519 
 
 of workers in private employment by orders which have the force of 
 law, increases which are complained of as being far from sufficient, 
 but which are, at any rate, remarkable for war time. In February, 
 1917, there was being ordered a legal minimum wage for all the agri- 
 cultural laborers in Great Britain of twenty-five shillings per week, 
 which is certainly 50 per cent more than the average of three years ago. 
 
 Concurrently with these increases in the income of the wage- 
 earning families, we have had the Rent Restriction Act, which (to 
 the financial loss of the property owners) prevents any raising of the 
 rents of working-class dwellings above those of August, 1914; the 
 prohibition of lapsing of industrial insurance policies of two years' 
 standing, notwithstanding the non-payment of premiums; various 
 measures for preventing, as far as practicable, the steadily continuing 
 advance in the prices of commodities; and the relaxation of the rules 
 that would have forfeited the old-age pensions of persons obtaining 
 increased receipts from work or gifts. Finally we have had an actual 
 increase by 50 per cent of the old-age pension now drawn by the men 
 and women over seventy. 
 
 Meanwhile, though the taxes have been, in the aggregate, nearly 
 trebled, the amount levied on the wage-earning class has been only 
 moderately increased, while an addition of over two hundred and fifty 
 millions a year has been made to the imposts levied on the employing 
 and propertied classes, so that, what with excess-profits tax, income 
 tax, supertax, and death duties, the richest industrial magnates often 
 find at present three-quarters of their incomes confiscated to the service 
 of the community. 
 
 Nothing like these things has ever before happened in the United 
 Kingdom, either during peace or in any previous war. It is these 
 measures, forced upon a reluctant Exchequer, owing to the way in 
 which the British labor movement has educated and led the public 
 opinion of the country, that have so far saved the nation to the 
 amazement and delight of the political economists, who never expected 
 the workmen to manifest so much power or the government to 
 exhibit such true economic statesmanship from the overwhelming 
 calamity of a fall in the standard of life. 
 
 Even more remarkable has been the extent to which, under war 
 pressure, the British labor movement has secured, from the properties 
 and employing classes and from the government that these still 
 mainly control formal and official recognition as an equal partner 
 in the state.
 
 520 ECONOMICS OF WAR 
 
 With the pressure for more munitions, the government called into 
 being a whole series of special committees, both national and local, 
 representing the trade unions concerned with the several munition 
 industries eventually embracing nearly all the principal manu- 
 facturing and transport trades and obtained their advice and 
 assistance with regard to each successive increase of governmental 
 authority. Trade union representatives were similarly placed on the 
 military service tribunals, which gave temporary or permanent 
 exemption from the obligatory military service. When, in 1916, an 
 organization was formed through the Kingdom for awarding pensions, 
 increasing the separation allowances, and providing treatment for the 
 disabled, the labor organizations obtained a recognition which went 
 beyond anything hitherto accorded. In all previous cases in which 
 labor representatives had been placed on official bodies not formed by 
 popular election, the representatives have been chosen by the appoint- 
 ing authority. When the war pensions committees were formed, the 
 spokesmen of the labor movement urged that the local trade unions 
 and other labor bodies in each district should be formally and officially 
 conceded, for all time, the right to be themselves represented; and 
 that the bodies so recognized should be empowered to choose for 
 themselves which of their members should sit upon the war pensions 
 committees dealing with the distribution of over a hundred millions 
 a year of public funds. To the stupefaction of the governing classes 
 and the officials in town and country, who had hitherto often been 
 unaware of the existence of such bodies, this right of direct repre- 
 sentation of the local trade unions and other labor organizations of 
 working men and women was formally and officially conceded, amid 
 general public approval. 
 
 What is more widely known is the admission of the labor move- 
 ment to partnership in the administration of the state. When in 
 1915 the Liberal Government gave way to a Coalition Government, 
 the Labor Party, as a whole, was formally invited to consent to take 
 part, its chairman being offered a seat in the Cabinet and two of its 
 prominent members being made Under-Secretaries of State. Several 
 other leading officials of the trade union movement were given the 
 honorary distinction of being sworn in as members of the Privy 
 Council. Finally, when in December, 1916, Mr. Lloyd George suc- 
 ceeded Mr. Asquith as Prime Minister, the adhesion of the Labor 
 Party (though it had only thirty-five members in a House of Com- 
 mons of six hundred and seventy) was recognized as essential; and
 
 LABOR AND THE WAR 521 
 
 Mr. Lloyd George in a long private interview on the day of crisis per- 
 sonally solicited the co-operation of the party offering the chairman 
 a seat in the supreme War Cabinet of five members, making another 
 Labor member Minister for Labor, and a third, Minister for Pensions; 
 and appointing three more to subordinate ministerial positions. 
 
 3. LABOR WORKING CONDITIONS AND EFFICIENCY 1 
 
 We may profitably consider the means by which labor is to 
 become available and effective during the progress of the war, and 
 at the same time discuss the measures by which labor ultimately 
 is to receive its democratic reward for innumerable sacrifices both at 
 home and abroad. Constructive effort, not merely after the war but 
 as a result of the war and while the war is in progress, is the important 
 consideration. We may rest assured that widespread and lasting 
 improvement in labor's condition will come in two forms: first, by 
 means of collective bargaining through trade union action, and, 
 second, by the more comprehensive method of legal enactment, 
 including a train of executive and administrative orders. 
 
 Others will deal sufficiently with progress toward industrial 
 democracy through trade unionism. No one familiar with the tradi- 
 tions and the leadership of the American Federation of Labor will 
 doubt that trade unionism will be pushed forward by the war. Doubt- 
 less there will come more democratic shop management, the extension 
 of collective bargaining, and the adjustment by discussion of many 
 of the conditions of employment, especially for the organized workers. 
 Even though faced with peculiar difficulties, including the absorption 
 of an army of invading women and a host of unskilled diluting mechan- 
 ics, organized labor was never in a more advantageous position to 
 assert its wishes and to have its policies adopted. 
 
 But the greatest sufferers in this war and afterward will be the 
 masses of unorganized men and women who will only indirectly profit 
 from the better bargains of trade unionism. For this vastly larger 
 and comparatively helpless group, the concern of public-spirited 
 citizens interested in the general welfare must be in that form of 
 
 1 By John B. Andrews. Adapted from "Labor Laws in the Crucible: 
 Measures Necessary for Effectiveness during and after the War," a paper read 
 before the National Institute of Social Sciences, January 18, 1918. 
 
 ED. NOTE. Mr. Andrews is secretary of the American Association for Labor 
 Legislation.
 
 522 ECONOMICS OF WAR 
 
 protection which is to come, not directly through the collective bargain- 
 ing of the labor unions, but through the democratic expression of 
 public opinion in our legislative halls. Political democracy, won by 
 our forefathers and emphasized in later extension of suffrage to work- 
 ing men and more recently to women, is the present hope of millions 
 of our industrial workers. 
 
 Even organized labor's "interposition" may soon take on a 
 political form. Organized labor of our Civil War period, upon finding 
 trade unionism unable to prevent a reduction of wages when war- 
 priced prosperity slumped at the close of that four-year conflict, 
 turned to politics and labor legislation. A somewhat similar political 
 activity may now be foreshadowed by the recent change, from after- 
 election November to the spring, of the annual convention date of the 
 American Federation of Labor. 
 
 Fortunately, the war has placed labor legislation upon a new 
 footing before the country. Men in high places have suddenly 
 recognized that labor laws are not based upon mere sentiment but 
 upon sound economics. They have joined the swelling chorus in 
 demanding that protective standards be maintained in order that 
 output be not decreased. 
 
 What, then, in the field of labor legislation, is especially needed 
 and feasible in America at this moment ? Fundamental, of course, is 
 regular employment. The usual maladjustments of workers seeking 
 individually for jobs and employers searching unsystematically for 
 men must now be avoided. War has made the immediate adoption 
 of a unified system of labor placement machinery for intelligent and 
 effective distribution of labor a matter of national self-preservation. 
 The labor market must be organized through a complete network of 
 public employment bureaus. 1 
 
 A second means of labor construction is the extension of workmen's 
 compensation. This legislation, at first greeted with suspicion, has 
 within a half-dozen years spread over most of the industrial states. 
 Many inadequate laws are yet to be improved, but acceptance of the 
 workmen's compensation principle is now almost universal. The 
 recognition of its value may be illustrated by our experience last year 
 with longshoremen. The United States Supreme Court, in a divided 
 opinion, held that men loading and unloading vessels could not when 
 injured seek compensation under the state laws. But such relief had 
 come to be generally regarded as social justice. Longshore work is 
 
 1 ED. NOTE. This need has now been met. See preceding selection.
 
 LABOR AND THE WAR 523 
 
 particularly hazardous. Thousands of such men are seriously injured 
 each year. These "marine" workmen, through the necessary ship- 
 ment of supplies to our Allies and to our own men in France, had 
 become in a very clear sense indispensable in this war. Thousands 
 of them were already protesting against grievances of long du- 
 ration. Here was a new grievance, the loss of compensation when 
 injured. A bill to grant such relief was drafted by the Associa- 
 tion for Labor Legislation, and within eleven days it was passed 
 through both houses of Congress and signed by the President. This 
 legal protection was necessary in order to render justice in time of 
 peace. The progress of the war lifted it into commanding importance. 
 
 A third measure of labor construction which the war has made 
 vitally imperative is the early development of workmen's health 
 insurance. Hundreds of thousands of war workers are about to 
 enter strange employments. Whether in the manufacture of muni- 
 tions or elsewhere, they will be subjected to dangers with which they 
 are not familiar. A large number of these new workers will be women, 
 peculiarly susceptible to occupational poisons, and with maternity 
 functions to be carefully considered with a view to safeguarding their 
 present health as well as that of the coming generations. 
 
 The official commission which has been studying this question in 
 New Jersey states : " The stress of industry in war is making increasing 
 demands upon physical endurance. In our hour of necessity we have 
 been shocked by the high percentage of draft rejections on account of 
 physical disability. As never before we need now to conserve, for 
 present and future generations, the health and physical vigor of our 
 people. Furthermore, it is the duty of statesmanship to look beyond 
 our immediate pressing needs to the period of reconstruction at the 
 close of the war. We cannot afford to disregard the protective legis- 
 lative inducements already offered to workmen by our keenest 
 commercial competitors in Europe." 
 
 The economic advantage to a nation of a healthy, efficient, and 
 contented working class is recognized by employers who have observed 
 the effects of universal insurance against sickness in Germany. A 
 former representative of large manufacturing interests who is now 
 serving in the War Department says: "I believe very strongly that 
 unless we make very substantial progress along the line of health 
 insurance we shall find ourselves under very serious handicaps in 
 world-competition at the conclusion of the present war. I believe 
 that many of our people are still going cheerfully on with the social
 
 524 ECONOMICS OF WAR 
 
 ideals and ideas of the past generation quite oblivious to the fact that 
 our great commercial competitors, Germany and Great Britain, have 
 advanced far beyond us in social thinking. The time will come within 
 the years immediately following the war when our 'go as you please' 
 methods of industry will be weighed in the balance in competition with 
 Europe." 
 
 Shortly after we entered this war the United States .government 
 provided a most liberal system of accident, health, and life insurance 
 for its enlisted men. In support of this wise action it was frequently 
 said by officials in Washington that men were better fighters if relieved 
 of anxiety regarding their future. "The individual states," declares 
 the New Jersey commission, "should be no less considerate of their 
 army of industrial workers." 
 
 We are fighting a great world-war in order that the condition of 
 the people may be improved. Some time this war will end. But 
 within each nation there is a never-ending struggle for better living 
 conditions, for opportunities for health and happiness that during 
 generations have been denied to the workers. Today, for example, we 
 possess a mighty power to fight disease. To the wealthy class this 
 scientific knowledge is available; to the poverty-stricken it is doled out 
 in charity dispensaries. But for the masses of the working population 
 in the United States alone among great industrial nations such 
 treatment is not made available. Through a properly organized 
 system of universal health insurance it would be possible to bring the 
 world of medical science to the aid of the humblest wage earner. 
 
 For these three important measures public employment service, 
 extension of accident compensation, and the adoption of workmen's 
 health insurance there has already been ample preparation and 
 agreement in time of peace. While earnestly sifting new proposals 
 for the after-war reconstruction period, no time should be lost in 
 putting these three well-tested measures into operation. 
 
 4. EXTENT OF THE EMPLOYMENT OF WOMEN AND 
 
 CHILDREN IN EUROPE 1 
 
 |hi 
 The first effect in every country of the European war was a period 
 
 of widespread unemployment accompanied by tremendous pressure 
 in the few industries which were immediately necessary for war 
 
 1 By Anna Rochester. Adapted from "Child Labor in Warring Countries," 
 pp. 7-17, which is Publication No. 27 of the Children's Bureau of the United 
 States Department of Labor.
 
 LABOR AND THE WAR 525 
 
 supplies. The activities of labor exchanges were extended to facilitate 
 the distribution of labor, and in many places labor restrictions were 
 relaxed, since this was thought necessary to intensify production. 
 Experience proved, however, that the relaxing of standards failed 
 of its purpose. In England and France, and more recently in Italy, 
 after the redistribution of labor had been effected and an actual short- 
 age of workers had replaced the earlier unemployment, definite steps 
 were taken by the governments to restore the provisions of the labor 
 law, because they were found to be essential not only to the con- 
 servation of the available workers but to the quantity and the 
 quality of their output. 
 
 On the other hand some countries resisted from the beginning of 
 the war any such breaking down of the labor law and maintained, or 
 even advanced, their labor restrictions. No special exemptions are 
 reported from Hungary; and, with the exception of a slight lengthen- 
 ing of legal overtime in the Australian State of Victoria, school- 
 attendance and child-labor laws have not been relaxed in any part of 
 Canada, Australia, or New Zealand. They have been strengthened 
 during the war in South Australia and in four Canadian provinces. 
 In England and France also official proposals have been made to 
 reorganize and extend secondary education in ways which would 
 directly affect the employment of children and raise the standard of 
 their protection. 
 
 In other countries, where standards have been relaxed and no 
 official action has been taken toward their restoration, protests and 
 agitation by labor organizations, physicians, or social workers are 
 reported. In Germany and in Austria-Hungary hours of labor have 
 been shortened in certain specified industries for the sake of conserving 
 materials. Thus, Germany in 1915 forbade night work in bakeries; 
 limited the work in spinning, weaving, and hosiery mills to ten hours 
 a day and five days a week; prohibited the use of power machinery 
 for cutting textiles; and permitted the use of power machinery for 
 sewing, buttonholing, etc., only thirty hours a week. Hungary has 
 forbidden night work in bakeries. Austria has withdrawn the power 
 to grant exemptions for overtime and night work in establishments 
 using cotton, except on urgent orders for the army. 
 
 In general the relaxing of labor standards during the war has 
 fallen into three classes. 
 
 First and most general is the lengthening of hours of work, 
 including night work and Sunday work and more or less unlimited
 
 526 ECONOMICS OF WAR 
 
 overtime. Some such exemptions have been reported from England, 
 France, Italy, Germany, Austria (but not Hungary), Switzerland, 
 Holland, and Russia. 
 
 Second is a lowering of the age requirement for children entering 
 industry. In this Italy has made the most general provision, per- 
 mitting boys of twelve whose fathers are soldiers to go to work without 
 regard to the educational standard formerly required of all boys 
 under fifteen years of age. France in 1915 admitted children of 
 eleven years and six months, instead of twelve years, to the July 
 examination for primary certificate which would exempt from school 
 attendance. In England local authorities in certain districts have 
 been excusing children from the requirements of school-attendance law 
 for agriculture and other " suitable" employments. In Germany 
 special exemptions from the age limit for child labor are provided for 
 in the emergency law of August 4, 1914, but how generally they have 
 been granted does not appear. 
 
 In the third place women and young persons have been employed 
 in dangerous, injurious, or heavy work formerly prohibited by law. 
 The war legislation in Germany and Russia, for example, specifically 
 provided for the granting of permission to women and young persons 
 to work underground in coal mines. The under secretary of arms and 
 munitions in France authorized the employment of girls under 
 eighteen in government powder plants, from which they had formerly 
 been excluded. In addition women have been employed in some 
 occupations in which men only were formerly engaged and for which 
 little or no protection was provided by law. Again, in some cases 
 new dangers have developed for which former laws made no specific 
 provision. 
 
 Quite as important as the temporary granting of exemptions is the 
 postponement of laws which had been passed before the war but had 
 not yet become effective. Conspicuous examples are the federal 
 factory act in Switzerland which had been passed in June, 1914, and 
 awaited the word of the Federal Council to supersede the former law; 
 the conventions of Berne regarding night work of young persons and 
 hours of labor for women and the use of white phosphorus, which had 
 not taken effect in Italy when the war began; and the decree limiting 
 the hours of labor in iron and steel industries in Germany. 
 
 The disorganization of industry and the exceptional labor condi- 
 tions which have been permitted would have seriously affected the 
 welfare of women and children even if there had been no increase in
 
 LABOR AND THE WAR 527 
 
 the number at work, since even before the war they were employed 
 extensively in the European countries. But in addition new workers 
 have everywhere been drawn into industry during the war. 
 
 Few figures are available to show how many women and children 
 have been drawn into gainful employment during the war by the 
 extraordinary demand for labor which is reported for certain occupa- 
 tions in every country. From France, Germany, and Italy come 
 reports of a great increase in home work, with its customary evils of 
 long hours and low wages, in connection with army contracts for 
 clothing and other supplies; and home work almost invariably includes 
 the employment of children. 
 
 In all European countries the demand for children and women in 
 agricultural work has been very great. Furloughs from school for a 
 limited period are permitted by the school-attendance laws in France 
 and Holland. In Russia the movement for compulsory school 
 attendance which was under way before the war has been seriously 
 hampered and the attendance of children who have been enrolled 
 is reported to me more irregular than usual because of work they have 
 to do at home and in the fields. In England certain exemptions are 
 permitted by law and others have been granted at the discretion of the 
 authorities. The actual number of children engaged in agricultural 
 work cannot be estimated for any country. 
 
 An interesting sidelight on what agricultural employment of 
 children may mean comes from Russia, where some 600 refugee chil- 
 dren from thirteen to sixteen years of age were organized in colonies 
 by an agency of the city council of Moscow for the double purpose of 
 helping the peasants in their summer work in the fields and of saving 
 the children from the harmful influences of the capital. On the basis 
 of a medical examination the children were divided into two groups 
 those able to give help on farms to a great extent and those who 
 needed rest and recuperation. The latter, making up eight out of 
 the nineteen colonies, also worked; but it was arranged that they 
 could only help in the household and do "light" field work such as 
 turning hay and digging potatoes; they were not to work more than 
 seven hours a day. 
 
 From the British board of education we learn that while ordinarily 
 in Great Britain some 450,000 children pass out of the elementary 
 schools annually at or about the age of fourteen the number was 
 increased by approximately 10 per cent during the year of 1915. 
 These additional 45,000 children were practically all legally entitled
 
 528 ECONOMICS OF WAR 
 
 to leave school. Further, since September, 1914, a very large number 
 of children who were still of compulsory school-attendance ages have 
 been excused by the local education authorities for full-time agri- 
 cultural employment or (in a few cases) for suitable light employment 
 in cities. Broadly speaking, it is probable that together these figures 
 do not fully represent the total loss. 
 
 From various British sources come reports of high wages for boys 
 in unskilled occupations and special complaint of the large increase of 
 young boys in street trades. It is stated that the scarcity of boy labor 
 has caused girls to enter occupations in which they have not formerly 
 been employed, but the occupations are not specified. There is also 
 the shifting of juvenile labor from one district to another in a way 
 apparently unknown before the war. 
 
 An exodus of German children from the usual blind-alley occupa- 
 tions is indicated by the difficulty of getting boys for odd jobs 
 messengers, errand boys, and other unskilled "nomad" workers. 
 "All young boys with any ambition now become apprentices in skilled 
 trades because they are much needed and are paid very differently 
 from peace-time rates; or else they become lathe workers in munition 
 factories, or enter the postal service. Formerly the parents had to 
 make sacrifices and pay for the instruction of the boy, but now he 
 makes while an apprentice as much as the unskilled youthful workers 
 used to make. 
 
 Even more incomplete are the figures available for France, Italy, 
 and Russia. We learn from the Bulletin du Ministere du Travail, 
 for example, that in April, nearly 50,000 industrial establishments, 
 not including state-owned munition works or railways, tramways, 
 mines, and quarries, had replaced by other workers more than one- 
 fifth of the wage-earners who had been mobilized. These establish- 
 ments had employed before the war one and three-quarter million 
 workers of both sexes and all ages and of these approximately 420,000 
 men (24 per cent) had been called to the colors. In April, 1916, the 
 places of some 87,000 had been filled, but how these new workers were 
 distributed among men above military age, and women, boys, and 
 girls does not appear. A marked increase of women workers on 
 French railways is reported. For example, it is stated by the Journal 
 des Debats that the percentage of women railway employees in 
 France in November, 1916, was growing daily and had already risen 
 to proportions varying from one in ten to one in six on different lines. 
 
 From France come reports also of women's work in furnace 
 industries. As early as August, 1915, the bulletin of the minister of
 
 LABOR AND THE WAR 529 
 
 labor stated that " Certain of the new occupations in which women are 
 employed seem injurious to their health and under normal circum- 
 stances the question would arise whether the employment of women 
 in these occupations should not be regulated." 
 
 In July, 1916, the French government ordered that all soldiers 
 detailed to munition work must so far as possible be replaced by 
 women, and even earlier it had been ordered that women should be 
 employed instead of men in office work and house service at army 
 headquarters. In September, 1916, the minister of munitions stated 
 that 300,000 women had gone into the munition works, but he does 
 not say how many of them were under twenty-one years of age. 
 
 Similar orders were issued in Italy in circulars of August 23 and 
 September 28, 1916, which stated that by October 31, 50 per cent of 
 the men of military age in the munition works must be replaced by 
 women and boys, and that by December 31 the percentage must be 
 brought up to 80. The second circular states that of the 355,349 
 wage earners employed at that time in 822 munition works only 
 45,628, or 13 per cent, were women. By December 31, 1916, accord- 
 ing to the report of the national committee for munitions published 
 early in the current year, the number of women employed in war 
 industries had risen to 90,000, as against 430,000 men, or to 18 per 
 cent of the total number of employees as compared with 4 per cent 
 in November, 1915. In some plants the percentage of women has 
 risen to 90 and even 95. While emphasizing the remarkable rapidity 
 of this increase, the report points out the necessity of a much more 
 general displacement of men by women, discusses the growth of 
 technical training schools for women munition workers, and expresses 
 the expectation of a continually increasing response of Italian women 
 to the needs of the war industries. How far this expectation has been 
 realized, material available in this country does not yet show. 
 
 As in France, so in Italy the employment of women in auxiliary 
 army services has been encouraged. Clerical work, kitchen work, 
 laundry work, general cleaning and other work in military hospitals, 
 and clerical work in territorial offices are especially referred to. 
 
 The only Italian figures received concerning the employment of 
 boys during the war refer to munition works in Lombardy. They are 
 based on reports from 660 factories employing about 100,000 workers 
 in June, 1914, and 145,000 workers in June, 1916. The number and 
 percentage of boys employed was small and showed little change; 
 1,297 boys under 21, or i .28 per cent, were employed in 1914, and 
 2,076 boys under 21, or i .42 per cent, in 1916. On the other hand,
 
 530 ECONOMICS OF WAR 
 
 the number of women and girls in these plants had more than tripled 
 and the percentage of women and girls among all workers had risen 
 from 4.77 per cent, in 1914, to 9.97 per cent in June, 1916. This 
 indication of the slight employment of boys in comparison with that of 
 women and girls is borne out by the report of the national committee 
 for munitions. 
 
 General references are found in Russian publications to the sub- 
 stitution of children for older workers but no data are available as to 
 the industrial occupations in which they are most largely employed. 
 Street trading by young children has increased and some as young 
 as five years of age are said to be engaged in this work. 
 
 In spite of her neutrality the Netherlands has, of course, been 
 deeply affected by the war. As industrial life has gradually adjusted 
 itself to these war conditions and to the mobilization of the army, 
 there has been on the one hand continued unemployment and on the 
 other a slight increase in child and woman labor. This increase has 
 been especially marked in certain industries. The proportion of 
 women and girls among all wage earners in industrial establishments 
 employing more than 25 persons rose from 20 per cent in May, 1914, 
 to 22 per cent in May, 1916. The number of young children twelve 
 and thirteen years of age who were at work had decreased in 1913 
 and again in 1914. The number rose again in 1915 but did not reach 
 the total reported for 1912 or 1913. A census of all industries shows 
 from 1914 to 1916 an increase of 3 per cent in the employment of boys 
 under seventeen years of age, of 16 per cent in the employment of 
 women seventeen years of age and over. The increase in the em- 
 ployment of men seventeen years of age and over in the same period 
 was only 2 per cent. In the clothing trades and the metal indus- 
 try, including shipbuilding, these percentages of increase are much 
 higher. 
 
 5. MEDIATION IN WAR TIME 1 
 
 i. The commission had wide opportunities, both as to the extent 
 of territory and the variety of industries investigated, to inquire into 
 industrial conditions in war time. The commission visited Arizona, 
 
 1 By Felix Frankfurter. 
 
 ED. NOTE. The report of the President's Mediation Commission to the 
 President of the United States, January 9, 1918. The report is signed by W. B. 
 Wilson, Chairman; Ernest P. Marsh; Verner S. Reed; Jackson L. Spangler; 
 John H. Walker; Felix Frankfurter, Secretary and Counsel; and Max Loewenthal, 
 Assistant Secretary. This is a summary of the Commission's conclusions.
 
 LABOR AND THE WAR 531 
 
 the Pacific Coast, Minneapolis and St. Paul, and Chicago; studied 
 the situation in the copper mines, the telephone industry, the North- 
 west lumber industry, the meat-packing industry as centered in 
 Chicago, the rapid-transit situation and the related industrial con- 
 dition in the Twin Cities, and observed as well other industries in the 
 states adjacent to those it visited. All relevant sources of information 
 were tapped, for close contact was had with workmen on strike and at 
 work; employers and professional men and federal and state officials, 
 who are brought particularly in touch with labor matters; and in 
 addition, the voluminous official files of federal and state authorities 
 furnished much knowledge. While undoubtedly each industry 
 presents its own peculiarities, certain underlying general factors 
 applicable to all industry emerge from the three months' work of the 
 commission. 
 
 2. Throughout its inquiry and in all its work the commission kept 
 steadily in mind the war needs of the country. The conclusion 
 cannot be escaped that the available man power of the nation, serving 
 as the industrial arm of war, is not employed to its full capacity or 
 wisely directed to the energies of the war. 
 
 3. The effective conduct of the war suffers needlessly because 
 of (a) interruption of work due to actual or threatened strikes; 
 
 (b) purposed decrease in efficiency through the "strike on the job"; 
 
 (c) decrease in efficiency due to labor unrest; and (d) dislocation of 
 the labor supply. 
 
 4. These are not new conditions in American industry, nor. are 
 their causes new. The conditions and their causes have long been 
 familiar and long uncorrected. War has only served to intensify the 
 old derangements by making greater demands upon industry and by 
 affording the occasion for new disturbing factors. 
 
 5. Among the causes of unrest, familiar to students of industry, 
 the following stand out with special significance to the industrial 
 needs of war: 
 
 a) Broadly speaking, American industry lacks a healthy basis of 
 relationship between management and men. At bottom this is due 
 to the insistence by employers upon individual dealings with their 
 men. Direct dealings with employees' organizations is still the 
 minority rule in the United States. In the majority of instances there 
 is no joint dealing, and in too many instances employers are in active 
 opposition to labor organizations. This failure to equalize the parties 
 in adjustments of inevitable industrial contests is the central cause of
 
 532 ECONOMICS OF WAR 
 
 our difficulties. There is a commendable spirit throughout the 
 country to correct specific evils. The leaders in industry must go 
 farther, they must help to correct the state of mind on the part of 
 labor; they must aim for the release of normal feelings by enabling 
 labor to take its place as a co-operator in the industrial enterprise. 
 In a word, a conscious attempt must be made to generate a new spirit 
 in industry. 
 
 b) Too many labor disturbances are due to the absence of dis- 
 interested processes to which resort may be had for peaceful settle- 
 ment. Force becomes too ready an outlet. We need continuous 
 administrative machinery by which grievances inevitable in industry 
 may be easily and quickly disposed of and not allowed to reach the 
 pressure of explosion. 
 
 c) There is a widespread 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. This is due primarily to a lack of collective negotia- 
 tion as the normal process of industry. In addition there is but little 
 realization on the part of industry that the so-called " labor problem" 
 demands not only occasional attention but continuous and systematic 
 responsibility, as much so as the technical or financial aspects of 
 industry. 
 
 d) Certain specific grievances, when long uncorrected, not only 
 mean definite hardships; they serve as symbols of the attitude of 
 employers and thus affect the underlying spirit. Hours and wages 
 are, of course, mostly in issue. On the whole, wage increases are 
 asked for mostly in order to meet the increased cost of living, and such 
 demands should be met in the light of their economic causes. Again, 
 the demand for the eight-hour day is nation wide, for the workers 
 regard it as expressive of an accepted national policy. 
 
 6. Repressive dealing with manifestations of labor unrest is the 
 source of much bitterness, turns radical labor leaders into martyrs and 
 thus increases their following, and, worst of all, in the minds of work 
 ers tends to implicate the government as a partisan in an economic 
 conflict. The problem is a delicate and difficult one. There is no 
 doubt, however, that the Bisbee and Jerome deportations, the Everett 
 incident, the Little hanging, and similar acts of violence against 
 workers have had a very harmful effect upon labor both in the United 
 States and in some of the allied countries. Such incidents are 
 attempts to deal with symptoms rather than causes. The I.W.W. 
 has exercised its strongest hold in those industries and communities
 
 LABOR AND THE WAR 533 
 
 where employers have most resisted the trade-union movement and 
 where some form of protest against unjust treatment was inevitable. 
 
 7. The derangement of our labor supply is one of the great evils 
 in industry. The shockingly large amount of labor turnover and the 
 phenomenon of migratory labor means an enormous economic waste 
 and involves an even greater social cost. These are evils which flow 
 from grievances such as those we have set forth ; they are accentuated 
 by uncontrolled instability of employment. Finally, we have failed 
 in the full use and wise direction of our labor supply, falsely called 
 "labor shortage," because we have failed to establish a vigorous and 
 competent system of labor distribution. However, means and added 
 resources have recently provided for a better grappling with this 
 problem. 
 
 8. It is then to uncorrected specific evils and the absence of a 
 healthy spirit between capital and labor, due partly to these evils 
 and partly to an unsound industrial structure, that we must attrib- 
 ute industrial difficulties which we have experienced during the 
 war. Sinister influences and extremist doctrine may have availed 
 themselves of these conditions; they certainly have not created 
 them. 
 
 9. In fact, the overwhelming mass of the laboring population is 
 in no sense disloyal. Before the war labor was, of course, filled with 
 pacific hopes shared by nearly the entire country. But, like other 
 portions of the citizenship, labor has adjusted itself to the new facts 
 revealed by the European war. Its suffering and its faith are the 
 suffering and the faith of the nation. With the exception of the 
 sacrifices of the men in the armed service, the greatest sacrifices have 
 come from those at the lower rung of the industrial ladder. Wage 
 increases respond last to the needs of this class of labor, and their 
 meager returns are hardly adequate, in view of the increased cost of 
 living, to maintain even their meager standard of life. It is upon 
 them the war pressure has borne most severely. Labor at heart is 
 as devoted to the purposes of the government in the prosecution of 
 this war as any other part of society. If labor's enthusiasm is less 
 vocal, and its feelings here and there tepid, we will find the explanation 
 in some of the conditions of the industrial environment in which labor 
 is placed and which in many instances is its nearest contact with the 
 activities of the war. 
 
 a) Too often there is a glaring inconsistency between our demo- 
 cratic purposes in this war abroad and the autocratic conduct of some
 
 534 ECONOMICS OF WAR 
 
 of those guiding industry at home. This inconsistency is emphasized 
 by such episodes as the Bisbee deportations. 
 
 b] Personal bitterness and more intense industrial strife inevita- 
 bly result when the claim of loyalty is falsely resorted to by employers 
 and their sympathizers as a means of defeating sincere claims for 
 social justice, even though such claims be asserted in time of war. 
 
 c) So long as profiteering is not comprehensively prevented to the 
 full extent that governmental action can prevent it, just so long will 
 a sense of inequality disturb the fullest devotion of labor's, contribution 
 to the war. 
 
 The causes of unrest suggest their own means of correction. 
 
 1. The elimination to the utmost practical extent of all profiteer- 
 ing during the period of the war is a prerequisite to the best morale in 
 industry. 
 
 2. Modern large-scale industry has effectually destroyed the 
 personal relation between employer and employee the knowledge 
 and co-operation 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 manage- 
 ment and men is indispensable. The recognition of this principle 
 by the government should form an accepted part of the labor policy 
 of the nation. 
 
 3. Law, in business as elsewhere, depends for its vitality upon 
 steady employment. Instead of waiting for adjustment after griev- 
 ances come to the surface there is needed the establishment of con- 
 tinuous administrative machinery for the orderly disposition of 
 industrial issues and the avoidance of an atmosphere of contention 
 and the waste of disturbances. 
 
 4. 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 emer- 
 gencies. Labor will readily meet this requirement if its misuse is 
 guarded against by appropriate overtime payments. 
 
 5. 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.
 
 LABOR AND THE WAR 535 
 
 6. 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. 
 
 7. Uncorrected evils are the great provocative to extremist propa- 
 ganda, 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. 
 
 6. A WAR-TIME LABOR POLICY 1 
 
 The commission of representatives of employers and workers, 
 selected in accord with the suggestion of your letter of January 28, 
 1918, to aid in the formulation, in the present emergency, of a national 
 labor program, present to you, as a result of their conferences, the 
 following : 
 
 a) That there be created, for the period of the war, a National 
 War Labor Board of the same number and to be selected in the same 
 manner and by the same agencies as the commission making this 
 recommendation. 
 
 b) That the functions and powers of the National Board shall be 
 as follows: 
 
 1. To bring about a settlement, by mediation and conciliation, of 
 every controversy arising between employers and workers in the field 
 of production necessary for the effective conduct of the war. 
 
 2. To do the same thing in similar controversies in other fields 
 of national activity, delays and obstructions in which may, in the 
 opinion of the National Board, affect detrimentally such production. 
 
 3. To provide such machinery by direct appointment, or other- 
 wise, for selection of committees or boards to sit in various parts of 
 
 1 A report made to the Secretary of Labor, March 29, 1918, by the War Labor 
 Conference Board. 
 
 ED. NOTE. This is the basis of our national labor policy and is comparable 
 "so far as American conditions make it comparable" with the English Treasury 
 Agreement, later embodied in the Munitions Bill.
 
 536 ECONOMICS OF WAR 
 
 the country where controversies arise, to secure settlement by local 
 mediation and conciliation. 
 
 4. To summon the parties to the controversy for hearing and 
 action by the National Board in case of failure to secure settlement by 
 local mediation and conciliation. 
 
 c) If the sincere and determined effort of the National Board shall 
 fail to bring about a voluntary settlement, and the members of the 
 Board shall be unable unanimously to agree upon a decision, then and 
 in that case, and only as a last resort, an umpire appointed in the 
 manner provided in the next paragraph shall hear and finally decide 
 the controversy under simple rules of procedure prescribed by the 
 National Board. 
 
 d) The members of the National Board shall choose the umpire 
 by unanimous vote. Failing such choice, the name of the umpire 
 shall be drawn by lot from a list of ten suitable and disinterested 
 persons to be nominated for the purpose by the President of the 
 United States. 
 
 e) The National Board shall hold its regular meetings in the city 
 of Washington, with power to meet at any other place convenient 
 for the Board and the occasion. 
 
 /) The National Board may alter its methods and practice in 
 settlement of controversies hereunder, from time to time as experience 
 may suggest. 
 
 g) The National Board shall refuse to take cognizance of a con- 
 troversy between employer and workers in any field of industrial or 
 other activity where there is by agreement or Federal Law a means 
 of settlement which has not been invoked. 
 
 h} The place of each member of the National Board unavoidably 
 detained from attending one or more of its sessions may be filled by a 
 substitute to be named by such member as his regular substitute. 
 The substitute shall have the same representative character as his 
 principal. 
 
 i] The National Board shall have power to appoint a secretary and 
 to create such other clerical organization under it as may be in its 
 judgment necessary for the discharge of its duties. 
 
 j) The National Board may apply to the Secretary of Labor for 
 authority to use the machinery of the Department in its work of 
 conciliation and mediation. 
 
 k} The action of the National Board may be invoked in respect to 
 controversies within its jurisdiction by the Secretary of Labor or by
 
 LABOR AND THE WAR 537 
 
 either side in a controversy or its duly authorized representative. The 
 Board, after summary consideration, may refuse further hearing if the 
 case is not of such character or importance as to justify it. 
 
 /) In the appointment of committees of its own members to act 
 for the Board in general or local matters, and in the creation of local 
 committees, the employers and the workers shall be equally 
 represented. 
 
 m) The representatives of the public on the Board shall preside 
 alternately at successive sessions of the Board or as agreed upon. 
 
 n) The Board in its mediating and conciliatory action, and the 
 umpire in his consideration of a controversy, shall be governed by the 
 following principles. 
 
 PRINCIPLES AND POLICIES TO GOVERN RELATIONS BETWEEN WORKERS 
 
 AND EMPLOYERS IN WAR INDUSTRIES FOR THE DURATION 
 
 OF THE WAR 
 
 There should be no strikes or lockouts during the war 
 
 Right to organize. i. The right of workers to organize in trade 
 unions and to bargain collectively, through chosen representatives, is 
 recognized and affirmed. This right shall not be denied, abridged, or 
 interfered with by the employers in any manner whatsoever. 
 
 2. The right of employers to organize in associations or groups 
 and to bargain collectively, through chosen representatives, is recog- 
 nized and affirmed. This right shall not be denied, abridged, or 
 interfered with by the workers in any manner whatsoever. 
 
 3. Employers should not discharge workers for membership in 
 trade unions, nor for legitimate trade union activities. 
 
 4. The workers, in the exercise of their right to organize, shall not 
 use coercive measures of any kind to induce persons to join their 
 organizations, nor to induce employers to bargain or deal therewith. 
 
 Existing conditions. i. In establishments where the union shop 
 exists the same shall continue and the union standards as to wages, 
 hours of labor, and other conditions of employment shall be 
 maintained. 
 
 2. In establishments where union and non-union men and women 
 now work together, and the employer meets only with employees or 
 representatives engaged in said establishments, the continuance of 
 such condition shall not be deemed a grievance. This declaration, 
 however, is not intended in any manner to deny the right, or discourage 
 the practice, of the formation of labor unions, or the joining of the same
 
 538 ECONOMICS OF WAR 
 
 by the workers in said establishments, as guaranteed in the last 
 paragraph, nor to prevent the War Labor Board from urging, or any 
 umpire from granting, under the machinery herein provided, improve- 
 ment of their situation in the matter of wages, hours of labor, or other 
 conditions, as shall be found desirable from time to time. 
 
 3. Established safeguards and regulations for the protection of 
 the health and safety of workers shall not be relaxed. 
 
 Women in industry. If it shall become necessary to employ 
 women on work ordinarily performed by men, they must be allowed 
 equal pay for equal work and must not be allotted tasks dispropor- 
 tionate to their strength. 
 
 Hours of labor. The basic eight-hour day is recognized as applying 
 in all cases in which existing law requires it. In all other cases the 
 question of hours of labor shall be settled with due regard to govern- 
 mental necessities and the welfare, health, and proper comfort of the 
 workers. 
 
 Maximum production. The maximum production of all war 
 industries should be maintained and methods of work and operation 
 on the part of employers or workers which operate to delay or limit 
 production, or which have a tendency to increase artificially the cost 
 thereof, should be discouraged. 
 
 Mobilization of labor. For the purpose of mobilizing the labor 
 supply with a view to its rapid and effective distribution, a permanent 
 list of the number of skilled and other workers available in different 
 parts of the nation shall be kept on file by the Department of Labor, 
 the information to be constantly furnished, (i) by trade unions; 
 
 (2) by state employment bureaus and federal agencies of like character; 
 
 (3) by the managers and operators of industrial establishments 
 throughout the country. These agencies should be given opportunity 
 to aid in the distribution of labor, as necessity demands. 
 
 Custom of localities. In fixing wages, hours, and conditions of 
 labor regard should always be had to the labor standards, wage scales, 
 and other conditions prevailing in the localities affected. 
 
 The living wage. i. The right of all workers, including common 
 laborers, to a living wage is hereby declared. 
 
 2. In fixing wages, minimum rates of pay shall be established 
 which will insure the subsistence of the worker and his family in health 
 and reasonable comfort.
 
 XIII 
 THE COSTS OF THE WAR 
 
 Introduction 
 
 In the nature of things it is as yet impossible to present accurate, 
 quantitative data on the costs of the war. Tentative estimates only 
 may be made of the losses that are entailed in wealth and population. 
 This chapter, therefore, has as its chief purpose an analysis of the 
 nature of war costs and the significance of these costs for the future 
 of society. 
 
