about one-third of this total. It is also estimated that the present daily cost of the war to the Entente Allies is $105,000,000, Great Britain's share being $25,000,000, that of France $18,000,000, and of Russia $16,000,000. The balance is divided among Italy and the lesser powers.

Here is a table showing the approximate public debt of the principal belligerents before the war and their estimated debts at this time. For the sake of simplicity the figures are given in round millions:

Public Debts of the Belligerent Nations

Aug. 1, 1914. Present. (Approximated.) (Estimated.)

United Kingdom. $3,485,000,000 †$18,000,000,000

$9,808,000,000 $16,590,000,000

* Includes advances from the Bank of France. On Dec. 13 Chancellor Law asked Parliament for a new war credit of $2,000,000,000.

From the above table it will be seen that, even should the war end immediately, the belligerent nations of Europe must pay interest on a combined public debt of something like seventy billions of dollars. It is futile to estimate what this total may grow to before the war actually does come to an end, but some statisticians, taking Aug. 1, 1917, as an arbitrary date upon which to base their calculations, have placed the figure at $86,500,000,000.

Debt Too Vast to Comprehend These figures are so vast that one finds it difficult to comprehend their meaning. Such a sum, for instance, would be more than twice the estimated value of all the farm lands in the United States. It would be more than three times the total outstanding capital of all the railroads in the United States, and over seventy-five times the capital of all the national banks in the United States. The United States Steel Corporation, the largest corporation in the world, with its

$1,300,000,000 of capital, loses much of its impressiveness when mentioned in connection with such a sum.

At this writing the direct loans made in this country to Great Britain total above $1,100,000,000, which, of course, includes Great Britain's half share of the Anglo-French loan of $500,000,000. This, it must be remembered, is an external debt, and therefore it takes precedence of all internal borrowings, not only in a legal or diplomatic sense, but also from the point of view of the economist.

The external indebtedness of a nation differs from its internal indebtedness in the same manner as the debts of an individual in his own household differ from those which he has contracted among comparative strangers. If you owe a sum of money to a member of your own household the chances are the indebtedness does not rest very heavily upon you. In all probability your creditor will not push you for payment, or is likely to incur some obligation to you in the future which will square the account.

To carry the simile a little further, suppose this member of your household should charge you a rather high rate of interest on the debt. In such a case, in order to help us with the comparison, let us suppose that you are in a position to increase the rent of your creditor, and thus prevent his interest charges from running up to unwieldy proportions. The comparison is far-fetched, perhaps, but it illustrates, to some extent, the position of a nation which has a large indebtedness among its own people. If it must pay out vast sums in interest charges it must necessarily increase its taxation proportionately. Of course the holders of its bonds and therefore the recipents of its interest are not literally the same people as those which will be taxed to meet the interest charges, but although the money is collected and paid out by the Government, it does not go out of the country. It is kept in circulation by a sort of endless chain, a far heavier chain perhaps in war times than normally, and one requiring much more skillful handling by financiers than the ordinary chain of peace times.

So much for the internal loans of a Government. It is only by the process of some such homely simile that we can conceive of the ability of any Government to pay interest on its war debts, even those of previous wars, which will be far eclipsed by the war debts incurred during the present one.

War Bonds in America

Now, the external debt is a different matter. The nation which incurs one knows that no sentiment enters into it. It is like a note discounted at the bank; it must be met at maturity. Moreover, unless the debtor nation can sell sufficient goods to the creditor nation to create a trade balance in its favor, it must meet its obligations in cash, which means gold. Not to do so would mean national dishonor, loss of credit, and most likely war.

In a sense, however, and this point seems to me to be an important one, a large proportion of Europe's borrowings in this country are not, strictly speaking, external debts. In the case of the United Kingdom, for instance, the only real external debt is Britain's share of the Anglo-French loan, $250,000,000. Her other loans are on collateral borrowed from her own people. If I borrow a thousand-dollar bond from you to use as collateral for a loan of eight hundred dollars at my bank, I am technically the debtor of the bank, but my real debt is to you. Similarly, the British Government's real creditors, in the matter of its secured notes, are those who have loaned their stocks and bonds for collateral. As a matter of fact the owners thereof hold the obligations of the British Government, which is obligated to pay interest in addition to that which accrues to the various securities. In the sense that American bankers may demand payment of the United Kingdom notes when they mature, they constitute an external obligation, but viewing the owners of the collateral upon which they are based as the real lenders to the Government, they are internal.

Great Britain's Total Debt Apart from certain so-called contingent liabilities which need hardly be considered here, the total debt of the British

Government on March 31, 1914, which is the end of the British fiscal year, stood at £707,654,101, or $3,500,000,000. During the first two years of the war the United Kingdom alone, without taking British colonies into account, borrowed for war purposes about $12,000,000,000. By August 1, 1917, the public debt of Great Britain will in all probability have progressed to approximately twenty billions of dollars. Obligations contracted by the entire British Empire, which includes Canadian, Australian, and Indian loans placed since the war began, are rapidly reaching the imposing total of fifteen billions.

It is obvious that the cost of this gigantic struggle is going to superimpose enormous sums to the present normal national indebtedness of the belligerent powers. But it must not be supposed that the entire cost of the war will be financed by increasing the national debts. England, especially, is making every endeavor to " pay as she goes.' Taxation is meeting a very large proportion of the cost of the war, the income tax alone ranging from about 1 per cent. on small incomes to 411⁄2 per cent. on large ones. Besides this there are various taxes on business profits, corporations, &c., and especially the tax on munitions profits, which must, in the end, prove very remunerative.

