WAR FINANCE.
RECENTLY Mr. McKenna gave a shock to the City of London by somewhat carelessly stating in the House of Commons that our war expenditure had gone up to £6,000,000 a day. The phrase was subsequently explained, and explained away, but it is a pity that it should have been used, for it created an impression that the financial situation was much more serious than it really is. The truer view of the whole position was conveyed by Mr. Asquith's remark- ably lucid statement in moving for the new Vote of Credit for £450,000,000. This is the largest single vote that has been asked for since the war began, and even this huge sum is only expected to last until October next. The satisfactory feature of the business is that the estimated expenditure still remains at the figure upon which the country has been accustomed to reckon for many months past— namely, £5,000,000 a day. This represents almost exactly the actual expenditure upon war purposes and purposes arising out of the war from April 1st to July 22nd. The total expenditure on these purposes during these hundred and thirteen days has been £559,000,000, which works out to just under £5,000,000 a day. But even that figure does not indicate the whole truth, for if the details of Air. Asquith's statement be examined it will be seen that out of the total expenditure no less than £157,000,000 was spent in making advances to our Allies and to the Dominions. In other words, we were lending £1,500,000 a day and only spending £3,500,000. It is this £3,500,000 which must be looked upon as the true irrecoverable war expenditure.
The loans, according to Mr. McKenna's statement in the course of the same debate, have been made on business terms, providing for interest at the market rate, and presumably they will be repaid in due course. This is a factor of very great importance when we are trying to form any kind of mental balance-sheet with regard to the financial operations of the war. In order to pay for the goods which we must import from abroad, mainly food and munitions, we have been compelled to sell our American securities through the agency of the Government upon the New York market. That process is still continuing, and wo may expect it to continue as long as our present rate of importation is maintained. In addition, it must be remembered that a year ago we borrowed £50,000,000 by means of a loan raised in the United States, at the same time that France borrowed an equal sum. By these two proceedings we are undoubtedly losing the position we held before the war as a great creditor country in relation to America. We may, indeed, conceivably end eke war as a debtor to the United States. If this were the whole story, there would be good reason for regarding our future financial position with anxiety. But while we have thus been diminishing our credit holdings across the Atlantic, we have been increasing our credits with our Allies and with the Dominions. No figures have yet been published which will give the actual relation between our borrowings from neutrals and our lendings to friends, but it may safely be stated that we have lent at least as much as we have either borrowed or realized by selling securities. Therefore on this account the future presents no special anxiety.
The really important question which the country has to face is the problem of paying for the three and a half millions a day which was rightly designated in the House of Commons as irrecoverable war expenditure. Before the war no one would have dreamed that this country, rich as she was known to be, could possibly have borne a daily expenditure of this magnitude. The Norman Angell school used to tell us that all the world would be ruined by a great European war. The cost to this country is greater than even Mr. Norman Angell anticipated the coat of any war would be, but the world is not rained, and our own little corner of the world, so far from being ruined, is apparently even more prosperous than it was in time of peace. Certainly there is no question as to the increased prosperity of the mass of the wage-earning classes, while there is not much evidence of any serious distress in the classes which before the war were wealthy or well-to-do. Doubtless the great economic changes through which we are passing have caused many ups and downs in fortune ; but if we may judge by the business done in luxuries of all kinds, including the business at expensive restaurant% the old rich who have dropped out have been more than replaced in numbers by the new rich who have risen.
It is worth while, leaving figures aside, to ask for a moment how this unexpected feat has been accomplished. To attempt to explain. it by talking about the extension of the currency through the issue of Treasury Notes and through the ex- pansion of banking credits carries us very little way. These changes in our currency system may conceivably produce certain minor consequences, but they are not the really im- portant factors. It must always be remembered that money, whether it takes the form of copper coins or bank credits, is only a go-between, only a means to an end. We can obtain no solid explanation of economic phenomena except by getting down to bed-rock facts. What all the world wants in the economic sphere is goods and services, and the nation is rich or poor according as its production of goods and services is plentiful or meagre. Therefore in effect what we have to ask Is how has it happened that the British Isles are able to produce at this present time sufficient goods and services to make up for the terrific destruction of war, while simultaneously pro- viding a higher standard of comfort for the great body of the civilian population. Stated in this form, the only possible answer to the question is that our industries must have become more efficient. Positive evidence of that increased efficiency is published from time to time in the shape of laudatory references to the energy of munition workers, male and female, and of women who are undertaking other industrial work for the first time in their lives. It would be extremely interesting, if it were possible, to obtain some more precise estimate of the greater output of wealth from the factories and workshops of the kingdom. But we do, at any rate, know that in the main the old Trade Union regulations for the restriction of output have now been suspended ; that in addition an enormous number of new workers have taken up industrial occupations ; and that new methods of working and new machinery have been introduced so as to secure in almost every direction a greater output for the same effort. If this be the true explanation of the present position, and it is difficult to see what other explanation can exist, then we may regard the future with confidence.
For a huge percentage of our usual working population is now absent at the war. The men at the front are in the strict economic use of the term destroying wealth instead of creating it, though in a wider sense they are creating the most valuable form of wealth of all—national security. When they come back from the front we shall have available an immense addition to the existing labour forces. If we are then able to maintain anything approaching to the same efficiency of labour as we have now secured, we shall be able with this additional labour force to add enormously even to our present output of wealth.
That is the answer to the people who are still despondent with regard to the huge War Debt with which we shall end the war. Even less than a year ago there was excuse for this despondency, for the country was necessarily slow in adapting itself to the new calls made upon its energy. But now we have risen to these calls. In the past, whether wisely or foolishly, the nation was working at a comparatively easy stroke, but as soon as it chose to exert itself it was able to meet even the tremendous call that the present war is Imposing upon it. A fortiori, it will be able to meet the relatively moderate effort required after the war for the liquidation of the liabilities incurred. Those liabilities will be represented first by the interest on and Sinking Fund for the War Debt, and secondly by the pensions and allowances which we shall cheerfully pay to those who have borne the primary burden of war. As regards this latter item no precise estimate can, for very good reasons, yet be formed. But even present figures indicate a probable expenditure of something like £100,000,000 a year. As regards the cost of the War Debt, a somewhat closer estimate is possible. Assuming the present rate of expenditure to continue for another year, we shall close the war with the Debt nearer to £3,000,000,000 than to £2,000,000,000. From this has to be deducted about £800,000,000, representing loans to Allies and Dominions, leaving a net National Debt of probably not much less than £2,200,000,000. Assuming an average rate of interest of 4} per cent., we get an annual interest charge of, roughly, £99,000,000. The interest on the National Debt before the war was just under £17,000,000, with a Sinking Fund of £7,500,000, representing a little over 1 per cent. on the then capital of the Debt. If we assume that a Sinking Fund at a similar rate must be maintained after the war, we have to add at least £20,000,000 to the figure of £99,000,000 above given. Summarizing all the figures, we can say that the present prospect is that we shall close the war with an addition to our pre-war expenditure of not less than two hundred millions a year ; that this additional charge will be borne without difficulty ; and that in the nature of the case it will be a declining charge as pensioners are removed by death and Debt is reduced by the Sinking Fund.
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