 As the readings show, there is great danger in attempting to 
 measure the costs of the war in terms of money. The monetary 
 figures of war costs appear literally staggering, and to one who thinks 
 of war debts as sums of money which must be paid by certain nations 
 to other peoples it would appear that the debts of the war could not be 
 paid in countless generations. As Section LXI shows, however, 
 these monetary figures of war debts are entirely misleading. If we 
 consider the world as a whole, it is apparent that the combined debts 
 of the contending belligerents are not owing to the people of other 
 planets. The people of the world as a whole, as indicated by the 
 Treasury statistics of the various nations, owe the people of this world 
 as a whole certain staggering amounts of wealth, expressed in monetary 
 terms. The Treasury statements are thus only bookkeeping records; 
 they register in a financial way how much of the goods and services 
 of the various nations has during the war been devoted to public 
 rather than private ends. At the end of the war the payment of these 
 debts does not involve a net reduction in the total wealth of the world ; 
 it means merely that the governments of the various nations will 
 collect, through taxation of the people, funds which will in turn be 
 paid back to the people that is, to the owners of government bonds 
 and other obligations. Now, if all contributed equally to the financial 
 support of the war, and if post-bellum taxes were levied in exact pro- 
 portion to the bond holdings of those who had financed the war, the 
 payment of the debts would be merely a balancing of the books and 
 would be without economic significance except in so far as it required 
 
 539
 
 540 ECONOMICS OF WAR 
 
 a large force of people to collect the revenue, make the disbursements, 
 and keep the necessary financial records. 
 
 In so far, however, as the individuals of any nation contribute 
 to the financing of war in differing proportions, these war debts do 
 involve readjustments in property and income among the various 
 groups of people, although in terms of totals the figures would indicate 
 the real nature of war costs no more than before. It should be added 
 that where one nation borrows from another as a means of financing a 
 war, the problem is also different. England, for instance, will have to 
 pay its debts to the United States. This will make the English people 
 poorer, and the people of the United States more affluent to a like 
 degree. 
 
 The real costs of the war must be measured in other than monetary 
 terms. In brief, the social costs (Section LXII) consist in a lessened 
 supply of capital goods; in exhausted resources in land and raw 
 materials; in decimated and impoverished populations impover- 
 ished in the sense of being undernourished and in subnormal health 
 conditions; in the arrested training and development of the youth 
 of the land; and in the suspended cultural progress of the race. 
 
 But there are offsetting gains. Ultimate considerations (selection 
 LXII, 4) raise the question whether, all factors considered, the war 
 will not have paid for itself in spite of the enormous costs which it 
 entails. It is a question here of balancing gains and losses; and, 
 since so many of the factors are of an incommensurable sort the 
 question must perforce be left unanswered. Chapter xiv, however, 
 attempts an appraisal of the war's lessons in the principles of national 
 efficiency, for peace as well as for war's requirements. 
 
 If the war is brought to the kind of termination which would 
 incorporate the principles that have been so strongly enunciated by 
 the President, the gains from this world-cataclysm will undoubtedly, 
 in the end, outweigh its awful losses. Everything thus depends upon 
 the nature of the peace which is to follow. It is the purpose of chapter 
 xv to present some of the factors which are incident to an enduring 
 peace.
 
 COSTS OF THE WAR 541 
 
 LX. Quantitative Measurement of War Costs 
 i. WHAT DO WE MEAN BY WAR COSTS? 1 
 
 What is meant by the costs of war ? It is obvious that a distinc- 
 tion must be made between the money costs and the real costs of a 
 war. The money costs of a war are the actual outlays of the govern- 
 ment for war purposes; that is, the surplus above the general expendi- 
 tures in time of peace, making due allowance for changes in the 
 purchasing power of money. The real costs of a war, on the other 
 hand are to, be calculated very differently. When the ordinary man 
 speaks of wealth, he thinks of accumulated capital. The more saga- 
 cious thinker, however, is aware that the real wealth of a community 
 consists in larger part of the results of current production. Accu- 
 mulated capital is of importance chiefly as an aid to current produc- 
 tion. It has been calculated that the world is always within a year 
 and a half of starvation. If current production were suddenly to 
 cease, the world's stores of food and other products would barely 
 suffice for eighteen months. A wealthy country is one where the 
 consumption of the people is great and variegated and where the 
 current production is so large that there will still be a substantial 
 surplus susceptible of being converted into capital for future produc- 
 tion and into an environment which will spell increasing welfare and 
 civilization. A great war interferes rudely with the results both of 
 past accumulation and of current production. The real costs of a 
 war are to be measured by the diminution of the social patrimony 
 and by the diversion of current social output from productive to 
 unproductive channels, i.e., by changes both in the fund of accumu- 
 lated wealth and in the flow of social income. 
 
 In drawing up the balance sheet we should have to put on the one 
 side the diminution of the fund of wealth as represented by (a) the 
 destruction of private property; (b) the loss of government accumu- 
 lations; (c) the impairment of natural resources; and (d) the decrease 
 in the social output due to the reduction of the labor force by military 
 service and the fortunes of war. On the other side of the ledger, 
 indeed, we should have to put such capital items as (a) indemnities 
 or booty, and (b) the acquisition of new territory; and on the income 
 side, the results of (c) speeding up of production, (d) the more 
 
 1 By Edwin R. A. Seligman (see p. 409). Adapted from "Loans versus Taxes 
 in War Finance," Annals of the American Academy of Political and Social Science, 
 LXXV (January, 1918), 53-54-
 
 542 
 
 ECONOMICS OF WAR 
 
 favorable economic situation attained by the political results of the 
 war, and (e) changes in the methods of industry and the relation of 
 capital and labor which may conduce to greater efficiency and increased 
 output. 
 
 Although not all of these items are susceptible of being put in 
 terms of dollars and cents, the real costs of a war may be characterized 
 as the balance of the debit side over the credit side in the above 
 account. 
 
 2. PECUNIARY COSTS OF THE EUROPEAN WAR 1 
 
 It is now possible to bring together the final figures for all the 
 belligerent countries and to estimate the total cost of the war for the 
 three years and five months of its continuance from August i, 1914, 
 to December 31, 1917. 
 
 If the annual national income of the more important countries is 
 compared with the cost of the war for the last calendar year, 1917, the 
 real burden of the war in made apparent. It will be noticed that in 
 some cases the war is already costing more in a single year than the 
 estimated incomes of the whole people, and in all the others except 
 the United States it is approaching very close to this point. Only in 
 the case of this country do there remain any appreciable resources 
 which may yet be drawn upon to defray future costs. The following 
 table gives these figures. 
 
 Country 
 
 Annual National 
 Income 
 
 War Expenditures 
 for 1917 
 
 United States 
 Great Britain 
 France 
 
 $38 ,000,000,000 
 10,700,000,000 
 7,300,000,000 
 
 $ 9,000,000,000* 
 ii,3oo,ooo,ooot 
 6,720,000,000 
 
 Russia 
 
 6,500,000,000 
 
 10,000,000,000 
 
 Italy. 
 
 4,000,000,000 
 
 2,800,000,000 
 
 Germany . ... 
 
 10,500,000,000 
 
 9,300,000,000 
 
 Austria-Hungary. . 
 
 5,500,000,000 
 
 5,000,000,000 
 
 * Estimated for twelve months on the basis of nine months' 
 actual expenditures, allowance being made for progressive monthly 
 increase. 
 
 t Exclusive of loans to Allies. 
 
 1 By Ernest L. Bogart. From a monograph with the above title in Volume 5 
 of the series Preliminary Economic Studies of the War, pp. 41-43. Copyright by 
 the Carnegie Endowment for International Peace, 1918. 
 
 ED. NOTE. Mr. Bogart is Professor of Political Economy at the University 
 of Illinois.
 
 COSTS OF THE WAR 543 
 
 In conclusion it should be noted that the costs thus far tabulated 
 are only the direct money outlays of the countries involved. They 
 do not take into account the indirect costs, such as the destruction of 
 property, the depreciation of capital, the loss of production, the inter- 
 ruption to trade, etc. It has been estimated that these amount to as 
 much again as the direct costs. This would raise the total cost to all 
 the belligerents to $335,000,000,000. And in this staggering total 
 are not included the expenditures or losses of neutral nations, which 
 have been very real and in some cases very serious, nor the loss of 
 human life. 
 
 On the other hand, certain deductions may be made which reduce 
 somewhat the real costs. In the first place, not all of the war expendi- 
 ture is pure loss. Some expenditures are simply transferred from 
 family budgets to that of the state. Soldiers are fed, clothed, and 
 housed at the expense of the government and the bill is paid out of 
 taxes or loans. Other expenditures are positively productive, such 
 as the building of railways or merchant vessels. And in the second 
 place it is quite obvious that a partial explanation of the growing 
 costs of the war lies in the depreciation of the money unit. Measured 
 in dollars the expenditures are mounting steadily and rapidly. 
 Measured in terms of services and commodities the increase is much 
 less rapid. It has been estimated by the editor of the London Statist 
 that " the net cost of the war to the belligerents is about one-half of 
 its total cost." If this generalization be accepted as correct and one- 
 half of the direct cost be subtracted there is left as the real economic 
 cost of the war thus far $176,700,000,000.
 
 544 
 
 ECONOMICS OF WAR 
 
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 1 These figures, published July 28, 1917, are estimated at the end of the third 
 year of the war, and are given in the New York Times Current History, September, 
 1917.
 
 COSTS OF THE WAR 545 
 
 LXI. War Debts and War Costs 
 i. GERMANY ON THE VERGE OF BANKRUPTCY 1 
 
 The total note issues of the Reichsbank itself at the end of Febru- 
 ary, 1918, had reached $2,693,000,000, largely through discount 
 operations in Imperial Treasury bills. The Reichsbank discounted 
 about one billion more of these bills in 1917 than in 1916. 
 
 Besides the circulation of the Reichsbank the issues of the Darle- 
 henskassen amounted on March 7 to $1,900,000,000, which gives a 
 total of $4,593,000,000 paper money in circulation. By comparing 
 that sum with the $472,700,000 notes that the Reichsbank had out- 
 standing in July, 1914, 6'ne gets "a good measure of the road that 
 Germany had traveled over in the direction of irredeemable paper." 
 It shows that for every dollar of paper circulating just before the war 
 the circulation now carries $9 . 73 in paper. 
 
 To see on what thin ice Germany is skating, let us compare this 
 huge volume of paper money with the gold stock of the Reichsbank. 
 The whole volume of paper money must be taken, inasmuch as the 
 Reichsbank is responsible for the operations of the Darlehenskassen, 
 which are carried on as mere annexes to it. Against the total of 
 notes above mentioned of $4,593,000,000 the Reichsbank held at the 
 end of February only $573,000,000 in gold. In other words, if the 
 Reichsbank were called upon to redeem these notes in gold it would 
 pay slightly less than \2\ cents on the dollar. 
 
 And the ominous thing for Germany is that this process has by no 
 means run its course as yet. It has gone from bad to worse, with the 
 worst still to come. The note circulation of the Reichsbank alone 
 increased since a year ago by $762,000,000, while that of the Darle- 
 henskassen has been expanded by more than $500,000,000 since the 
 end of last October. On the other hand, the gold stock of the Reichs- 
 bank is moving in the opposite direction; it is now nearly $30,000,000 
 less than a year ago. 
 
 It would not be possible to establish any trustworthy standard 
 by which to measure the depreciation of German paper money. The 
 ratings of its value vary greatly in the small neutral countries adjacent 
 to Germany; and no uniform valuation can be arrived at by comparing 
 them. 
 
 1 By William C. Dreher. From the New York Tribune as summarized in 
 Business Digest, May 22, 1918. 
 
 ED. NOTE. Mr. Dreher was- a representative of the Associated Press in 
 Germany and did not leave there until after the United States entered the war.
 
 546 ECONOMICS OF WAR 
 
 The interest charges alone by the end of April this year will have 
 reached $1,450,000,000 a year, rather more than less. Dr. Helfferich 
 has estimated something like $1,900,000,000 to $2,000,000,000 as the 
 amount which before the war represented the annual savings of the 
 people, or what they had left over for investments of all kinds. Of 
 that sum they put about $720,000,000, in 1912, into stock-exchange 
 securities of all classes, which was "less than half of the present interest 
 on the national debt." The rest went into other securities, building 
 operations, investments abroad, and miscellaneous channels. These 
 figures give a result that is ominous for the German people, showing, 
 as it does, a debt cost already of from 72 to 76 per cent of their savings 
 in a year 1 of great prosperity. By the end of this year, however, if 
 the war still goes on and the monthly rate of war expenditure remains 
 at the $893,000,000 recently admitted by Count Rodern, "the annual 
 interest charge will rise to 90 or 95 per cent of their savings in 1912." 
 
 This fact is already looming large in the minds of German financial 
 authorities. But the interest charge will not represent the only 
 financial burden laid upon the German people by their military lords. 
 There will be-a huge pension appropriation every year for many years 
 to come. At this time the number of soldiers killed in battle or lost 
 through wounds or disease must exceed 1,250,000, and may even 
 reach 1,500,000; and doubtless an equally large number have been 
 either wholly or partly disabled. The widows and children of deceased 
 officers and men might easily exceed 3,000,000. Thus the roll of 
 pensioners must draw itself out to a stupendous length. And nig- 
 gardly as is the scale on which Germany pays pensions, especially to 
 the disabled common soldier and his dependents, the total outgo in 
 pensions must reach, as some good German authorities estimate, as 
 much as $700,000,000 a year. But that is not all. Provision will 
 have to be made for the gradual extinguishment of the huge national 
 debt. Financial writers generally assume that the amortizations 
 must reach at least $600,000,000 a year. Now, if these German 
 assumptions be correct, what do they mean? They mean that the 
 German people will have to meet annually an outgo of $2,750,000,000, 
 or some $750,000,000 to $850,000,000 more than their aggregate 
 savings in 1912. And almost the whole of that enormous sum 
 represents the heritage left them by this war. 
 
 George Bernhard has recently said in a public lecture that the 
 total taxation national, state, and municipal will reach $3,100,- 
 000,000. But this estimate is too low. Count Preysing said in the
 
 COSTS OF THE WAR 547 
 
 Bavarian Reichsrat that the total will reach $4,640,000,000, or four 
 times as much as before the war. Thus there is high official authority 
 for saying that Imperial expenditure after the war will be from 
 $1,230,000,000 to $1,330,000,000 greater every year than the aggregate 
 savings of the people before the war. And all this is just a snapshot 
 taken of this growing snowball of debt as it rolls past us at this 
 moment. But it is rolling on, its volume increases daily, there is no 
 end in sight. 
 
 2. GERMANY'S WAR DEBTS NOT WHAT THEY SEEM 1 
 
 Germany's approaching financial bankruptcy has been widely 
 discussed in financial circles of late and many incline to the belief 
 that her staggering debt will force a military collapse in the near 
 future. The figures which are quoted to show that the interest on 
 Germany's debt is substantially equal to, if not in excess of, her income, 
 however, are almost entirely beside the point. The fundamental 
 fallacy involved in these figures is that only one side of the financial 
 accounting is considered. 
 
 It must be borne in mind that Germany is not financing this war 
 by borrowing from outsiders. It is practically all being done through 
 domestic loans and taxes. When it is pointed out therefore that the 
 interest charges which Germany has to meet each year are $1,500,- 
 000,000, or more, one must reflect that this interest is received by the 
 German people as well as paid by the German people. Similarly, 
 when it is argued that an enormous tax will have to be levied after 
 the war to pay pensions, it must again be reflected that the govern- 
 ment in its financing is merely transferring funds from German people 
 to German people. Under these circumstances, national debts owed 
 to the nation's own citizens are merely paper claims of the individuals 
 of the state to the existing supply of national wealth and to future 
 national wealth. The treasury financial statements amount merely 
 to bookkeeping, showing the distribution of ownership among 
 German citizens of present and future national income. 
 
 War finance may give to certain classes of people a larger pro- 
 portion of the national wealth than before; it may give to others less. 
 But by itself, domestic borrowing has no direct effect upon the nation's 
 real wealth. The costs of war to a nation are not to be measured in 
 terms of money. They must be measured rather by the deterioration 
 of plant and equipment, by the exhaustion of natural resources, and 
 
 1 An editorial.
 
 548 ECONOMICS OF WAR 
 
 by the loss of new capital which would have been created had net war 
 diverted the energies of the people from construction to destruction. 
 Thus measured Germany will be seen to be far from bankrupt, for she 
 still has close to 70,000,000 of people, including prisoners of war; 
 she still possesses her original agricultural area, though doubtless 
 somewhat impaired as to fertility; she still possesses her factories and 
 her railroads, though they are somewhat the worse for wear and tear; 
 and she still possesses her basic supplies of raw materials from which 
 are wrought the instruments of warfare. Indeed, as a result of con- 
 quests attained, many of these resources have been increased a 
 hundred fold, and the question of their utilization is only one of 
 effective organization, which in time can be given them. 
 
 It cannot be too strongly emphasized that the Teutonic power of 
 resistance does not depend upon finance. The German organization 
 through central administration has directed a certain percentage of the 
 energy of the Teutonic power to the fighting units on the various 
 fronts; a certain percentage to the production of munitions and other 
 army supplies; a certain percentage to the construction of sub- 
 marines; and a certain percentage to the production of foodstuffs. 
 The German power of resistance depends, therefore, upon the ability 
 of the armies in the field to hold the lines; upon the ability of the 
 agricultural quota to produce enough food to sustain life and physical 
 efficiency; in short, upon the working strength of each part of the 
 great national machine. 
 
 LXII. The Social Costs of the War 
 i. FALLACIES ABOUT THE COST OF WAR 1 
 
 Against the main proposition that war is a destructive and there- 
 fore an impoverishing agency, from which a general decline of comfort 
 and prosperity must result, three fallacies have been invented to 
 misdirect the pilgrim on his quest for truth. The first is that war 
 increases wealth by circulating money; the second, that it increases 
 wealth by creating a demand for the things it has destroyed; the 
 third is that it increases wealth by reducing unemployment. 
 
 The idea that war increases wealth by circulating money is based 
 upon a confusion between money and wealth. It is quite true that 
 
 1 By F. W. Hirst. Adapted from The Political Economy of War, pp. 122-28. 
 E. P. Button Co., 1915. 
 
 ED. NOTE. Mr. Hirst is a well-known English writer upon economics and was 
 for many years editor of the London Economist.
 
 COSTS OF THE WAR 549 
 
 war multiplies and debases the currency, because the issue of new 
 currency is the most obvious and the easiest method by which a 
 government can pay for troops and supplies. The poorer the govern- 
 ment, and the greater the expense of a war, the more paper and token 
 money will it seek to circulate. If the identification of wealth with 
 money meant the identification of wealth with gold, the doctrine that 
 war increases wealth by circulating it is manifestly absurd. For in the 
 Great War which broke out in the autumn of 1914 all the belligerents 
 except Grea Britain immediately abandoned the gold standard, and 
 even the British government issued a considerable quantity of paper 
 money which took the place of a proportionate amount of gold 
 sovereigns and half-sovereigns. 
 
 The second fallacy starts from the undoubted fact that some of 
 the things which war destroys are bound to be replaced. We say 
 some, because the work of replacement either during or after the war 
 depends upon the power to replace. If in a modern war a village or 
 small town, with all its churches, farmhouses, factories, villas, and 
 cottages, is totally annihilated by shells, and all the inhabitants are 
 killed there is no probability of replacement. If the inhabitants all 
 escape, some of them are sure to return to the ruins after the war, 
 and those who have independent means may sell or borrow on secur- 
 ities in order to rebuild and restore what has been destroyed. It is 
 obvious then that only a fraction of the visible property destroyed 
 by war can be restored. What that fraction is will depend upon the 
 wealth of those who remain and upon the credit of the government. 
 Thus when a country has been devastated, as Poland, Serbia, Belgium, 
 and East Prussia have been devastated, an effort will undoubtedly be 
 made after the war by public and private credit to restore with all 
 possible speed such primary necessities . as railways and railway 
 equipment, farms, cottages, factories, and the like. If by indemnity 
 or otherwise a large quantity of money can be raised for these purposes, 
 a certain temporary stimulus will be given to the iron and steel trades 
 and to the manufacture of machinery and implements in countries 
 where the means of producing steel rails, girders, machinery, furniture, 
 and implements of all kinds are still intact. But to argue that this 
 sort of post bellum stimulus to industry proves the economic desir- 
 ability of war is exactly like arguing that drunken undergraduates, 
 when they break windows in a university town, are creators of wealth 
 merely because the owners of the houses, or the insurance companies, 
 or the parents of the undergraduates are well enough off to pay the 
 glaziers of the town for replacing the broken windows.
 
 550 ECONOMICS OF WAR 
 
 The third fallacy that war is good for trade because it reduces 
 unemployment or increases employment is closely related to that 
 which we have just been considering. As a matter of fact war diverts 
 employment from productive to destructive arts. It enormously 
 reduces employment in peace industries and enormously increases 
 it in war industries. Thus at the beginning ,of the Great War of 1914 
 vast numbers of able-bodied men were thrown out of employment in 
 Great Britain by the curtailment of foreign trade and domestic con- 
 sumption. But all and more than all these were quickly absorbed 
 in the army, or in the work of producing supplies, armaments, and 
 ammunition of all kinds for the fighting services, with the result that 
 in a few months' time the trade union returns showed an unusually low 
 rate of unemployment. The explanation is simple enough. The 
 government was borrowing about two millions sterling a day, which 
 sum was supplying the means of employing in the army and the 
 armament factories men and women for whose products after the 
 outbreak of war there would have been little or no peace demand. 
 When orders poured in from the governments of France and Russia a 
 positive congestion arose, with overtime, shortage of hands, and 
 transport difficulties of all kinds. 
 
 It must be clearly understood that in refuting the three fallacies 
 we are in no way concerned to deny that many individual traders, 
 shipowners, and financiers may and do make fortunes out of war. 
 Ministers and public servants are surrounded by merf who know how 
 to pick up the crumbs that fall from the table of a vast and ill- 
 controlled public expenditure. In time of war able and respectable 
 men of business may become bankrupts while worthless favorites and 
 corrupt contractors make money very quickly. In the management 
 of war finance at its best incompetence is too often matched against 
 roguery. And there may be not merely incompetence but negligence 
 or something worse in the public offices. It was so in the war with 
 the American colonies, in the war with Napoleon, in the Crimean War, 
 and in the South African War. You may eliminate waste and 
 corruption in one form, but they will reappear ere long in another. 
 In computing the real cost of war to a nation allowance should perhaps 
 be made for these war fortunes, which resemble the sums won by a 
 gambler. But a more important extenuation of national losses is 
 to be found in the diminution of private luxury which a great war 
 entails, especially in .countries like Great Britain where it is accom- 
 panied by the screwing up of a stiffly graduated income tax and death 
 duties, and by the additional taxation of alcoholic liquor.
 
 COSTS OF THE WAR 551 
 
 Another plea in extenuation of war needs consideration, though it 
 does not quite deserve a place beside the three fallacies. It is this 
 that the pressure of war taxation and the withdrawal of so much 
 labor from field and factory forces many people to work who never 
 worked before and induces many more to work harder. Women and 
 children and old men are forced into employment so that national 
 production is stimulated. Indeed, economic professors have been 
 heard to declare in all seriousness that the total income of a country 
 after a great war may through this cause be greater than ever, so 
 that a nation may in an economic sense be more than compensated 
 for its losses by its losses! Even during the long years of distress 
 that followed the Napoleonic wars one or two writers tried to console 
 the public for .the severity of taxation by the thought that it forced 
 people to work harder than they would have done. 
 
 And so we return to the proposition that war while it enriches a 
 few impoverishes the many. In his Glasgow lectures Adam Smith 
 put it in a few sentences which deserve repetition: "The poverty of 
 a nation proceeds from much the same causes with those which render 
 an individual poor. When a man consumes more than he gains by 
 his industry, he must impoverish himself unless he has some other way 
 of subsistence. In the same manner, if a nation consume more than 
 it produces, poverty is inevitable; if its annual produce be ninety 
 millions and its annual consumption an hundred, then it spends, eats 
 and drinks, tears and wears ten millions more than it produces, and 
 its stock of opulence must gradually go to nothing." 
 
 Then in reply to the objection, advanced perhaps by some youth- 
 ful heckler, that there is no harm in spending money on war so long 
 as you spend it at home and employ home manufacturers, the philos- 
 opher continued: "Suppose my father leaves a thousand pounds' 
 worth of the necessaries and conveniences of life. I get a number of 
 idle folk about me, and eat, drink, tear, and wear till the whole is 
 consumed. By this I not only reduce myself to want, but certainly 
 rob the public stock of a thousand pounds, as it is spent and nothing 
 produced for it." In the same way money spent on war is wasted 
 wherever the war is waged and wherever the money employed in 
 preparations is laid out. These propositions should be translated into 
 every language and written up in gold over the door of every spending 
 authority in the world ; for there is no more insidious fallacy than the 
 fallacy that waste is profitable if it provides employment at home. 
 The taxpayer suffers equally whether a superfluous battleship, or 
 ort, or barrack is built at home or abroad, by British or foreign labor.
 
 552 ECONOMICS OF WAR 
 
 Nor does it in the long run make any difference whether money bor- 
 rowed for unproductive purposes is raised by a foreign or a domestic 
 loan. In either case the home taxpayer has to pay the interest; 
 which, unless the capital be paid off or repudiated, constitutes a 
 perpetual charge on the trade and industry of the country. 
 
 2. SOME ECONOMIC CONSIDERATIONS 1 
 
 The material waste and destruction of this war, with its ever- 
 increasing area of conflict, have been far greater, more various, and 
 more widespread than would have been thought possible before the 
 actual event. At the outset most economists in this and other 
 countries predicted exhaustion of one or both belligerent groups 
 before two years were passed. The actually available resources of 
 every country have proved to be far greater than was supposed. 
 What this country [England], in particular, has done amounts to an 
 economic miracle. With some four million men taken from ordinary 
 occupations for the fighting forces, and two more millions for muni- 
 tions, we have been able somehow to maintain the ordinary productive 
 operations of our country at so high a level as to provide food, clothing, 
 vehicles, and innumerable other expensive articles for our own forces 
 and a large surplus for our Allies; while our civil population as a 
 whole has been living upon a somewhat higher level of material comfort 
 than before. 
 
 There are those to whom the obvious explanation of the miracle 
 is that we are living on our capital, and they insist that we shall have 
 to pay afterwards for this necessary extravagance. Now living upon 
 capital from the standpoint of a nation may mean one or the other 
 of two things, or both. It may mean that we have destroyed, dam- 
 aged, or diminished the plant, buildings, roads, stocks, money, which 
 we possessed in this country before the war, together with the foreign 
 securities which represented claims upon real wealth in other countries. 
 Or it may mean that we have mortgaged abroad portions of the wealth 
 we shall produce after the war, by obtaining upon credit foreign goods 
 to supplement our war deficiencies. If either of these things has 
 occurred, it will seem to involve a diminution in our national income 
 after the war a measure of poverty. 
 
 1 By J. A. Hobson. Adapted from " Shall We Be Poorer after the War?" 
 Contemporary Review, CXI, 43-47. Copyright 1917 by the Contemporary Review 
 Company, Ltd. 
 
 ED. NOTE. Mr. Hobson is one of the leading British economists of this 
 generation.
 
 COSTS OF THE WAR 553 
 
 It is manifest that our war economy will have caused a letting 
 down of most of those forms of fixed capital which can be let down 
 without great immediate damage to their productive services. 
 Repairs and renewals, both of public and private fabrics of a durable 
 kind, have been postponed, industrial machinery and other plants 
 have been injured by overwork and neglect. It is estimated that a 
 sum of from 170 to 180 million pounds per annum represented indus- 
 trial wear and tear and renewals, or approximately one-tenth of the 
 industrial income of the nation. A considerable part of this expendi- 
 ture, no doubt, has been suspended i.e., the work that would have 
 gone for this purpose has been diverted into work for the productiqn 
 of immediately consumable wealth. This damage to future pro- 
 ductive power is enhanced by a letting down of many stocks of 
 materials, unfinished or finished goods, which in ordinary times 
 constitute a reserve of national wealth to meet the sudden enhance- 
 ments of demand, and to secure the required elasticity of trade. 
 These stocks, both in this country and throughout the world, have 
 been largely depleted to meet the urgent needs of the belligerent 
 nations. Their reduction must rank as an expenditure out of capital 
 which will have to be made good before trade can be fully restored. 
 This expenditure of capital is probably the most serious incurred by 
 this country. So far as the income-earning power of our capital is 
 concerned, the letting down of plant and stock is the measure of the 
 direct damage to capital due to the war. Against it may be set an 
 e'stimate of the new engineering and other plants brought into exist- 
 ence, primarily for war requirements, but capable of adaptation to 
 peace industries afterwards. 
 
 The large sale of American and other foreign securities, and the 
 loans effected in the United States and in our Dominions, no doubt 
 involve an expenditure of past capital and a mortgage of future 
 resources. But regarded from the national standpoint, what has 
 taken place may fairly be treated as a shifting of securities. We have 
 sold securities and raised credits in America in order to make financial 
 advances of at least equal magnitude to our Allies. The interest on 
 this sum will represent a net reduction of the annual income of our 
 nation available for distribution here so long as this method of pay- 
 ment is continued. 
 
 Summarising the evidence we have cited, we may fairly conclude 
 that the material capital of this country will emerge from the war 
 not seriously damaged or diminished. Indeed, it may plausibly be
 
 554 ECONOMICS OF WAR 
 
 argued that the better organization of industry for obtaining a fuller 
 use of the existing plant e.g., the introduction of a shifts system into 
 processes where plant was lying idle for the greater part of the time 
 may almost compensate for the admitted loss by letting down fixed 
 capital and stocks. In a word, the supply of available industrial 
 capital for this country after the war will not be so greatly diminished 
 as to necessitate a total output of industry appreciably lower than it 
 was before the war. 
 
 How, next, will it fare with the other factors of production ? Will 
 the supply of labour be reduced by the ravages of war ? The loss of 
 life and the disablement will amount to a heavy total. Perhaps it 
 may represent a million men, or one-sixth of those withdrawn from 
 ordinary civil occupations. But this would not mean a corresponding 
 reduction of effective labour. There are several compensations here. 
 First comes the stoppage of all British emigration during the war. At 
 least half a million workers who would have gone abroad will have 
 been kept at home. It may, indeed, be admitted that the tide of 
 emigration after peace will carry away large numbers both of our 
 civilians and of disbanded soldiers. But the pace of this movement 
 will be restrained by reduced facilities and enhanced costs of transport, 
 as well as by the lack of the money usually required to make emigra- 
 tion a success for men untrained in agriculture. Another compen- 
 sation is to be found in the newly discovered and trained powers of 
 women. Though many of the six hundred thousand who have already 
 entered munitions and other industrial occupations will doubtless 
 return to domestic work, the ranks of labour will be enlarged perma- 
 nently, not merely by those who, having already entered, will remain, 
 but by a constant flow of new female labour into occupations for the 
 first time opened by the war. Women have discovered new aptitudes 
 and new confidence in exercising them. Their status in industry has 
 definitely and permanently risen. It is no mere question of numbers. 
 Both for women and for unskilled men the artificial barriers which 
 precluded them from learning and undertaking large numbers of 
 skilled occupations have been broken down. After the war the 
 proportion of workers, male and female, possessing approved skill 
 in some productive process will be greatly increased. This, of course, 
 is equivalent to an enlargement of the effective productive power of 
 the nation. It may be concluded that the aggregate labour-power 
 available after the war will be quite as great as that available in the 
 summer of 1914, assuming that the war is not prolonged beyond 
 next summer.
 
 COSTS OF THE WAR 555 
 
 Business ability and enterprise in the organising and employing 
 classes ought to be enhanced rather than diminished by the lessons 
 in adaptation and experimentation imposed by the stress of war needs. 
 Rapid transformations of plant and premises, novel technical pro- 
 cesses, revolutionary changes in finance, control, organisation of 
 labour have everywhere been shaking the easy-going, slack, routine 
 ways and notions of employers. Thousands of them have been 
 compelled for the first time in their lives to "look alive" and stir their 
 intellectual stumps. The great revelation of what could be done to 
 maintain and enhance productivity under the spur of national 
 necessity can never perish from our minds. We now know that with 
 the material and human resources at our disposal it is technically 
 possible, when the war is over, to begin producing industrial wealth 
 at a considerably faster rate than it was produced three years ago. 
 The great economies effected by reducing our railways to a single 
 system are only one striking example of an economy of capital and 
 labour which will certainly be conserved in the future. 
 
 3. WAR AND POPULATION 1 
 
 The suggestions of the following paragraphs are not put forward as 
 prophecies, but rather to indicate some of the possibilities which may 
 have to be dealt with when the great conflict comes to an end and the 
 processes of readjustment begin. 
 
 The direct effects of the war upon the populations of the belligerent 
 nations are but too terribly apparent. Not only have deaths and 
 incapacitating casualties run into the millions; not only is there this 
 enormous loss of numbers the wastage has been so concentrated 
 among males of fighting age as to work a serious distortion of the 
 population structure. Economically, the proportion of producer 
 to consumers has been reduced. Biologically, the balance of the two 
 sexes is disturbed in the reproductive years of life and the capacity 
 of monogamic increase is correspondingly impaired. Even though 
 birth-rates may nevertheless rally at the close of the struggle, this 
 disproportion of ages and sexes cannot thereby be corrected. It will 
 leave its disfiguring and disabling effects for decades to come. 
 
 Nor will the present population alone bear the scars. If there is 
 any significance in heredity, and any truth in the contention that 
 
 1 By James A. Field. From "Problems of Population after the War," Amer- 
 ican Economic Review, VII, Suppl., 233-34.' Copyright by the American Economic 
 Association, 1917. 
 
 ED. NOTE. Mr. Field is professor of political economy in the University of 
 Chicago.
 
 556 ECONOMICS OF WAR 
 
 modern warfare accomplishes an adverse selection through the 
 slaughter of the physically bravest and best, then the new generation, 
 and through it posterity, must be the continuance of an impoverished 
 breed. This, too, is a damage that mere volume of births can hardly 
 mend. The two inches of average stature which the French people 
 is said to have lost in the Napoleonic wars were lost in spite of a 
 tolerably vigorous revival of the birth-rate after those devastating 
 campaigns. And though we may question whether the selective 
 agency of war operates with such obvious effect upon the human 
 characteristics of body and mind that most concern us, we cannot 
 well doubt that lasting modifications of our racial endowment are now 
 in process on the battlefields of Europe. It does not follow that 
 deterioration will be at once manifest when the next generation 
 succeeds to leadership in Western civilization. Indeed, it is more to 
 be feared that civilization may conform itself imperceptibly to the 
 lowered standards of a depleted stock. In any event, history that 
 might have been is now cut off with the lives of those whose unborn 
 descendants would have made it. 
 
 4. ULTIMATE' CONSIDERATIONS 1 
 
 It is difficult to appraise the real cost of war. A recital of the 
 figures of war debts only serves to conceal the truth. On the purely 
 material side, the best we can do is to ascertain the extent of the loss 
 of new capital and the amount of depreciation of the existing industrial 
 equipment of the national resources of a nation. On the human side, 
 we can determine the number of casualties, but it is impossible to 
 measure the different values to the community of those who are 
 killed. A genius lost involves an immeasureable cost viewed in 
 national terms. The loss of an ordinary soldier is relatively incon- 
 sequential. 
 
 But quite apart from the loss of life, war entails enormous sac- 
 rifices in human resources. The sacrifice in health of the men who 
 have been for years in the trenches cannot be measured in terms of 
 money, for there is no satisfactory method of reducing the values of 
 human lives and human health to pecuniary terms. The war has 
 also impoverished the people of many lands and this carries with it a 
 real lowering in the standards of life. There is less food, bodies are 
 less adequately protected with clothes and shelter; medical service 
 is scarcer, and in general conditions are less conducive to healthful 
 
 1 An editorial.
 
 COSTS OF THE WAR 557 
 
 living. Future generations of Belgians, Roumanians, Poles, Russians, 
 Turks, Armenians, and Persians, not to mention others, will pay the 
 penalty of this generation of economic disorganization. Preventive 
 measures can alleviate somewhat the future wretchedness which is the 
 product of war, but it cannot eliminate it entirely. Children will 
 be reared undernourished and without proper medical attention, 
 entailing costs that will manifest themselves in succeeding ages. 
 Moreover, the bodies of the mature population, under the intense 
 strain of a long war, become less immune to the ravages of disease. 
 The lowering of health standards and the lessening of human vitality 
 tend to have viciously cumulative effects; for the war necessitates 
 low standards of living, low standards of living cause low productivity, 
 and low productivity in turn causes low standards of living for long 
 years to come. Poland, for instance, has been impoverished by the 
 war to an extent that renders it almost impossible to gain the initial 
 momentum necessary to recuperation and to return to erstwhile living 
 conditions. 
 
 Even in countries such as England and the United States, which 
 do not bear the brunt of invasion, and where the economic organiza- 
 tion is such as to prevent starvation, or even a serious lessening of 
 national vitality, there are still serious costs to be reckoned with. 
 The lowering of labor standards carries with it, unless our standards 
 were false, serious impairment of efficiency as measured in terms of 
 long-run national considerations. Much of the labor of women now 
 used in factories will carry with it its meed of cost in shortened lives 
 and in ill-health in the years to come. The increasing employment of 
 children and the curtailment of education among the youth prevent 
 a development of the full resources of the coming generation of 
 manhood and womanhood. In a less obvious way there is a great 
 social sacrifice involved in the diversion of energy from scientific 
 pursuits, from social study and investigation, from art and literature, 
 to immediate material pursuits of military importance. The sort of 
 life which conditions the element of genius and originality is almost 
 prohibited, for genius and originality can usually ripen only amid 
 leisure; the world of ideas and values out of which an improving 
 society eventually comes is almost at a standstill during the war. 1 
 
 1 This of course does not apply to experiments in governmental control of 
 industry. It is possible, too, that the inventions called forth for use in the war 
 may result in great ultimate value for times of peace. The statement has been 
 made, however, by those in position to know, that few great inventions have thus 
 far come from the laboratories of war.
 
 558 ECONOMICS OF WAR 
 
 i 
 
 Another of the immeasurable costs of war lies in the fact that war 
 arrests the training of the future leaders of a nation. Business 
 responsibilities, and the necessity of keeping the home fires burning, 
 make it impossible to send a large proportion of the mature men of 
 a nation to war. It is the youth who must bear the brunt of the 
 conflict. A nation is thus stripped of the services of those who would 
 naturally be the future leaders in community and civic enterprise. 
 Even with those who return, the years spent in the army have cost 
 them in many instances the labor and study which otherwise would 
 have been spent in cultural, technical, and vocational training, and it 
 hence tends to lessen their efficiency for leadership in the future. 
 This is doubtless offset to some extent by training which the war itself 
 offers in developing alertness and resourcefulness; but the specializa- 
 tion of the present war coupled with the predominance of trench 
 warfare probably renders such training less valuable than in former 
 wars. Particularly is this true in view of the fact that the social 
 phenomena of the complicated world of today require training and 
 study of a very different sort from what was required for leadership 
 under more primitive conditions of existence. 
 
 The war affects the temper and character of life in many ways. 
 It profoundly modifies the habits, practices, customs, and ideals of 
 the civilian population as well as of those actively engaged in the 
 conflict. Some of these changes are bad, many of them are good, 
 and it is possible that the ultimate results in the way of new social 
 values may quite offset the immediate losses occasioned by war. It 
 is impossible to make at this time a full recital of the changes which 
 the war has wrought in our social and economic life, but they are 
 everywhere in evidence. For instance, we have become reconciled, 
 at least for the period of the war, to a control of industrial activities 
 on the part of the government which would have been unthinkable in 
 this individualistic country only two years ago. Not all of this will 
 be retained in the peace which is to follow, but it is evident that 
 we will have a much larger measure of governmental direction than 
 we have had in the past. 1 Much of the experience of the war in 
 governmental control may be utilized in ways that will promote long- 
 run welfare in the years of peace. For instance, it appears that 
 the federal organization of the labor market which the war has 
 
 1 See chapter xiv for a consideration of the gains which may come out of the 
 war in the way of more efficient organization.
 
 THE COSTS OF THE WAR 559 
 
 effected 1 is a piece of machinery so essential to the successful working 
 of our industrial system that it will never be given up. We have also 
 come to appreciate more fully than before the importance of large 
 national production, and a useful distinction has been drawn between 
 essentials and nonessentials, which may prove serviceable in peace 
 as well as in war. 
 
 A subtle change which the war has wrought is to be found in the 
 increasing number of women employed in industry. Their active 
 participation in the affairs of a world-wide economic society makes a 
 return to the old-fashioned cloistered American home almost impos- 
 sible. The situation carries with it far-reaching implications in the 
 matter of family ideals and the organization of domestic life around 
 the hearthstone. Who can say whether this will lead to ultimate 
 gains or to ultimate losses ? 
 
 These are but a few examples of the many changes which the war 
 is effecting. They relate not only to the elements of our life and its 
 organization but also to its ideals. Our standards of judgment are 
 very different from what they were before the war and since values 
 and costs can be measured only in these social standards, it is impos- 
 sible to make an accurate statement in quantitative terms of the 
 ultimate costs of the war. Indeed, in view of these changing stand- 
 ards it is impossible to tell whether, all factors considered, and looking 
 into the far distant future, the war has entailed a net cost to society. 
 It depends upon which scheme of things one prefers in life, and, as ever, 
 de gustibus non disputandum est, 
 
 1 Seejielection LVIII, 6.
 
 XIV 
 
 WAR'S LESSONS IN THE PRINCIPLES OF 
 NATIONAL EFFICIENCY 
 
 Introduction 
 
 There are two sets of factors which are difficult to harmonize in 
 the modern industrial state. One consists of the technical demands 
 of an efficient producing machine; the other of the psychological 
 needs of the men who must work the machine without becoming mere 
 cogs in it. At present technical efficiency calls for increased centrali- 
 zation of a sort that can most quickly and simply be attained through 
 what labor stigmatizes as "state socialism." On the other side 
 stands the imperative need of giving the increasing power of labor 
 effective channels of expression, and satisfying its twofold demand 
 for more goods and more voice in the control of industry. Of the two, 
 the former is the easier for the economist to reason about, but the 
 latter is the more vital. Unless a spirit of co-operation can be 
 established, labor will go back to the restriction of output, and we shall 
 be back in a "vicious circle" of inefficiency which will make satis- 
 factory conditions for the masses well-nigh impossible of attainment. 
 The harmonizing of these demands is the great task of reconstruction. 
 
 LXIII. Industrial Gains from War 1 
 
 Mr. Arthur Greenwood discusses the effects of the war on capital, 
 management, and labor. As regards the first, the shortage of labor 
 resulted in the improvement and the use of machinery being widely 
 extended, new plants being laid down, and new buildings being erected. 
 Management in its turn, previously "overstaffed and underworked," 
 reorganized itself on a basis of great efficiency; it sought new forms of 
 capital, developed the subdivision of labor, and rearranged processes 
 and workshops. 
 
 Of labor serious sacrifices were asked. Notwithstanding that 
 workers had enlisted in hundreds of thousands, labor's contribution 
 
 1 Adapted from "The Reorganization of Industry in Great Britain," Monthly 
 Review of the Bureau of Labor Statistics (1917), pp. 331-33. 
 
 560
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 561. 
 
 to production must be not only maintained but increased. It would 
 be possible to enlarge the output by the existing supply of workers 
 toiling harder and for longer hours, or by the dilution of labor through 
 the employment of semiskilled workers for certain kinds of skilled 
 work and of people who had not been employed or had already left 
 industrial life. 
 
 But such changes could not be made without the co-operation of 
 labor, and appeal was made to the trade-unions to give up their most 
 cherished achievements. Accordingly, trade-union regulations were 
 set aside, the right to strike was sacrificed over a large part of industry, 
 compulsory arbitration was accepted, and industry came to be 
 conducted on the basis of the agreement between the trade-unions 
 and the government, together with the legislation dealing with the 
 munition industries. 
 
 On their part, the trade-unions desired certain safeguards. It was 
 agreed, therefore, that the changes made should not prejudice wage 
 rates; that due notice should be given of further alterations in working 
 conditions; that priority of employment after the war should be 
 given to the workmen affected by the change; and, most important of 
 all, that after the war there should be in every case the restoration of 
 previous conditions. 
 
 With regard to the last provision the author points out that the 
 economic system, under the pressure of war, has increased its efficiency 
 of production over a fairly large range of industries and an enormous 
 number of people have increased their industrial experience and 
 efficiency. 
 
 "Women transport workers, clerks, and shop assistants, and 
 semiskilled men and women have widened their experience during 
 the war, and a large number have gained facility in the handling of 
 machines. All these people will remain as a body of workers more 
 efficient and more experienced than they were before the war. Knowl- 
 edge of up-to-date and more efficient methods will be more widely 
 spread. The experience which employers have gained during the war 
 regarding the possible productivity of labor, the value of further 
 specialization of labor, and the economy of machinery will not be 
 blotted from their memories when the war comes to an end. Rather 
 will there be a strong desire to make the industrial system a more 
 efficient instrument of production than it has been in the past a 
 desire which will be strongly re-enforced by the cry of foreign com- 
 petition and by the fight for world trade. But even if the pressure
 
 562 ECONOMICS OF WAR 
 
 of circumstances were not immediately overwhelming, war-time 
 developments will sooner or later become a guide to industrial organi- 
 zation." Only by act of Parliament, rendering illegal for a term of 
 years the practices which have come into operation during the war 
 could the changes which have been made be rendered null, and such a 
 law would not be practicable. 
 
 LXIV. Some Economic Gains from the War 1 
 
 One of the most remarkable economic lessons of the war has been 
 its revelation of the reserve forces of national credit. Is it not 
 reasonable to suppose that the financial powers of the state, so success- 
 fully mobilized in the autumn of 1914 for the support of the shattered 
 fabric of private finance, can be made available for the purposes of 
 assisting industrial and commercial recovery after the war ? Already 
 the proposal of a state-assisted financial corporation for the acquisition 
 of new foreign markets has received much support in influential 
 quarters. Assuming that the war is brought to a successful end at 
 no distant date, our national credit will emerge not seriously impaired, 
 and though there may be heavy demands upon it during the period of 
 reconstruction, any failure of our private banking system to respond 
 adequately to the needs of the economic situation will certainly evoke 
 an imperative demand that state credit shall be utilized again to meet 
 the grave emergency that would arise if capital and labor should be 
 prevented from producing wealth through deficiency in the monetary 
 apparatus of the country. 
 
 But though all the separate factors of production may suffice 
 plant, labor, directing energy, and credit there remains the grave 
 question: Can they be kept in effective co-operation? For several 
 years before the war industry was in a state of unprecedented dis- 
 turbance by reason of the conflicts between employers and workers 
 in the fundamental trades. The root of the trouble was the recent 
 stoppage of that general improvement in wages and working-class 
 standards of comfort which had been going on for several decades, 
 and the actual fall of real wages which had taken place in many staple 
 trades by failure of wage-rates to keep pace with the continuous rise 
 of prices. Now, shall we be able to look forward to such peaceful 
 relations between capital and labor after the war as will stimulate 
 
 1 By J. A. Hobson (see p. 552). Adapted from "Shall We Be Poorer after 
 the War ? " The Contemporary Review, CXI, 552, 47-53. Copyright, 1917, by the 
 Contemporary Review Co., Ltd.
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 563 
 
 both employers and workers to co-operate energetically in adopting 
 the improvements of scientific, mechanical, and business organization 
 needed for effective production ? No simple, confident reply can be 
 given to this question. The affirmative answer seems to me to depend 
 upon the successful solution of two problems, at first sight separate, 
 but afterwards seen to be closely related. A prime need of the eco- 
 nomic situation for the industrial world as a whole, and for this country, 
 will be the need of more saving i.e., the application of a larger amount 
 of productive energy to the making of roads, railways, ships, machin- 
 ery, buildings, and the replacement everywhere of depleted stocks of 
 materials. For though the material equipment of this country may 
 not have suffered heavy damage as a whole, there will be a great deal 
 of new capital expenditure involved in restoration and adaptation to 
 the new conditions, and our nation will have to play a considerable 
 part in the larger task of restoration in Belgium, France, Poland, 
 Serbia, and other war-broken lands. Moreover, it will be difficult 
 and unwise to ignore the calls of South America and other distant 
 lands, dependent on the stream of capital from us for the development 
 of world resources upon which we shall need to draw ever more abun- 
 dantly, lands which have been starved of this fertilising stream during 
 the years of war. We must, therefore, considerably increase the 
 total volume of our annual savings. If we saved 400 millions before 
 the war, we must save at least 500 or even 600 millions afterwards. 
 On the face of things this does not seem impracticable, or particularly 
 difficult, on the assumption that production goes on fully and 
 smoothly. For a strong stimulus to saving will be present in the shape 
 of a high rate of interest, and the distribution of wealth will apparently 
 be favorable to the process. High taxation will no doubt appreciably 
 reduce the amount thus available for private saving. But that 
 portion of public revenue expended upon housing, education, and 
 other productive services may reasonably be reckoned as economic 
 savings. If, as is likely, the state goes into business upon a far larger 
 scale than hitherto, nationalising the railroads, and perhaps the mines 
 and the liquor trade, enlarging the functions of the post office, and 
 taking on large departments of insurance and finance, the increased 
 capital needed for such expansions will be a compulsory saving exacted 
 by taxation. But however the task may be accomplished, the essential 
 point is that more saving will have to take place than before the war. 
 
 Does that mean that a larger proportion of the general income 
 must be saved i.e., that a larger proportion of the annual product
 
 564 ECONOMICS OF WAR 
 
 must be in the shape of capital goods, a smaller in the shape of con- 
 sumable goods? Must we reduce consumption in order to get the 
 larger saving we require ? Let me put the issue even more sharply. 
 In order that interest may be high, must wages be low ? For if out 
 of a given annual product more must be saved, then less must be 
 spent; if interest and profits are raised, wages must be lowered. This 
 is what many people think must, and will, happen. During the war 
 labor has been made artificially scarce by enlistment and enormous 
 government contracts. So employment has been full and wages high. 
 After the war labor will be abundant and government contracts will 
 stop. So employment will be slack and. wages low. Some will add 
 that, even if this slackness of employment can be avoided and industry 
 can be actively resumed, high interest and high taxation must take so 
 large a share of the product that real wages must be low. Now either 
 form of this argument brings us to an impasse. For rnuch as the 
 economic necessities of the situation are seen to demand a higher rate 
 of saving than before the war, they can also be seen to demand a 
 higher rate of real wages, a higher standard of working-class con- 
 sumption. This may not be taken to be an economic necessity. It 
 may be said that the rate of real wages before the war, or even a lower 
 rate, can be adequate to support the workers in reasonable efficiency 
 until a period of reconstruction has passed and times warrant a return 
 to the tradition of working-class progress. 
 
 But this evades the real issue, which is one not primarily of eco- 
 nomic but of psychological necessity. The workers will not consent 
 to return after the war to steady and pacific co-operation with capital 
 in a new era of progressive industry, unless they are assured wages and 
 other conditions of employment more favorable than prevailed before 
 the war. The experiences of war time will have convinced both the 
 workmen who have fought and those who have stayed at home that 
 industry can afford a higher standard of wages. If the nation has 
 been able to afford the gigantic extravagances of this war, and, at the 
 same time, to maintain the working classes at a higher level of con- 
 sumption than before out of the current output of wealth (with six 
 million men withdrawn from production), it will be idle to attempt to 
 persuade them afterwards to submit to a cutting down of standards 
 on the plea that industry cannot support the higher rates. Any doubt 
 that may exist upon this matter will be quickly resolved by the first 
 attempt to impose upon any great organised trade a reduction of 
 wage-rates. The tone of the working classes after the war is not
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 565 
 
 likely to be one of submissive apathy. It is likely to be one of irri- 
 tability and suspicion. The projects which employers and officials 
 are canvassing so busily for introducing scientific management, 
 business syndication, compulsory arbitration, profit sharing and 
 bureaucratic socialism, with the laudable object of enhancing pro- 
 ductivity and reducing friction, are already beginning to stir uneasi- 
 ness among the more forward-looking labour leaders. They seem to 
 see an attempt to impose upon the workers from above an organization 
 of industry in which the will and interests of the employers will 
 operate through the machinery of government with the new militarism 
 in reserve for a final guarantee of industrial peace. These suspicions 
 are likely to spread rapidly during the preliminary period of resettle T 
 ment, unless employers and the government make some genuine 
 effort to enlist the active co-operation of trade unions and other 
 working-class bodies, accompanied by explicit guarantees for wages 
 and employment, and a substantial share in the government of indus- 
 try, so far as it affects the interests of labour. In order to raise the 
 technique and organisation of our industry to a higher level, the work- 
 ers must be got to see their own substantial gain from the enhanced 
 productivity to which their labour is required to contribute. 
 
 The net result of this general analysis is that, if we are to escape 
 becoming poorer after the war, we must become richer. This is not 
 the empty truism it may at first appear. It signifies in the first place 
 that a mere return to the standard and volume of production of wealth 
 before the war is impossible. For out of the after-war production a 
 far larger amount will have to be taken for interest and dividends. 
 Moreover, apart from the payment of war expenses in the shape of 
 interest on loans and sinking fund, the needs of public revenue for 
 social services, and probably for the maintenance of an expensive 
 army, will involve a larger total burden of taxation than before the 
 war. These enhanced payments to capital, fund-holders, and the 
 state would involve a heavy reduction of real wages, if the total 
 production were no greater than before the war. But labour, as we 
 diagnose the case, would not consent to such reduction. If it be said 
 that the operation of economic principles would compel labour to sub- 
 mit to the inevitable, I would reply that the evidence does not show 
 this course to be inevitable. There is an alternative course, viz., so to 
 raise the total productivity of industry as simultaneously to provide 
 out of the enlarged output of annual wealth the increased aggregate 
 of interest and public revenue, together with a higher standard of
 
 566 ECONOMICS OF WAR 
 
 wages and consumption for the working classes. The economic 
 stimuli of production brought into operation during war time show the 
 possibility of increased production even under an improvised organi- 
 sation. Our supreme task must be to devise stimuli which, though 
 less acute in their appeal than those supplied by the emergency of 
 war, shall yet in peace be adequate to operate successfully in a care- 
 fully reformed organisation of industry, in which the interests of all 
 participants capital, labor, ability, and the consumer shall be duly 
 represented. If these changes in our industrial arrangements for 
 producing and distributing wealth amount to a revolution, better this 
 sort of revolution than the other sort, which history teaches us may 
 follow war. 
 
 LXV. The Theory of National Efficiency in War and Peace 1 
 
 I. WAR AND SOCIAL READJUSTMENT 
 
 The idea that war sidetracks social reform bids fair to become one 
 of the world's exploded fallacies. It is true that social reform demands 
 attention and war diverts attention elsewhere social reform is 
 expensive and war leaves us with no resources to spare. The impli- 
 cation is either, (i) that social reform is an unproductive luxury, or 
 (2) that it is productive only of long-run results too distant to play 
 any part in winning the war, or (3) that it is regarded in one or the 
 other of these lights by those who will have the say in deciding what 
 is to be done. 
 
 If social reform aims to free men from the need of hard and 
 conscientious work it is an expensive luxury, and we cannot afford it 
 in time of war. But if social reform means increasing control by 
 society over industry and other private activities, for the furthering 
 of society's ends; if it means an attack on undue inequalities of wealth, 
 active supervision of profits, wages, and consumption, and active 
 endeavor by society as a whole to increase industrial efficiency, this 
 kind of "social reform" is the sort it is a luxury to do without. And 
 when the pinch of a national emergency becomes very severe, and we 
 must become an efficient nation whether we want to or not, we cannot 
 afford to do without those kinds of social reform that stand for col- 
 lective efficiency. Germany has taken the lead in social insurance 
 and prevention of unemployment, not because Germany is more 
 
 1 By J. Maurice Clark. Adapted from "The Basis of War-time Collectivism," 
 American Economic Review (December, 1917), pp. 772-90.
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 567 
 
 humanitarian than other countries, but because she cares for economic 
 efficiency on a national scale. 
 
 Now war has forced the democratic countries to an accounting 
 of human life and welfare on the same basis which Germany seems to 
 have followed as a matter of nationalistic policy. 
 
 The nation that contemplates war cannot afford to see the health 
 of its citizens wasted by the accidents, diseases, and other unpaid 
 damages of industry, or, in fact, in any other way. And it cannot 
 afford to see their moral unity shaken by the bitterness which those 
 who have suffered crippling loss and misfortune feel toward the classes 
 who have been more fortunate or toward the state which has shown 
 no adequate sense of responsibility for such regular and inevitable 
 wreckage of human life. It might almost seem that militarism has 
 set a higher value on human health and welfare than industrialism, 
 and if that be true, so much the better for militarism. But we are 
 rapidly coming to the conclusion that industrialism can no more afford 
 these wastes than militarism can. What the war has done is to force 
 upon us in unmistakable form the need of expanding our thinking to a 
 scale as wide as the nation's whole needs, its whole resources, and 
 everything that affects them for good or for ill. 
 
 II. COMPETITIVE EFFICIENCY VERSUS NATIONAL EFFICIENCY 
 
 A. What does society want? When war demands that all the 
 productive force we can spare be put into its workshops, these forces 
 must be diverted from the pursuits of peace. Where we follow the 
 method of private enterprise in making the transfer, the government 
 finds itself not merely paying men to make munitions and so turning 
 productive forces in 'that direction, but, to just the extent that it 
 pays extra high wages to munition makers, it places them in a position 
 (of which they do not neglect to take advantage) to bid with their own 
 pocketbooks against the government by hiring as much labor as they can 
 command to make for them the cigars, mctrolas, pianos, and other unac- 
 customed luxuries which their high wages enable them to afford. And 
 this paradox is quite characteristic of the methods of unco-ordinated 
 individualism when used to mobilize a nation's resources to meet a 
 supreme and all-absorbing national need. 
 
 If the free-exchange way of doing things is so absurdly organized 
 that it tends partly to defeat its own ends in the fashion just indicated, 
 why is not this just as true in peace time as in war ? One reason why 
 high wages do not defeat the national purpose in time of peace is,
 
 568 ECONOMICS OF WAR 
 
 (i) that luxuries for wage earners are in themselves a large part of the 
 national economic purpose and, (2) that the nation is as ready to 
 produce them for one group as for another, and those who command 
 high wages are ipso facto the elect. In time of peace the nation wants 
 few things as a nation. The public defense is cared for with a rela- 
 tively small expense, and all the needs that are general enough to be 
 met by government agencies federal, state, or local absorbed less 
 than one-tenth of our people's expenditure before the present war. 
 The rest goes for things that individuals want and purchase, as 
 individuals, and if the community has any community interest that is 
 served by the goods its members buy, it leaves that interest in the 
 care of the members, each of whom seeks his own interests and appro- 
 priates to the furthering of each of these interests as much of the 
 nation's productive power as the force of his wants dictates and the 
 length of his pocketbook permits. As between satisfying the wants 
 of different individuals, society apportions its energies according to 
 their purchasing power, which they may have acquired through 
 efficiency in the service of other people's wants, through hard work or 
 talent exercised in ways that do not contribute a corresponding net 
 addition to other people's gratifications, through good fortune, or 
 through a prudent choice of parents. 
 
 If Smith can persuade people that they want just the particular 
 kind of hat he knows how to make, he appears at the same time to be 
 persuading society that it wants Smith, who is well nourished and well 
 clothed, to have a victrola, in preference to giving the Jones family, 
 who are undernourished, a little more substantial food. Say that 
 he is able to buy four times as much as Jones, or virtually, to have 
 four men like- Jones working for him all the while. Are the four men 
 that work for him less efficient for that reason than other men who 
 are producing more necessary things for people no richer than them- 
 selves ? On the basis of the happiness of the greatest number, where 
 "every man counts as one," the men serving Smith are inefficiently 
 employed, unless the ultimate result of their serving Smith is to get 
 people like Jones more goods than they could have if Smith did not 
 get his extra share. Smith's extra share is his incentive to make hats 
 that people will buy, and without some such incentive he might not 
 take the trouble to make such good hats or to bring them to people's 
 attention. We take for granted that his reward should consist in 
 having more money than other people to invest or to spend for 
 necessities, comforts, luxuries, or vices, as he chooses. But should it ?
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 569 
 
 Or should the absolute necessities be distributed equally to all, and 
 the rich man get his reward only in such things as are not pre-empted 
 for this necessity budget ? Society has never voted on this question; 
 it has merely allowed the present system to grow up of itself. 
 
 The nearest thing to a judgment we have is the commonly accepted 
 principle of equality of opportunity and inequality of reward, accord- 
 ing to the unequal use made of the opportunities in serviceable work. 
 Strictly speaking, this is an impossible ideal, since spending is itself 
 an opportunity to give oneself better training, better food, more 
 safety from infection, a broader outlook, paid assistants to relieve 
 him of detail work, and all the thousand and one things that can make 
 a man more effective as a producer. What is really meant is, in 
 substance, that there shall be enough equality of opportunity so that 
 some poor men as well as rich men can rise, and that poor and rich 
 shall have an equal chance except so far as poverty is in and of itself 
 a handicap and riches in most cases in and of themselves an advantage. 
 But this exception is a big one and is growing bigger all the time, as 
 industrial success comes to demand more training and connections 
 and access to the more expensive parts of society's accumulations of 
 technical knowledge. Left to itself, inequality of reward destroys 
 equality of opportunity. 
 
 So much for the division of goods between different persons. In 
 the choice between different goods for each person, the persons choose 
 for themselves, first, because they are supposed to do it on the whole 
 better than others could do it for them and, second, because anything 
 else would mean paternalism or slavery, not freedom, and because it 
 is better to learn by one's mistakes than to be forbidden to make any. 
 This position is a dangerous half-truth. It neglects the fact that 
 there are really two divisions of consumption the basic necessities 
 and the surplus and that it is only for the surplus that these argu- 
 ments for free choice have full force. It also ignores the fact that the 
 individual does not ever choose independently. He may not be 
 coerced but he is always guided he is always waiting and wanting 
 to be told or persuaded what to want, or guided by custom or example. 
 Hence the only question is, What sort of guidance shall dominate 
 custom, or disinterested instruction, or persuasion from those who 
 have an interest in selling him things ? 
 
 Guidance of consumers is carried on as a matter of private business 
 by thousands of agencies, each working against the others, and 
 producing a net result far less valuable than the sum total of their
 
 570 ECONOMICS OF- WAR 
 
 individual efforts would lead one to expect. The consumer is exposed 
 to much repetition of mutually inhibitory stimuli, and in place of 
 information he can trust, he must do the best he can with the light 
 he can get from salesmen and advertizers, whose statements he is 
 generally too canny to believe fully, even though they may in some 
 cases be true. Thus the consumer, ostensibly the ultimate directing 
 force in our economy, being himself somewhat imperfectly directed 
 at the expense of a surprisingly large percentage of our total working 
 energy, exercises his guiding influence on production through his 
 spending power. 
 
 This is probably the best way of handling the surplus, barring 
 avoidable wastes in salesmanship, because the surplus is a matter of 
 taste or of having a good time, and these are, fortunately, not stand- 
 ardized commodities. No public bureau can lay down the canons 
 for all. Moreover, the surplus is always expanding, so that we are 
 constantly devising new enjoyments, wrestling with the incidental 
 misfits and unforeseen drawbacks and damages that go along with 
 these untried enjoyments; it makes the whole process of assimi- 
 lating them a groping, unstandardized welter of conflicting tastes, 
 uninformed experiments, and all are stages of the social process of 
 trial and error. 
 
 The necessities are a different story. Here we are dealing with 
 elemental needs which all share in common and of which science can 
 speak objectively. "Necessities" are, first of all, those things that 
 are necessary to physical health, which is a perfectly definite thing, 
 definable by the doctor in terms of the absence of any "abnormal" or 
 "pathological" condition. Psychological well-being and willingness 
 to serve also come into the calculation, and a certain amount of 
 "good time" may be necessary on that score; but the individual is no 
 longer, as before he seems to have been, the final judge of how much 
 of other values he shall sacrifice to the good time he wants to have on 
 any particular Saturday afternoon. Thus in any sudden need for 
 retrenchment, in war or peace, our attention is necessarily focused on 
 things which are matters of objective standards rather than subjective 
 preferences. Calories and protein units are objective tests of food, 
 and its suitability to the diet of various kinds of invalids and semi- 
 invalids is a matter of objective tests. But taste is not, and price is 
 not so far as price reflects taste. The necessity-economy is stand- 
 ardizable while the surplus-economy is unstandardizable the one is 
 an economy of objective tests, the other an economy of subjective
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 571 
 
 S. 
 
 preferences. And wherever there is an objective standard which the 
 trained scientist can apply, the scientist can prescribe for the man in 
 the street better than the man in the street can prescribe for himself. 
 But does this justify enslaving the individual to the dictates of 
 the scientist ? In most cases it need not go so far as that, for no sane 
 person wants to be unhealthy, he merely needs to be educated. If 
 the funds devoted to display advertising were devoted to a dis- 
 interested campaign of information and education it might well 
 produce a revolution in standards of consumption. Some control can 
 be exercised without the victim's knowledge; for example, how many 
 Americans know that they are being compelled to buy day-old bread 
 by order of government? Absolute prohibition need never be 
 employed in enough cases to make an appreciable percentage reduction 
 in the number of choices the individual is free to make for himself. 
 
 B. The theory of competitive production. So much for society's 
 wants; how about the process of getting them satisfied? This is 
 done chiefly by means of private business enterprise, in which every 
 man works for his own interest as hard as he can, lawfully and honor- 
 ably. The general idea of our law is to prevent anyone from injuring 
 anyone else (so far as this can be prevented by law), and to leave him 
 free to further his own interest in any other way he chooses. Honor 
 and morality enforce this same obligation in many delicate relation- 
 ships which law is too clumsy to reach, and are a vitally necessary 
 part of our system of social control. I cannot enslave my fellow-men 
 and make them work for me, nor take their goods without their 
 consent. The only way I can get them to work for me is to work for 
 them in return, and I can get their goods by giving them my own in 
 free exchange. If others are free to do the same they will compete 
 with me, and I cannot get people to take my work or my goods unless 
 I give them what they want more effectually than my competitors. 
 If I have no competitors I must be made to deal on as nearly as 
 possible the same terms I would have to make if I had competition 
 to meet. This, in broad outline, is the theory of private enterprise, 
 and the structure that is built on it is, on the whole, very efficient and 
 serviceable. 
 
 C. How it works out. There are, however, many weak spots. The 
 theory assumes that every transaction stands by itself. If any of 
 them have an effect on third parties outside the bargain, that is some- 
 thing the theory does not allow for. And, in fact, all transactions 
 have such effects, either good, or bad, or mixed. If they are good, we
 
 572 ECONOMICS OF WAR 
 
 have unpaid services, and if they are bad, we have unpaid damages. 
 These latter, of course, are just the sort of thing the law tries to prevent 
 or to reduce to a minimum. Most of the failings of individualism 
 may be classed under one or the other of these two heads. 
 
 It is easy to see how unpaid damages reduce the efficiency of 
 production, but unpaid services are also a weakness, though in a 
 different way. If the services get performed, that is so much clear 
 gain, but since they are unpaid, there is no assurance that they will 
 be performed on the scale that would pay for the community as a 
 whole, unless the community as a whole takes charge and pays for 
 them as a community. Where things have to be done for the benefit 
 of the whole community if they are done at all, anyone who volun- 
 tarily pays to get them done must be extremely public-spirited, for he 
 knows that he will do all the paying and everyone else will benefit, and 
 he is not likely to do it at all except unselfishly and temporarily, as 
 a way of convincing the public that here is a service well worth what 
 it costs which should be publicly rendered and publicly paid for. 
 This is why we need a public-health service to stamp out contagion. 
 
 Again, much of the benefit of increased knowledge can never be 
 made a source of profit by the person who made the discovery. If 
 knowledge cannot be surrounded by a private-property fence of some 
 sort, such as the patent system, the private inducement to produce 
 it is weak; and if it is so fenced in, we are prevented from utilizing 
 it to anything like its full capacity after it has been produced. Under 
 the guidance of price, then, with its blind spots where services remain 
 uncompensated, and its somewhat fickle way of rating human beings, 
 the productive process goes on and productive sacrifices are incurred. 
 
 Is the process of production always worth what it costs to the 
 community or to those who engage in it? What of the case of a 
 family which is going to pieces because the father is disabled for work 
 and the mother is undermining her health and neglecting the upbring- 
 ing of her children, working in a vain effort to make both ends meet ? 
 The cost of her work is disastrously great. If she did not work, 
 perhaps the disaster would be even greater, but what kind of surplus 
 can be made out of this bookkeeping? The family has to choose 
 between two alternatives, either one disastrous. Is society limited 
 to these two alternatives in its dealing with the problem ? Not at all. 
 Its cost accounting has a different base line from that of the individual, 
 for it can, if it chooses, save the family without forcing the mother 
 out of the home and ruining her health. Here individual profit would 
 permit a social loss.
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 573 
 
 Some costs are more obviously unpaid. In the last few decades 
 especially we have been forced to a realizing sense that business 
 safety depends not merely on one's own prudence and the soundness 
 of his policy but on that of his neighbor as well. A collapse of business 
 confidence affects all alike, regardless of who is responsible. A spirit 
 of revolt among workmen starts disturbances which reach out and 
 involve the most well-meaning and conciliatory of employers. If my 
 customers are taken away from me by a catchy advertising trick, I 
 have no legal grievance, but I have incurred a cost without my own 
 consent and the gain has all gone to others. As a result of these and 
 other more tangible forms of unpaid damages, many businesses are 
 profitable which would not be profitable if they paid all their costs, 
 and the process of competitive selection stamps as ''efficient" in 
 the business sense many forms of parasitism which mean national 
 inefficiency. 
 
 Why do we tolerate the system which this impressionistic and one- 
 sided sketch characterizes ? Is it merely through inertia ? If so, we 
 are at present going through the greatest inertia-overcoming experi- 
 ence of modern times. Inertia is not by any means the only reason. 
 The measure of the market has prevailed in spite of being an imperfect 
 standard of social value and social cost largely because, imperfect 
 as it is, we have had no definite substitute. Society has not known 
 what it wanted and so has taken the market's word as the measure of 
 J:he worth of different gratifications and of the efficiency of different 
 ways of producing them. Moreover, people are justly afraid that if 
 public control kills private enterprise the result will be stagnation; 
 and it has not wanted a stereotyped economy, but rather one moving 
 on to things whose nature no one could predict. Hence changes move 
 slowly, until a crisis comes which compels us to throw caution to the 
 winds under pressure of sheer necessity, and seek whatever immediate 
 gains in national efficiency are within our reach, regardless of the 
 ultimate consequences to our individualistic habits and institutions. 
 
 III. THE NATIONAL ECONOMY OF WAR 
 
 A. The new national objective. The economy of modern war is 
 radically different from the previous economy of peaceful individual- 
 ism. Its whole objective is shifted; the nation has a dominant national 
 purpose and knows what that purpose is. It is a necessity-economy, 
 setting no national worth on mere personal enjoyment for enjoy- 
 ment's sake. In time of peace things are worth what they are worth 
 to individuals; in a state of war the individual himself is worth only
 
 574 ECONOMICS OF WAR 
 
 what he is worth to the state. In time of peace, enlarged con- 
 sumption, even for the rich, is a contribution to the end for which 
 society is working. It is a bit of social success. In time of war 
 private consumption is, for the state, a mere means to an end, a 
 necessary diversion of productive power from munition-making 
 incident to keeping the people efficient and loyal. Any extra con- 
 sumption is a subtraction from the end for which society is working 
 it is a bit of social failure. 
 
 The surplus economy characteristic of peace is one which must 
 necessarily be guided by individuals, since no one else can tell what 
 makes for the individual's subjective enjoyment. But the necessity- 
 economy of war can be better guided by some authority capable of 
 using the resources of science to determine needs objectively and 
 organize production and consumption accordingly. So Mr. Hoover 
 standardizes our diet, and others have made some slight beginnings at 
 standardizing our clothes and limiting production of many "non- 
 essentials." In Germany all foods are rationed out, only two suits of 
 clothes are allowed, and the government seems to care less than 
 nothing for the consumer's supposed bent toward organizing his 
 purchases on a basis of maximum psychic income. 
 
 B. The attainment of the objective. The efficiency that is sought is, 
 first, efficiency on a national scale, and hence calls for an attack on the 
 shortcomings of competition that have already been explained the 
 wastes, duplications, losses due to unpaid costs, and gaps where 
 services are not privately compensated. In the second place, the 
 critical need is maximum efficiency for a limited time the greatest 
 immediate gains. In the third place, what is needed is quick mobiliza- 
 tion, a task which includes all industries and demands central author- 
 ity. And in the fourth place the war itself furnishes an incentive to 
 efficiency which has such compelling power over the responsible 
 classes that, for the time being, we can afford to discount the fact that 
 ordinary incentives to effort are weaker under public administration 
 or control than under private enterprise. Let us see in more detail 
 what this particular type of efficiency calls for. 
 
 IV. THE SOCIALIZATION OF KNOWLEDGE 
 
 As the war rolls over us, and wakes us to the need of doing the 
 impossible, we suddenly become aware that "we have resources of 
 knowledge that are comparatively little utilized. The consumer 
 for the most part orders his diet in sublime ignorance of true food
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 575 
 
 values, and wages an unequal contest with the swiftly changing arts 
 of adulteration and imitation. Nowadays his guidance requires 
 mobilized knowledge rather than unmobilized habit, and knowledge 
 of a detailed scientific character about a multitude of things such as 
 only specialized researches can supply. The consumer has not hired 
 these things done for him, partly because he did not know how badly 
 he needed them, and partly for the reason that knowledge is not 
 appropriable like the ordinary commodity and its production is largely 
 an unpaid service. The present wave of public education into the 
 mysteries of proteins and calories, then, is but a phase of an inevitable 
 development, due to science and scientific methods of production. 
 
 Producers as well as consumers suffer from imperfect utilization 
 of the existing stock of knowledge of their trade. The "state of the 
 arts," apart from patents and secret processes, is properly a national 
 asset, but there is no comprehensive machinery for organizing it on a 
 national scale. The standardization of methods, combining the best 
 that is found anywhere, can not only raise the average efficiency of 
 industry; it can even show the most efficient how to improve still 
 farther by strengthening his weak points. The present channels for 
 interchange of knowledge are more efficient between producers than 
 between consumers, and complete pooling might injure the incentive 
 to private inventiveness in the future. One of the most promising 
 fields for standardization is that of labor policies, for here the rivalries 
 between employers do not come into the foreground as they do in the 
 case of mechanical devices or chemical formulae and they feel that 
 there is little to lose by the pooling of labor policies. Moreover, the 
 gain an employer can make from successful treatment of labor has not, 
 apparently, been an effective enough incentive to get the labor problem 
 solved for the nations. What is needed here is a discriminating 
 policy. For the immediate emergency any amount of pooling that 
 can be secured in any field will be clear gain, and will have no bad 
 effects on future progress. After the war, if the socializing of trade 
 knowledge is to be continued in any industries, there will be need of a 
 more formal system, fortified with more substantial inducements. 
 Meanwhile the experience of the war, if properly utilized, will be 
 furnishing valuable testimony as to where the greatest gains are to 
 be had. 
 
 As these words were being written the morning paper arrived, 
 with the announcement of a new American aeroplane engine, as good 
 as the best foreign engines, and combining many of their best features,
 
 576 ECONOMICS OF WAR 
 
 but capable of being turned out in large numbers by American 
 standardized machine-process methods, rather than with much hand 
 labor of many artisan-technicians, as abroad. This achievement 1 
 seems to have been made possible chiefly by the pooling of engineer- 
 ing talent and of different designs and trade secrets, under an incentive 
 strong enough to spur men to work twenty-four hours a day. There 
 is a prospect of continued progress, also, but chiefly under the spur 
 of the most active of all forms of competition; namely, the competition 
 at the fighting front. 
 
 Such things prove that there are unused possibilities for immediate 
 advancement in private industries where patents or secret processes 
 are held, or where local producers are out of touch with each other's 
 achievements. They give one a sense of the sudden liberation of 
 pent-up forces that reacts into sheer exasperation at the obstacles of 
 ignorance and inertia which hamper us, and the walls of secrecy and 
 proprietary prohibition which we erect at such pains and guard .so 
 sedulously. But they do not prove that all competitive incentives 
 can be discarded and all competitive barriers broken down if we wish 
 to keep on progressing. 
 
 There are certain fields where the progress that is due to the spur of 
 private incentive is hardly notable enough and rapid enough to be 
 worth keeping, if keeping it involves sacrificing any experiment 
 which has a prospect of showing really substantial results. These 
 backward fields are chiefly those in which business is in the hands of 
 many small producers, or carried on in small places with the aid of 
 more handicraft skill than of mechanical devices and engineering or 
 scientific methods. Very small producers cannot afford to experi- 
 ment extensively, nor to study the methods of other producers in the 
 attempt to standardize their own, and it would be a ruinously wasteful 
 duplication of work if they were to do so as individuals. Extremely 
 small producers cannot even be expected to be in a position to organize 
 themselves effectively into associations to do this sort of thing for 
 them, although that is one way in which the dilemma may in many 
 cases be solved. Another solution, far less desirable, is the extinction 
 of small producers by larger ones who can afford the study and 
 investigation required to standardize efficiency and attain it. 
 
 This would amount to sacrificing the small producers, not because 
 they cannot be as useful, or perhaps more useful, than large ones in 
 
 1 Later developments, however, show the "achievement" not yet accom- 
 plished.
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 577 
 
 the actual work of production, but because they cannot organize and 
 standardize their work as well as carry it on. But if the standardizing 
 can be done for them by some large agency, they may prove, on 
 account of their more direct contact with the details of the business 
 and on account of the more intimate relation between owner, work- 
 man, and consumer, to be better adapted to handling the industrial 
 problems which hinge on these unstandardized and very human 
 relations. For example, if systems of accounting, stock keeping, 
 organization of space, and delivery can be standardized for the various 
 kinds of retailers by studies made on a large scale, and market informa- 
 tion secured by some large-scale agency, the small retailer will have 
 presented to him the means of equaling the advantages which the 
 chain store now has over him in these matters, and he need not spend 
 his time and energy on the kind of problem at which he is necessarily 
 working at a very heavy disadvantage, but can spend it all on the 
 sort of problem which no standardized system can solve for him, 
 studying his customers' tastes, and adapting his policy to the pecu- 
 liarities of his local market. 
 
 If local producers are so far out of touch with each other that they 
 make no attempt to imitate each other's strong points, but each 
 continues in his own groove, satisfied with the methods he has devel- 
 oped himself and with his achievements in those parts of the process 
 in which he himself may be superior, this fact itself is evidence that 
 the competitive stimulus is not strong enough to do the work we rely 
 on it to do. Producers who are in no sharper competition than this 
 are not receiving the kind of competitive stimulus that is likely to 
 lead to rapid industrial progress. In such a case one need not be 
 afraid of the weakening of competitive stimulus which would come 
 from pooling the knowledge of the trade, for there is so little stimulus 
 to lose. There would be no grave danger even in going to the length 
 of standardizing the process and trusting to co-operative enterprise, 
 or the "instinct of workmanship," or even to governmental experi- 
 mentation, for the means of future progress. 
 
 Beside those cases in which the private incentive system is notably 
 weak, there are cases in which a co-operative or public agency is 
 equipped to do the work notably well. Where the chief thing needed 
 is accuracy, and the most important industrial quality is disinterested- 
 ness, there is little need of the stimuli of ordinary industrial competi- 
 tion, and they may, indeed, be fatal to the peculiar reliability of result 
 that is wanted. In the case of employment agencies, for example, we
 
 578 ECONOMICS OF WAR 
 
 are rapidly finding out that the disinterestedness of a public agency 
 is a far more essential quality than any of the good points which 
 private enterprise may have in this field. This is in essence simply 
 another form of the socialization of economic knowledge. The 
 diffusing of information about prices is an important service which 
 may in some cases be well rendered by private enterprises, but is by 
 no means certain to be rendered at all unless some public agency takes 
 the responsibility. 
 
 One clear case of this is the work of testing whether things con- 
 form to standards where standards have already been established. 
 In other words, it is the sort of work which the present Federal Bureau 
 of Standards is doing, with an ever-widening scope. The work of 
 establishing standards themselves, based on the best existing practice, 
 or on the combination of the best single elements to be found in exist- 
 ing practice, into a new standard better than anything actually found ; 
 such work as this, in well-selected fields, is clearly a proper function 
 of government in the present state of industrial and scientific develop- 
 ment. But how about the work of breaking new ground and making 
 new discoveries? Is not government proverbially cautious and 
 unenterprising in its conduct of productive enterprises ? 
 
 Yes, public enterprise is cautious, and has often proved unenter- 
 prising, but nevertheless the conclusion which seems so obvious does 
 not necessarily follow, namely, that it is useless to look to government 
 for any industrial innovation. When a government official is given 
 a task it is not the part of caution to do nothing at all. But it is the 
 part of caution to see to it that the task is accomplished with as few 
 risks as possible of doing anything which may prove to be an expensive 
 mistake. If the task is the running of an industry or the rendering 
 of a definite material service, the public manager will stick to estab- 
 lished methods if they work tolerably well, and what experiment- 
 ing he does will involve the risking of the tolerable result already 
 obtained, or at least will involve an expense which will be a burden 
 on his financial showing, and so to that extent a risking of his 
 present tolerable result. And experiments are extremely likely to go 
 wrong. 
 
 But suppose the business with which this public official is charged 
 is that solely of experimenting? He has no other service whose 
 results may be endangered by the failure of any given experiment to 
 materialize. What will he do ? He will do his job, and try to show 
 results a thing he can do only by continued achievement. If he is
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 579 
 
 working in competition with private laboratories, he is under the 
 genuine competitive stimulus, with all that this implies. 
 
 V. THE SOCIAL MINIMUM 
 
 In one way or another the principle by which purchasing power 
 carries with it power over all the earth's resources, even to the 
 shutting out of some from the material means of opportunities to 
 become efficient is limited or supplemented by another principle. 
 Some things are so important that society cannot afford to leave them 
 at the mercy of this rule of distribution, but must see to it that they 
 are distributed under a system in which every one counts as one. The 
 minimum that is thus furnished is, in its most important aspect, a 
 minimum of opportunity opportunity to maintain health, to acquire 
 knowledge, to know beauty, and to mobilize one's abilities to the best 
 advantage. 
 
 There are two ways in which the proportion of society's whole 
 resources that goes to the furnishing of this minimum, may become 
 greater, and the field of individualistic distribution be correspondingly 
 diminished. One is by some great disaster. It is only when things 
 go on in such a way that the unaided individual has at least a fair 
 chance to be able to take care of himself that the free-exchange system 
 can become dominant at all. A fire, an earthquake, or any such 
 catastrophe seems automatically to put the other rule in force, and 
 we fall without question into the system of distributing food and 
 blankets to rich and poor alike and making every refugee wait his or 
 her turn for railroad accommodation, regardless of what fabulous 
 prices some may be willing to offer for tickets. 
 
 But there is another way in which the scope of this principle is 
 enlarged by a force that operates more quietly, more constantly, and 
 ail-pervasively. In a word, the more we find out about life and how to 
 make things useful, the more things do we find to be necessary to really 
 efficient living and working. Material conditions which used to be 
 regarded as matters of taste are found to be possible sources of disease, 
 physical or mental. In a sense, since everything in the environment 
 has its effect on man's development, perfect equality of opportunity 
 can never be had short of absolute equality in all possessions and all 
 services received. But be that as it may, what we have at present 
 is a compromise system, so that the power of the rich to buy more 
 than others is by no means as great as if the whole of a man's gratifica- 
 tion were left for him to buy for himself in the market.
 
 580 ECONOMICS OF WAR 
 
 Economic inequality is being attacked in two ways, which we may 
 call extensive and intensive. Its extent is attacked by progressive 
 taxation, while the range within which superior purchasing power 
 gives superior power to satisfy wants is limited by the policy of the 
 social minimum. From what has been said it may be inferred that 
 the principle underlying the rationing of a population through bread 
 tickets or similar devices is no new thing, and that as long as the world 
 feels the pinch of shortage in foodstuffs it will continue some form of 
 public control so that waste may be prevented and no class consume so 
 much as to involve the serious undernourishment of others. The 
 methods of securing the social minimum are various. Those who 
 cannot afford it may have it supplied to them direct by some public 
 agency, and the rich may be left free to spend their incomes as they 
 will, subject only to the competition of the government itself in buying 
 the things which it distributes. Or, without going as far as this, the 
 price may be put artificially low and the inevitable excess-demand be 
 kept within bounds by limiting the amount which any one person is 
 allowed to buy. This is the familiar "bread-ticket" policy, and it 
 involves an amount of supervision which has not hitherto been found 
 possible in ordinary times, while even in time of war the growers of 
 foodstuffs themselves are to a considerable extent immune. Another 
 method which has the effect of limiting the power of money in private 
 hands to turn the productive resources of the nation away from the 
 production of necessities into the making of luxuries is the method 
 of controlling production directly and of giving priority to those 
 demands which represent the most urgent social necessities. 
 
 It is impossible now to predict how much will survive of the war 
 policy directed to this end. The more extreme forms of interference 
 with personal liberty certainly will not at once become permanent 
 parts of our life. On the other hand, those forms of direct public 
 service which help to secure the social minimum without obvious 
 interference with personal liberty will, beyond a doubt, be much 
 stimulated. Of control through the producers themselves, there 
 may well remain some system by which trade associations are recog- 
 nized as performing a number of quasi-public functions in voluntary 
 co-operation with government bureaus in policies looking not merely 
 to the elimination of waste in production itself but toward the check- 
 ing of trade practices which make for waste on the part of the con- 
 sumer, and the stimulating of trade practices which tend to urge the 
 consumer in the direction of economy.
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 581 
 
 VI. PRIVATE SALESMANSHIP VERSUS SOCIAL GUIDANCE 
 
 The consumer certainly needs the service which at present he gets 
 through the channels of advertising, namely, the guidance of purchase 
 under a system in which purchase is the guide of all economic effort. 
 He needs to have goods and services brought to his attention in an 
 enlightening way and to be informed of their good and bad points so 
 that he may spend his money wisely. But when one stops to think 
 of the various things the government is now doing, one cannot fail 
 to realize that it is rapidly furnishing a set of agencies for economic 
 guidance that is, for doing just the thing that advertising does on 
 a wholly different basis and much more economically. Its campaign 
 for the enlistment of housewives in an intelligent use of food, its testing 
 bureaus, its systems of priority, of price fixing, and ultimately, 
 perhaps, of general control of consumption, are virtually paralleling 
 the social service of salesmanship in this field with a service which is 
 not exactly its equivalent, but is rather an improvement, better 
 adapted to war-time conditions. Thus the value of private salesman- 
 ship is narrowed. 
 
 Perhaps advertising will shrink automatically as businesses feel 
 the pinch of diminished demand and increased cost and find their 
 market, under the stress of war conditions, suddenly becoming 
 unresponsive to the ordinary tactics of salesmanship. Or perhaps 
 some less far-sighted producers may, for a time, spend more than usual 
 on advertising in order to strengthen the dwindling demand, utilize 
 the unused capacity of their plants, and come as near as possible to 
 preserving "business as usual." Ought we, in a society forced to 
 sharp economy, to maintain private advertising and salesmanship 
 on the ordinary peace-time scale to which America is accustomed, 
 while the government is itself guiding industry directly and at great 
 expense ? Such a duplication would seem to be little short of criminal 
 wastefulness. 
 
 This state of things will not be permanent, but it should have some 
 effects of permanent value. The government can exercise economic 
 guidance at present because it does not have to ask first "does the 
 consumer want this service rendered ? " but can confine itself chiefly to 
 the question " will this commodity render the required service better 
 than any other?" When more normal times return we can afford 
 again to pay more attention to the question what kind of services the 
 consumer wants, and unstandardized methods of advertising may 
 again become appropriate. But meanwhile, there will have been a
 
 582 ECONOMICS OF WAR 
 
 wholesome object-lesson in the value of disinterested information such 
 as comes through public or co-operative channels, and if it shall 
 happen that the work of advertising and salesmanship of the private 
 sort is cut down during the war to a fraction of its present amount, 
 we shall have had another wholesome object-lesson in the discovery 
 that nothing of any substantial value to consumers or to producers 
 in general has been lost. The result may well be a determination, 
 possibly exercised through the channels of trade associations in 
 co-operation with the government, or possibly in other ways, to 
 practice in the future a mutual limitation of armament in advertising 
 warfare which will lessen the waste without sacrificing any valuable 
 services that are now being rendered. 
 
 VII. CONTROL OF THE REWARDS OF INDUSTRY 
 
 Free contract as a method of mobilizing industry is best adapted 
 to certain conditions which are, for the most part, fairly well realized 
 in times of peace. To discover in what direction the social will is 
 going to move industrial effort we wait for the social will to express 
 itself through demand in the market. The changes that are con- 
 tinually going on are not so large as to be revolutionary, at least for 
 large industries. Under such conditions, the individual has, in the 
 first place, a fair chance to take care of himself in spite of the shifting 
 environment, so that those who come to grief are a minority, though 
 even so they are a serious and growing sickness in our industrial body. 
 In the second place, since the changes are comparatively gradual, they 
 do not revolutionize rates of wages or the rates of return to industrial 
 capital. Indeed, the traditional economic theory goes on the assump- 
 tion that an inducement, however small, will attract labor and capital 
 from any part of the market to any other part. 
 
 In time of war the movements called for are so huge in quantity 
 and the demand for speed so urgent that if it were left to the incen- 
 tives of increased prices and increased wages to bring about these 
 changes, it could only be done by a huge increase in the returns to 
 labor and capital, with the result that, as we have already seen, the 
 increased purchasing power in the hands of those who are in the 
 growing industries is used virtually to bid against society. 
 
 The bottom fact is that we are faced with the task of working out 
 a collective system of efficiency rewards instead of a competitive 
 system, and to make an intelligent beginning we must get rid of all 
 preconceptions as to whether the two do or do not necessarily corre-
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 583 
 
 spond. The competitive system has a strong tendency to make dif- 
 ferences in pay equal to differences in the exchange value of the 
 product. On the other hand, while the collective system requires 
 that superior work shall earn superior pay, there is no exact equality 
 needed between the differences in output and in pay, and the price 
 measure is not to be accepted as an adequate test of superiority in 
 output, for reasons some of which have already been dealt with. 
 
 The lowest wage paid is higher under the collective than under 
 the competitive principle, for the loss of efficiency due to low wages 
 does not fall in its full extent on the employer who is responsible; 
 it is largely diffused by the shifting movements of the laboring popu- 
 lation from employer to employer and from industry to industry. 
 
 The piece-wage of competitive efficiency is a progressive rate, 
 since the faster workman reduced the overhead cost per unit of 
 product. At flat piece rates, slow workers are relatively unprofitable. 
 The collective system, on the other hand, may call for a degressive 
 piece rate in order to prevent the laborer from overworking in the 
 effort to earn the exaggerated premium that is offered. The present 
 system is a combination of both principles, the pure competitive forces 
 being modified, partly by regulation and partly by the increasing 
 realization on the part of employers of the wastefulness of a large 
 "turnover" of labor, which results in their giving their employees 
 inducements to stay with them and to establish a relationship of 
 stable status with mutual responsibilities in place of the momentary 
 tie of an irresponsible contract under constant competitive pressure. 
 This shift from contract to status is hi the line of progress for the 
 future, as far ahead as the future is worth while trying to predict and 
 to plan. The war will thus stimulate a movement which is destined 
 to be a continuing feature of our economic life. 
 
 The difference between the collective and the competitive supply- 
 price of efficient labor is, however, only one phase of a broader one 
 involving all the factors of industry. Society is getting a chance to 
 test its power as a monopoly buyer of all these factors, for if it is 
 witting to exercise the necessary force it can free itself from the need of 
 paying capitalists and owners of natural resources the exchange value 
 which these factors would have in competitive industry. 
 
 The principle of priority for necessities, applied by boards who 
 have power enough to decide the destination of all the elementary raw 
 materials, will soon reduce our supply of luxuries, while at the same 
 time the control of prices may prevent the producers from absorbing
 
 584 ECONOMICS OF WAR 
 
 as much of their customers' income as before out of a lessened volume 
 of business. If pleasure automobiles and similar luxuries are not 
 to be had, more money will be saved at the same rate of reward. 
 Thus society might be able to get a given supply of capital cheaper 
 than the "normal" supply-price for that amount. In a word, 
 we have the opportunity of testing to what extent the powers 
 of society as a monopoly buyer exceed the powers of its mem- 
 bers as competitive buyers, and to what extent supplies may 
 be forthcoming on better terms to society than to its separate 
 members. 
 
 More fundamental still, we are getting used to the idea of two 
 social accountings, one of the service-value of commodities and 
 services, for the purpose of directing materials and labor to the most 
 important uses, and the other of the rewards necessary to go along 
 with this organization of industry and to stimulate efficient service. 
 Formerly there was but one accounting, for the selling price which 
 was the measure of productive worth also constituted the reward to 
 be divided among the factors of production. This is natural in a 
 state where the chief purpose of industry is one and the same thing as 
 the rewards ("real incomes") of individuals. And in order to estab- 
 lish the double system of social bookkeeping we had to be faced with 
 an emergency in which the dominant national need is something 
 altogether different from the enjoyments of individuals, and a great 
 part of our energy must go in ways that contribute nothing directly 
 to individuals' private supply of consumable goods. Priority orders, 
 the draft and exemptions, shipments of food abroad, all are valuations 
 in terms of the national need and independent of money. Ultimately 
 we hope to go back to the happy state in which consumable goods are 
 the chief thing industry is run for, and price is accepted (with fewer 
 qualifications than now) as the measure of their real worth; but in the 
 meantime we may have learned that the system of wages under which 
 the combined enabling and stimulating effect will yield the greatest 
 possible product is not the same as the system of wages that supply 
 and demand would give to different grades of workers, nor is it 
 necessarily a system of rewards in exact proportion to the product 
 currently turned out. But to organize industry efficiently, an 
 accounting based on actual contribution to the product is necessary, or 
 else we shall be putting things to inferior uses and wasting their best 
 possibilities.
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 585 
 
 Thus the war between socialism and the "productivity theory" 
 may take a new turn, for a socialistic state must use an accounting 
 system involving calculations of "marginal productivity" in order to 
 organize production efficiently; indeed any organization of production 
 has such judgments implicit in it, though they may be unconscious and 
 inconsistent with each other. But such a society need not make 
 "marginal productivity" also the rule for distribution of rewards. 
 
 VIII. CONCLUSION 
 
 How much of the near-socialism of this war is temporary and how 
 much, if any, will be permanent ? Some of the needs that have given 
 rise to collectivist policies have been created by the war, but others 
 have been merely revealed. Some features of our present policy are 
 due to the fact that the emergency is temporary, but others rest on 
 the permanent requirements of national efficiency. Far from sacri- 
 ficing future progress by our experiments in collectivism, we are 
 rapidly putting ourselves in the way of acquiring, from a few years of 
 war, more genuine experimental knowledge of the conditions of eco- 
 nomic efficiency in the large than we could probably have gained in as 
 many decades of individualism, business competition, and the ventures 
 in social-economic experimentation that can be argued through 
 legislative assemblies in time of peace. 
 
 Indeed, for many of these experiments the present war is merely 
 the occasion, and the true determining cause is nothing less than the 
 socializing effect of the growth of science and of scientific standards 
 of consumption and methods of production. The nation has decided 
 that there is an efficiency which, for the service of the nation, is greater 
 than the efficiency of unregulated competition, and it will not be 
 contented with the old standards. It has formed the habit of decid- 
 ing what it wants, as a nation, and demanding it, and the effect of this 
 will not quickly evaporate. The minimum of necessities will remain a 
 national need, no matter how great the surplus of the more prosperous 
 classes. 
 
 In agriculture alone it will take years of peaceful education and 
 demonstration by non-competitive organizations to give us half the 
 benefit of our unused resources of knowledge. Researches in the 
 long-run effects of hours of labor on output, and in stimulative systems 
 of apportioning rewards, should have a great range of usefulness. 
 The consumer can still benefit from disinterested scientific information
 
 586 ECONOMICS OF WAR 
 
 in place of advertising catchwords or the habits of his grandfathers. 
 The industrial mobilizations of peace will continue to produce, if 
 left to themselves, the same sort of wreckage (chiefly the degenerate 
 "casual laborer") which they have produced in the past, and which 
 the nation is taking measures to prevent in the case of army service 
 and war work. The status of labor in industry remains a problem 
 transcending the scope of any business unit, and failure to solve it may 
 yet shatter the industrial order. All in all, the need of a more coherent 
 social organization is probably not less great in times of nominal 
 peace; it is merely less obvious and less immediate, and it tends to be 
 met by methods which, because they are more leisurely, involve less 
 centralization and less compulsion. 
 
 As to the future form of industry, there is little one can predict 
 with certainty. The working connection between government and 
 business must come, not by handing over business to be run by the 
 old political form of government, and surely not by putting business 
 interests as now constituted in control over the government. The 
 most promising possibilities lie in taking business into government, 
 but in a far different way; and one that should make every business 
 man in his regular business in some degree a conscious agent of public 
 service, not merely in vague recognition of a vague obligation to the 
 public, but in definite and important duties, balanced by definite and 
 important benefits received. Perhaps it is not worth while at present 
 to speculate much upon the precise form of organization in which the 
 ideal may be embodied, and the election of a business entrepreneur 
 by those who deal with him may be recognized for what it is an 
 election to an important public office by a method which sifts out 
 inefficiency far more certainly than do the political primary and the 
 ballot. Surely no solution can be worthy of the name which is so 
 weak as to be afraid to render assistance to business where public or 
 collective action is needed to make business truly efficient. Never- 
 theless there is one thing that must be guarded against as one guards 
 against the plague. The alliance of business and government must 
 ot take such shape that it can continue to lead to wars, as it has in 
 the past. If efficiency in foreign trade demands governmental aid, 
 that aid should be internationalized, or we need expect and will 
 deserve no ending of international armed conflicts. 1 
 
 Or perhaps, since democracy means inefficiency as compared to 
 autocracy, inefficiency is what we are fighting to make the world safe 
 
 1 Cf . chapter xv.
 
 WAR'S LESSONS IN NATIONAL EFFICIENCY 587 
 
 for. There is much to be commended in the ideal of economic ineffi- 
 ciency, if by that is meant fewer commodities and a more leisurely and 
 normal life. That would be a higher grade of efficiency, in terms of 
 living. But it would be fatal to the nation's military strength, and 
 there is little chance that the outcome of the war will free us from 
 the cruder demands of technical efficiency. And in any case it is of 
 the utmost importance for us to hold fast all the lessons the war can 
 teach us as to the means of permanently increasing the success 
 of communities in getting what they, as communities, genuinely 
 desire.
 
 XV 
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 
 
 Introduction 
 
 With this chapter we return to a consideration of the perennial 
 problem of international economic friction. If at the end of this war 
 we are to lay the foundations for a new world-order, it is not enough 
 that we merely should convince Germany during the war that war 
 does not pay (cf. chap, ii) in a positive sense; it is not enough that we 
 establish international tribunals and an international police force, 
 important as these may be. Nor will it suffice to attempt an economic 
 boycott of the enemy. We must at least make an attempt to organize 
 the world at the end of the war in a way that will break the vicious 
 cycle of influences (see p. 3) that leads to economic rivalries and 
 international friction. 
 
 The readings in the present chapter contain no answer to this 
 greatest of world-conundrums. They are designed merely to raise 
 the problem in its more important aspects and to indicate that already 
 the interests and influences that have led to past wars are laying the 
 groundwork for future rivalries and antagonisms (Sections LXVT and 
 LXVII). The more immediate issue is that involved in the control of 
 raw materials during the period of reorganization at the end of the war. 
 There are at present diverse views as to the organization and disposi- 
 tion of the limited quantities of basic supplies that will exist at the 
 conclusion of peace. On the one hand, it is urged that the Allies 
 should cement their control of international trade and force Germany 
 into a position of secondary importance in the world of the future. 
 Now if the war ends in an inconclusive peace the sort of peace 
 which would be only an armistice this would undoubtedly be sound 
 inter-allied strategy. But if the war terminates in such a way as to 
 give hope for a world in which the nations shall live in amity, trust, 
 and understanding, all nations must join . in a common economic 
 alliance a co-operative alliance for purposes of mutual material and 
 cultural advancement. The situation calls for an entirely new type 
 of international statecraft one that will envisage the economic 
 interdependency of nations and peoples no less than the rights and 
 aspirations of a common humanity. 
 
 588
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 589 
 
 LXVI. The Raw-Materials Question 
 
 i. GERMANY'S NEED OF RAW MATERIALS 1 
 
 After the war is over the German Empire will resemble a great 
 store which has sold out its stocks. In the first three years of war, 
 goods, most of them raw material, to the value of $4,000,000,000 were 
 prevented from entering Germany. There is an absolute shortage 
 of everything "from cotton to sulphur, from seal bacon to platinum." 
 That shortage is a serious danger, for it stands to reason that just as a 
 man out of breath cannot run, a pumped-out state cannot engage in 
 a new war. She must first of all get her breath. 
 
 Does anyone imagine that the peace will bring with it sudden 
 quiet? Our statesmen cannot tell. Hitherto they have not- been 
 very reliable augurs. This war has surprised them, notwithstanding 
 a hundred warnings. Our statesmen had dreamed of work brother- 
 hoods, and then war came. One lesson we have to learn to be on 
 our guard. We must cast away our amazing sentimentality this 
 dangerous inheritance of the Teutonic race. We must see things as 
 they really are. 
 
 Peace will not bring us supplies. Even should peace open every 
 market in the world, it would not prevent the wildest competition 
 for raw material and food supplies. Every cotton spinner will struggle 
 to obtain a quick supply of cotton, every gardener will strive for seeds, 
 every farmer for oil cakes. English and German, French and Austrian, 
 all will madly struggle for supplies. And those who in war were allies 
 will be economic enemies on the markets. 
 
 The spinner must have cotton if the home-coming textile workers 
 are to have employment and if he is to pay his burden of taxation. 
 What will happen when these millions return from the front and 
 cannot be employed because of the lack of raw material ? We must 
 not rely on the possibility of obtaining supplies simply by paying for 
 them. Money will not bring in the goods, and will foreign countries 
 accept our paper ? Besides, tonnage will have sunk to the very lowest. 
 Against these inevitable economic catastrophes, which in certain 
 circumstances can be almost as' destructive as war itself, there is only 
 one possible course prevention. 
 
 The victors in the great war, that is to say the Central Powers, 
 must insert this condition in the peace instrument: "We demand a 
 
 1 By Prince du Loewenstein Wertheim Frenderburg. This article appeared in 
 Die Wirklichkeit and was reprinted in the American Metal Market and Daily Iron 
 and Steel Report, April 4, 1918.
 
 590 ECONOMICS OF WAR 
 
 portion of the war indemnity in raw material, and this immediately 
 and before other powers have been supplied." The victors must be 
 the first to eat. We thus get our goods through the state. These 
 goods are given over to our industrials, to our farmers, traders, etc. 
 In this way the state would fructify all necessary channels in a way 
 hitherto unimagined, and besides, in this way we gain a good start 
 over all competitors among foreign nations. 
 
 In this way Germany could re-establish its national economics and 
 avoid the catastrophe of unemployment, exorcise the spectre of want, 
 and banish all danger. The manufacturer gets his material, the 
 farmer his fodder, the trader his goods, the workman his earnings, the 
 people their food, and the state its indemnity. 
 
 England must supply tin and wool, and as for colonies like Canada, 
 they must yield us copper, nickel, cobalt, and leather. Australia 
 must produce spelter, wool, grain, and frozen meat, and other colonies 
 jute, leather, fats and oils, rubber, rice, tea, cocoa, etc. South Africa 
 will supply us with gold, and Egypt, should it still remain under 
 British rule, with cotton. France will give olive oil, other oils, and 
 wine, and Algeria will give us cork and phosphates. Italy will supply 
 vegetables, sulphur, raw silk, hemp, and oil, and from Russia will come 
 wheat, barley, flax, oil cake, leather, eggs, platinum, and bismuth. 
 
 This process of indemnification must be continuous until the entire 
 indemnity, as far as possible, has been paid. It is only in this way 
 and by such means that the war and its consequences can be changed 
 for us into a source of blessing which will again raise our land and 
 people to their old height, which will save them from the abyss of 
 want, from crushing taxation, from mass emigration. Destiny 
 compels us to take these steps, and we must take them or perish. It 
 would be a crime were we to allow false magnanimity or a palsied will 
 to prevent us utilizing our victory to the full. If we neglect this 
 opportunity all eternity will never give us such another chance. 
 
 2. THE PARIS ECONOMIC CONFERENCE 1 
 
 The representatives of the allied governments assembled in Paris 
 for the purpose of carrying out the charge entrusted to them at the 
 Conference of Paris, of March 28 last, and of turning to account their 
 unity of views and interests. At the close of the proceedings it was 
 decided that the members of the congress should submit for the 
 
 1 Adapted from Facts about the War: A Bulletin of Information, published by 
 the Paris Chamber of Commerce. Paris, July, 1916, No. 39.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 591 
 
 approval of their respective governments the following resolutions: 
 First, measures to be taken for the duration of the war; chiefly con- 
 sisting in me unification of the laws bearing upon economic relations 
 with the enemy. Second, temporary measures for the time of recu- 
 peration after the war; for the commercial, industrial, agricultural, 
 and maritime reconstitution of the allied countries. Third, permanent 
 measures for mutual assistance and collaboration among the Allies. 
 
 When the text of these decisions was handed to the press, M. 
 elemental, the Minister of Commerce, made certain declarations with 
 a view of specifying the importance and compass of the resolutions. 
 The principal passages were as follows : 
 
 Dumping is the favorite weapon of the Germans for acquiring 
 commercial supremacy. It consists on the whole of measures afford- 
 ing bonuses for exportation, direct or otherwise; for selling inland at 
 a higher rate than abroad, etc with a view to ruining competi- 
 tive foreign industries. 
 
 The Conference of Paris has provided for thwarting this policy 
 if the war took us by surprise, we do not intend that peace shall do 
 so too. The Allies are* the strongest from an economic point of view. 
 They represent a population of nearly four hundred millions, and 
 dispose of the greater part of all raw materials nickel and platina 
 ores and aluminum (bauxite) are entirely in the Allies' hands; and 
 84 per cent of the manganese. As regards hemp, the Allies' produc- 
 tion is four and a half times larger than the enemy's; as to flax, the 
 Allies hold four-fifths of the world's production ; with regard to wool, 
 their supply is eleven times larger than that of the adversaries; in 
 silk, eight times greater; they have the monopoly of jute, and if the 
 neutrals share to a great extent in the production of cotton with the 
 Allies, their adversaries are short of this commodity. 
 
 The economic superiority of the Allies is obvious. To insure jit 
 there never was any question at the conference of adopting a customs 
 policy for all: each ally will remain wholly independent. Each 
 product will be the subject of separate negotiations between the 
 countries interested in the matter, and an infinite variety of combina- 
 tions may be made. 
 
 Another principle of the allied governments in the war of legitimate 
 economic defence that they are undertaking to wage is not to attack 
 anyone. The neutral nations have nothing to fear we are working 
 to free them. The destruction of German economic overlordship 
 means the suppression of a danger that threatens them.
 
 592 ECONOMICS OF WAR 
 
 By increasing the productive forces of the allied countries, we 
 render them better able than in the past to check the attempts 
 at oppression which one nation might in the future 1 again be 
 guilty of, and by so doing we are working for the assurance of 
 peace. 
 
 Everyone knows how Article II of the Treaty of Frankfort has 
 become a powerful economic weapon in the hands of the Germans, 
 thanks to its specialization permitting them to disregard it when its 
 observance would have proved a drawback. The same clause will 
 not occur again. The Allies are fully agreed upon this point, even 
 Russia and Italy, with whom the Germans had fondly hoped to main- 
 tain their privileged situation; and this shows to what extent nations 
 desire to be freed from the economic domination that was weighing 
 upon them. 
 
 The free disposal of raw materials is an essential factor in the 
 economic power of a nation. Germany had in her possession foreign 
 ores, and these she converted upon her own territory. This was the 
 case with Australian zinc, aluminum from Provence, asbestos from 
 Russia or Scotland. The Allies are now determined not to leave 
 these articles, so essential to the prosperity of a nation, to others. 
 Mr. Hughes, the Prime Minister of Australia, told me that not a grain 
 of zinc ore should leave his country for Germany even if in the future 
 the latter should order double the quantity she purchased there in the 
 past. 
 
 The Allies have considered the measures to be adopted in order 
 to save their industries and manufactures from suffering through the 
 business methods practised by the Germanic Empires especially 
 dumping. They have undertaken, for a certain length of time which 
 is to be fixed among themselves, to subject to certain prohibitions or 
 special regulations all goods originating in enemy countries, thus 
 enabling them to cope in an efficacious manner with any attempts at 
 dumping. The fact that at the present time Germany is concen- 
 trating upon her own territory large supplies of goods, mostly manu- 
 factured with raw materials from the invaded regions, makes this 
 agreement all the more necessary. It would be preposterous for 
 the Germanic Empires, immediately after the war, to be able to 
 raise their rate of exchange by selling to the Allies goods manufac- 
 tured from raw materials which were their (the Allies') own special 
 property.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 593 
 
 3. THE ORGANIZATION OF RAW MATERIALS 1 
 
 It is becoming increasingly clear that, whatever may happen in 
 the near future on the battle-fronts, the Allies possess in their immense 
 concentration and control of economic resources a weapon which must 
 ultimately, if they hold together, decide the war in their favour. 
 Indeed, they could win the war by this means even if (absit omen!} 
 they did not all hold together for the Western Powers alone would 
 be sufficient to drive the weapon home. 
 
 The Paris resolutions have been frequently represented in the 
 allied countries, especially in America, as embodying a policy of 
 reaction dictated by protectionist interests. Most of those who hold 
 this familiar view have never read the resolutions or the preamble by 
 which they are conditioned, and are imperfectly informed as to the 
 far-reaching German policy to which they were a belated reply. In 
 reality, of course, the Paris resolutions, framed as they were in June, 
 1916, during the critical days of the Verdun attack, served a double 
 purpose. They were partly defensive and looked forward to the 
 possibility of a "war after the war" against a Germany in secure 
 possession of "Mitteleuropa." They are certainly open to criticism 
 on that score as a policy of despair, but not as a policy of reaction, for 
 against such a power the economic boycott would have been the only 
 remaining refuge of civilization. But in so far as they envisaged 
 action by the Entente and neutral powers among themselves, the 
 preamble, with its insistence on an international standard of commer- 
 cial fair dealing, will remain memorable for the way in which it boldly 
 set what has hitherto been regarded as the selfish concern of separate 
 governments upon an international footing; and the same applies to 
 the resolution as to the co-operative organization necessary for the 
 apportionment of supplies at the end of the war. All that is needed 
 in this connection is that the Allies shall bring their policy up to 
 date by adapting it to the present economic position, which is very 
 different from that which prevailed, or was believed to prevail, in 
 June, 1916. At that time it was still possible to think of the post-war 
 economic situation in terms of markets; to-day it is obvious that the 
 dominating factor is supplies. No manufacturing country will be' 
 able to resume its export trade on the old basis or even to demobilize 
 
 1 By "Atticus." Adapted from "The Economic Weapon," The New Europe, 
 IV (July-October, 1917), 353-59. Published by Constable & Company, Ltd.
 
 594 ECONOMICS OF WAR 
 
 its armies till it h'as secured the raw materials which are essential to 
 industrial production. 
 
 The world-shortage of supplies, and of shipping to convey them 
 from producing to consuming and manufacturing countries, will 
 therefore be, if not the most important, certainly the most urgent, 
 problem which will confront the world on the close of hostilities. It 
 will be the first international task of the new world-order, and on the 
 way in which it is carried out will depend the spirit and atmosphere 
 that will prevail during all the other difficult labours the fixing of 
 frontiers, the safeguarding of minorities, the rehabilitation of public 
 right on which the Powers will be closely engaged for many months 
 after the first urgent questions have been disposed of. 
 
 The time would seem to be ripe, then, for a new economic con- 
 ference to revise and bring up to date the findings of the conference 
 of June, 1916. It should not be a conference of all the Powers, great 
 and small, which have either declared war on Germany or broken off 
 relations with her. It should be summoned for the purpose of con- 
 sidering the post-war economic situation, and of discussing how best 
 the resources of the various states could be organized in the interest 
 of their own peoples and of the civilized world. Such a conference, 
 when it met, would find itself compelled, like its predecessor, to 
 abandon the self-regarding competitive outlook and to fall back on 
 co-operative methods. It would inevitably be driven to consider how 
 the existing inter-ally system of economic control could best be 
 adapted to post-war purposes and to the needs of neutrals. The 
 result would probably be the organization of something which could 
 be described as a relief commission, with comprehensive powers in 
 respect to shipping and supplies to tide over the period when the 
 pressure of the shortage will be most severe. There is good ground 
 for believing that such a plan is both practicable, in the light of recent 
 experience, and acceptable to the Powers chiefly concerned. 
 
 If such a plan were adopted, it should be made clear to the Central 
 Powers that when they have accepted the allied terms, including, of 
 course, full reparation by the guilty parties for the ravages of war and 
 acts done in violation of international law, there is no desire to penalize 
 them further or to hinder their recuperation. Their peoples should be 
 offered, under these conditions, a proportionate share in the controlled 
 supplies and insured against any legal restriction upon their legitimate 
 trading activities at the expiration of the period of trade control.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 595 
 
 No pledge or action by governments, of course, can give back to the 
 German trading community the confidence of individual dealers or 
 purchasers in the countries they have antagonized. 
 
 4. AN ECONOMIC ASSOCIATION OF NATIONS 1 
 
 I have been much interested in the series of addresses and discus- 
 sions at the recent meetings of commercial associations in the United 
 States, such as the chambers of commerce and the Foreign Trade 
 council, regarding trade after the war. The tone of these discussions 
 seems to show clearly a desire for settled arrangements for mutual 
 help between all the nations now associated in the war against 
 Germany. These are also our feelings in Britain, and I should like 
 to make some acknowledgment of these recent utterances of prominent 
 American commercial men by trying to describe roughly the state of 
 British policy at this moment in regard to such matters. 
 
 The resolutions of the Paris economic conference have been much 
 discussed during the last two years. When they were written we had 
 an alliance of eight nations, six of whom had suffered the immediate 
 ravages of war. The world outside, including the United States with 
 its vast resources, was neutral, and nominally, at any rate, the neutral 
 world at the conclusion of peace would have sold its products where 
 they would have fetched most money. 
 
 To borrow the plain words of the recent interallied labor con- 
 ference, all these vast resources would have gone to those who could 
 pay most, not to those who would need most, so the Paris conference 
 was a defensive agreement of those then engaged in the war to secure 
 their own people against starvation and unemployment during the 
 period of reconstruction, and to provide for the restoration to economic 
 life of the ravaged territories of Belgium, Poland, Serbia, France, and 
 Italy. 
 
 These objects retain all their old importance. They are simple 
 measures of self-preservation. It is, for example, still essential that 
 we should forestall the aggressive efforts of the Central Powers to use 
 their money power to snatch on the morning after the war the raw 
 materials needed for the reconstruction of the peoples in the western 
 and eastern theaters of war whom they have themselves despoiled. 
 
 1 By Lord Roberts. In daily press, July 15, 1918. 
 
 ED. NOTE. This statement outlines the purposes of an association of twenty- 
 four nations in employing the economic weapon along with the military weapon 
 against Germany.
 
 596 ECONOMICS OF WAR 
 
 But, while the essential needs of ourselves and of the nations which 
 are fighting with us the battle of liberty and justice remain unaltered, 
 the Alliance of Eight has expanded into the Association of Twenty- 
 four Nations, of which President Wilson spoke in his recent address 
 to the Red Cross. It is no longer a question of forming some narrow 
 defensive alliance, but of laying down the economic principles of the 
 Association of Nations which is already in existence, and to member- 
 ship in which we are committed. 
 
 What are these principles to be ? The President has stated them 
 in memorable words. 
 
 Each member of the Association of Nations may have to protect 
 its citizens in one way or another after the war, but our aim must be a 
 comprehensive arrangement of liberal intercourse with all members of 
 the association by which each one of us, while preserving his own 
 natural security, may contribute to meet the needs and aid in the 
 development of his fellow members. Nor, of course, can our arrange- 
 ment for mutual assistance exclude all competition, though we are 
 most anxious that co-operation should be the keynote of our commer- 
 cial relations. Our feelings in this matter cannot be better described 
 than in the words of James A. Farrell to the Foreign Trade council, 
 namely: 
 
 "The sacrifices that are being cheerfully endured today by men 
 engaged in foreign commerce in the necessary curtailment of their 
 business through the conservation of shipping are an earnest of the 
 elevation of method and of purpose which will control the conduct of 
 our external trade in the future." 
 
 There is but one obstacle to this economic association of nations. 
 That obstacle is Germany the Germany described by President 
 Wilson in the words which I have already quoted a Germany living 
 " under ambitious and intriguing masters." You have seen the 
 provisions of her commercial treaties in the east, and with all the 
 groups of peoples frorri the Arctic ocean to the Black Sea. Her 
 economic policy toward these groups is absolutely contrary to our 
 principles. That policy began by systematic and lawless plundering 
 in Poland, in the Ukraine, and elsewhere. Now everywhere she has 
 legalized this plunder by placing the weaker nations under onerous 
 commercial tribute to herself. 
 
 On Lithuania she has imposed her coinage. From Roumania 
 and the Ukraine she has exacted a guarantee of supplies irrespective 
 of their own needs, and at flagrantly unjust rates of compensation.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE - $97 
 
 She has appropriated the natural resources of Roumania in the form 
 of a lease to German corporations. On Russia, Finland, and the 
 Ukraine she has imposed unfair and one-sided tariff arrangements. 
 The people of Finland, in fact, now find that their liberties have been 
 bartered away in an agreement signed secretly in Berlin, and it is 
 actually being proposed that thousands of Finns should be deported 
 to work for German masters. 
 
 Having established control over the Dardanelles and the Baltic, 
 Germany has now brought under her own control the third great 
 highway of European trade the Danube by destroying the inter- 
 national commission which had long become an established organ of 
 European polity, and now, in order that there may not be any mistake 
 as to the significance of these acts, her foreign minister has declared 
 that this Roumanian treaty in particular will be made the precedent 
 and foundation for the economic terms to be demanded by the 
 Central Powers at the general peace. The significance of this declara- 
 tion is evident from Kuehlmann's own words, that "the damages 
 Roumania will have to pay will amount to a very considerable sum 
 in the long run, a sum which perhaps does not very substantially differ 
 from that which might presumably have been obtained by officially 
 demanding a war indemnity." 
 
 5. A GERMAN VIEW OF THE RAW-MATERIALS 
 BOYCOTT 1 
 
 The Central Powers are fighting for their integrity and capability 
 of development, and, since they are industrial nations, this implies 
 unimperiled imports at all times that is, what we commonly under- 
 stand by the expression "freedom of the seas." A peace that does 
 not provide for this in a practical manner is not a peace that the 
 Central Powers can conclude, and they will not conclude it unless the 
 Entente can give us the "knock-out blow." .... If the Entente 
 holds to its threat, and it is not possible to carry through the supply 
 of raw materials as a peace condition, then the war will go on; the 
 sole question that arises is, Are the Central Powers sufficiently strong 
 economically to hold out in the future against the stoppage of raw 
 materials ? That the Entente is no match for them in the field is now 
 
 'Adapted from Herr Dernburg's "Economic Outlook," The New Europe 
 (June 27, 1918), pp. 258-61. 
 
 ED. NOTE. Early in the war Dernburg visited the United States as the official 
 spokesman of the German government.
 
 598 ECONOMICS OF WAR 
 
 even clearer than before. There is absolutely no doubt that, in this 
 respect, our prospects have extraordinarily improved. An immense 
 sphere lies open to us in the East. It will need time and patience to 
 organize the future of it; but as we alone have the supply routes in 
 our hands, we can shut out all competition from others and stretch 
 out our suckers far into the interior of Asia. It is just as little in 
 doubt that the horizon is permanently darkened for our enemies' 
 supplies. Little by little the food shortage is taking on the same 
 acute forms with them as in Central Europe; we can say, moreover, 
 that, since, as a rule, foodstuffs have the precedence in transport over 
 raw materials, the supply of raw materials, too, must have become 
 extraordinarily scanty for some, at least, of our enemies. 
 
 The threat of Wilson also has only this meaning that he opposes 
 the boycott of raw materials as a compensation to the great territorial 
 successes of the Central Powers in the East and West (against which 
 the Entente h.ave nothing to show except the German colonies and 
 small portions of the Turkish Empire) ; the President indicates by this 
 what will, among other things, be discussed at the peace arrangements. 
 It is useless to hide from ourselves that we are concerned here with an 
 object of compensation of very great importance; that is obvious 
 from the situation. Even in the event of the return of the German 
 colonies with the addition of a good slice of Africa as well, the Central 
 Powers will not be able to satisfy their own demand for raw material. 
 There are, moreover, but very few neutral producers; neither Sweden 
 nor Spain nor the Dutch colonies can supply us with what is necessary, 
 even if they supply valuable contributions. The rest of the world, 
 however, with the exception of Mexico, the Argentine, and Chile, is 
 fighting on the side of our enemies, and since the sovereignty of all 
 these states empowers them to direct their exports and imports in 
 any direction they desire, there will be nothing to prevent them from 
 continuing their war legislation even after the war. England and her 
 dominions have already begun this : England has recently introduced 
 the "Non-ferrous Metals Act," whereby all the non-ferrous metals 
 of the British Empire that is to say, precisely those which we need 
 may be sold for five years after the conclusion of peace only according 
 to the instructions of the Board of Trade. A complete substitute 
 for the trade with three-quarters of the world and for the absence of 
 their raw materials will, in spite of the enormous growth of the sub- 
 stitute industries of the Central Powers, be impossible for us. And 
 since there are still a great number of people who look at things accord-
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 599 
 
 ing to the position on the European war map, a reference of this kind 
 is not without importance. 
 
 When peace comes, then, one of the most important points for the 
 Central Powers, who for decades have had their orientations overseas, 
 must be the reopening and the keeping open of the export markets and 
 those of raw materials; the freedom of the seas must be attained. 
 
 Once military operations stop, economic life again comes into the 
 foreground; indeed, begins to dominate everything. Now, how are 
 these scanty raw materials to be divided ? I have already said that a 
 great part of them is in the hands of the states, and that, in view of the 
 
 shortage, the whole world will inevitably be rationed In 
 
 other words, the distribution of raw materials and of a portion of 
 articles of consumption will, for a certain time, which should be as 
 short as possible but will not be short, have to rest in the hands of the 
 states. That is extremely regrettable from the point of view of 
 personal initiative, international commerce, the development of 
 means of communication, and the technical progress which depends on 
 individual creative activity. But it is an inevitable result of this 
 world-conflagration and the means employed in it. Any other solu- 
 tion delays convalescence and keeps prices up. Imagine all the 
 traders of the world let loose on the shortage, both of raw materials 
 and of transport. The inevitable result would be an immeasurable 
 increase of freights, an enormous rise in all raw-material price, friction 
 and difficulties, and also since it is not everybody who has at hand 
 the means of payment a universal slump in the exchange, which has 
 already become shaky through the diminution of cover. That this 
 prognostication cannot be mistaken is shown by the measures which 
 have already been taken everywhere in the various countries for 
 transitional economics. In view of the impossibility of forming an 
 exact estimate of the situation as it will be on the conclusion of peace, 
 these measures naturally stop at the national frontiers, and leave 
 open the question how the goods are subsequently to get within them, 
 and who is to receive them there. But even in these preliminary 
 arrangements it is the state which reserves to itself the distribution 
 and rationing, the amount of importation, and the method of pay- 
 ment, with the aid of the special organization of the industries con- 
 cerned. These tendencies evoke a storm of protest in many quarters 
 as a result of feelings which, as I have said above, I share. That does 
 not alter the fact that in this case a virtue must be made of the neces- 
 sity, and there are no other ways which secure success. Experiments
 
 600 ECONOMICS OF WAR 
 
 we cannot afford. Just as at home a rational distribution of raw 
 materials and cargo-space which means also of the export of freight 
 goods cannot be avoided, so also the situation requires international 
 distribution, and both must be in the hands of the states, and inter- 
 nationally guaranteed by international convention imposing obliga- 
 tions on the states, and not leaving a free hand to private persons, 
 i.e., a League of Nations for the universal world-provision of a human- 
 ity suffering from impoverishment of raw materials. A thing of this 
 kind cannot be attained in the event of a pure might peace. It 
 requires a peace by understanding, for which we are now, as always, 
 ready, but which can only be concluded when our opponents have 
 arrived at a similar condition of reason. 
 
 6. INTERNATIONAL CONTROL OF RAW MATERIALS 1 
 
 It appears certain that at the conclusion of peace the struggle 
 for basic raw materials will be the predominant factor in the inter- 
 national situation. It is conceded that it cannot be left to the free 
 play of individual competitive forces in the various countries, and if 
 the various nations be allowed to engage, as nations, in the purchase 
 of raw materials from private sellers there is virtually no limit to 
 which the price as set by competitive national bidding might go. 
 It would be similar to the wheat situation two years ago when 
 European nations set up what practically amounted to an unlimited 
 demand. Speculation under such circumstances becomes rampant 
 and ungovernable, because wholly unpredictable (non-business) fac- 
 tors are at work. Another possibility is one in which we have neither 
 private buying nor private selling in which foreign trade as a whole 
 is controlled by the respective governments. This appears to be a 
 simple necessity if we are to prevent the utter disorganization of inter- 
 national trade. 
 
 Now governmental control of the export and import of raw mate- 
 rials involves in the nature of the case international control com- 
 mercial agreements must be made on the basis of international needs. 
 And if we are to lay the ghost of future trade rivalries, Germany must 
 be freely accepted as a party in such an international organization. 
 The needs for materials on the part of the various nations are to a 
 considerable extent reciprocal, though some of the present belligerents 
 are obviously much better equipped in respect to raw materials than 
 others. But if the United States, for instance, were for this reason to 
 
 1 An editorial.
 
 6oi 
 
 attempt a selfish policy of retaining its own supplies entirely for its 
 domestic requirements it would not only incur the enmity alike of 
 present allies and foes, but it would at the same time seriously weaken 
 the basis of its own international trading operations for the future 
 weaken it not only because of the rivalries thus engendered, but also 
 by delaying the recovery of business prosperity and crippling the 
 exchange power of those with whom we hope to trade. 
 
 An international control of the distribution of raw materials as 
 between nations appears therefore to be indispensable, both for 
 recuperation from the ravages of war and for laying the basis for 
 amicable trade relations in the future. And let it be repeated that 
 to exclude Germany from participation in such international organiza- 
 tion is certain to intensify the international trade rivalries which 
 have always been such potent causes of war. Germany's need of raw 
 materials is such, in fact, that the Allies have in their superior resources 
 a most effective weapon for forcing Germany to play the game fairly. 
 But if perchance the conditions of peace are not such as to bring 
 Germany into such an organization, then we may as well look forward 
 to continued international friction. 
 
 The opportunity for laying the basis of international trade co- 
 operation that the end of the war will afford is unique and may never 
 occur again. The absolute impossibility of leaving the immediate 
 situation to the free play of competition between traders makes it 
 easy to establish an international organization when it would other- 
 wise be utterly impossible. If only the Central Powers can be 
 included on equal terms we may find it possible to utilize this war 
 readjustment period in building the foundation of a new order in 
 international trade relations. 
 
 LXVII. Struggle for Foreign Markets 
 i. GERMANY'S FOREIGN TRADE PREPARATIONS 1 
 
 If you think for a moment that the Germans will be so crippled 
 at the close of hostilities that they will be unable to turn their atten- 
 tion to reknitting the rents which have been torn by American and 
 British manufacturers in the foreign trade net of the German Empire, 
 
 1 By P. Harvey Middleton. Adapted from "The Powerful Foreign Trade 
 Combinations of Europe," Railway Age (April, 5, 1918), pp. 884-85. 
 
 ED. NOTE. Mr. Middleton is executive assistant of the Railway Business 
 Association.
 
 602 ECONOMICS .OF WAR 
 
 ponder for a moment over the fact that there has just been launched 
 in Hamburg the Corporation for the Promotion of German Foreign 
 Trade, with an initial capital of $5,000,000, for the purpose of explor- 
 ing foreign markets and building new foreign railways. The Kolnische 
 Zeitung gives the following summary of this Association's plans: 
 
 "This great new concern is to occupy itself exclusively with the 
 development of German overseas trade. Important export houses, 
 manufacturing corporations, shipping lines, and banks in Hamburg 
 and all the other commercial and industrial centers of the Empire 
 will be interested. The company is to serve as an active and efficient 
 axis, round which all Germany's efforts to reknit her old relations and 
 establish new ones will revolve. It is not to be a bank in the ordinary 
 sense or an export bank. It will, on the contrary, refrain from banking 
 operations of the usual sort. It will act primarily as a syndicate for 
 exploring foreign markets, and when advantageous opportunities 
 present themselves will fulfill the functions of a financial promoting 
 company. It will take up, on behalf of all German interests con- 
 cerned, promising projects abroad, such as waterworks construction 
 and operation, railway building, harbor and dock works, and trans- 
 actions of similar magnitude. These the company will not only 
 promote and carry out, but if necessary provide the money for. The 
 initial capital of $5,000,000 is wholly provisional. It will be multiplied 
 many times over as required." 
 
 But perhaps you are deluding yourself with the belief that 
 Germany will not have any ships, that we have captured all their 
 big ones, and that embargoes have prevented their getting the 
 materials to replace them. Wrong again. The Berlin Tageblatt 
 publishes details of the development of the German shipbuilding 
 yards, showing that in 1916 and 1917 all the private yards, except 
 some of the largest, like the Vulkan concern, increased their capital. 
 Blohm & Voss of Hamburg raised their capital from $3,000,000 to 
 $5,000,000, and the Howaldt yards at Kiel raised theirs from $1,000,- 
 ooo to $2,500,000. In other respects the German concerns have 
 anticipated the needs for the reconstruction of the German merchant 
 marine. The Hamburg American Line and the Allgemeine Elek- 
 tricitats Gesellschaft have founded the new Hamburg Shipbuilding 
 Company, and among the new establishments and projects are two 
 at Liibeck, one at Hamburg, several at Stettin and Emden, and one at 
 Tonning.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 603 
 
 At the Vulkan yards near Bremen the Hamburg American line 
 recently launched a i6,ooo-ton steel vessel, christened Rhineland, 
 which is the largest ship ever laid down in Germany for purely freight- 
 carrying purposes. The German press acclaims the launching not 
 only as a sign of Germany's determination to make her presence felt 
 in world-trade after the war, but because, despite the strain imposed 
 on her industries for purely war purposes, her shipyards are able to 
 turn out this /'record-breaking" merchantman. The Hamburg 
 American Line's 5o,ooo-ton sister ship of the Vaterland, the Bismarck, 
 has been completed, and this same line is credited with having at 
 least one other giant and a flock of two-score or more medium- and 
 small-calibred ships built and building. The North German Lloyd 
 has completed a 35,ooo-ton express steamer, the Hindenburg, and is 
 pushing work on an ambitious building program. 
 
 Do you know what a cartel is? It is the application of brute 
 force to commercial enterprise. The concerns entering it renounce 
 a part of their industrial and commercial autonomy in order to secure 
 the advantages of cohesion. The cartel differs from the American 
 trust in that it allows the individual enterprises attached to it to 
 remain independent, and restricts itself to enforcing certain controlling 
 principles in regard to production, prices, and competition. It aims 
 at removing conflicts and losses resulting from ruinous competition 
 and lack of organization. A uniform system of cost accounting and 
 standardization of products eliminates waste. Only the strongest 
 cartels undertake to influence foreign business, maintaining a firm 
 export policy and exporting at lower prices than are charged home 
 customers, finding foreign markets an excellent outlet for excess 
 production. 
 
 The Stahlwerksverband or steel syndicate is, next to the coal 
 syndicate, the leading German cartel. It monopolizes the production 
 and distribution of steel in Germany. At the time of its foundation 
 in 1904 it had a total output of 7,900,000 metric tons. Its products 
 include rails, ties, fishplates, spikes, bedplates, structural steel, railroad 
 axles, and steel forgings. The administration of the syndicate is 
 vested in a general assembly of all the members, a supervisory council, 
 and managing directors. The stock is exclusively in the hands of the 
 owners of the steel works, and may be transferred only with the con- 
 sent of the general assembly. Each member has one vote in the 
 assembly for every 10,000 tons quota of production.
 
 604 ECONOMICS OF WAR 
 
 The Germans, through the Stahlwerksverband, are formidable 
 competitors, not only because of the advantages of export bounties 
 and freight rebates, but because they keep in close touch with the 
 requirements of foreign markets through effective and expensive 
 representation on the ground, and because the syndicate backs up the 
 credits granted by individual manufacturers to secure initial business. 
 This cartel believes in dumping in order to keep its plants working 
 without interruption at maximum capacity. It controls over 90 
 per cent of the production of steel products in Germany. Before the 
 war this cartel had an annual turnover of $238,000,000, and held down 
 English steel production by delivering steel billets in England at lower 
 prices than the English could produce steel. In 1914 steel bars were 
 offered in New Orleans at $6 per ton below the lowest figure at which 
 an American firm could manufacture them. 
 
 This steel cartel controls the sale of its products by merchants in 
 Germany, Austria, Switzerland, Belgium, and France. It has been 
 aptly termed a giant octopus, whose eyes are at Bremen, at Diisseldorf , 
 and at Berlin, with tentacles, armed with innumerable suckers, 
 reaching out to Asia Minor by way of Constantinople, threatening 
 London through Rotterdam and Antwerp, stretching across Switzer- 
 land into Italy, extending over the Atlantic and South America, 
 embracing Chile, spreading out over Brazil, Argentina, and Mexico, 
 and in another direction to the Indian Ocean and the China seas, and 
 fixing themselves firmly on the Far Eastern strands. 
 
 There are other German organizations for securing foreign trade 
 in railway supplies. The Orenstein Koppel Aktien Gesellschaft 
 represents a syndicate of producers of Decauville (narrow gauge) 
 railway materials. This combination has practically stamped out 
 the French and Belgian competition which formerly controlled the 
 supply to Turkey. The Verband Deutscher Waggon Fabrikanten 
 controls 90 per cent of the total German production of railway cars. 
 
 The Association of German Machine Tool Manufacturers has 
 made a study of export trade with special reference to the competition 
 of American manufacturers, whom they have actively opposed. The 
 German Electrical Manufacturers' Association has made a special 
 study of tariffs and commercial treaties, and secured many changes 
 in both for the benefit of German exporters of electrical equipment. 
 It keeps its members informed of new street railway and power plant 
 projects in other countries, and suggests valuable foreign connections. 
 German business men have realized the great importance of
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 605 
 
 commercial treaties and there is a special organization for this par- 
 ticular purpose the Commercial Treaty Association (Handelsver- 
 tragsverein) with 9,000 members and 150 affiliated associations. 
 Electrical equipment is controlled by two powerful syndicates, the 
 Allgemeine Elektricitats Gesellschaft and the Siemens-Schukert. 
 
 2. GREAT BRITAIN'S IMPERIALISTIC PLANS 1 
 
 1. The establishment, by government ownership or subsidy, of 
 several great lines of steamships connecting the parts of the Empire, 
 and an inter-Imperial scheme of deep-harbor development to accom- 
 modate the ships, 660 feet long, with 38-foot draught, calculated to 
 have the ultimate practical economies of freight transportation which 
 would make tariff discrimination unessential in Imperial preference. 
 
 2. A system of government rate regulation of shipping and marine 
 insurance on routes between ports of the Empire. 
 
 3. Government control of at least one independent telegraph 
 and cable line connecting all parts of the Empire. 
 
 4. Government encouragement of an extensive program of scien- 
 tific research covering the production of manufacturing materials 
 over the Empire and the best industrial uses of them, this research 
 extending also to necessary sources of old and new supply even outside 
 the Empire. 
 
 5. An English national and British imperial policy of preferential 
 employment of British capital and British institutions in the develop- 
 ment of Empire resources, including the encouragement of "home" 
 establishments for the primary treatment and the manufacture of 
 Dominion ores, materials, etc. 
 
 6. The foundation of the British Trade Corporation, not only to 
 assist in the general expansion of British Commerce but to work out 
 the financial phases of inter-Imperial development. 
 
 7. Intensive encouragement of old and new production and 
 industry in the colonies, all parts of the Empire co-operating and 
 co-ordinating the movement. 
 
 8. An Empire policy of preference for British industry everywhere 
 in the supply of raw materials of which the Empire has a monopoly 
 or a dominant position in producing. 
 
 1 ED. NOTE. This is a statement of the main features of the plans worked 
 out by the Dominion's Royal Commission for the economic linking up of Britain 
 with her colonies. This commission has been at work since 1912. Adapted from 
 The Americas, February, 1918.
 
 606 ECONOMICS OF WAR 
 
 9. Empire-wide exclusion of non-British influence from public 
 commodity and financial markets. 
 
 10. Uniformity of commercial laws in all parts of the Empire, 
 n. Reorganization of England's system of public commercial 
 
 intelligence, including the establishment of a new ministry of com- 
 merce, a change in the consular services, co-operation in exchange of 
 trade information with Dominion agencies, and an Empire department 
 of statistical research. 
 
 12. Some measure of control of British emigration, at least to the 
 extent of assisting migration to British dominions and colonies. 
 
 3. NEEDED: AN ALLIED ECONOMIC AGREEMENT 1 
 
 In Lloyd George's pronouncements on economic restrictions to 
 be imposed upon Germany after the war there is a rational core 
 demanding serious consideration, however little we may like the 
 spirit that appears to animate them. Without doubt it may be 
 necessary to place ourselves in a position to impose drastic restrictions 
 on German trade after the war. Control of world-trade will be found 
 to be one of the chief bargaining assets of the Allies when peace 
 negotiations are actually opened. Accordingly, whether Germany 
 is to be admitted to equal participation in the benefits of such trade 
 or to be placed under more or less severe handicaps are questions that 
 ought to remain open until the proper time comes for closing them. 
 
 To take the extreme liberal position and proclaim that when 
 peace comes, no matter on what territorial and political terms, 
 Germany shall automatically come into full possession of equal trad- 
 ing rights is also to waste the allied assets at the peace conference. 
 Germany will make no concessions on account of allied trade control 
 if she is morally certain that the world's markets will be opened to her 
 for nothing. She knows perfectly well that unless the Allies can 
 present a solid front in matters of economic policy their control of 
 trade cannot extend beyond the period of the war. Now, at the 
 present time we are not presenting a solid front. Our European 
 Allies may regard themselves as bound by the Paris Economic Agree- 
 ment, but as Lloyd George points out, America has never subscribed 
 to that agreement. Neither are our Latin-American Allies bound 
 by it. If the peace conference were convened tomorrow, Germany 
 would pretty certainly assume that the materials and the markets 
 
 1 Adapted from an editorial in The New Republic (August 10, 1918), pp. 35-36.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 607 
 
 of the greater part of the western continent would be accessible to 
 her if she could finance her trade. 
 
 So long, then, as we have not arrived at a binding economic 
 agreement with our Allies the Germans are justified in regarding 
 allied control of trade as an asset of doubtful value, in no way to be 
 regarded as an equivalent to alien provinces occupied by German, 
 armies. And this fact points to a necessity for prompt action. We 
 cannot tell when Germany will make serious overtures for peace. 
 We know, however, that the establishment of an economic agree- 
 ment among all the nations at war with Germany is a work that 
 requires time, and that this work must be accomplished before peace 
 negotiations are opened, if we are to exploit the situation satisfactorily. 
 And the initiative in the matter will have to be taken by America. 
 We do not like the terms of the Paris Economic Agreement, which 
 still appears satisfactory to our European Allies. Very well. What 
 terms do we propose? Lloyd George does not directly raise this 
 question, but it appears to be his obvious intent to suggest it. 
 
 In the first place, America would probably be willing to enter 
 upon reasonable arrangements with her Allies for the control of raw 
 materials after the war. There will not be enough of wool, leather, 
 copper, tin, and many other materials to supply even the immediately 
 pressing needs of the nations engaged in reconstruction. There will 
 be a shortage of ocean carriage, a shortage of machinery and railway 
 supplies, a shortage of wheat and meat. Rationing, under govern- 
 mental auspices will be an imperative necessity. Under the most 
 satisfactory conceivable peace terms we cannot permit Germany to 
 enter the world's markets with her full power of commercial organiza- 
 tion and wrest away supplies needed equally by allied nations more 
 seriously impoverished by war than Germany herself. With the 
 right kind of peace, Germany ought to get her share, and only an 
 economic agreement thoroughly worked out in the near future can 
 assure such an equitable arrangement. 
 
 But suppose that the war ends with Germany unrepentant, 
 clinging to enough of her spoils to make plausible her claim to victory, 
 what should our economic policy be ? Plainly, the danger of a recru- 
 descence of world-war ought to be paramount in our calculations. We 
 ought to be equipped with a thoroughly elaborated policy for restrict- 
 ing German trade and industry in every possible way. An unregen- 
 erate Germany would use wealth acquired by trade as a foundation 
 for future aggressive policies. The exclusion of Germany from
 
 608 ECONOMICS OF WAR 
 
 world-trade would work incidental losses to other nations, and these 
 leases would be unequally distributed. For this contingency adequate 
 provision ought to be made in the economic agreement. If Belgium, 
 for example, finds herself permanently handicapped by loss of German 
 markets and the entrepot trade, it should be the business of the greater 
 allied nations to find her new markets, to develop new possibilities of 
 employment for her population. 
 
 So far, in principle, America would doubtless be willing to go. 
 She would enter upon a plan for the equitable rationing of the nations 
 after the conclusion of a satisfactory peace. She would accept her 
 share in the costs of an economic war after, if Germany emerges from 
 the present contest puffed up with a consciousness of victory and 
 menacing the world with new disasters. An agreement covering 
 these points would appear to America both fair and expedient. But 
 an agreement going beyond this to a purely punitive policy, designed 
 to treat Germany the more harshly the more completely she is forced 
 to acknowledge military defeat, would encounter in America, not 
 perhaps active opposition, but all the doubts and delays that char- 
 acterize the negative side of American policy. It is an immense 
 readjustment of ideas and institutions that is required of America 
 before she can participate in any form of international economic 
 union. She is likely to make such a readjustment if the sound objects 
 of the proposed union are infected with purely punitive purposes. 1 
 
 LXVIII. Territorial Problems 
 i. GERMANY'S POSITION IN THE EAST 2 
 
 I. ECONOMIC INDEPENDENCE 
 
 Though Germany has failed or partially failed up to the present 
 in the West she has succeeded in the East; and it must never be 
 forgotten that it was with Eastern, not with Western, plans imme- 
 diately in view that she sped the Serbian ultimatum on its way and 
 backed it up by declaring war on Russia. 
 
 In this Eastern adventure Germany's aims can be simply stated. 
 They are as usual twofold partly military and partly economic. Her 
 
 1 ED. NOTE. Cf. views of the British Labor Party, pp. 664-65. 
 
 2 Adapted from The Round Table, March, 1917. 
 
 ED. NOTE. The quotation in Section I is from Dr. Spiethoff, professor of 
 political economy at the German University of Prague, in Die wirtschaftUche 
 Anndberung zwischen dcm Deutschen Reiche und seinen Verbundeten, I (1916), 24. 
 References to quotations in Section II are given in the context.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 609 
 
 military object was and is to secure a military preponderance in the 
 Old World by establishing a supremacy of her arms over Central and 
 Eastern Europe and Nearer Asia. Her economic object is clearly 
 stated in the following sentences from the opening essay in an authori- 
 tative work recently issued on The Economic "Rapprochement" 
 between Germany and Her Allies. 
 
 The establishment of a sphere of economic influence from the North 
 Sea to the Persian Gulf has been for nearly two decades the silent, unspoken 
 aim of German policy. Our diplomacy in recent years, which has seemed 
 to the great mass of all Germans (including the Germans of Austria) vacil- 
 lating and little conscious of its aim, only becomes intelligible when regarded 
 as part of a consistent Eastern design. It is to the credit of Rohrbach to 
 have shown in his writings how the single incidents fit into the general 
 scheme of our policy. It is indeed in this region, and in this region alone, 
 that Germany can break out of her isolation in the center of Europe into 
 the fresh air beyond and win a compact sphere of economic activity which 
 will remain open to her independently of the favor and the jealousy of the 
 great powers. Apart from the defence of hearth and home, no other 
 success could compensate Germany for the enormous sacrifices of the war 
 if she did not secure a really free hand, politically speaking, to pursue this 
 economic goal. It is true that critical observers who have gone carefully 
 into the details of the plan profess themselves skeptical of great economic 
 results and emphasize the fact that the improvement of our relations with 
 these regions cannot compensate us for the loss of our vitally important 
 connections with the Great Powers and other states. They may very well 
 be right. Nevertheless it remains true that a secure future for Germany 
 is to be reached along this road and no other, and that Germany would be 
 missing the greatest opportunity ever offered or likely to be offered her in 
 the history of her foreign relations if she were not now to go forward with 
 vigor and decision to its realization. 
 
 Here it is clearly shown that the Eastern aims in themselves will 
 not at present meet Germany's economic needs. If she is no longer 
 to be "dependent on the favor and the jealousy of the Great Powers" 
 she requires a colonial empire in the tropics as well. Nevertheless 
 the Eastern prize was well worth following up. 
 
 II. BERLIN TO BAGDAD 
 
 The economic side of Germany's Turkish program is no less 
 important than the military, and it is around this that controversy 
 most centers. It is best set forth in a series of quotations. 
 
 The following extract is taken from the chapter on Turkey in the 
 large composite and obviously semiofficial book on Germany and the
 
 610 ECONOMICS OF WAR 
 
 World War, published in Berlin in 1916, to which most of the best- 
 known "political" professors have contributed. 
 
 The great problem of German-Turkish relations is commonly summed 
 up in the watchword "Berlin-Bagdad." Enemy statesmen have discerned 
 in this the idea of a German political domination. They have spoken of 
 Turkey as a German province, or at least contemplated a German "pro- 
 tectorate" over the Turks. Berlin and Bagdad are linked together as the 
 termini of a mighty railroad that is now nearly completed a line that will 
 link up lands of widely different economic conditions and render possible 
 an exchange between them which will make them independent of hostile 
 competition, hostile attacks, and, above all, the command of the sea. What 
 we have to deal with then is a great closed economic territory as the basis of 
 political friendship. Ah 1 the states astride the line the German industrial 
 states in the north, the Great Turkish agrarian state in the southeast, the 
 Balkan States in the center will remain free to carry on their own national 
 affairs, but they all have the same interest in exchanging their goods along 
 this artery of communication. Granted that in peace time heavy goods 
 will be mainly transported by sea to save expense, yet the existing crisis 
 has shown us the immeasurable value of a secure line of communication by 
 land, a line which is comparable with the great overland railways of the 
 United States. 1 
 
 There speaks the voice of the bourgeoisie and the official classes. 
 Let us add some representative testimonies from the working class. 
 In the article already quoted, Robert Schmidt, a well-known Socialist 
 member of the Reichstag and writer, says: 
 
 The peace which seems possible to us today will leave Germany and her 
 allies in the eyes of Europe as a group of Powers whose sphere of economic 
 control extends from the marshes of the Elbe to the waters of the Persian 
 Gulf. Thus Germany, in close union with her allies, will have won by her 
 arms the kernel of a great sphere of economic control worthy to be set as a 
 closed economic system by the side of those of the other world-empires. 
 
 In 1915, before the entry of Bulgaria, a number of leading German 
 trade unionists representing the chief industries of the country pub- 
 lished a book entitled, Wording Class Interests and the Issue of the War. 
 It was a naked appeal to sectional self-interest in harmony with the 
 dominant philosophy of the country. Trade by trade the German 
 workman is told that defeat means ruin and victory more work and 
 higher wages. But wherever the question of peace terms crops up 
 the familiar exposition of Eastern policy reappears. 
 
 1 Written by Dr. Carl G. Becker, of Bonn University.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 611 
 
 A German commercial policy which met the needs of the Balkan States 
 and, above all, of Turkey would bring with it invaluable consequences. It 
 would bind those peoples more closely to Germany, because it would offer 
 them mutual advantages and the possibility of cultural progress. It would 
 suit the interests of the German consumer, because it would assure him of 
 the import of foodstuffs independently of the sea and of England. It 
 would also be of advantage to our industries. The procuring of industrial 
 raw materials is extremely important for the trade unionist as for the manu- 
 facturer. Already today we are importing wool from those regions. With 
 the improvement of methods of communication cotton production would 
 assume a greater importance for Turkey, to the great advantage of the 
 Central Powers. There is no reason to rely forever on the American supply 
 or to be dependent on the development of Africa. Both these sources can 
 be cut off from the sea. The straight road to Asia is open, however, if only 
 these peoples can be interested in the prosperity of Germany. 
 
 Let us complete the picture by an extract from the most widely 
 read, as it is also by far the best written, of all the books that have 
 appeared in Germany on this subject a very oasis in a desert of sand 
 Naumann's Central Europe. Attention has already been drawn 
 in the Round Table to the significance of Naumann's book in con- 
 nection with German domestic policy. His exposition of the under- 
 lying meaning and philosophy of Germany's Eastern policy is equally 
 striking. 
 
 We have reached the heart of the constitutional problem of Central 
 Europe. It consists in the marking ojff of national government from economic 
 government and military government. The distinction is fundamental. We 
 started, it will be remembered, with the idea of large-scale economic areas. 
 The large-scale economic area of Central Europe must be larger than the 
 existing states of Germany and Austria-Hungary. We have refrained, for 
 obvious reasons, from mentioning the names of neighboring states to be 
 brought in, merely stating in general terms that further accessions are 
 necessary. But into what sort of a union shall they be brought ? The 
 answer is: a military union and an economic union. Anything over and 
 above this would be superfluous and positively harmful. In all other 
 matters there must be no derogation of political independence. It is 
 therefore vital to delimit the military and economic functions so as to work 
 them into a new central government. Let us take first the latter side of this 
 new union, or, if the expression be preferred, the new economic state. This 
 economic state will have its own customs frontiers just as the military state 
 will have its trench defences. Within these frontiers it will promote a wide 
 and active interchange of commodities. For this a central economic govern- 
 ment will be required which will be directly responsible for part of the
 
 612 ECONOMICS OF WAR 
 
 economic arrangements concerned and will advise the national governments 
 as to the remainder. Customs, the control of syndicates or trusts, organiza- 
 tions for promoting exports, patents, trade-marks, etc., will be under central 
 control. Commercial law, traffic, policy, social policy, and similar matters 
 will be only indirectly within its purview. But the supernational economic 
 state, once established, will steadily increase its powers and will gradually 
 evolve an administrative and representative system of its own. 
 
 2. GERMANY'S COLONIAL AIMS 1 
 
 GERMANY'S WAR AIMS 
 
 What sort of a colonial empire did Germany hope to attain after 
 winning the freedom of the seas? It is worth while quoting one 
 statement of Germany's colonial demands, not only because it con- 
 forms so closely to the popular canons, but because it is from the pen 
 of a man who has more than once endangered his academic position 
 by the moderation of his views. 
 
 The first and most important of all the national demands [says Professor 
 Delbriick] which we shall have to -make when the time comes for the signing 
 of peace must be a demand for a very large colonial empire, a German India. 
 The empire must be so big that it is capable of conducting its own defence in 
 case of war. A very large territory cannot be completely occupied by any 
 enemy. A very large territory wiE maintain its own army and provide 
 numerous reservists and second-line troops. If its main centers are con- 
 nected by rail, its different districts will be in a position to support one 
 another in case of need. A very large territory can have its own munitions 
 and arms factories A very large territory will also have harbors and coaling 
 stations. 
 
 And he adds in a footnote, "in order to prevent misunderstand- 
 ings" and to explain what he means by "very large," that 
 
 the Belgian and French Congoes by themselves cannot suffice for the German 
 India which we must try to secure and have a right to demand after our 
 victories. This equatorial territory may provide us with unsuspected 
 treasures in the future, but so far as the next generation is concerned its 
 extraordinarily sparse population will prevent it from being profitable to us ; 
 indeed, it would cost money. Only when the rich districts lying around it, 
 which are now in English hands, are added on shall we have in sufficient 
 measure the practical prerequisites for a German India. 
 
 These are not the day-dreams of peace. These words were written 
 in April, 1915, after the big check in the West and before the Eastern 
 drive. The views expressed in them are even now not abandoned. 
 
 1 Adapted from the Round Table, March, 1917.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 613 
 
 Writing in the February issue of a Berlin monthly review, an ex- 
 governor of East Africa crosses the 's and dots the i's of Delbruck's 
 statement: 
 
 If Belgium, as we hope and as the Belgians hope, is to be divided after 
 the war between Germany and France, vast portions of the Belgian and 
 French Congo will have to be included in Germany's colonial empire, which 
 we would then complete by the acquisition of British East Africa and 
 Uganda in exchange for Kiau Chau, New Guinea, and the Australasian 
 Islands. Such an empire could easily be defended from the sea, and it 
 would have to be considered whether we could not exchange Togoland, 
 which is isolated, for northern Rhodesia and Nyassaland. Germany would 
 then have a colonial Empire worthy of her enterprising spirit, and it would 
 yield us all the raw material we need. 
 
 Similarly the Frankfurter Zeitung, a conspicuously moderate 
 paper, two months ago was still demanding "a compact colonial 
 empire in place of our present haphazard acquisitions." 
 
 Nor is this attitude confined to the official and bourgeois classes. 
 The Socialist majority, though shy about annexations in Western 
 Europe, have from the beginning associated themselves with " imperi- 
 alist" projects overseas. In an article dated January 17, 1917, one 
 of their leading members, writing on terms of peace, demands for 
 Germany "an extensive colonial territory which will enable her to 
 import from within her own sphere of government the tropical 
 products which cannot be grown on her own soil." 
 
 3. SUMMARY OF BRITISH WAR AIMS 1 
 
 I. EUROPE 
 
 Complete restoration, political, territorial, and economic, of the 
 independence of Belgium, and such reparation as can be made for 
 the devastation of its towns and provinces. 
 
 Restoration of Serbia, Montenegro, and the occupied parts of 
 France, Italy, and Roumania. 
 
 Complete withdrawal of the alien armies and reparation for 
 injustice done, a fundamental condition of permanent peace. 
 
 With the French democracy to the death in their demand for a 
 reconsideration of the great wrong of 1871, when, without regard to 
 
 1 ED. NOTE. Statement of David Lloyd George, on January 5, 1918, after 
 consultation with the leaders of labor, representatives of the self-governing 
 dominions of the British Empire, Mr. Asquith, and Lord Grey.
 
 614 ECONOMICS OF WAR 
 
 the wishes of the population, two French provinces were torn from 
 the side of France and incorporated in the German Empire. 
 
 An independent Poland, comprising all those genuinely Polish 
 elements who desire to form part of it, an urgent necessity for the 
 stability of Western Europe. 
 
 Genuine self-government on true democratic principles to those 
 Austro-Hungarian nationalities who have long desired it. 
 
 Satisfaction of the legitimate claims of the Italians for union with 
 those of their own race and tongue. 
 
 Justice to men of Roumanian blood and speech in their legitimate 
 aspirations. 
 
 II. ASIA AND AFRICA 
 
 Constantinople to remain the Turkish capital. 
 
 Passage between the Mediterranean and the Black Sea to be 
 internationalised and neutralised. 
 
 Arabia, Armenia, Mesopotamia, Syria, and Palestine entitled to 
 recognition of their separate national conditions. 
 
 German colonies held at the disposal of a Conference whose 
 decision must have primary regard to the wishes and interests of the 
 native inhabitants of such colonies. 
 
 III. GENERAL 
 
 Reparation for injuries done in violation of international law, 
 especially as regards our seamen. 
 
 The establishment by some international organisation of an 
 alternative to war as a means of settling international disputes. 
 
 4. RADICAL( ?) VIEWS ON TERRITORIAL QUESTIONS 
 
 A. INTER-ALLIED LABOR AND SOCIALIST CONFERENCE 1 
 
 The Conference considers that the proclamation of principles of 
 international law accepted by all nations, and the substitution of a 
 regular procedure for the forceful acts by which states calling them- 
 selves sovereign have hitherto adjusted their differences in short the 
 establishment of a League of Nations gives an entirely new aspect 
 to territorial problems. 
 
 The old diplomacy and the yearnings after domination by states, 
 or even by peoples, which during the whole of the nineteenth century 
 
 1 ED. NOTE. This is a statement of the Inter-Allied Labor and Socialist 
 Conference, held February' 20-24, 1918, Central Hall, Westminster, London.
 
 ECONOMIC FACTORS IN AN ENDURING PEACE 615 
 
 have taken advantage of and corrupted the aspirations of nation- 
 alities, have brought Europe to a condition of anarchy and disorder 
 which have led inevitably to the present catastrophe. 
 
 The Conference declares it to be the duty of the Labour and Social- 
 ist Movement to suppress without hesitation the Imperialist designs 
 in the various states which, even in this war, have led one government 
 after another to seek, by the triumph of military force, to acquire 
 either new territories or economic advantages. 
 
 The Conference is of opinion that the main lines of marine com- 
 munication should be open without hindrance to vessels of all nations 
 under the protection of the League of Nations. It declares against 
 all the projects now being prepared by Imperialists and capitalists, 
 not ih any one country alone, but in most countries, for an Economic 
 War, if begun by any country, would inevitably lead to reprisals, to 
 which each nation in turn might in self-defense be driven. The 
 Conference realizes that all attempts at economic aggression, whether 
 by protective tariffs or capitalist trusts or monopolies, inevitably 
 result in the spoliation of the working classes of the several countries 
 for the profit of the capitalists; and the working class see in the 
 alliance between the Military Imperialists and the Fiscal Protection- 
 ists in any country whatsoever not only a serious danger to the 
 prosperity of the masses of the people, but also a grave menace to 
 peace. On the other hand, the right of each nation to the defence of 
 its own economic interests, and, in face of the world-shortage herein- 
 after mentioned, to the conservation for its own people of a sufficiency 
 of its own supplies of foodstuffs and raw materials, cannot be denied. 
 The Conference accordingly urges upon the Labour and Socialist 
 parties of all countries the importance of insisting, in the attitude of 
 the government toward commercial enterprise, along with the neces- 
 sary control of supplies for its own people, on the principle of the open 
 door, and without hostile discrimination against foreign countries. 
 But it urges equally the importance, not merely of conservation, but 
 also of the utmost possible development by appropriate government 
 action of the resources of every country for the benefit, not only of 
 its own people, but also of the world, and the need for an international 
 agreement for the enforcement in all countries of the legislation on 
 factory conditions, a maximum eight-hour day, the prevention of 
 "sweating," and unhealthy trades necessary to protect the workers 
 against exploitation and oppression, and the prohibition of night work 
 by women and children.
 
 6l6 ECONOMICS OF WAR 
 
 B. FRENCH SOCIALIST VIEWS ON COLONIAL POLICY 1 
 
 Not all the peoples of the world have reached a stage of culture, 
 political maturity, and economic development which entitles them to 
 become sovereign states. Unhappily, international congresses have 
 given no indication as to the course to be taken with regard to what 
 may be called the non-adult peoples. They only warn us against 
 "capitalist colonial policy." But we know well enough that capital- 
 ism, whatever may be the method adopted for joining or not joining 
 these peoples to the European States, will always have freer scope 
 among them than elsewhere. The problem is to find a means of 
 ensuring that this capitalist colonial policy shall be controlled in the 
 most effective manner possible; and of guaranteeing the fullest 
 possible self-government to colonies and protectorates when they 
 have developed sufficiently. 
 
 We do not think that colonial and protectorate countries can be 
 left to themselves, and, as for distributing colonies, we do not know 
 what principles to adopt for our guidance. We willingly assent to 
 the proposal that her colonies should be restored to Germany. 
 
 We hope that the Socialist parties will make a particular point 
 of giving close attention to colonial questions. 2 
 
 1 Adapted from The French Socialist Party and War Aims. (George H. Doran 
 Co., New York, 1918.) 
 
 2 ED. NOTE. Cf. President Wilson's statement of the Program of the 
 World's Peace, p. 666.
 
 XVI 
 AFTER-THE-WAR PROBLEMS 
 
 Introduction 
 
 The war is but a stage in a continuous process of economic and 
 social development. With its termination will come no end of change 
 and no cessation in the need of controlling development. On the 
 contrary, there will gradually emerge a new situation, new problems, 
 and the need of many new adjustments. The resources of the 
 country, the organization of industry, and the services of the people 
 which have been used for a single military end will have to be made to 
 serve other purposes. 
 
 With the larger problem of the control of the transition to peace 
 many questions are allied. The accommodation of industrial life 
 to the demands of peace requires many physical adjustments. Our 
 army must be returned from France, four or five million men must 
 be absorbed into industry, the wear and tear of the war in plant and 
 equipment must be replaced, and capital must be found for the con- 
 version to new uses of plants supplying the government with goods of 
 an annual aggregate value of more than ten billion dollars. But these 
 mechanical changes are contingent upon the solution of far more 
 complicated problems. They must wait upon the nature and terms 
 of the coming peace; the establishment of an international under- 
 standing about credits, raw materials, and markets; the formulation 
 of a plan for securing the incorporation of labor and plants now used for 
 war work into the industrial system; and the rede termination of 
 industrial relations between employer and employees. Even these 
 problems are further complicated by the course of events which has 
 attended the war. The establishment of new industrial standards, 
 the enlarged domain of control, the changes in personal habits, and 
 the newer conceptions of what is worth while in national and indi- 
 vidual life have read themselves into the popular conception of each of 
 these problems and must condition alike its statement and solution. 
 
 It is not the purpose of the readings which follow to enumerate the 
 after-the-war problems, to resolve them into their elements, or to 
 present even tentatively their solutions. An understanding of them 
 
 617
 
 6l8 ECONOMICS OF WAR 
 
 cannot be reduced to a few definite and general principles as were the 
 problems of the economics of war. Some of them are the age-old 
 problems of group and class and income which were with us long 
 before the war and bid fair to abide for many a decade. Others are 
 old problems such as that of maximum production from limited 
 resources, seen afresh through the new vision which the war has 
 brought. Still others, such as the international organization of 
 credits and raw materials, seem to be new. But, old or new, the war 
 has thrown them into a new situation; they require fresh analysis 
 and defy solution by ready-made formulas. Further, ' compared 
 with the simple end of military efficiency which underlies the war- 
 time organization of industry, the peace ends, which condition the 
 solution of all these problems, have the variety and subtlety of 
 bewildering complexity. 
 
 This chapter, therefore, can do little more than give some per- 
 spective of the problems of the coming peace, indicate the dangers in 
 allowing it to come upon us unawares, and point to the necessity of 
 an intelligent attempt to meet them. Toward these very finite 
 ends it is resolved into three parts. The first attempts to reveal by 
 statement and illustration the nature of the larger problem of the 
 transition to peace of which particular problems are mere aspects. 
 The second has the double end of translating this general statement 
 into the particular terms of a single definite and tangible problem 
 and of revealing the most immediate of the after-the-war problems 
 with which we shall have to deal. The third seeks to present in some 
 typical examples evidence of the less immediate issues which the war 
 has raised and which have to be taken into account in dealing with 
 even the most immediate questions. 
 
 A solution to these enigmas is not to be found now. If their 
 baffling uncertainty could be reduced to definite formulas, interest 
 in them would be robbed of the daring sense of an intellectual adven- 
 ture. This we can know: If as a nation we stumble upon peace 
 unawares, there are grave perils for us, entailing a toll of costs to be 
 paid for generations to come. If, on the contrary, by taking thought 
 for the morrow, the crisis is met fearlessly and intelligently, serious 
 trouble can be avoided. The problem is fundamentally one of 
 understanding. Properly directed development is a growth; it is 
 not born of tinkering. If as a nation we approach the coming crisis 
 in a spirit of right-mindedness and intellectual adventure we shall 
 see what we shall see.
 
 AFTER-THE-WAR PROBLEMS 619 
 
 LXIX. The Nature of the Problem 
 
 i. REASONS FOR RECONSTRUCTION PROPOSALS IN 
 GREAT BRITAIN 1 
 
 The first reason for the agitation of industrial reorganization in 
 England is that unrest in the industrial population has been con- 
 stantly increasing. A well-informed London correspondent says 
 mildly: "Some people have even developed a habit of talking of 
 revolution in Britain as if it were a matter of course, this group being 
 divided between those who declare it will come during the war and 
 those who regard it as a matter of certainty after the war." The 
 causes of this revolutionary spirit are to a certain extent identical 
 with the causes which have lent impetus to the discussion of recon- 
 struction. The fear of the workers that trade-union standards will 
 not be restored, their hostility to the compulsory arbitration required 
 by the Munitions Act, the growing separation between the rank and 
 file of labor and its leaders these have all created uneasiness in 
 working-class circles and have turned the thought of the workers to 
 ways and means of preventing a return to the pre-war industrial 
 system, or at least to those features of it which were most objection- 
 able to them. 
 
 In the second place, it is probable that the power now possessed by 
 the "Triple Alliance" of trade unions is making the employers ponder 
 the feasibility of some better system of checks and balances in the 
 government of industry than is now known. For this alliance, com- 
 posed of nearly two million employees of the railroads, the docks, and 
 the coal mines, is in a position to cripple the traffic of the islands if it 
 determines to make a stand in behalf of its demands. Whenever 
 labor has the balance of power, employers become suddenly interested 
 in the creation of parliamentary machinery for the amicable adjust- 
 ment of disputes. 
 
 A <hird incentive to thought on reconstruction comes from the 
 grave problems of demobilization, which are already being taken up 
 on every side. In some way the reabsorption of nearly five million 
 soldiers will have to be effected, while simultaneously munition plants 
 will have to be diverted to the manufacture of other products and a 
 policy of reconstruction worked out. 
 
 'By Ordway Tead. Adapted from "Some Reconstruction Programs," 
 Political Science Quarterly (March, 1918), pp. 56-58. 
 
 ED. NOTE. Mr. Tead is a prominent American student of labor problems.
 
 620 ECONOMICS OF WAR 
 
 There is, fourth, the impetus which the guild socialists have given 
 to the study of drastic reforms. They are avowedly anxious that, if 
 possible, a transition to the national guild system be effected, or at 
 least begun, immediately after the war. Their analysis of the needs 
 of the hour has been well expressed thus: "The factors to be con- 
 ciliated by the new social contract are (a) a more or less blind revolt 
 against degrading conditions; (b) the imperative necessity of a more 
 scientific efficient system of production; (c) the call for a higher 
 spiritual and moral life; and (d) a revivified passion for freedom. 
 
 Fifth, the urgent need of reconstruction is being pressed by those 
 concerned for high productivity and therefore for "harmony "and 
 " co-operation " in industry. Stress is laid on the fact of the low per 
 capita output of British workers compared with those of Germany 
 and the United States; and limitation-of-output policies are con- 
 demned from every angle. Those who approach the industrial 
 problem in this way are actuated by various motives. There is one 
 motive, however, so sharply differentiated from the rest that it really 
 becomes a separate cause of the reconstruction agitation, and should 
 therefore be separately mentioned. 
 
 This sixth cause is the desire for the imperial supremacy of 
 England, an end to be gained by greatly increased production at a 
 minimum cost per unit of product. This reason is to be met in public 
 utterances from widely different sources. 
 
 From every quarter, therefore, from labor-conservative and 
 labor-radical, from employer and statesman, has come explicit state- 
 ment that the industrial institutions of England are "rotten-ripe for 
 change." Is it to be wondered at that from a dozen directions at 
 once have sprung programs and schemes of reorganization? The 
 remarkable thing is rather that these have been so few and that they 
 have with one or two exceptions followed so uniformly along the same 
 lines. 
 
 2. THE FACTORS IN THE PROBLEM 1 
 
 The discussion above makes it evident that the problem of the 
 transition to a status of peace is no mere problem of a "return." 
 An intelligent approach to it is conditioned upon a clear understanding 
 that it is not and cannot possibly be the problem of the restoration of 
 the scheme of things existing on August 3, 1914, or on April 6, 1917. 
 
 The war has brought in its wake many new things which, however 
 unexpected, cannot be escaped. The course of our development is an 
 
 1 An editorial.
 
 AFTER-THE-WAR PROBLEMS 621 
 
 ever-changing one. The course of events enables us to discover 
 hitherto unknown factors which are shaping our development, which 
 have to be taken into account in any intelligent attempt to accom- 
 modate our lives, individually and collectively, to the circumstances 
 under which they must be lived. It is too early and we are at too 
 close a range as yet to get a clear perspective of these new things, or 
 old things which look new. Yet, without a pretense of making a 
 catalogue, some of these factors may well be presented for the light 
 which they throw upon the nature of the transition problem. 
 
 Let us take as a first example the impulse which the war has given 
 toward supplying modern industrial society with agencies of organiza- 
 tion suitable to its needs. It has been with no conscious design and in 
 terms of no preconceived plan that a nation made up of a large number 
 of small rural communities was converted into a vast and intricate 
 industrial society. So it is not surprising that thought was not taken 
 that the nation should be supplied with the machinery necessary to the 
 organization of its industrial life. A great deal of this belated machin- 
 ery the war is supplying. To cite an example, it is hardly reasonable 
 to think of abandoning a unified railroad system, and returning to a 
 loose aggregate of individual lines, which involve much duplication 
 of service and equipment, which were planned with little reference 
 to each other, and which were built for a variety of reasons, running 
 from sound investment to the most reckless speculation. 
 
 Or, to cite another example, we can hardly think of an abandon- 
 ment of the organization of the labor market, which just now is in 
 process of fulfilment. For decades one of our most serious problems 
 has been that of getting men and jobs together. On the mere quanti- 
 tative side we have been fairly successful, perhaps too successful, if 
 judged by the number of contacts which have been established;, for 
 as the statistics of "labor turnover" so clearly indicate, the problem 
 has been too habitually solved by getting square pegs into round holes. 
 A retention of these and like devices for organization involves no clear- 
 cut clash between group interests. They are mechanisms necessary 
 to the full utilization of resources and the avoidance of waste. In a 
 way they are not due to the war; for they involve the accentuation of 
 tendencies clearly discernible before the war began. Their impor- 
 tance, for our problem, is evidenced by the thousand and one ques- 
 tions of their use which their very existence inevitably causes to be 
 raised. The presence of such agencies and organizations mean that 
 the return of men and materials will be effected under an organization
 
 622 ECONOMICS OF WAR 
 
 much better established than the one which we had when we went 
 to war. 
 
 The discussion of organization suggests that the war is bringing 
 with it an increased consciousness of our common dependence upon 
 each other and of individual responsibility for the common good. 
 Perhaps we believe as strongly as we did before the war that "the 
 individual shall be free to do as he pleases so long as he does not 
 interfere with the rights of other individuals to do as they please." 
 But the real meaning of this axiom lies in its balance between one's 
 own rights and the rights of others. A few decades ago lotteries, 
 public drunkenness, and even political corruption were defended upon 
 the first ground. Latterly the tendency has been to place increased 
 emphasis upon the rights of others and to insist that "individual 
 liberty" must be amenable to the common good. The acceptance of 
 the principle of universal conscription, and a willingness to have a 
 large share of one's income conscripted for a public purpose are but 
 isolated cases of a nation-wide subordination of private to public good 
 and to the necessity of control directed to the common end. 
 
 Implicit in this, but deserving of separate statement, is the clear 
 conception of what may be called national economy, which has been 
 brought home to the people at large. Through the food administra- 
 tion our people have learned that, however large the whole food supply, 
 it is yet limited as compared with the uses to which we would put it, 
 and that waste or extravagance by one person is taking food away 
 from another. 
 
 Likewise, the war is bringing home to the masses the relationship 
 of the individual's work to the total wealth of the nation. They are 
 beginning to see that the result of the day's work is not a mere wage 
 and that the two do not constitute an industrial whole, separate and 
 apart; but that, on the contrary, any restriction of output or with- 
 holding of productive effort, "conscientious" or otherwise, is reducing 
 the total wealth of the nation, which can never be large enough for 
 all its needs. 
 
 Even more important is the distinction which the war is establish- 
 ing between business and industry, between work and effort which is 
 directed at profits and that which adds to the volume of the good 
 things of life. Here it may be insisted that the feeling of solidarity 
 of which these instances are mere examples is but of the war and for 
 the war, and that since it will lapse with the war it need not be taken 
 into account in considering the problem of the transition to a state
 
 AFTER-THE-WAR PROBLEMS 623 
 
 of peace. In reply it can be said that this new feeling is but the con- 
 summation of a tendency clearly in evidence before the war. The 
 problem which it raises is that of transferring the feeling established 
 by the effects of the war from a nation at war to a nation at peace, 
 and of reading it into the new order of things. This problem offers a 
 challenge which cannot be escaped. To allow a sentiment of such 
 value to lapse without a conscious and determined effort to hold and 
 use it would be nothing short of criminal. 
 
 In this country the ideal of large national output is beginning to 
 lead to the employment of women in trades formerly closed to them, 
 to the dilution of skilled with unskilled labor, and to a breaking down 
 of the tradition which has kept skilled labor upon unskilled work. 
 While as yet the change is small, the experience of England shows the 
 lengths to which it may go and the size of the problem with which we 
 shall have to deal if the struggle is a protracted one. The importance 
 of large output is also rapidly teaching the American people the 
 necessity of a careful conservation of the health, strength, and general 
 physical efficiency of labor. The result is that the sheer necessity of 
 turning out munitions in large volume is leading to a reconsideration 
 of hours of labor and a general revision of living and working condi- 
 tions among laborers employed on government contract. Thus, the 
 national needs of large production are rapidly accomplishing a reform 
 which it would have taken decades to effect in a system where all 
 changes were considered simply with an eye to the immediate profits 
 they might bring unimaginative employers. The latter change in 
 this country is beginning to be associated with an inclusion of repre- 
 sentatives of the laborers in the management of industry, an innova- 
 tion which seems, in some places, at least, to have been accompanied 
 by a decided improvement in the laborers' attitude towards his work 
 and with a stimulus to his mind to devise ways for accomplishing 
 given tasks more economically. It is futile to insist that what has 
 been done and learned here can be erased and that a return can be 
 made to pre-war conditions. But, on the contrary, if these and like 
 changes are considered, it is evident that they bristle with problems 
 in which neither the facts are well known, nor are future policies clear 
 beyond peradventure. 
 
 In the realm of finance, too, problems are essentially new. Our 
 tax policy, with its emphasis upon levies upon income and excess 
 profits, is full of innovations as regards the nature of the taxes, the 
 groups upon which their incidence falls, and their avowed use for
 
 624 ECONOMICS OF WAR 
 
 purposes of control. Yet, despite their novel character, they are but 
 extensions of a new theory of taxation which is implicit in the tax 
 legislation of the first Wilson administration. They seem to have 
 disproved the argument so generally accepted before the war that 
 taxes of such a nature and magnitude would kill "business enterprise," 
 and a democracy which has learned to use them is not likely easily to 
 be stripped of weapons so effective. Our currency and banking 
 problems, too, demand a fresh approach. Not only has the price- 
 level been radically changed from that which obtained in the spring 
 of 1917, but its various elements are related to each other in such a 
 way as to make the relative incomes of individuals and groups very 
 different from those formerly obtained, thus changing for better or 
 for worse their social positions. It is idle to insist that the steps which 
 have brought this about can be retraced. If, as a result of changing 
 prices, the standards of life and social positions have been disturbed 
 to the disadvantage of groups that should fare better, the problem of 
 adjustment will have to be directly faced. 
 
 Another aspect of the price-level raises a new and difficult series 
 of problems. Because of the variety of means employed by -the 
 several warring nations in financing the war and the restrictions upon 
 freedom of exchange which under ordinary conditions is depended 
 upon to adjust price-levels among them, the price-levels are badly 
 out of harmony. A conscious attempt to understand what is involved 
 in this and to devise measures for dealing with it is imperative. And, 
 lastly, the fundamental conditions of foreign trade have been affected, 
 for better or for worse, not only by the break-up of establishments 
 carrying it on, the diversion of ships to other uses, and the loss of 
 organization, but also by the building of new ships, changes in the 
 industrial systems of the belligerent countries, and, last but by no 
 means unimportant, by changes in the minds of the people in their 
 regard for, or their distrust of, other nations. Whether or not con- 
 sideration be given to the changing mind of the people, the very 
 definite changes which have accompanied it and the host of problems 
 which they raise demand an approach to the problem of the transition 
 to peace as something far larger and more complex than a simple 
 problem of "resumption." 
 
 It must be added here, that the longer the war is continued, and 
 the more thoroughly the scheme of arrangements and habits of thought 
 which it inspires becomes habitual, the greater will be the necessity 
 for a consideration of these things in formulating a program for the 
 transition to peace.
 
 AFTER-THE-WAR PROBLEMS 625 
 
 In contrast with the problem of getting a nation satisfactorily 
 back to a peace basis, the problem of preparation for war is simplicity 
 itself. In the latter case the end to be achieved is a direct one. A 
 nation has a limited amount of labor, materials, equipment, and other 
 resources. The problem is to divert as large a part of this as possible 
 into a surplus which can be used to arm, equip, and hurl at the enemy 
 a military force large enough to overcome his. The end of an organi- 
 zation for peace has no such simplicity. It is not to turn out the 
 largest possible aggregate of goods useful for a single end. On the 
 contrary, it is bound up with a clash between the immediate interests 
 of the several competing groups which make up the nation, between 
 the more immediate and the less immediate interests of these groups, 
 and between the desires of these various groups and an ideal of what 
 is best for society as a whole. But this question is as important as 
 it is nebulous. It might be fairly easy to settle it in terms of the 
 production of the largest aggregate of wealth as measured in pecuniary 
 terms or in terms of largest physical output. But the problem with 
 which we are confronted must consider the kinds of goods produced as 
 well as their quantity; it must give attention to the uses to which 
 they are put as well as their volume; it must keep in view its dis- 
 tribution between groups as well as its appearance in the statistics of 
 national income. It needs to consider that there is a social account- 
 ancy in which human utilities and costs are to be assessed and 
 measured, as well as a pecuniary accountancy in which money debits 
 and credits of individual businesses are marked up. This end may be 
 vague, nebulous, and at best a concept which can be barely approxi- 
 mated; but its vague character makes all the more necessary an 
 attempt to come by it intelligently. With it something is at hand to 
 give at least, a semblance of unity to a program which otherwise will 
 be nothing but a jumbled heap of fragments. In approaching the 
 problem of the transition to a status of peace, as in other matters, it 
 is well to remember the new adage, "He who knoweth not what he 
 seeketh, understandeth not what he findeth." 
 
 An intelligent approach to the problem requires an appreciation 
 'alike of its unity and of its resolution into a large number of comple- 
 mentary inquiries. The first of these demands that the general work 
 of direction and the ultimate formulation of a program be vested in a 
 single person or an independent body. The second requires the use 
 of persons, agencies, and institutions who know the subject-matter 
 of particular inquiries well enough to give the expert assistance 
 necessary.
 
 626 ECONOMICS OF WAR 
 
 The argument for single direction of study and formulation of a 
 program rests upon the unity of the problem. This unity is perhaps 
 apparent from the discussion of the nature of the problem given 
 above. It has, however, other supports which require a brief 
 enumeration at this point. 
 
 Almost any problem of making the transition to peace involves a 
 large number of other problems. To cite a particular example, it is 
 necessary that the large amount of capital tied up in shipping shall 
 be used productively when the war is over. To avoid scrapping the 
 wealth which this investment represents, the ships must be used 
 either in coastwise trade or in foreign commerce. Whether the 
 railroads alone can take care of the greater part of our domestic 
 commerce after the war is over, whether the use of the ships may be 
 made to avoid a vast expenditure upon railroad development, or 
 whether their slowness and the expense of transshipment which they 
 entail are such as to confine their use to a very limited class of freight 
 are questions which require examination. Likewise, the use of ships 
 in foreign commerce depends upon the foreign commercial policy after 
 the war, a matter that is contingent upon the terms of peace, our 
 tariff policy, research in foreign trade, etc. It is needless to say that 
 the departments of the government to which these detailed subjects 
 properly relate must be used both in gathering the facts and in formu- 
 lating policies. But it is manifest that the supervision of study and 
 formulation of a program require unity of direction from some external 
 source. 
 
 All the particular problems of the transition period have their 
 being within a common environment and their solutions must be 
 found within the limits which that environment allows. Not only 
 are they, as we have seen, directly related one to another, but they 
 are indirectly related to each other through their dependence upon a 
 common scheme of life. An enumeration of a number of the general 
 conditions to which particular proposals must conform will make 
 clear this dependence. 
 
 An intelligent study of the problem must proceed in terms of a 
 national society. At the end of the Civil War there was an abundance 
 of free land; the nation consisted largely of an aggregate of semi- 
 independent agrarian communities, and everywhere industrial 
 opportunities were underutilized. If in the Northeast manufacturing 
 was springing up and life was becoming increasingly urban, the 
 industrial openings were many and there was still abundant room in
 
 AFTER-THE-WAR PROBLEMS . 627 
 
 the West. Now the small community which lives by itself is gone; 
 the economic system has become increasingly industrial, pecuniary, 
 and urban. The interests of men run largely in terms of occupations, 
 of industries, of particular groups. In addition, the single complex 
 organization which is our industrial system has grown' in defiance of 
 state lines or other artificial political barriers. Even before the war 
 we had a banking system which divided the country into zones in 
 defiance of state lines. The war has given us, in the administration of 
 transportation, coal, war industries, and other things, new divisions 
 of the country into war zones, none of which are respectful of political 
 boundaries. The tentacles which mark the connections of any 
 business, or the lines which mark the assembly of the raw materials 
 of any industry, or the radiation of its finished products, know no 
 arbitrary boundary lines. 
 
 This situation makes it evident that the unity of a program can- 
 not be achieved except by study and action on national lines. The 
 proposal is heard frequently of late that each of the communities of the 
 country work out its own problems of a return to peace. Certainly 
 community participation in the discussion and settlement of these 
 problems is to be encouraged, and there is little likelihood that the 
 problems will receive more community thought than they deserve. 
 But the larger questions at issue the demobilization of men, their 
 incorporation into trades, the determination of industrial relations, the 
 control of industrial organization and activity must be worked out 
 in terms of industries which, have a national existence and of a con- 
 sistent scheme of direction which ignores state as well as community 
 lines. An adaptation of a program to a society which is now national, 
 industrial, and urban, and the necessity for stating each separate 
 problem in terms of their common national and industrial environ- 
 ment, requires a common handling of them as mere aspects of the larger 
 problem of a developing society. 
 
 Our national industrial society is a changing one. Enough has 
 been said above to indicate that it is changing in the organization of 
 men and materials into industries, in the general scheme of direction 
 and control, and in the habits, customs, and modes of thought which 
 lie at the basis of all activity. These changes are going on with pecu- 
 liar rapidity during the course of the war. The program which the 
 public demands will not only be very different from that which would 
 have been demanded before the war, but what can and should be done 
 will vary with the changes which attend the course of the war. Their
 
 628 ECONOMICS OF WAR 
 
 common dependence upon the social situation which peace will bring 
 requires unity of treatment for the particular problems which con- 
 stitute the general problem of transition. 
 
 The larger social environment which holds the particular problems 
 of getting back to a peace basis is subject to great modification by the 
 terms of peace. If the peace which is made is in reality an armistice, 
 and competitive military preparations on a large scale are to continue 
 after the war, the idea of making possible the use of the industrial 
 system to turn out a maximum surplus of wealth for war uses must 
 dominate any program for the organization of peace. Not only does 
 this mean a reorganization of our educational system about universal 
 military service, but that utility for war must be read into the design 
 of every industrial establishment and the plan in terms of which they 
 are organized into a system. It involves also a scheme of control for 
 the system as a whole, as well as the creation of a military type of mind. 
 But if, on the contrary, a peace is made which gives promise of proving 
 lasting, the surplus wealth would more properly be devoted to other 
 ends; a scheme of control different, because it has a different objective, 
 would be adopted; and a different public opinion would be allowed to 
 develop. In view of the comprehensiveness of these things every 
 problem would in one way or another be touched. Thus, through 
 their common dependence upon the terms of peace, the particular 
 problems require unity of treatment. 
 
 3. ENGLAND'S MINISTRY OF RECONSTRUCTION 
 
 In July, 1917, the government proposed to Parliament the estab- 
 lishment of a Ministry of Reconstruction to continue for the duration 
 of the war and for a period of two years, or less, after its conclusion. 
 The functions of the Minister of Reconstruction who assumed office in 
 August, 1917, are defined thus: 
 
 "To consider and advise upon the problems which may arise out 
 of the present war and which he may have to deal with upon its 
 termination, and for the purposes aforesaid to institute and conduct 
 such enquiries, prepare such schemes, and make such recommenda- 
 tions as he thinks fit." 
 
 The business of the Ministry is to be acquainted with all proposals 
 for dealing with post-war problems which are under consideration by 
 government departments or committees or put forward by respon- 
 sible bodies or persons, to study them in their bearings upon each 
 other, to initiate proposals for dealing with matters which are not
 
 AFTER-THE-WAR PROBLEMS 629 
 
 already covered, and out of all this material to build up in consulta- 
 tion with the other departments for submission to the Cabinet, and 
 ultimately to Parliament, a reasoned policy of reconstruction in all 
 its branches. 
 
 For the purposes of administration the department has been 
 divided into branches dealing respectively with commerce and pro- 
 duction, including the supply of materials; with finance, shipping, and 
 common services; with labor and industrial organization; with rural 
 development; with the machinery of government, central and local, 
 health and education; and with housing and internal transport. 
 
 Further, to assist him in considering the many and varied pro- 
 posals which come before him, the Minister has created an Advisory 
 Council representative of all the leading interests concerned in 
 reconstruction, and it is his hope by consulting the council freely and 
 regularly to secure a representative consensus of opinion on any 
 proposal which may be referred to him for advice or which may be 
 initiated in the department. 
 
 At the beginning of the year the chief questions immediately under 
 consideration (in all cases in co-operation with the other departments 
 affected) are: 
 
 A. COMMERCE AND PRODUCTION 
 
 1. The supply and control of raw materials after the war, which is 
 being investigated by a committee. 
 
 2. Financial facilities for British commerce and industry after the 
 war. A committee has been appointed with the concurrence of the 
 Treasury. 
 
 3. The preservation of industries which will play an essential part 
 in reconstruction, but are in danger of extinction through failure of 
 supplies of material or labour. This problem is being dealt with in 
 consultation with the Priority Organization of the Cabinet. 
 
 4. Financial risks attaching to the holding of trading stocks. 
 
 5. Trusts and combinations, with special reference to the pro- 
 tection of the consumer. Committees are being appointed to deal 
 with both these questions. 
 
 6. The establishment of new industries after the war. A conv 
 mittee has been appointed to consider this question, as far as the 
 engineering trade is concerned; it has already compiled a preliminary 
 list of articles which might be produced in this country, and the 
 Minister has appointed a parallel committee to consider the labour 
 questions involved.
 
 630 ECONOMICS OF WAR 
 
 7. The volume and nature of the demand for British goods after 
 the war. 
 
 8. Improvements in trade organization for the purposes of more 
 economical production, distribution, and marketing, and of facilitating 
 and expediting the turnover from peace to war. 
 
 These last two questions are being handled in consultation with 
 the Board of Trade and the Department of Overseas Trade, and a 
 comprehensive scheme of work has been prepared. 
 
 The Ministry of Munitions also is co-operating in obtaining 
 information from the controlled establishments. 
 
 The problem may be stated thus: After the war there will be a 
 world shortage of certain materials and the shortage will be accentu- 
 ated by the difficulty of finding tonnage adequate to our demands. 
 On the other hand, there will be an almost unlimited demand for 
 manufactured goods. 
 
 The Ministry of Reconstruction, in concert with the Board of 
 Trade, has undertaken to estimate and analyse the supply. The Board 
 of Trade and the Department of Overseas Trade will, it is hoped, by 
 enquiry of the trades themselves, of the Dominions, Colonies, India, 
 and Allies, and by examination of other sources of information, 
 produce a corresponding estimate and analysis of the demand, and 
 the results of both enquiries will be used to determine in what order 
 demands shall be met which cannot all be met at once, in what 
 proportion raw materials shall be directed into certain channels, in 
 what directions the demand for labour, power, tonnage, and credit is 
 likely to be most intense,, and what emergency arrangements will be 
 required to meet it. 
 
 It is not a question of arbitrary restriction or of protecting some 
 industries or developing others it is a question rather of directing/ 
 to the most productive purposes such materials as will in fact be 
 available, and of furnishing industry with the necessary facilities, 
 including information for making those purposes effective. 
 
 The desire of the government is to leave the industries to ration 
 themselves under certain general principles for which the government 
 must take responsibility. What those principles should be, and what 
 form of central machinery should be devised for this purpose, is one 
 of the first questions on which the Advisory Council is being asked to 
 report. 
 
 B. FINANCE, SHIPPING, AND COMMON SERVICES 
 
 i. In conjunction with the Treasury, a committee has been set 
 up to consider the question of currency and exchange after the war.
 
 AFTER-THE-WAR PROBLEMS 631 
 
 2. The Advisory Council on the Disposal of Government Stores 
 has begun work. 
 
 This is a matter which the government regards as being of great 
 importance. The total volume of surplus property which will be on 
 the hands of the War Department "at the end of the war will be 
 enormous, and in dealing with it the government has two main 
 objects in view. The first is to protect the taxpayer from improvident 
 selling; the second is to protect markets and therefore labour from 
 the dislocation which will inevitably result if, for instance, some tens 
 of thousands of motor vehicles and some hundreds of miles of wire are 
 released for sale at once. 
 
 They have decided, therefore, to entrust the whole executive 
 arrangements for disposal to a specially created body, which will act 
 as salesman for any government department having surplus stores to 
 dispose of. 
 
 At the same time the general principles and policy governing any 
 alternative form of use or disposal for instance, whether certain 
 goods should be sold in France or brought home; whether motor 
 lorries should be thrown on the market or reserved for the use of 
 public bodies for the development of agricultural transport will be 
 settled by the Advisory Council, for which the Minister of Recon- 
 struction will be responsible. In other words, the Advisory Council 
 will certify certain articles as disposable and will indicate the lines 
 on which they are to be disposed of, and the executive body will then 
 proceed within the limits laid down to make the best bargain for the 
 taxpayer. 
 
 C. LABOUR AND INDUSTRIAL ORGANISATIONS 
 
 Trade organisations. It has been agreed between the Board of 
 Trade, the Ministry of Labour, and the Ministry of Reconstruction, 
 that a concerted effort should be made to promote in as many indus- 
 tries as possible representative organisations to advise the government 
 as to the views and needs of the industries on the various industrial 
 and commercial problems that will affect them during the reconstruc- 
 tion period. 
 
 The creation of the organisations in question is not intended in 
 any way to prejudice the formation of Joint Industrial Councils, but 
 is designed as an emergency measure to facilitate the transition from 
 war to peace conditions, and to expedite the establishment of perma- 
 nent Industrial Councils and the determination of their functions. 
 
 The Ministry of Labour will, therefore, proceed with the formation - 
 of Industrial Councils, and the three Ministries will co-operate in the
 
 632 ECONOMICS OF WAR 
 
 establishment of the interim organisations referred to. For this 
 purpose there will be a standing Conference on Trade Organisations 
 at the Ministry of Reconstruction, consisting of three employers, 
 three trade unionists, and representatives of the three departments. 
 The functions of the conference will be, (a) to classify trades for the 
 purpose of promoting representative organisations in each; (b) to 
 advise as to the manner in which each trade should be approached, 
 and the persons and existing organisations who .should be consulted, 
 and the matter to be placed before them. 
 
 A general survey of industrial policy as a whole has been prepared 
 and the following branches are being examined in detail: the law 
 relating to merchant shipping; labour in merchant shipping ; war-time 
 departures from trade-union practices; industrial courts; industrial 
 structures; apprenticeship; reinstatement of returning soldiers and 
 sailors; international labour legislation. 
 
 In agreement with the other departments affected, a survey has 
 been undertaken of industrial methods. As a part of the enquiry, a 
 special investigation has been made into the organisation of the woolen 
 and worsted trade, as an example of joint control, and into the arrange- 
 ments made in the West Riding dyeing industry for providing security 
 of employment. The working of the Cotton Control Board is now 
 being investigated. 
 
 An enquiry is being made jointly with the Ministry of Labour into 
 the question of juvenile employment. 
 
 The Civil War-Workers Demobilisation Committee and the 
 Women's Employment Committee are continuing their enquiries. 
 
 The question of army demobilisation has, apart from a few points 
 which still remain to be determined, passed into the executive phase 
 and is in the hands of the War Office and Ministry of Labour. 
 Broadly speaking, the division of functions is that the War Office is 
 responsible for the man until he leaves the army and the Ministry of 
 Labour is responsible for him until he re-enters employment. 
 
 Since demobilisation must in the most favorable circumstances be 
 a slow process and must be conducted in some order, the War Office 
 and the Ministry of Labour will, in conjunction with the Ministry of 
 Reconstruction, determine the priority of different trades on the basis 
 of the information obtained by the Ministry, and on the general 
 principle that the essential industries shall be served first. The 
 results of the enquiries already referred to as to the post-war demand 
 for goods and the supply of materials and manufacturing facilities 
 will be available for their guidance.
 
 AFTER-THE-WAR PROBLEMS 633 
 
 In order that so far as possible surplus labour may be usefully 
 and rapidly absorbed after the war, a complete list of public works 
 which have fallen into arrears is being prepared. 
 
 D. RURAL DEVELOPMENT 
 
 The Ministry is working, in association with the Board of Agri- 
 culture, on land settlement; a general survey of agricultural policy 
 has been prepared and the material is being brought together for a 
 review of the land question as a whole. The question of instituting 
 an enquiry into rating is under consideration. The following ques- 
 tions have received special examination: 
 
 1. The working of the Small Holdings Act, 1908, and the future of 
 urban war allotments. 
 
 2. The report of the Forestry Committee has been published and 
 a scheme has been prepared in consultation with the departments 
 concerned for the consideration of the government. 
 
 3. The rural housing problem. 
 
 4. The organisation of county offices for advice and information 
 on agriculture, on which proposals are being discussed by the Advisory 
 Council. 
 
 5. Tithe redemption. 
 
 6. Village industries. 
 
 7. The Land Acquisition Committee has reported. 
 
 E. MACHINERY OF GOVERNMENT, HEALTH, EDUCATION, ETC. 
 
 1. Lord Haldane's committee on the distribution of functions 
 between government departments is continuing its enquiries and 
 negotiations are proceeding with the departments and outside 
 bodies concerned with regard to the formation of a Ministry of 
 Health. 
 
 2. The Committee on Local Government has presented a report 
 on the functions of Poor Law authorities which has been published. 
 
 3. A Committee on Adult Education has been appointed and has 
 made considerable progress. 
 
 F. HOUSING AND INTERNAL TRANSPORT 
 
 In consultation with the departments affected, a housing program 
 has been prepared for submission to the Cabinet. 
 
 With a view to facilitating work in connection with housing the 
 following committees are at work:
 
 634 ECONOMICS OF WAR 
 
 1. The Committee on the Supply of Building Materials is collect- 
 ing information from the trade as to its probable requirement in 
 material and labor. 
 
 2. The Housing (Building Construction) Committee set up by 
 the local government board in consultation with the Minister of 
 Reconstruction. 
 
 3. The Committee on Building By-Laws. 
 
 Special investigations have been made into the following points: 
 
 1. Control of public utility societies. 
 
 2. Town planning. 
 
 3. Rings in the building trade. 
 
 4. The working of the Small Dwellings Acquisition Act. 
 
 A general review of the problem of inland transport is now being 
 prepared. The sections dealing with roads and canals are completed; 
 the department is in consultation with the Board of Trade as to the 
 future of the railways (including light railways) and an enquiry has 
 been begun into the question of storage and distribution as essential 
 elements in transport policy. 
 
 An important part of the work of the Ministry is the examination 
 of all proposals from a legal point of view with a view to determining 
 what amendments of the existing law are involved. Side by side with 
 this the large volume of emergency enactments and orders has to be 
 reviewed in its bearing on the immediate post-war problems and the 
 situation that will be produced by their expiry or repeal. 
 
 LXX. The Problem of Demobilization 
 i. THE TASK OF DEMOBILIZATION 1 
 
 The most immediate and perhaps the most important problem 
 of the transition from war to peace is that of demobilization. If it 
 involved only the discharge of soldiers from the army it would be 
 simple and its solution easy. But because of the vast scale of modern 
 warfare and of its use of the whole of the economic system, this is 
 but a part of a comprehensive process of economic reorganization. 
 Not only are soldiers to be discharged, but plants are to be turned to 
 new uses, and their equipment re-made to serve new ends. There is 
 involved also the use of technique which the war has built up, and of 
 an organization necessary for the production of materials useful in 
 
 1 From a confidential report to the United States government.
 
 AFTER-THE-WAR PROBLEMS 635 
 
 war. Already factories have been devoted to new ends, and the paths 
 of trade, the markets, and the organization of separate establishments 
 into trades and these into an industrial system have been profoundly 
 affected. But the problem has a positive as well as a negative aspect. 
 It consists not only in getting these men, materials, etc., out of war 
 uses, but in getting them into peace uses. The question is, how can 
 this be effected most quickly, with the least waste, and on relatively 
 permanent lines ? 
 
 If the problem is to be handled as it was handled in this country 
 at the end of the Civil War, in England after the Boer War, and in 
 almost every country after every nineteenth century war, it will be 
 upon the simple theory that the function of the government is to 
 discharge men from the army and to fail to renew munition con- 
 tracts and then leave the reorganization of the industrial system 
 for peace to the simple and obvious system of natural liberty. But 
 note what is involved in this: Four or five million men, from the most 
 skilled to the least skilled, are to be turned loose without employment 
 or assured means of livelihood. Government contracts calling for 
 materials valued at from twelve to twenty billions of dollars annually 
 are to be canceled. This leaves a very large part of the industrial 
 establishments of the country without immediate sale for their 
 products, and forces them to look around for other markets. Poten- 
 tially, at least, it throws out of employment a host of men and women 
 much larger than the number actually discharged from government 
 service. In view of these two conditions, a number of other things 
 may be expected. The host of free laborers, all seeking employment, 
 means, temporarily, at any rate, a glut of the labor market. The 
 uncertainty about purchase of war wares and markets leads to caution 
 on the part of the managers of industry. Those of the managers 
 whose factories have become idle will be looking around for a chance 
 which will promise the largest volume of profits, but the uncertainty 
 attending so colossal a disturbance will require caution. The laborers 
 who have no immediate employment, or who may expect lower 
 wages, will be rather reluctant to buy goods whose purchase can be 
 deferred. All history attests that a crisis of this kind, if the govern- 
 ment does not intervene, will be accompanied by a period of falling 
 prices. This discouraging of industrial venture on the part of 
 employers tends to unemployment and underemployment, and to a 
 delay in getting the industrial system organized to meet the demands 
 of peace. In addition, if the government furnished no plan, there
 
 636 ECONOMICS OF WAR 
 
 is no assurance that the plants used to produce war supplies will be 
 converted to peace uses without a great deal of waste, or that the 
 laborers will be got into employment without a great deal of the 
 knowledge, skill, and training which they now possess being wasted. 
 
 In most cases, too, the conversion of a plant to new uses will be 
 dependent upon borrowed capital. This cannot be obtained unless 
 there is assurance that the plant will pay. If only a few plants were 
 to be converted, such assurance would be easy. If all war plants are 
 to be converted and the lines of production into which they go are 
 properly apportioned to each other, there is assurance of financial 
 success, for they make a demand for each other's products. But, if 
 the conversion is to be left to the judgment of the several manu- 
 facturers, each of whom in this period of transition tries to find the 
 industrial opening which will pay best, there is sure to be serious 
 waste, duplication, and a long period of delay. A concerted plan is 
 necessary to avoid these costs. Such a plan, too, is for the best 
 interest of concerns which require no conversion, or which can easily 
 find for themselves industrial opportunities, for the profits of such 
 establishments depend upon their sales and their sales are contingent 
 upon having the rest of the industrial system occupied in making 
 profits and the people busied with earning wages. 
 
 Such are the purely economic difficulties attending demobilization. 
 But they are increased by others of a semi-economic or non-economic 
 character. Note, for instance, the chance that in the depression 
 which follows the war, which seems inevitable unless the government 
 meets it with a plan, many of the gains of the war are likely to be lost. 
 Much has already been done toward teaching the laborer the rela- 
 tionship between his own product and social welfare, and in showing 
 the nation the gains which come from making this product as large 
 as possible, but it will be very difficult if not impossible to keep these 
 ideas alive if a large part of labor is unemployed and if the industrial 
 system is half-stalled. Much, too, has been accomplished in main- 
 taining the rates of wages high enough to give a living large enough to 
 assure high production and efficiency, in regulating hours, in improving 
 housing conditions, and in the establishment of a national minimum 
 for living and working conditions. The maintenance of these gains 
 depends partly upon the ability of the employer to finance them and 
 partly upon a demand on the part of the laborers that they be main- 
 tained. With industry running at full blast and with full employ- 
 ment both of these conditions are assured; but if the industrial system
 
 AFTER-THE-WAR PROBLEMS 637 
 
 is running half-stalled they are threatened. The plant which is built 
 to turn out a certain fixed output at the smallest cost per unit has its 
 profit seriously threatened if its sales are reduced by only a small 
 percentage, and in view of this the employer finds it necessary to 
 reduce costs in every conceivable way if he is to survive. A reduction 
 of wages and lowered living standards become the inevitable results. 
 
 A political consideration leads to the same end. At the end of the 
 war a very considerable portion of the industry of the country will 
 be producing goods on government contracts. They buy their 
 materials from other industries. They are connected with financial 
 institutions. They give employment to millions of men and women. 
 The 'government contracts are the source of prosperity in the towns 
 in which they are situated. It is needless to say that they will be very 
 apprehensive of the withdrawal of government contracts. In the 
 absence of a constructive plan which assures to them continued 
 business and a chance to continue the employment of their workers, 
 they are certain to attempt to maintain a market for their wares. 
 It is not only possible, but almost certain, that in this event a great 
 munitions lobby will be established, with the object of insuring 
 continued government contracts. This will have the support of the 
 munitions manufacturers, of those in related industries, and of the 
 laboring classes dependent upon these business men for employment. 
 
 It is not the purpose of this memorandum to suggest a plan for 
 demobilization, but rather to indicate the need, (i) of an intelligent 
 study of the problem in all of its ramifications and, (2) of the formu- 
 lation of a constructive plan which aims at supplying the one thing 
 necessary to a successful transition, namely, organization. To that 
 end the following tentative suggestions may be made. While they 
 are not definite and are very tentative, they are all mere corollaries 
 of the discussion given above. 
 
 a) A careful, plan must be formed for the demobilization of men 
 in the army. It seems clear that this demobilization should be 
 gradual and not sudden, and should be dependent upon the ability 
 of the industrial system to reabsorb the discharged men. In this 
 connection it seems that demobilization should be in accordance with 
 economic needs rather than by military units; but economic needs 
 are not to be interpreted as the demobilization of all of a certain trade 
 at one time. On the contrary, since various industries fit into an 
 intricate system and various occupations are part of a single process 
 of producing goods, it is necessary that men of varied occupations be
 
 638 ECONOMICS OF WAR 
 
 released at one time. This suggests that a contingent made up of 
 men of a number of occupations in proper proportions to each other 
 be released at one time, another like contingent later, etc. This, in 
 all probability, would involve a scheme of priorities in converting 
 establishments to peace uses. 
 
 b) In lieu of government demands, there are many uses to which 
 men and materials could be devoted during the transition period, and 
 from which they could very gradually be withdrawn. In the first 
 place, there is a great need for replacing machinery, equipment, and 
 other capital goods worn out and made obsolete by the war. In the 
 second place, men, materials, and plants can be used in the rehabilita- 
 tion of territory devastated in the war. There is abundant use in 
 France, in Belgium, and in Russia for men and materials, and a large 
 part of the industrial equipment to be used there might well be manu- 
 factured in this country. Whether, of course, this is feasible or 
 desirable as against other uses depends upon a number of questions 
 which we cannot take up here, and if it is useful or desirable a practical 
 plan for its accomplishment depends alike on the treaty of peace, the 
 scheme of international credits, and a number of other considerations. 
 In the third place, men and materials might well be used in irrigation, 
 in forestation, and in railroad building, for all of which there was a 
 demand even before the war. The great danger in such use is that 
 the projects may be unproductive. To avoid that, it is very necessary 
 that they be carefully canvassed by experts. If this is done and if we 
 are willing to wait for returns, there seems small reason for thinking 
 that such use would not be sound public policy. Besides, if this leads 
 to full employment of plants and men, and in this way insures the 
 running of the industrial system at something like its full capacity, the 
 costs will more than be met by increased productivity in other lines. 
 
 c) Another problem is that of plant conversion. This can be 
 handled best by means of some person or body familiar with the eco- 
 nomic system, the demand for goods in peace times, and the technical 
 possibilities of the several factories. If a series of factories good for 
 certain uses is to be converted into a series good for quite other uses, 
 it is important, first, that the new uses be those most important in view 
 of peace conditions, and, in the second place, that the scheme be 
 arranged so that the factories can be converted with the least aggregate 
 waste. This cannot be done by allowing each employer by trial and 
 error to find his new market. Here the advice of technological experts 
 working with the knowledge of economic conditions is indispensable.
 
 AFTER-THE-WAR PROBLEMS 639 
 
 d) Some plan for the extension of government credit to plants 
 which have to be converted to peace uses seems almost unavoidable. 
 Such extension of credit removes the danger which the chance of not 
 making profit imposes on business enterprises and makes possible the 
 full employment of men; since the great lack is one of organization, 
 such an extension of credits, if conditioned upon the willingness of the 
 companies to engage in the respective lines of production pointed out 
 by the government, will assure a transition without depression; for 
 as we have said, if properly organized, the various concerns will make 
 a demand for each other's products. Here it needs to be added that 
 if the government offers credits it is in position to impose conditions. 
 These conditions should include specifications as to wages, hours, 
 living, and working conditions. This is a device, which, if properly 
 used, will not only insure that the transition period be made without 
 depression or serious social waste, but can be made of account in 
 making permanent the gains in industrial relationships which the war 
 has brought with it. 
 
 e) These suggestions, as indicated above, are tentative. They 
 point rather in the direction of investigation than definitely toward a 
 program, but altogether they indicate the comprehensiveness of the 
 problem, the intimate relations between the various problems which 
 make it up, and the necessity of a unified, consistent, and constructive 
 program for meeting it. 
 
 2. WILL THERE BE A SEX WAR IN INDUSTRY? 1 
 
 The problem is a problem of adjustment; of the distribution of 
 labour, skilled and unskilled, male and female, among the various- 
 existing and potential occupations which the return of peace con- 
 ditions will offer. And from the workers' point of view it is pre- 
 dominantly a question of how to stifle the renewed competition which 
 will necessarily prejudice the bargaining power of Labour in the 
 coming scramble for the produce of industry. It has special reference 
 to the outstanding problem of how to deal with the army of women 
 workers which war conditions have called from home duties or unenter- 
 prising idleness, as the case may be. It is here that we see looming 
 ahead of us the horrible possibility of something like an industrial sex 
 war, in which the men's trade unions, and no doubt, for sentimental 
 reasons, a large section of the public will be on one side, and the 
 
 1 By Mary Stocks. Adapted from " The Future of the Woman War Worker," 
 The Athenaeum, No. 4625, pp. 21-23.
 
 640 ECONOMICS OF WAR 
 
 industrial women, supported by the employers for purposes of their 
 own, on the other. 
 
 Broadly, the position of the women is this: In normal times they 
 have had, for various reasons, to put up with a wage-level con- 
 siderably below that of the corresponding class of male wage earner. 
 Among these reasons we may include their inferior physical capacity 
 in a number of occupations; their lower subsistence-level, resulting 
 from the general absence of dependent families and the frequent 
 existence of home resources independent of their industrial earnings; 
 the temporary nature of their industrial careers, resulting from the 
 fact that they frequently regard industry as a stop-gap pending mar- 
 riage; and the consequential absence of vital and lifelong interest in 
 industrial conditions which is the moving spirit of an effective trade 
 unionism. These are among the interacting causes of the inferiority 
 of women's earnings; but the widest and most profound cause lies 
 in the fact that women, though of course constituting a minority in 
 the industrial world, are nevertheless competing for employment in 
 such a comparatively restricted area that the competition among 
 them is more intense than it is among male workers. To put it 
 metaphorically, the volume of the flood is less, but its channel is 
 relatively narrower; therefore its action is more destructive. 
 
 When we begin to inquire into the reasons for this restriction we 
 find ourselves lost in a perfect maze of speculations. To begin with, 
 obviously the genuine physical limitations of women must necessarily 
 impose a natural barrier to a whole host of occupations. Supposed 
 physical limitations not improbably add to the number. In addition 
 there are less definite social causes, such as differential factory legisla- 
 tion, the inconveniences of a mixed staff, and the liability of women 
 to get married, which must account for a considerable restriction of 
 the demand for their labour. And behind . all this brood many 
 centuries of tradition, custom, prejudice, and sex jealousy. 
 
 With the development of war conditions, however, some very 
 profound modifications have occurred in the conditions sketched 
 above. In the first place, the urgent national necessity of replacing 
 the large numbers of men withdrawn from the labour market has 
 accounted for the dissolution of much irrational prejudice against 
 women's work, and broken down innumerable barriers of custom and 
 tradition. And under the hard schooling of necessity the economic 
 world has learned that much of the physical and mental incapacity, 
 much of the administrative inconvenience, of women workers has
 
 AFTER-THE-WAR PROBLEMS 641 
 
 disappeared under the test of actual practice. In the second place, 
 the heavy war mortality among young men must mean that, for a 
 generation at least, large numbers of young women will have to find 
 in the world of industry the main interest of their lives, though how 
 far this fact will affect their industrial psychology it is, of course, 
 impossible to estimate. 
 
 When we come, therefore, to re-examine the old causes of inferi- 
 ority, we find that while many of them remain presumably unaltered, 
 one or two of them have been profoundly affected. First and fore- 
 most the field in which women are competing for employment has 
 been almost indefinitely extended; and it has been so extended as to 
 include grades of comparatively well-paid work hitherto closed. 
 Women workers remain, for the most part, unorganized, an easy prey 
 to industrial exploitation; but given the will to combine and the power 
 to bargain collectively, circumstances point to the possibility of better 
 conditions for women workers in the near future. But of course all 
 this presupposes the continuance of the new opportunities; takes for 
 granted that what is now open will necessarily remain open. Will it ? 
 Certainly much of it will, for there is no mending of broken traditions 
 and no re-erecting of shattered illusions; but there is such a possibility 
 as the rebuilding of industrial or professional barriers for reasons other 
 than the actual capacity of women to do the work; and that brings us 
 back to our opening problem, the readjustment of industrial conditions 
 when a demobilized army returns to the labour market. 
 
 Now it must be remembered that much of the old exclusion of 
 women from skilled industrial processes was the result of trade union 
 regulations agreements forced upon the employer by organized 
 male labour. Women were regarded, and not without good reason, 
 as undesirable fellow- workers where a comparatively high standard 
 of life was to be maintained. And when the exigencies of War made it 
 necessary for Mr. Lloyd George to promote the utilization of female 
 labour in skilled industry, he found himself up against one of the most 
 cherished and hard-earned privileges of the British trade unionism, 
 and, as is well known, was only able to obtain the suspension of that 
 privilege on the definite understanding that, after the return of peace, 
 the said trade union regulations should be fully and legally re- 
 established. Although in the meanwhile industrial processes have un- 
 dergone such revolutionary changes of mechanism and organization as 
 to render the literal fulfilment of that pledge appallingly difficult, if not 
 practically impossible, yet Labour holds, as it were, an I.O.U. against
 
 642 ECONOMICS OF WAR 
 
 the government, and will be in a position, when the time comes, to 
 demand its discharge in the spirit, if not in the letter. The spirit at 
 the present time, if straws show the way of the wind, is undoubtedly 
 an exclusive one as far as the woman war worker is concerned. Nor 
 is the problem confined to those occupations where definite trade-union 
 regulations have been suspended. The woman bank clerk, like the 
 woman engineer, will, in days to come, find herself confronted by a 
 male predecessor whose standards of remuneration, and probably of 
 professional efficiency, are higher than her own. 
 
 Given the above-described circumstances, the situation to be 
 avoided at all costs is one in which the trade unions will be fighting 
 on one side for exclusion, women on the other for employment; the 
 latter backed whole-heartedly by the employers in search of cheap 
 and comparatively docile labour power, the former backed half- 
 heartedly by the government in pursuance of the pledges exacted in 
 the hour of need. And the victory of either side will spell disaster. 
 If the exclusive principle is carried through, women workers will find 
 themselves at the mercy of trade-union regulations for the first time 
 possessing the force of law, and flung back into the old degraded and 
 inadequate industrial channels, where they will compete all the more 
 destructively by reason of their swollen numbers. They will suffer, 
 and their suffering will generate bitterness at a time when all the good 
 will in the world will be necessary to face an uncertain future. Inci- 
 dentally, the economic well-being of the nation will be prejudiced by 
 the wastage of industrial capacity at a time when, with proper fore- 
 sight and organization, the demand of industry for labour should be 
 insatiable. Limitations on the power of industrial producers to 
 produce will prove as harmful in the hungry years which must follow 
 a world-war as they are in face of the rapacious requirements of war 
 itself. On the other hand, if for some reason the spirit of the pledge 
 is never redeemed, if the employers succeed in utilizing the mass of 
 women war workers as a cheap labour supply for post-war industry 
 and as a catspaw for the deposition of Labour's aristocracy, the result 
 will be a serious menace to, if not the actual destruction of, such a 
 life-standard as over a century of trade-union effort has painfully, 
 succeeded in building up. Here, too, will be a source of most disas- 
 trous and dangerous bitterness, and among that very section of the 
 community, the home-coming army, which merits the first considera- 
 tion of the nation.
 
 AFTER-THE-WAR PROBLEMS 643 
 
 LXXI. Some Programs of Social Reform 
 i. THE WAR AIMS OF AMERICAN UNIONISTS 1 
 
 We are face to face with a world-crisis. We are in a world-struggle 
 which will determine for the immediate future whether principles of 
 democratic freedom or principles of force shall dominate. The 
 decision will determine not only the destiny of nations but of every 
 community and of every individual. No life will be untouched. 
 
 Either the principles of free democracy or of Prussian militaristic 
 autocracy will prevail. There can be no compromises. So there can 
 be no neutrality among nations or individuals we must stand up and 
 be counted with one cause or the other. For Labor there is but one 
 choice. 
 
 The hope of Labor lies in opportunity for freedom. The workers 
 of America will not permit themselves to be deceived or deceive them- 
 selves into thinking the fate of the war will not vitally change our 
 lives. A victory for Germany would mean a pan-German empire 
 dominating Europe and exercising a world balance of power which 
 Germany will seek to extend by force into world-control. Prussian 
 rule means supervision, checks, unfreedom in every relation of life. 
 
 Prussianism has its roots in the old ideal under which men sought 
 to rule by suppressing the minds and wills of their fellows; it blights 
 the new ideal of government without force or chains political or 
 industrial protected by perfect freedom for all. 
 
 Unless the reconstruction shall soon come from the German 
 workers within that country it is now plain that an opportunity to 
 uproot the agencies of force will come only when democracy has 
 defeated autocracy in the military field, and wins the right to construct 
 relations between nations and men. The peace parleys between 
 Russia and Germany have shown the futility of diplomatic negotia- 
 tions until Prussian militarists are convinced they cannot superimpose 
 their will on the rest of the world. Force is the basis of their whole 
 organization and is the only argument they will understand. 
 
 Spontaneous uprisings in Germany in protest against the mili- 
 tarist government -have shown that the German government is still 
 stronger than the movement for German emancipation. German 
 freedom is ultimately the problem of the German people. But the 
 
 1 A statement drawn up by the Executive Council of the American Federation 
 of Labor at a meeting held in Washington, February 18, 1917.
 
 644 ECONOMICS OF WAR 
 
 defeat of Prussian autocracy on the battlefield will bring an opportu- 
 nity for German liberty at home. 
 
 We have passed the period when any one nation can maintain 
 its freedom irrespectively of other nations. Civilization has closely 
 linked nations together by the ties of commerce, and quick com- 
 munication, common interests, problems, and purposes. The future 
 of free nations will depend upon their joint ability to devise agencies 
 for dealing with their common affairs so that the greatest opportunity 
 for life, liberty, and pursuit of happiness may be assured to all. 
 
 This matter of world democracy is of vital interest to Labor. 
 Labor is not a sect or a party. It represents the invincible desire for 
 greater opportunity of the masses of all nations. Labor is the brawn, 
 sinews, and brains of society. It is the user of tools. Tools' under 
 the creative power of muscle and brains shape the materials of 
 civilization. Labor makes possible every great forward movement of 
 the world. But Labor is inseparable from physical and spiritual life 
 and progress. Labor now makes it possible that this titanic struggle 
 for democratic freedom can be made. 
 
 The common people everywhere are hungry for wider opportu- 
 nities to live. They have shown the willingness to spend or be spent 
 for an ideal. They are in this war for ideals. Those ideals are best 
 expressed by their chosen representative in a message delivered to the 
 Congress of the United States, January 8, setting forth the program of 
 the world's peace. President Wilson's statement of war aims has been 
 unreservedly indorsed by British organized labor. It is in absolute 
 harmony with the fundamentals indorsed by the Buffalo Convention 
 of the American Federation of Labor. 
 
 We are at war for those ideals. Our first big casualty list has 
 brought to every home the harass and the sacrifices of war. This is 
 only the beginning. A gigantic struggle lies just ahead that will test 
 to the uttermost the endurance and the ability and the spirit of our 
 people. That struggle will be fought out in the mines, farms, shops, 
 mills, shipyards, as well as on the battlefield. Soldiers and sailors 
 are helpless if the producers do not do their part. Every link in the 
 chain of the mobilization of the fighting force and necessary supplies 
 is indispensable to winning the war against militarism and principles 
 of unfreedom. 
 
 The worker who fastens the rivets in building the ship is per- 
 forming just as necessary war service to pur Republic as the sailor 
 who takes the ship across or the gunner hi the trenches.
 
 AFTER-THE-WAR PROBLEMS 645 
 
 This is a time when all workers must soberly face the grave impor- 
 tance of their daily work and decide industrial matters with a 
 conscience mindful of the world-relation of each act. 
 
 The problem of production indispensable to preventing unneces- 
 sary slaughter of fellow-men is squarely up to all workers aye, to 
 employes and employers. Production depends upon materials, tools, 
 management, and the development and maintenance of industrial 
 morale. Willing co-operation comes not only from doing justice but 
 from receiving justice. The worker is a human being whose life has 
 value and dignity to him. He is willing to sacrifice for an ideal but 
 not for the selfish gain of another. Justice begets peace. Con- 
 sideration begets co-operation. These conditions are essential to war 
 production. Production is necessary to win the war. 
 
 Upon the government and upon employers falls the preponderance 
 of responsibility for securing greatest efficiency from workers. Stand- 
 ards of human welfare and consideration of the human side of 
 production are part of the technique of efficient production. 
 
 Give workers a decent place to live, protect them against condi- 
 tions which take all their wages for bare existence, give them agencies 
 whereby grievances can be adjusted and industrial justice assured, 
 make it plain that their labor counts in the winning of a war for 
 greater freedom, not for private profiteering, and workers can be 
 confidently expected to do their part. Workers are loyal. They 
 want to do their share for the Republic and for winning the war. 
 
 This is Labor's war. It must be won by Labor and every stage 
 in the fighting and the final victory must be made to count for human- 
 ity. That result only can justify the awful sacrifice. 
 
 We present these matters to the workers of free America, con- 
 fidently relying upon the splendid spirit and understanding which 
 has made possible present progress to enable us to fight a good fight 
 and to establish principles of freedom throughout the whole world. 
 We regret that circumstances make impossible continuous close 
 personal relations between the workers of America and those of the 
 allied countries and that we cannot have representation in the Inter- 
 Allied Labor Conference about to co'nvene in London. 
 
 Their cause and purpose are our cause and purpose. We cannot 
 meet with representatives of those who are aligned against us in this 
 world-war for freedom, but we hope they will sweep away the barriers 
 which they have raised between us. Freedom and the downfall of 
 autocracy must come in Middle Europe.
 
 646 ECONOMICS OF WAR 
 
 We doubly welcome the change if it come through the workers of 
 those countries. While this war shall last, we shall be working and 
 fighting shoulder to shoulder with fellow- workers of Great Britain, 
 France, and Italy. We ask the workers of Russia to make common 
 cause with us, for our purpose is their purpose, that finally the freedom 
 lovers of all countries may make the world safe for all peoples to live 
 in freedom and safety. 
 
 2. BRITISH LABOR AND THE NEW SOCIAL ORDER 
 
 It behooves the Labor party, in formulating its own program for 
 reconstruction after the war, and in criticizing the various preparations 
 and plans that are being made by the present government, to look 
 at the problem as a whole. We have to make clear what it is that we 
 wish to construct. It is important to emphasize the fact that, what- 
 ever may be the case with regard to other political parties, our detailed 
 practical proposals proceed from definitely held principles. 
 
 THE END OF A CIVILIZATION 
 
 We need to beware of patchwork. The view of the Labor party 
 is that what has to be reconstructed after the war is not this or that 
 government department, or this or that piece of social machinery, 
 but, so far as Britain is concerned, society itself. The individual 
 worker, or for that matter the individual statesman, immersed in daily 
 routine like the individual soldier in a battle easily fails to under- 
 stand the magnitude and far-reaching importance of what is taking 
 place around him. How does it fit together as a whole ? How does 
 it look from a distance? Count Okuma, one of the oldest, most 
 experienced, and ablest of the statesmen of Japan, watching the 
 present conflict from the other side of the globe, declares it to be 
 nothing less than the death of European civilization. Just as in 
 the past the civilization of Babylon, Egypt, Greece, Carthage, and 
 the great Roman empire have been successively destroyed, so, in the 
 judgment of this detached observer, the civilization of all Europe is 
 even now receiving its death blow. We of the Labor party can so far 
 agree in this estimate as to recognize, in the present world catastrophe, 
 if not the death, in Europe, of civilization itself, at any rate the cul- 
 mination and collapse of a distinctive industrial civilization, which the 
 workers will not seek to reconstruct. At such times of crisis it is 
 easier to slip into ruin than to progress into higher forms of organiza- 
 tion. That is the problem as it presents itself to the Labor party.
 
 AFTER-THE-WAR PROBLEMS 647 
 
 What this war is consuming is not merely the security, the homes, 
 the livelihood, and the lives of millions of innocent families, and an 
 enormous proportion of all the accumulated wealth of the world, but 
 also the very basis of the peculiar social order in which it has arisen. 
 The individualist system of capitalist production, based on the private 
 ownership and competitive administration of land and capital, with 
 its reckless "profiteering" and wage-slavery; with its glorification of 
 the unhampered struggle for the means of life and its hypocritical 
 pretense of the "survival of the fittest"; with the monstrous inequal- 
 ity of circumstances which it produces and the degradation and 
 brutalization, both moral and spiritual, resulting therefrom, may, we 
 hope, indeed have received a death blow. With it must go the 
 political system and ideas in which it naturally found expression. 
 We of the Labor party, whether in opposition or in due time called 
 upon to form an administration, will certainly lend no hand to its 
 revival. On the contrary, we shall do our utmost to see that it is 
 buried with the millions whom it has done to death. If we in Britain 
 are to escape from the decay of civilization itself, which the Japanese 
 statesman foresees, we must ensure that what is presently to be built 
 up is a new social order, based not on fighting but on fraternity not 
 on the competitive struggle for the means of bare life, but on a deliber- 
 ately planned co-operation in production and distribution for the 
 benefit of all who participate by hand or by brain not on the utmost 
 possible inequality of riches, but on a systematic approach toward a 
 healthy equality of material circumstances for every person born into 
 the world not on an enforced dominion over subject nations, subject 
 races, subject colonies, subject classes, or a subject sex, but, in 
 industry as well as in government, on that equal freedom, that general 
 consciousness of consent, and that widest possible participation in 
 power, both economic and political, which is characteristic of democ- 
 racy. We do not, of course, pretend that it is possible, even after 
 the drastic clearing away that is now going on, to build society anew 
 in a year or two of feverish "reconstruction." What the Labor party 
 intends to satisfy itself about is that each brick that it helps to lay 
 shall go to erect the structure that it intends, and no other. 
 
 THE PILLARS OF THE HOUSE 
 
 We need 'not here recapitulate, one by one, the different items in 
 the Labor party's program, which successive party conferences have 
 adopted. These proposals, some of them in various publications
 
 648 ECONOMICS OF WAR 
 
 worked out in practical detail, are often carelessly derided as imprac- 
 ticable, even by the politicians who steal them piecemeal from us! 
 The members of the Labor party, themselves actually working by 
 hand or by brain, in close contact with the facts, have perhaps at all 
 times a more accurate appreciation of what is practicable, in industry 
 as in politics, than those who depend solely on academic instruction 
 or are biased by great possessions. But today no man dares to say 
 that anything is impracticable. The war, which has scared the old 
 political parties right out of their dogmas, has taught every statesman 
 and every government official, to his enduring surprise, how very 
 much more can be done along the lines that we have laid down than 
 he had ever before thought possible. What we now promulgate as 
 our policy, whether for opposition or for office, is not merely this or 
 that specific reform, but a deliberately thought out, systematic, and 
 comprehensive plan for that immediate social rebuilding which any 
 ministry, whether or not it desires to grapple with the problem, will 
 be driven to undertake. The four pillars of the house that we 
 propose to erect, resting upon the common foundation of the Demo- 
 cratic control of society in all its activities, may be termed, 
 respectively: 
 
 A. The universal enforcement of the national minimum 
 
 B. The Democratic control of industry 
 
 C. The revolution in national finance 
 
 D. The surplus wealth for the common good 
 
 The various detailed proposals of the Labor party, herein briefly 
 summarized, rest on these four pillars, and can best be appreciated in 
 connection with them. 
 
 A. THE UNIVERSAL ENFORCEMENT OF A NATIONAL MINIMUM 
 
 The first principle of the Labor party in significant contrast with 
 those of the Capitalist system, whether expressed by the Liberal or by 
 the Conservative party is the securing to every member of the com- 
 munity, in good times and bad alike (and not only to the strong and 
 able, the well-born or the fortunate), of all the requisites of healthy 
 life and worthy citizenship. This is in no sense a "class" proposal. 
 Such an amount of social protection of the individual, however poor 
 and lowly, from birth to death, is, as the economist now knows, as 
 indispensable to fruitful co-operation as it is to successful combination; 
 and it affords the only complete safeguard against that insidious 
 degradation of the standard of life, which is the worst economic and
 
 AFTER-THE-WAR PROBLEMS 649 
 
 social calamity to which any community can be subjected. We are 
 members, one of another. No man liveth to himself alone. If any, 
 even the humblest, is made to suffer, the whole community and every 
 one of us, whether or not we recognize the fact, is thereby injured. 
 Generation after generation this has been the cornerstone of the faith 
 of Labor. It will be the guiding principle of any Labor government. 
 The legislative regulation of employment. Thus it is that the 
 Labor party to-day stands for the universal application of the policy 
 of the national minimum, to which (as embodied in the successive 
 elaborations of the Factory, Mines, Railways, Shops, Merchant 
 Shipping, and Truck acts, the Public Health, Housing, and Education 
 acts and the Minimum Wage Act all of them aiming at the enforce- 
 ment of at least the prescribed minimum of leisure, health, educa- 
 tion, and subsistence) the spokesmen of Labor have already gained 
 the support of the enlightened statesmen and economists of the world. 
 All these laws purporting to protect against extreme degradation of 
 the standard of life need considerable improvement and extension, 
 while their administration leaves much to be desired. For instance, 
 the Workmen's Compensation Act fails shamefully, not merely to 
 secure proper provision for all the victims of accident and industrial 
 disease, but, what is much more important, does not succeed in pre- 
 venting their continual increase. The amendment and consolidation 
 of the Factories and Workshops acts, with their extension to all 
 employed persons, is long overdue, and it will be the policy of Labor 
 greatly to strengthen the staff of inspectors, especially by the addition 
 of more men and women of actual experience of the workshop and the 
 mine. The Coal Mines (Minimum Wage) Act must certainly be 
 maintained in force, and suitably amended, so as both to ensure 
 greater uniformity of conditions among the several districts, and to 
 make the district minimum in all cases an effective reality. The 
 same policy will, in the interests of the agricultural laborers, dictate 
 the perpetuation of the legal wage clauses of the new corn law just 
 passed for a term of five years, and the prompt amendment of any 
 defects that may be revealed in their working. And, in view of the 
 fact that many millions of wage earners, notably women and the less 
 skilled workmen in various occupations, are unable by combination to 
 obtain wages adequate for decent maintenance in health, the Labor 
 party intends to see to it that the Trade Boards Act is suitably 
 amended and made to apply to all industrial employments in which 
 any considerable number of those employed obtain less than thirty
 
 650 ECONOMICS OF WAR 
 
 shillings per week. This minimum of not less than thirty shillings 
 per week (which will need revision according to the level of prices) 
 ought to be the very lowest statutory base line for the least skilled 
 adult workers, men or women, in any occupation, in all parts of the 
 United Kingdom. 
 
 But the coming industrial dislocation, which will inevitably 
 follow the discharge from war service of half of all the working popu- 
 lation, imposes new obligations upon the community. The demobi- 
 lization and discharge of the eight million wage earners now being 
 paid from public funds, either for service with the colors or in munition 
 work and other war trades, will bring to the whole wage-earning class 
 grave peril of unemployment, reduction of wages, and a lasting degra- 
 dation of the standard of life, which can be prevented only by 
 deliberate national organization. The Labor party has repeatedly 
 called upon the present government to formulate its plan, and to make 
 in advance all arrangements necessary for coping with so unparalleled 
 a dislocation. The policy to which the Labor party commits itself is 
 unhesitating and uncompromising. It is plain that regard should be 
 had, in stopping government orders, reducing the staff of the national 
 factories, and demobilizing the army, to the actual state of employ- 
 ment in particular industries and in different districts, so as both to 
 release first the kinds of labor most urgently required for the revival 
 of peace production and to prevent any congestion of the market. It 
 is no less imperative that suitable provision against being turned 
 suddenly adrift without resources should be made, not only for the 
 soldiers, but also for the three million operatives in munition work and 
 other war trades who will be discharged long before most of the army 
 can be disbanded. On this important point, which is the most urgent 
 of all, the present government has, we believe, down to the present 
 hour, formulated no plan, and come to no decision, and neither the 
 Liberal nor the Conservative party has apparently deemed the matter 
 worthy of agitation. Any government which should allow the 
 discharged soldier or munition worker to fall into the clutches of 
 charity or the Poor law would have to be instantly driven from office 
 by an outburst of popular indignation. What every one of them will 
 look for is a situation in accordance with his capacity. 
 
 Securing employment for all. The Labor party insists as no 
 other political party has thought fit to do that the obligation to find 
 suitable employment in productive work for all these men and women 
 rests upon the government for the time being. The work of resettling
 
 AFTER-THE-WAR PROBLEMS 651 
 
 the disbanded soldiers and discharged munition workers into new 
 situations is a national obligation; and the Labor party emphatically 
 protests against its being regarded as a matter for private charity. It 
 strongly objects to this public duty being handed over either to com- 
 mittees of philanthropists or benevolent societies, or to any of the 
 military or recruiting authorities. The policy of the Labor party in 
 this matter is to make the utmost use of the trade unions, and, equally 
 for the brainworkers, of the various professional associations. In view 
 of the fact that, in any trade, the best organization for placing men in 
 situations is a national trade union having local branches throughout 
 the kingdom, every soldier should be allowed, if he chooses, to have 
 a duplicate of his industrial discharge notice sent, one month before 
 the date fixed for his discharge, to the secretary of the trade union to 
 which he belongs or wishes to belong. Apart from this use of the 
 trade union (and a corresponding use of the professional association) 
 the government must, of course, avail itself of some such public 
 machinery as that of the employment exchanges; but before the 
 existing exchanges (which will need to be greatly extended) can 
 receive the co-operation and support of the organized labor move- 
 ment, without which their operations can never be fully successful, 
 it is imperative that they should be drastically reformed, on the lines 
 laid down in the Demobilization Report of the "Labor after the War" 
 Joint Committee; and, in particular, that each exchange should be 
 placed under the supervision and control of a joint committee of 
 employers and trade unionists in equal numbers. 
 
 The responsibility of the government, for the time being, in the 
 grave industrial crisis that demobilization will produce, goes, however, 
 far beyond the eight million men and women whom the various 
 departments will suddenly discharge from their own service. The 
 effect of this peremptory discharge on all the other workers has also 
 to be taken into account. To the Labor party it will seem the supreme 
 concern of the government of the day to see to it that there shall be 
 as a result of the gigantic "General Post" which it will itself have 
 deliberately set going, nowhere any degradation of the standard of 
 life. The government has pledged itself to restore the trade union 
 conditions and "pre-war practices" of the workshop, which the trade 
 unions patriotically gave up at the direct request of the government 
 itself; and this solemn pledge must be fulfilled, of course, in the spirit 
 as well as in the letter. The Labor party, moreover, holds it to be 
 the duty of the government of the day to take all necessary steps to
 
 652 . ECONOMICS OF WAR 
 
 prevent the standard rates of wages, in any trade or occupation 
 whatsoever, from suffering any reduction, relatively to the contem- 
 porary cost of living. Unfortunately, the present government, like 
 the Liberal and Conservative parties, so far refuses to speak on this 
 important matter with any clear voice. We claim that it should be 
 a cardinal point of government policy to make it plain to every 
 capitalist employer that any attempt to reduce the customary rates 
 of wages when peace comes, or to take advantage of the dislocation 
 of demobilization to worsen the conditions of employment in any grade 
 whatsoever, will certainly lead to embittered industrial strife, which 
 will be in the highest degree detrimental to the national interests; 
 and that the government of the day will not hesitate to take all 
 necessary steps to avert such a calamity. In the great impending 
 crisis the government of the day should not only, as the greatest 
 employer of both brainworkers and manual workers, set a good 
 example in this respect, but should also actively seek to influence 
 private employers by proclaiming in advance that it will not itself 
 attempt to lower the standard rates or conditions in public employ- 
 ment; by announcing that it will insist on the most rigorous obser- 
 vance of the fair-wages clause in all public contracts, and by explicitly 
 recommending every local authority to adopt the same policy. 
 
 But nothing is more dangerous to the standard of life, or so destruc- 
 tive of those minimum conditions of healthy existence, which must in 
 the interests of the community be assured to every worker, than any 
 widespread or continued unemployment. It has always been a 
 fundamental principle of the Labor party (a point on which, singularly 
 enough, it has not been followed by either of the other political parties) 
 that, in a modern industrial community, it is one of the foremost 
 obligations of the government to find, for every willing worker, 
 whether by hand or by brain, productive work at standard rates. 
 
 It is accordingly the duty of the government to adopt a policy of 
 deliberately and systematically preventing the occurrence of unem- 
 ployment, instead of (as heretofore) letting unemployment occur, and 
 then seeking, vainly and expensively, to relieve the unemployed. It 
 is now known that the government can, if it chooses, arrange the 
 public works and the orders of national departments and local author- 
 ities in such a way as to maintain the aggregate demand for labor in 
 the whole kingdom (including that of capitalist employers) approxi- 
 mately at a uniform level from year to year; and it is therefore a 
 primary obligation of the government to prevent any considerable or
 
 AFTER-THE-WAR PROBLEMS 653 
 
 widespread fluctuations in the total numbers employed in times of 
 good or bad trade. But this is not all. In order to prepare for the 
 possibility of there being any unemployment, either in the course of 
 demobilization or in the first years of peace, it is essential that the 
 government should make all necessary preparations for putting 
 instantly in hand, directly or through the local authorities, such 
 urgently needed public works as (a) the rehousing of the population 
 alike in rural districts, mining villages, and town slums, to the extent, 
 possibly, of a million new cottages and an outlay of 300 millions 
 sterling; (b) the immediate making good of the shortage of schools, 
 training colleges, technical colleges, etc., and the engagement of the 
 necessary additional teaching, clerical, and administrative staffs; 
 (c) new roads; (d) light railways; (e) the unification and reorganiza- 
 tion of the railway and canal system; (/) afforestation; (g) the recla- 
 mation of land; (h) the development and better equipment of our 
 ports and harbors; (') the opening up of access to land by co-operative 
 small holdings and in other practicable ways. Moreover, in order to 
 relieve any pressure of an overstocked labor market, the opportunity 
 should be taken, if unemployment should threaten to become wide- 
 spread, (a) immediately to raise the school-leaving age to sixteen; 
 (b) greatly to increase the number of scholarships and bursaries for 
 secondary and higher education; and (c) substantially to shorten the 
 hours of labor of all young persons, even to a greater extent than the 
 eight hours per week contemplated in the new Education Bill, in order 
 to enable them to attend technical and other classes in the daytime. 
 Finally, wherever practicable, the hours of adult labor should be 
 reduced to not more than forty-eight per week, without reduction of 
 the standard rates of wages. There can be no economic or other 
 justification for keeping any man or woman to work for long hours, 
 or at overtime, while others are unemployed. 
 
 Social insurance against unemployment. In so far as the govern- 
 ment fails to prevent unemployment whenever it finds it impossible 
 to discover for any willing worker, man or woman, a suitable situation 
 at the standard rate the Labor party holds that the government 
 must, in the interest of the community as a whole, provide him or her 
 with adequate maintenance, either with such arrangements for 
 honorable employment or with such useful training as may be found 
 practicable, according to age, health, and previous occupation. In 
 many ways the best form of provision for those who must be unem- 
 ployed, because the industrial organization of the community so far
 
 654 ECONOMICS OF WAR 
 
 breaks down as to be temporarily unable to set them to work, is the 
 out-of-work benefit afforded by a well-administered trade union. 
 This is a special tax on the trade unionists themselves which they have 
 voluntarily undertaken, but toward which they have a right to claim 
 a public subvention a subvention which was actually granted by 
 Parliament (though only to the extent of a couple of shillings or so 
 per week) under Part II of the Insurance Act. The arbitrary with- 
 drawal by the government in 1915 of this statutory right of the trade 
 unions was one of the least excusable of the war economies; and the 
 Labor party must insist on the resumption of this subvention im- 
 mediately the war ceases, and on its increase to at least hah" the 
 amount spent in out-of-work benefit. The extension of state unem- 
 ployment insurance to other occupations may afford a convenient 
 method of providing for such of the unemployed, especially in the 
 case of badly paid women workers and the less skilled men, whom it is 
 difficult to organize in trade unions. But the weekly rate of the state 
 unemployment benefit needs, in these days of high prices, to be con- 
 siderably raised; while no industry ought to be compulsorily brought 
 within its scope against the declared will of the workers concerned, 
 and especially of their trade unions. In one way or another remunera- 
 tive employment or honorable maintenance must be found for every 
 willing worker, by hand or by brain, in bad times as well as in good. 
 It is clear that, in the twentieth century, there must be no question 
 of driving the unemployed to anything so obsolete and discredited as 
 either private charity, with its haphazard and ill-considered doles, 
 or the Poor law, with ^he futilities and barbarities of its "Stone 
 Yard," or its "Able-Bodied Test Workhouse." Only on the basis 
 of a universal application of the policy of the national minimum, 
 affording complete security against destitution, in sickness and health, 
 in good times and bad alike, to every member of the community of 
 whatever age or sex, can any worthy social order be built up. 
 
 B. THE DEMOCRATIC CONTROL OF INDUSTRY 
 
 The universal application of the policy of the national minimum 
 is, of course, only the first of the pillars of the house that the Labor 
 party intends to see built. What marks off this party most dis- 
 tinctively from any of the other political parties is its demand for the 
 full and genuine adoption of the principle of democracy. The first 
 condition of democracy is effective personal freedom. This has 
 suffered so many encroachments during the war that it is necessary
 
 AFTER-THE-WAR PROBLEMS 655 
 
 to state with clearness that the complete removal of all the war-time 
 restrictions on freedom of speech, freedom of publication, freedom of 
 the press, freedom of travel, and freedom of choice of place of residence 
 and kind of employment must take place the day after peace is 
 declared. The Labor party declares emphatically against any con- 
 tinuance of the Military Service acts a moment longer than the 
 imperative requirements of the war excuse. But individual freedom 
 is of little use without complete political rights. The Labor party sees 
 its repeated demands largely conceded in the present Representation 
 of the People Act, but not yet wholly satisfied. The party stands, as 
 heretofore, for complete adult suffrage, with not more than a three 
 months' residential qualification, for effective provision for absent 
 electors to vote, for absolutely equal rights for both sexes, for the same 
 freedom to exercise civic rights for the "common soldier" as for the 
 officer, for shorter Parliaments, for the complete abolition of the House 
 of Lords, and for a most strenuous opposition to any new second 
 chamber, whether elected or not, having in it any element of heredity 
 or privilege, or of the control of the House of Commons by any party 
 or class. But unlike the Conservative and Liberal parties, the Labor 
 party insists on democracy in industry as well as in government. It 
 demands the progressive elimination from the control of industry of 
 the private capitalist, individual or joint-stock; and the setting free 
 of all who work, whether by hand or by brain, for the service of the 
 community, and of the community only. And the Labor party 
 refuses absolutely to believe that the British people will permanently 
 tolerate any reconstruction or perpetuation of the disorganization, 
 waste, and inefficiency involved in the abandonment of British indus- 
 try to a jostling crowd of separate private employers, with their 
 minds bent, not on the service of the community, but by the very 
 law of their being only on the utmost possible profiteering. What 
 the nation needs is undoubtedly a great bound onward in its aggregate 
 productivity. But this cannot be secured merely by pressing the 
 manual workers to more strenuous toil, or even by encouraging the 
 " Captains of Industry" to a less wasteful organization of their several 
 enterprises on a profit-making basis. What the Labor party looks 
 to is a genuinely scientific reorganization of the nation's industry, no 
 longer deflected by individual profiteering, on the basis of the common 
 ownership of the means of production, the equitable sharing of the 
 proceeds among all who participate in any capacity and only among 
 these, and the adoption, in particular services and occupations, of
 
 656 ECONOMICS OF WAR 
 
 those systems and methods of administration and control that may 
 be found, in practice, best to promote the public interest. 
 
 Immediate nationalization. The Labor party stands not merely 
 for the principle of the common ownership of the nation's land, to be 
 applied as suitable opportunities occur, but also, specifically, for the 
 immediate nationalization of railways, mines, and the production of 
 electrical power. We hold that the very foundation of any successful 
 reorganization of British industry must necessarily be found in the 
 provision of the utmost facilities for transport and communication, 
 the production of power at the cheapest possible rate, and the most 
 economical supply of both electrical energy and coal to every corner 
 of the kingdom. Hence the Labor party stands, unhesitatingly, for 
 the national ownership and administration of the railways and canals, 
 and their union, along with harbors and roads, and the posts and 
 telegraphs not to say also the great lines of steamers which could 
 at once be owned, if not immediately directly managed in detail, by 
 the government in a united national service of communication and 
 transport; to be worked, unhampered by capitalist, private, or purely 
 local interests (and with a steadily increasing participation of the 
 organized workers in the management, both central and local), 
 exclusively for the common good. If any government should be so 
 misguided as to propose, when peace comes, to hand the railways back 
 to the shareholders; or should show itself so spendthrift of the nation's 
 property as to give these shareholders any enlarged franchise by 
 presenting them with the economies of unification or the profits of 
 increased railway rates; or so extravagant as to bestow public funds 
 on the re-equipment of privately owned lines all of which things are 
 now being privately intrigued for by the railway interests the Labor 
 party will offer any such project the most strenuous opposition. The 
 railways and canals, like the roads, must henceforth belong to the 
 public. 
 
 In the production of electricity, for cheap power, light, and heat- 
 ing this country has so far failed, because of hampering private 
 interests, to take advantage of science. Even in the largest cities we 
 still "peddle" our electricity on a contemptibly small scale. What is 
 called for, immediately after the war, is the erection of a score of 
 gigantic "super-power stations," which could generate, at incredibly 
 cheap rates, enough electricity for the use of every industrial estab- 
 lishment and every private household in Great Britain; the present 
 municipal and joint-stock electrical plants being universally linked up
 
 AFTER-THE-WAR PROBLEMS 657 
 
 and used for local distribution. This is inevitably the future of 
 electricity. It is plain that so great and so powerful an enterprise, 
 affecting every industrial enterprise and, eventually, every household, 
 must not be allowed to pass into the hands of private capitalists. 
 They are already pressing the government for the concession, and 
 neither the Liberal nor the Conservative party has yet made up its 
 mind to a refusal of such a new endowment of profiteering in what will 
 presently be the life-blood of modern productive industry. The 
 Labor party demands that the production of electricity on the neces- 
 sary gigantic scale shall be made from the start (with suitable arrange- 
 ments for municipal co-operation in local distribution) a national 
 enterprise, to be worked exclusively with the object of supplying 
 the whole kingdom with the cheapest possible power, light, and 
 heat. 1 
 
 But with railways and the generation of electricity in the hands of 
 the public, it would be criminal folly to leave to the present 1,500 
 colliery companies the power of " holding up " the coal supply. These 
 are now all working under public control, on- terms that virtually 
 afford to their shareholders a statutory guarantee of their swollen 
 incomes. The Labor party demands the immediate nationalization 
 of mines, the extraction of coal and iron being worked as a public 
 service (with a steadily increasing participation in the management, 
 both central and local, of the various grades of persons employed), 
 and the whole business of the retail distribution of household coal 
 being undertaken, as a local public service, by the elected municipal 
 or county councils. And there is no reason why coal should fluctuate 
 in price any more than railway fares, or why the consumer should be 
 made to pay more in winter than in summer, or in one town than 
 another. What the Labor party would aim at is, for the household 
 coal of standard quality, a fixed and uniform price for the whole king- 
 dom, payable by rich and poor alike, as unalterable as the penny 
 postage stamp. 
 
 But the sphere of immediate nationalization is not restricted to 
 these great industries. We shall never succeed in putting the gigantic 
 system of health insurance on a proper footing, or secure a clear field 
 for the beneficent work of the Friendly Societies, or gain a free hand 
 for the necessary development of the urgently called for ministry 
 of health and the local public health service, until the nation ex- 
 propriates the profit-making industrial insurance companies, which 
 
 1 ED. NOTE Cf. Section XXXIII, p. 340.
 
 658 ECONOMICS OF WAR 
 
 now so tyrannously exploit the people with their wasteful house-to- 
 house industrial life assurance. Only by such an expropriation of life 
 assurance companies can we secure the universal provision, free from 
 the burdensome toll of weekly pence, of the indispensable funeral 
 benefit. Nor is it in any sense a "class" measure. Only by the 
 assumption by a state department of the whole business of life assur- 
 ance can the millions of policy-holders of all classes be completely 
 protected against the possibly calamitous results of the depreciation 
 of securities and suspension of bonuses which the war is causing. 
 Only by this means can the great staff of insurance agents find their 
 proper place as civil servants, with equitable conditions of employ- 
 ment, compensation for any disturbance, and security of tenure, in a 
 nationally organized public service for the discharge of the steadily 
 increasing functions of the government in vital statistics and social 
 insurance. 
 
 In quite another sphere the Labor party sees the key to temper- 
 ance reform in taking the entire manufacture and retailing of alcoholic 
 drink out of the hands of those who find profit in promoting the utmost 
 possible consumption. This is essentially a case in which the people, 
 as a whole, must deal with the licensing question in accordance with 
 local opinion. For this purpose, localities should have conferred upon 
 them facilities: (a) to prohibit the sale of liquor within their bound- 
 aries; (b) to reduce the number of licenses and regulate the conditions 
 under which they may be held; and (c) if a locality decides that 
 licenses are to be granted, to determine whether such licenses shall be 
 under private or any form of public control. 
 
 Control of capitalist industry. Meanwhile, however, we ought not 
 to throw away the valuable experience now gained by the government 
 in its assumption of the importation of wheat, wool, metals, and other 
 commodities, and in its control of the shipping, wollen, leather, clothing, 
 boot and shoe, milling, baking, butchering, and other industries. The 
 Labor party holds that, whatever may have been the shortcomings of 
 this government importation and control, it has demonstrably pre- 
 vented a lot of "profiteering." Nor can it end immediately on the 
 declaration of peace. The people will be extremely foolish if they 
 ever allow their indispensable industries to slip back into the un- 
 fettered control of private capitalists, who are, actually at the instance 
 of the government itself, now rapidly combining, trade by trade, into 
 monopolist trusts which may presently become as ruthless in their 
 extortion as the worst American examples. Standing as it does for
 
 AFTER-THE-WAR PROBLEMS 659 
 
 the democratic control of industry, the Labor party would think 
 twice before it sanctioned any abandonment of the present profitable 
 centralization of purchase of raw material; of the present carefully 
 organized "rationing," by joint committees of the trades concerned, 
 of the several establishments with the materials they require; of the 
 present elaborate system of "costing" and public audit of manu- 
 facturers' accounts, so as to stop the waste heretofore caused by the 
 mechanical inefficiency of the more backward firms; of the present 
 salutary publicity of manufacturing processes and expenses thereby 
 ensured ; and, on the information thus obtained (in order never again 
 to revert to the old-time profiteering) of the present rigid fixing, for 
 standardized products, of maximum prices at the factory, at the ware- 
 house of the wholesale trader, and in the retail shop. This question 
 of the retail prices of household commodities is emphatically the most 
 practical of all political issues to the woman elector. The male poli- 
 ticians have too long neglected the grievances of the small household, 
 which is the prey of every profiteering combination; and neither the 
 Liberal nor the Conservative party promises, in this respect, any 
 amendment. This, too, is in no sense a "class" measure. It is, so 
 the Labor party holds, just as much the function of government, and 
 just as necessary a part of the democratic regulation of industry, to 
 safeguard the interests of the community as a whole, and those of all 
 grades and sections of private consumers, in the matter of prices, as 
 it is, by the Factory and Trade Boards acts, to protect the rights of 
 the wage-earning producers in the matter of wages, hours of labor, 
 and sanitation. 
 
 C. THE REVOLUTION IN NATIONAL FINANCE 
 
 In taxation, also, the interests of the professional and housekeeping 
 classes are at one with-those of the manual workers. Too long has 
 our national finance been regulated, contrary to the teaching of poli- 
 tical economy, according to the wishes of the possessing classes and 
 the profits of the financiers. The colossal expenditure involved in the 
 present war (of which, against the protest of the Labor party, only a 
 quarter has been raised by taxation, while three-quarters have been 
 borrowed at onerous rates of interest, to be a burden on the nation's 
 future) brings things to a crisis. When peace comes, capital will be 
 needed for all sorts of social enterprises, and the resources of govern- 
 ment will necessarily have to be vastly greater than they were before 
 the war. Meanwhile innumerable new private fortunes are being
 
 66o ECONOMICS OF WAR 
 
 heaped up by those who have taken advantage of the nation's needs; 
 and the one-tenth of the population which owns nine-tenths of the 
 riches of the United Kingdom, far from being made poorer, will 
 find itself, in the aggregate, as a result of the war, drawing in rent and 
 interest and dividends a larger nominal income than ever before. 
 Such a position demands a revolution in national finance. How are 
 we to discharge a public debt that may well reach the almost incredible 
 figure of seven thousand million pounds sterling, and at the same time 
 raise an annual revenue which, for local as well as central government, 
 must probably reach one thousand millions a year ? It is over this 
 problem of taxation that the various political parties will be found to 
 to be most sharply divided. 
 
 The Labor party stands for such a system of taxation as will yield 
 all the necessary revenue to the government without encroaching on 
 the prescribed national minimum standard of life of any family 
 whatsoever, without hampering production or discouraging any useful 
 personal effort, and with the nearest possible approximation to 
 equality of sacrifice. We definitely repudiate all proposals for a pro- 
 tective tariff, in whatever specious guise they may be cloaked, as a 
 device for burdening the consumer with unnecessarily enhanced 
 prices, to the profit of the capitalist employer or landed proprietor, 
 who avowedly expects his profit or rent to be increased thereby. We 
 shall strenuously oppose any taxation, of whatever kind, which would 
 increase the price of food or of any other necessary of life. We hold 
 that indirect taxation on commodities, whether by customs or excise, 
 should be strictly limited to luxuries, and concentrated principally 
 on those of which it is socially desirable that the consumption should 
 be actually discouraged. We are at one with the manufacturer, the 
 farmer, and the trader in objecting to taxes interfering with produc- 
 tion or commerce, or hampering transport and communication. In 
 all these matters once more in contrast with the other political 
 parties, and by no means in the interests of the wage-earners alone 
 the Labor party demands that the very definite teachings of economic 
 science should no longer be disregarded as they have been in the past. 
 
 For the raising of the greater part of the revenue now required 
 the Labor party looks to the direct taxation of the incomes above 
 the necessary cost of family maintenance; and, for the requisite effort 
 to pay off the national debt, to the direct taxation of private fortunes, 
 both during life and at death. The income tax and supertax ought 
 at once to be thoroughly reformed in assessment and collection, in
 
 AFTER-THE-WAR PROBLEMS 66 1 
 
 abatements and allowances, and in graduation and differentiation, 
 so as to levy the required" total sum in such a way as to make the 
 real sacrifice of all the taxpayers as nearly as possible equal. This 
 would involve assessment by families instead of by individual persons, 
 so that the burden is alleviated in proportion to the number of persons 
 to be maintained. It would involve the raising of the present unduly 
 low minimum income assessable to the tax, and the lightening of the 
 present unfair burden on the great mass of professional and small 
 trading classes by a new scale of graduation, rising from a penny in the 
 pound on the smallest assessable income up to sixteen or even nine- 
 teen shillings in the pound on the highest income of the millionaires. 
 It would involve bringing into assessment the numerous windfalls of 
 profit that now escape, and a further differentiation between essen- 
 tially different kinds of income. The excess-profits tax might well be 
 retained in an appropriate form, while, so long as mining royalties 
 exist, the mineral-rights duty ought to be increased. The steadily 
 rising unearned increment of urban and mineral land ought, by an 
 appropriate direct taxation of land values, to be wholly brought into 
 the public exchequer. At the same time, for the service and redemp- 
 tion of the national debt, the death duties ought to be regraduated, 
 much more strictly collected, and greatly increased. In this matter 
 we need, in fact, completely to reverse our point of view, and to 
 rearrange the whole taxation of inheritance from the standpoint of 
 asking what is the maximum amount that any rich man should be 
 permitted at death to divert, by his will, from the national exchequer, 
 which should normally be the heir to all private riches in excess of a 
 quite moderate amount by way of family provision. But all this 
 will not suffice. It will be imperative at the earliest possible moment 
 to free the nation from at any rate the greater part of its new load of 
 interest-bearing debt for loans which ought to have been levied as 
 taxation; and the Labor party stands for a special capital levy to pay 
 off, if not the whole, a very substantial part, of the entire national 
 debt a capital levy chargeable like the death duties on all property, 
 but (in order to secure approximate equality of sacrifice) with exemp- 
 tion of the smallest .savings, and for the rest at rates very steeply 
 graduated, so as to take only a small contribution from the little people 
 and a very much larger percentage from the millionaires. 
 
 Over this issue of how the financial burden of the war is to be 
 borne, and how the necessary revenue is to be raised, the greatest 
 political battles will be fought. In this matter the Labor party
 
 662 ECONOMICS OF WAR 
 
 claims the support of four-fifths of the whole nation, for the interests 
 of the clerk, the teacher, the doctor, the minister of religion, the 
 average retail shopkeeper and trader, and all the mass of those living 
 on small incomes are identical with those of the artisan. The land- 
 lords, the financial magnates, the possessors of great fortunes, will not, 
 as a class, willingly forego the relative immunity that they have hither- 
 to enjoyed. The present unfair subjection of the co-operative society 
 to an excess-profits tax on the "profits" which it has never made 
 specially dangerous as "the thin end of the wedge" of penal taxation 
 of this laudable form of democratic enterprise will not be abandoned 
 without a struggle. Every possible effort will be made to juggle with 
 the taxes, so as to place upon the shoulders of the mass of laboring 
 folk and upon the struggling households of the professional men and 
 small traders (as was done after every previous war) whether by 
 customs or excise duties, by industrial monopolies, by unnecessarily 
 high rates of postage and railway fares, or by a thousand and one 
 other ingenious devices an unfair share of the national burden. 
 Against these efforts the Labor party will take the firmest stand. 
 
 D. THE SURPLUS WEALTH FOR THE COMMON GOOD 
 
 In the disposal of the surplus above the standard of life, society 
 has hitherto gone as far wrong as in its neglect to secure the necessary 
 basis of any genuine industrial efficiency or decent social order. We 
 have allowed the riches of our mines, the rental value of the lands 
 superior to the margin of cultivation, the extra profits of the fortunate 
 capitalists, even the material outcome of scientific discoveries 
 which ought by now to have made this Britain of ours immune from 
 class poverty or from any widespread destitution to be absorbed 
 by individual proprietors; and then devoted very largely to the 
 senseless luxury of an idle rich class. Against this misappropriation 
 of the wealth of the community, the Labor party speaking in the 
 interests, not of the wage earners alone, but of every grade and section 
 of producers by hand or by brain, not to mention also those of the 
 generations that are to succeed us, and of the permanent welfare of the 
 community emphatically protests. One main pillar of the house 
 that the Labor party intends to build is the future appropriation of 
 the surplus, not to the enlargement of any individual fortune, but to 
 the common good. It is from this constantly arising surplus (to be 
 secured, on the one hand, by nationalization and municipalization 
 and, on the other, by the steeply graduated taxation of -private
 
 AFTER-THE-WAR PROBLEMS 663 
 
 incomes and riches) that will have to be found the new capital which 
 the community day by day needs for the perpetual improvement and 
 increase of its various enterprises, for which we shall decline to be 
 dependent on the usury-exacting financiers. It is from the same 
 source that has to be defrayed the public provision for the sick and 
 infirm of all kinds (including that for maternity and infancy) which 
 is still so scandously insufficient; for the aged and those prematurely 
 incapacitated by accident or disease, now in many ways so imperfectly 
 cared for; for the education alike of children, of adolescents and of 
 adults, in which the Labor party demands a genuine equality of 
 opportunity, overcoming all differences of material circumstances; 
 and for the organization of public improvements of all kinds, includ- 
 ing the brightening of the lives of those now condemned to almost 
 ceaseless toil, and a grea,t development of the means of recreation. 
 From the same source must come the greatly increased public pro- 
 vision that the Labor party will insist on being made for scientific 
 investigation and original research, in every branch of knowledge, not 
 to say also for the promotion of music, literature, and fine art, which 
 have been under capitalism so greatly neglected, and upon which, so 
 the Labor party holds, any real development of civilization funda- 
 mentally depends. Society, like the individual, does not live by 
 bread alone does not exist only for perpetual wealth production. 
 It is in the proposal for this appropriation of every surplus for the 
 common good in the vision of its resolute use for the building up of 
 the community as a whole instead of for the magnification of indi- 
 vidual fortunes that the Labor party, as the party of the pro- 
 ducers by hand or by brain, most distinctively marks itself off from 
 the older political parties, standing, as these do, essentially for the 
 maintenance, unimpaired, of the perpetual private mortgage upon 
 the annual product of the nation that is involved in the individual 
 ownership of land and capital. 
 
 THE STREET OF TOMORROW 
 
 The house which the Labor party intends to build, the four 
 pillars of which have now been described, does not stand alone in the 
 world. Where will it be in the street of tomorrow ? If we repudiate 
 on the one hand the imperialism that seeks to dominate other 
 races, or to impose our own will on other parts of the British empire, 
 so we disclaim equally any conception of a selfish and insular 
 " non-interventionism," unregarding of our special obligations to our
 
 664 ECONOMICS OF WAR 
 
 fellow-citizens overseas; of the corporate duties of one nation to 
 another; of the moral claims upon us of the non-adult races, and of 
 our own indebtedness to the world of which we are part. We look 
 for an ever-increasing intercourse, a constantly developing exchange 
 of commodities, a continually expanding friendly co-operation among 
 all the peoples of the world. With regard to that great common- 
 wealth of all races, all colors, all religions, and all degrees of civiliza- 
 tion that we call the British Empire, the Labor party stands for 
 its maintenance and its progressive development on the lines of local 
 autonomy and "Home Rule All Round"; the fullest respect for the 
 rights of each people, whatever its color, to all the democratic self- 
 government of which it is capable and to the proceeds of its own 
 toil upon the resources of its own territorial home; and the closest 
 possible co-operation among all the various members of what has 
 become essentially, not an empire in the old sense, but a Britannic 
 alliance. 
 
 We desire to maintain the most intimate relations with the Labor 
 parties overseas. Like them, we have no sympathy with the projects 
 of "Imperial Federation," in so far as these imply the subjection to a 
 common imperial legislature wielding coercive power (including 
 dangerous facilities for coercive imperial taxation and for enforced 
 military service), either of the existing self-governing Dominions, 
 whose autonomy would be thereby invaded; or of the United King- 
 dom, whose freedom of democratic self -development would thereby be 
 hampered; or of India and the colonial dependencies, which would 
 thereby run the risk of being further exploited for the benefit of a 
 " White Empire." We do not intend, by any such " Imperial Senate," 
 either to bring the plutocracy of Canada and South Africa to the aid 
 of the British aristocracy or to enable the landlords and financiers of 
 the mother-country to unite in controlling the growing popular 
 democracies overseas. The autonomy of each self-governing part of 
 the empire must be intact. 
 
 What we look for, besides a constant progress in democratic 
 self-government of every part of the Britannic alliance, and especially 
 in India, is a continuous participation of the ministers of the Domin- 
 ions, of India, and eventually of other dependencies (perhaps by 
 means of their own ministers specially resident in London for this 
 purpose) in the most confidential deliberations of the Cabinet, so 
 far as foreign policy and imperial affairs are concerned; and the annual 
 assembly of an Imperial Council, representing all constituents of the
 
 AFTER-THE-WAR PROBLEMS 665 
 
 Britannic alliance, and all parties in their local legislatures, which 
 should discuss all matters of common interest, but only in order to 
 make recommendations for the simultaneous consideration of the 
 various autonomous lcal legislatures of what should increasingly 
 take the constitutional form of an alliance of free nations. And 
 we carry the idea farther. As regards our relations to foreign coun- 
 tries, we disavow and disclaim any desire or intention to dispossess 
 or to impoverish any other state or nation. We seek no increase 
 of territory. We disclaim all idea of "economic war." We ourselves 
 object to all protective customs tariffs; but we hold that each nation 
 must be left free to do what it thinks best for its own economic 
 development without thought of injuring others. We believe that 
 nations are in no way damaged by each other's economic prosperity 
 or commercial progress; but, on the contrary, that they are actually 
 themselves mutually enriched thereby. "We would therefore put an 
 end to the old entanglements and mystifications of secret diplomacy 
 and the formation of leagues against leagues. We stand for the 
 immediate establishment, actually as a part of the treaty of peace 
 with which the present war will end, of a universal league or society 
 of nations, a supernational authority, with an international high 
 court to try all justiciable issues between nations, an international 
 legislature to enact such common laws as can be mutually agreed 
 upon, and an international council of mediation to endeavor to settle 
 without ultimate conflict even those disputes which are not justiciable. 
 We would have all the nations of the world most solemnly undertake 
 and promise to make common cause against any one of them that 
 broke away from this fundamental agreement. The world has 
 suffered too much from war for the Labor party to have any other 
 policy than that of lasting peace. 
 
 MORE LfGHT BUT ALSO MORE WARMTH! 
 
 The Labor party is far from assuming that it possesses a key to 
 open all locks, or that any policy which it can formulate will solve all 
 the problems that beset us. But we deem it important to ourselves 
 as well as to those who may, on the one hand, wish to join the party, 
 or, on the other, to take up arms against it, to make quite clear and 
 definite our aim and purpose. The Labor party wants that aim and 
 purpose, as set forth in the preceding pages, with all its might. It 
 calls for more warmth in politics, for much less apathetic acquiesc nee 
 in the miseries that exist, for none of the cynicism that saps the life
 
 666 ECONOMICS OF WAR 
 
 of leisure. On the other hand, the Labor party has no belief in any 
 of the problems of the world being solved by good will alone. Good 
 will without knowledge is warmth without light. Especially in all 
 the complexities of politics, in the still undeveloped science of society, 
 the Labor party stands for increased study, for the scientific investiga- 
 tion of each succeeding problem, for the deliberate organization of 
 research, and for a much more rapid dissemination among the whole 
 people of all the science that exists. And it is perhaps specially the 
 Labor party that has the duty of placing this advancement of science 
 in the forefront of its political program. What the Labor party 
 stands for in all fields of life is, essentially, democratic co-operation; 
 and co-operation involves a common purpose which can be agreed to, 
 a common plan which can be explained and discussed, and such a 
 measure of success in the adaptation of means to ends as will insure a 
 common satisfaction. An autocratic sultan may govern without 
 science if his whim is law. A plutocratic party may choose to ignore 
 science if it is heedless whether its pretended solutions of social 
 problems that may win political triumphs ultimately succeed or fail. 
 But no Labor party can hope to maintain its position unless its 
 proposals are, in fact, the outcome of the best political science of its 
 time, or to fulfil its purpose unless that science is continually wresting 
 new fields from human ignorance. Hence, although the purpose of 
 the Labor party must, by the law of its being, remain for all time 
 unchanged, its policy and its program will, we hope, undergo a per- 
 petual development, as knowledge grows, and as new phases of the 
 social problem present themselves, in a continually finer adjustment 
 of our measures to our ends. If law is the mother of freedom, science, 
 to the Labor party, must be the parent of law. 
 
 3. PROGRAM OF THE WORLD'S PEACE 1 
 
 It will be our wish and purpose that the processes of peace when 
 they are begun shall be absolutely open, and that they shall involve 
 and permit henceforth no secret understandings of any kind. The day 
 of conquest and aggrandizement is gone by; so is also the day of 
 secret covenants entered into in the interest of particular govern- 
 ments, and likely at some unlooked-for moment to upset the peace of 
 the world. It is this happy fact, now clear to the view of every public 
 man whose thoughts do not still linger in an age that is dead and gone, 
 which makes it possible for every nation whose purposes are consistent 
 
 1 By Woodrow Wilson. From address to Congress, January 8, 1918.
 
 AFTER-THE-WAR PROBLEMS 667 
 
 with justice and the peace of the world to avow now or at any other 
 time the objects it has in view. 
 
 The program of the world's peace is our program; and that 
 program, the only possible program, as we see it, is this: 
 
 I. Open covenants of peace, openly arrived at; after which there 
 shall be no private international understandings of any kind, but 
 diplomacy shall proceed always frankly and in the public view. 
 
 II. Absolute freedom of navigation upon the seas, outside terri- 
 torial waters, alike in peace and in war, except as the seas may be 
 closed in whole or in part by international action for the enforcement 
 of international covenants. 
 
 III. The removal, so far as possible, of all economic barriers and 
 the establishment of an equality of trade conditions among all the 
 nations consenting to the peace and associating themselves for its 
 maintenance. 
 
 IV. Adequate guarantees given and taken that national arma- 
 ments will be reduced to the lowest point consistent with domestic 
 safety. 
 
 V. A free, open-minded, and absolutely impartial adjustment 
 of all colonial claims, based upon a strict observance of the principle 
 that in determining all such questions of sovereignty the interests of 
 the populations concerned must have equal weight with the equitable 
 claims of the government whose title is to be determined. 
 
 VI. The evacuation of all Russian territory, and such a settle- 
 ment of all questions affecting Russia as will secure the best and 
 freest co-operation of the other nations of the world in obtaining for 
 her an unhampered and unembarrassed opportunity for the inde- 
 pendent determination of her own political development and national 
 policy, and assure her of a sincere welcome into the society of free 
 nations under institutions of her own choosing; and, more than a. 
 welcome, assistance also of every kind that she may need and may 
 herself desire. The treatment accorded Russia by her sister nations 
 in the months to come will be the acid test of their good will, of their 
 comprehension of her needs as distinguished from their own interests, 
 and of their intelligent and unselfish sympathy. 
 
 VII. Belgium, the whole world will agree, must be evacuated and 
 restored without any attempt to limit the sovereignty which she 
 enjoys in common with all other free nations. No other single act 
 will serve as this will serve to restore confidence among the nations 
 in the laws which they have themselves set and determined for the
 
 668 ECONOMICS OF WAR 
 
 government of their relations with one another. Without this healing 
 act the whole structure and validity of international law is forever 
 impaired. 
 
 VIII. All French territory should be freed and the invaded 
 portions restored; and the wrong done to France by Prussia in 1871 
 in the matter of Alsace-Lorraine, which has unsettled the peace of 
 the world for nearly fifty years, should be righted, in order that peace 
 may once more be made secure in the interest of all. 
 
 IX. A readjustment of the frontiers of Italy should be effected 
 along clearly recognizable lines of nationality. 
 
 X. The peoples of Austria-Hungary, whose place among the 
 nations we wish to see safeguarded and assured, should be accorded 
 the freest opportunity of autonomous development. 
 
 XI. Roumania, Serbia, and Montenegro should be evacuated; 
 occupied territories restored; Serbia accorded free and secure access 
 to the sea; and the relations of the several Balkan States to one 
 another determined by friendly counsel along historically established 
 lines of allegiance and nationality; and international guaranties of 
 the political and economic independence and territorial integrity of 
 the several Balkan States should be entered into. 
 
 XII. The Turkish portions of the present Ottoman Empire should 
 be assured a secure sovereignty, but the other nationalities which 
 are now under Turkish rule should be assured an undoubted security 
 of life and an absolutely unmolested opportunity of autonomous 
 development, and the Dardanelles should be permanently opened as 
 a free passage to the ships and commerce of all nations under inter- 
 national guaranties. 
 
 XIII. An independent Polish State should be erected which should 
 include the territories inhabited by indisputably Polish populations, 
 which should be assured a free and secure access to the sea, and 
 whose political and economic independence and territorial integrity 
 should be guaranteed by international covenant. 
 
 XIV. A general association of nations must be formed, under 
 specific covenants, for the purpose of affording mutual guaranties of 
 political independence and territorial integrity to great and small 
 states alike.
 
 INDEXES
 
 INDEX TO AUTHORS 
 
 [References are to pages] 
 
 Adams, Henry C., 422 
 
 Anderson, B. M., Jr., 461 
 
 Andrews, John B., 521 
 
 Angell, Norman, i, 2, 9, 12, 58, 61, 82 
 
 "Atticus," 593 
 
 Ayres, C. E., 99 
 
 Barnes, G. N., 512 
 Bergland, Abraham, 262 
 von Bernhardi, F., 3, 22 
 Blanchard, Raoul, 188 
 Blanchon, Georges, 112, 116 
 Bogart, Ernest L., 542 
 Brailsford, H. N., 57, 87 
 Brand, R. H., 191, 259, 384 
 Bullock, Charles J., 396 
 Burgess, George K., 107 
 
 Carver, Thomas Nixon, 432 
 Cassel, Gustav, 160 
 Chevrillon, Andre, 182, 183, 209 
 Clark, J. M., 566 
 Coffin, Howard Earle, 103, 166 
 Cole, G. D. H., 484 
 Cromer, The Earl of, 52 
 Crowder, General, 184 
 
 Delano, F. A., 404 
 Dernburg, Herr, 597 
 Desmond, Thomas C., 510 
 Destree, Jules, 276 
 Dickinson, Thomas H., 462 
 Donald, Robert, 272 
 Dreher, William C., 545 
 Durand, E. Dana, 388, 393 
 
 Editorials, 120, 131, 155, 175, 216, 255, 
 
 296, 347, 355, 365, 370, 37i, 385, 
 401, 424, 441, 453, 468, 547, 556, 600, 
 620 
 
 Field, James A., 555 
 Finlay, James R., 118 
 
 Fischer, K. A., 67 
 Frankfurter, Felix, 530 
 Frenderburg, Prince du Loewenstein 
 Wertheim, 589 
 
 Gilbert, Chester G., 337 
 Gottlieb, Louis, 382 
 Groner, General, 199 
 
 Hamilton, Walton H., 311 
 Hard, William, 224 
 Harper, Samuel, 202 
 Hauser, Henri, 26 
 Helfferich, Karl, 28, 142, 145 
 Herve, Gustave, 481 
 Hirst, F. W., 548 
 Hitchcock, Curtice N., 245 
 Hobson, J. A., 552, 562 
 
 Johnson, Alvin, i, 43, 47, 185 
 
 Kennedy, Sinclair, 427 
 Konovalov, A. I., 206 
 Krai, J. J., 258 
 
 Leiserson, William M., 506 
 Lippman, Walter, 54, 85 
 List, Friedrich, i, 2, 4 
 Littlefield, Walter, 150 
 Lloyd George, David, 368, 613 
 Lund, Fin, 256 
 Lvov, Prince, 206 
 
 McAdoo, William G., 354 
 McElvare, R. R., 382 
 McKenzie, F. A., 345 
 McRoberts, Samuel. 292 
 Marshall, L. C., 180, 221, 228 
 Means, David McGregor, 45*7 
 Middleton, P. Harvey, 601 
 Miller, A. C., 407 
 Montagu, Edwin, 104, 106 
 Moore, James Louis, 285 
 Morrow, Dwight W., 433 
 
 671
 
 672 
 
 ECONOMICS OF WAR 
 
 Moulton, Harold G., 168, 177, 186, 300, 
 448, 455 
 
 Nitti, Francesco Saverio, 498 
 Notz, William, 323, 334 
 
 Orth, Samuel P., 152 
 Otis, Roland, 510 
 
 Parfit, Canon, 3, 39 
 Park, William L., 149 
 Pelletier, E. LeRoy, 428 
 Pogue, Joseph E., 337 
 
 Rathenau, Walter, 197 
 Ravenstone, Piercy, 154 
 Reynolds, George M., 387 
 Roberts, Lord, 595 
 Rochester, Anna, 524 
 Ross, Edward Alsworth, 14 
 Rossiter, William, 17 
 Rovehsky, John E., 270, 271 
 
 Schmoller, Gustav, i, 2, 6 
 Selfridge, Harry Gordon, 430 
 
 Seligman, Edwin R. A., 409, 541 
 
 Smith, Adam, 93, 95 
 
 Snow, Chauncey Depew, 258 
 
 Sprague, O. M. W., 392 
 
 Stocks, Mary, 639 
 
 Sullivan, Mark, 500 
 
 Tead, Ordway, 619 
 Thelen, Max, 348 
 Thomas, James H., 497 
 Thompson, Warren S., 20 
 
 Usher, Abbot Payson, 34 
 
 Vanderlip, Frank A., 172 
 Van Hise, Charles R., 445,^69 
 Van Metre, T. W., 363 
 Veblen, Thorstein, 157 
 
 Webb, Sidney, 451, 514 
 Wilson, William B., 491 
 Wilson, Woodrow, 288, 508, 666 
 
 Young, George, 41
 
 SUBJECT INDEX 
 
 [The references are to pages.] 
 
 Adams, Henry C., 391 
 
 Advertising, 581 
 
 Aeroplanes, 103, 175 
 
 After-the-war problems, chap, xvi 
 
 Agriculture, 96 
 
 Alliances, 5 
 
 Allied economic agreement, the need of, 
 
 606 
 
 Allied Purchasing Commission, 296 
 American Alliance for Labor and 
 
 Democracy, 494, 495, 496, 497 
 American labor, war attitude of, p. 491 
 Armament interests, 48 
 Association of nations, 596 
 
 Bagdad railway, 38, 39, 40, 41 
 
 Balance of trade, 7, 261, 262 
 
 Balkan wars, 3 
 
 Bank credit and war finance, 386 
 
 Baruch, Bernard M., 249 
 
 Blockade of Germany, 128, 129, i6f 
 
 Bonds versus taxes, 392 
 
 British labor, war attitude of, 484, 646 
 
 British trade unionists, war attitude of, 
 
 488 
 Business as usual, 427, 428, 430, 431, 
 
 501, 503, 504, 581 
 
 Capital, effects of war upon, 553 
 
 Capital goods, effects of war upon, 541, 
 549 
 
 Capital issues, 298 
 
 Capital Issues Committee, 298 
 
 Car shortage, 358 
 
 Cartel, 603, 604 
 
 Children in industry, 499, 524, 525, 526, 
 527, 528, 529, 530 
 
 Coal and electricity, 305, 340 
 
 Coal: European deposits, p. 135; of 
 Westphalia, 31; price control of, 
 471; prices, 327, 458; problem of the 
 Allies, 277; problems of the United 
 States, 305, 330, 458; production and 
 
 resources, 136; production of the 
 world, 324; resources of Germany, 
 142. 
 
 Coal Mines Act, 649 
 
 Colonial aims of Germany, 612 
 
 Colonial booty, 68 
 
 Colonial policy, 26, 37; French Social- 
 ist view of, 616 
 
 Colonial problems, 35 
 
 Colonial trader, 49 
 
 Commercial rivalry, 2, 13, 43 
 
 Competitive production, 571 
 
 Compulsory civilian service, 198 
 
 Concessionary investors, 47 
 
 Concessions, 41, 56 
 
 Congestion of traffic, 359 
 
 Conscription of capital, 382 
 
 Conscription of income, 392 
 
 Consumer, the, 101 
 
 Contracts: forms of, 474, 475, 476, 477; 
 cost-plus-lump-sum, 477; cost-plus- 
 percentage, 180, 478; economy- 
 sharing, 477. 
 
 Co-operation between nations, 1 2 
 Co-ordination further required, 253 
 Co-ordination, the need for, 224 
 Copper production, 139 
 Corporation for the Promotion of 
 
 German Foreign Trade, 602 
 Cost of war in men, 544 
 Cost-plus-lump-sum contracts, 477 
 Cost-plus-percentage contracts, 180, 478 
 Costs of war, chap, xiii, 541, 556; 
 
 pecuniary, 542; social, 548, 557, 558, 
 
 559 
 
 Cotton, 30 
 
 Council of National Defense, 231 
 Credit inflation, 272 
 Currency, effect of war upon, 549 
 
 Demobilization, 627, 634, 635, 636, 637 
 Director-General McAdoo, 347, 351
 
 674 
 
 ECONOMICS OF WAR 
 
 Discipline, German, 152 
 Diversion of energy, 124, 134, 175 
 "Dumping," 44, 591 
 
 Economic: amateurs, 221; background 
 of war, chap, i; imperialism, 2, 22; 
 independence, 608, 609; inequality, 
 580; interdependence, 13; isolation 
 of Germany, 160; organization and 
 war, 99; resources, chap, iv; rivalry, 
 2, 37; strategy, 94, 120; unity, 
 national, 6 
 
 Economy, national, 573 
 
 Efficiency, competitive, 583 
 
 Efficiency, principles of national, chap, 
 xiv, 566, 567, 568, 569 
 
 Electrical power in Germany, 147 
 
 Electricity, use of, 656 
 
 Emergency Fleet Corporation, 229, 
 252, 296, 343 
 
 Emigration, 29 
 
 Employment: after the war, 650; 
 exchanges, 181; service of the 
 United States, 508 
 
 Enemy Trading Act, 267 
 
 Excess profits taxation, 414, 424 
 
 Exploitation, systematic, 69 
 
 Exploitative: business, 52; capital, 52; 
 trade, 46 
 
 Exports, 288 
 
 Express companies, 360 
 
 Farrell, James A., 596 
 
 Federal Bureau of Standards, 578 
 
 Federal Trade Commission, 325 
 
 Feed prices, 467 
 
 Finance, chap, x 
 
 Financial interests, 56, 87 
 
 Food, 34 
 
 Food: Administration, 252, 296, 379, 
 
 462, 464; and fuel, chap, viii; card 
 
 system, 307; control law, 463; 
 
 excursionists, 306; supply, 14 
 Foreign exchange, 254, 259; control of, 
 
 268 
 
 Foreign Trade, of Germany, 258, 267 
 Free trade, 53, 54 
 
 Fuel Administration, 252, 296, 300, 379 
 Fuel and food, chap, viii 
 
 Gains from war: economic, 562; 
 
 industrial, 561 
 Geographic position, value of, 127 
 
 Gold supply, 255, 270 
 Great illusion, the, 58, 61 
 Greenwood, Arthur, 560 
 
 Hague conventions, 57, 66 
 Heatless "holidays," 330 
 Housing: in New Orleans, 510, 511, 
 512; problem, 241; the need of, 510 
 
 Immigration, 16, 29; and man power, 
 
 505 
 
 Imperialism, 55; economic, 2, 22, 32 
 Imperialistic plans, Great Britain's, 605 
 Imports, restriction of, 290 
 Income tax, 409, 421, 422 
 Industrial conscription, 177, 186 
 Industrial mobilization: and price 
 
 control, 455; in England, 165, 191; 
 
 in France, 165, 188; in Germany; 
 
 165, 197; *in Russia, 165, 202; 
 
 obstacles to rapid, chap, vi 
 Industrial: penetration, 26.; processes 
 
 correlated, 148; resources, 126, 135; 
 
 state, 29; unrest, 512, 513, 531, 532, 
 
 534; war gains, 560 
 Industrialization of Germany, 34 
 Industry: and war, 94, 112, 118; and 
 
 world-policy, 31; control of, 654, 
 
 658; of Europe, 37; of Germany, 31; 
 
 penalty of taking the lead in, 157 
 Inflation, 403, 404, 407; of credit, 272 
 Insurance Act, 654 
 
 Inter-Allied Labor and Socialist Con- 
 ference, 614, 615 
 
 Inter-Allied Labor Conference, 645 
 Interdependence, economic, 13, 254 
 International: co-operation, 12; ex- 
 change, 254, 259, 268; relations, 34; 
 rivalry, 9, 36; trade, 601 
 Intervention, 41 
 
 Iron: of Briey, 31; of Germany, 31, 
 142; of Lorraine, 31, 33; of Luxem- 
 burg, 33; of Normandy, 31; of the 
 Saar, 33; of Westphalia, 33; pro- 
 duction, 137; resources, 138 
 
 Labor, 644, 645; administration of, 
 230; and the war, chap, xii, 481, 514, 
 515; conditions, 521, 522, 523, 524; 
 effects of war upon, 554; legislation, 
 522, 649; mobilization of American, 
 497; mobilization of British, 497; 
 mobilization of French, 497; mobili- 
 zation of Italian, 498; policy in war- 
 time, 535; policy of Great Britain, 
 517
 
 SUBJECT INDEX 
 
 675 
 
 Labor market, organization of, 506, 621, 
 
 622 
 
 Labor party, war attitude of, 486, 489 
 Laissez-faire, theory of, 154 
 Liberty Loan campaigns, 217 
 Lloyd George, 277, 380, 521 
 Loans, chap, x; by the United States, 
 
 263 
 
 Lorraine iron, 31, 64 
 Ludendorff, General, 199 
 Luxuries, 172 
 
 McAdoo, Director-General W. G., 347, 
 
 35i 
 
 Machinery and war, 103 
 Machtpolilik, 22, 33 
 Man power, 126; and immigration, 
 
 505; organization of, 500; shortage 
 
 of, 503 
 
 Markets, 23, 24, 33, 38, 44 
 Mediation in war time, 530 
 Mercantile marine, 5, 27 
 Mercantilism, 7 
 
 Mesopotamia, 2, 3, 38, 134; a British 
 
 view of, 39 
 Minerals, 33, 76 
 Ministry of Munitions, 104, 106, 195, 
 
 236; development of, 276 
 "Mittel-Europa," 74, 77, 81 
 
 Mobilization, obstacles to rapid, chap, 
 vi 
 
 Mobilization, industrial, chap, v; in 
 England, 165, 191; in France, 165, 
 188; in Germany, 165, 197; in 
 Russia, 165, 202 
 
 Money, function of, 384 
 
 Munitions: Ministry of, 104, 106, 195, 
 236, 276; insatiable demand for, 104 
 
 Munitions Act, 211 
 
 National minimum, 648 
 National War Labor Board, 535 
 Nationalization, 656 
 Naval power, 5 
 Near East, 38, 41 
 Nonessentials, 168, 171, 186, 217 
 Non-ferrous Metals Act, 598 
 
 "Open Door," 25, 26, 54 
 
 Ordnance Department, problems of, 
 
 292 
 Overman Bill, 244 
 
 Paris Economic Conference, 590, 591, 
 595, 606, 607 
 
 Peace, economic factors in an enduring, 
 chap, xv 
 
 . Petroleum production, 139 
 Plant conversion, 166, 251, 636, 638 
 Population: effects of war upon, 555; 
 
 limits, 17; pressure of, 2, 14, 17, 23, 
 
 24, 25, 26, 28; restriction of, 21; 
 
 stationary, 20 
 Press, position of the, 216 
 Price control, chap, xi, 448, 449; in 
 
 Great Britain, 451; of coal, 471; of 
 
 copper, 469; of iron and steel, 470; 
 
 of meat packing, 465; of wheat, 459 
 Price-fixing, 195, chap, xi, 457, 493, 
 
 494; in the United States, 461 
 Price: level, 271, 441, 624; problems, 
 
 248, 453 
 Price increase, causes and effects of, 
 
 442, 445 
 
 Prices in Petrograd, 450 
 Priorities Board, 227, 252, 296 
 Priorities in fuel and transportation, 298 
 Priority: method, 185, 248; system, 
 
 296, 583 
 
 Profits, trade, 44 
 Protectorates, 35 
 Public opinion, organization of, 208, 
 
 209 
 
 Railroad administration, 252, 343 
 Railroads, chap, ix 
 Railroads War Board, 348 
 Railways: German and English, 158; 
 
 Germany's strategic, 149; mileage, 
 
 141; military use of, 1 16 
 Rathenau plan, 69 
 Raw materials, 69, 136; boycott of, 
 
 597> 598; Germany's need of, 589; 
 
 international control of, 600, 601; 
 
 organization of, 593, 599 
 Reconstruction, chap, xvi; English 
 
 Ministry of, 628, 629, 630, 631, 632; 
 
 proposals in Great Britain, 619 
 Regional organization of industry, 300 
 Repington, Charles a Court, 125 
 Resources: economic, chap, iv; indus- 
 trial, 126, 135; of "Mittel-Europa," 
 
 74 
 Rivalry: commercial, 2, 43; economic, 
 
 2 , 13, 37! international, 9, 24, 36; 
 
 trade, 10, 87
 
 676 
 
 ECONOMICS OF WAR 
 
 Salesmanship, 581 
 
 Saving, the need of, 563, 564, 565 
 
 Science and industry, 27, 107 
 
 Securities, return of American, 263 
 
 Selective draft, 183 
 
 Seligman, Edwin R. A., 391 
 
 Sherman Law, 363, 366 
 
 Shipbuilding strategy, 371 
 
 Shipping, 124, chap, ix; after the war, 
 
 626; improves, 266 
 Shipping Board, 343, 379 
 Smith, Adam, 551 
 Social: customs, 155; insurance, 655; 
 
 reform, 643 
 Socialism, 30, 63 
 Steam power in Germany, 145 
 Steel production, 138; of Germany, 145 
 Submarine losses, 368, 376 
 Submarines, 115, 124, 130 
 Surplus wealth, 662 
 
 Tariff: barriers, 7, 23; union, 6; walls, 
 
 52; wars, 24, 53 
 Taxation, chap, x, 659, 660, 661; of 
 
 luxuries, 421, 425; policy, 409, 624 
 Territorial problems, 608, 614 
 Territory, acquisition of, 25 
 Thrift problem, 427 
 Timber lands and production, 140 
 Trade: balance, 7; competition, 24; 
 
 dislocations, 254, 255; exploitative, 
 
 46; 
 144 
 
 international, 44, 60; profits, 
 
 Trade and industry: British control of, 
 272, war-time regulation of, chap, vii 
 Transportation, chap, ix 
 
 Unemployment, effects of war upon, 
 
 55, 652 
 United States Shipping Board, 269, 296 
 
 Voluntary compulsory service, 213 
 
 Wages, increase of, 443, 444, 446 
 War aims of Great Britain, 613 
 War chest at Spandau, 380 
 War debts of Germany, 545, 547 
 War finance, chap, x; War Finance 
 
 Corporation, 298, 381, 425, 427 
 War Industries Board, 245, 296 
 War Trade Board, 269; 291, 296, 379; 
 
 policies of, 286 
 Weltpolitik, 31 
 Westphalia, iron of, 33 
 Wheat, control of price of, 459 
 Women in industry, 156, 499, 524, 538, 
 
 561, 623, 639, 640, 641 
 Work or fight, 184 
 Workmen's Compensation Act, 649 
 World policy and industry, 3 1 
 World's peace, program of, 667, 668 
 
 Zollverein, 28 
 
 Zoning system for coaj, 334
 
 5o 
 
 761 254 2