Shifting Burden to the Rich

Viewing the entire matter from a somewhat academic position, it is well worthy of note that as civilization has progressed a very perceptible shifting has taken place as regards the burden of warmaking. It is quite evident from the study of ancient history, and even of feudal history, that the cost of war in earlier days fell almost entirely upon the people of the lower social strata. They paid not only in blood but in money or its equivalent, while the higher classes waxed wealthier as wars were waged. It is not saying too much to declare that these conditions are directly reversed today.

The present struggle is not only costing the upper classes of Europe dearly in blood but the cost of the war is falling

far more heavily upon these classes than it is upon the people. For at least a decade previous to the war the whole trend of British taxation has been in favor of the people, and this tendency has been greatly emphasized since the war. This is in accordance with the modern spirit. European democracy is willing to fight, but it will not pay. European aristocracy must not only fight but it must pay as well.

It would appear that the burden of future taxation in Great Britain is bound to fall upon the wealthier classes. Under Lloyd George and his associates the wealthy had been taught that it is its duty and privilege to obey the rhythmic injunction of Mr. Kipling and "Pay! Pay! Pay!" During the present conflict no murmur of dissent has reached these shores at least, and in the present wave of patriotism, engendered by the national crisis, it is scarcely conceivable that any wealthy Englishman would venture to complain when nearly 50 per cent. of his income is demanded of him in taxes, while his brothers are yielding their life blood in the trenches.

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The enormous expenditures of a country at war may be rather aptly compared to the losses of a group of friends who sit in" to a friendly game of poker with each other one night a week all the year round. If all their losses at these friendly games were added up, the result would be rather terrifying to people of moderate means, but such a compilation is rarely made. Moreover, the half dozen friends who play poker with each other weekly usually end the year without serious financial catastrophes on the part of any of them, and the secret is that they play with each other regularly. The money which A wins from B and C one night will, in all probability, find its way back to B and C a week later; and so it goes. The chief winner of the season, perhaps, gives a dinner to his friends, and thus equalizes matters. No one is very much better off for the season's playing, and no one very much worse.

The Losses Not Net

So it is, to a certain extent, in the case of a country at war. Certain lines of industry must suffer, it is true, to

such an extent that they may never recover. Certain classes of people must lose financially that other classes may gain. But all the vast sums which are being reckoned on as the cost of war are by no means total losses. Much of the money so spent goes back to the people. England, be it remembered, has had her war brides" and her war-time prosperity. We are apt to picture England in our mind's eye as making war so vigorously that she has no time for anything else. It is exceedingly interesting, therefore, to study the comparison of Great Britain's imports and exports for the first nine months of 1915 and 1916, respectively. These figures are culled from The London Economist of Oct. 14, 1916, and they do not, of course, include importations of war materials for the use of British armies in the field. It should be noted also that the figures given are in pounds sterling, and not in dollars.

NINE MONTHS ENDED SEPT. 30. 1915. 1916. Inc. or Dec. P.C. Imports. £643,812.337 £704,044,617 +£60,232,280 9.3 Exports.. 283,091,686 379,328,938 +96,237,252 22.9 Re-exp'ts. 75,619,886 76,865,079 +1,255,193 1.6 Import

balance.£285,100,765 £247,840,600 -£37,260,165 13.0 It is natural that we should consider the financial future of the United Kingdom as the key to the situation so far as the other two great powers of the Entente are concerned. As regards France, there is an undercurrent of confidence as well, based on the known frugality of the French people, the strength of the French banking system, and the remarkable achievements of that nation in discharging the enormous burdens imposed upon it by the Franco-German war.

The Finances of France

The Bank of France, founded by Napoleon in 1800, has long been regarded by financial students as the model national banking institution. It is, like the Bank of England, privately owned, though differing somewhat from the English bank in its relations with the State.

During the Franco-Prussian war the bank advanced to the State about $300,000,000. This necessitated an increase in its note issues of some 1,300,000,000 francs. By 1879 the advances of the

bank had all been repaid, having been funded by the sale of French Government securities.

The manner in which the enormous burdens of the war of 1870, to which must be added the staggering war indemnities imposed by Germany, were met, will always serve to inspire confidence in the financial resources of the French people. The increase which followed in the public debt of France was about eighteen billion francs, bringing it up to about thirty-one billions. On Aug. 1, 1914, the public debt of France was 32,787,000,000 francs.

As in the case of the Franco-Prussian war, the war expenditures of the French Government have been met primarily through advances from the Bank of France. In both cases the bank was authorized to increase its note circulation.

That French industry and commerce is regaining rapidly any ground which it may have lost in the midst of its time of trial may be seen from the following report of its imports and exports for nine months to Sept. 1, 1916, which parallels the table of British imports and exports quoted above:

FOREIGN COMMERCE OF FRANCE DURING THE FIRST NINE MONTHS OF 1916 (From L'Economiste Francais. Oct. 21, 1916.)

The Situation of Russia

Russia presents to us the greatest mystery of all the warring powers because we know so little of her normal methods of financiering. We know, of course, that, unlike either Great Britain or France, she has been unable to continue her normal export business, and that, consequently, the trade balances have been heavily against her during the last two years. In normal times her excess of exports greatly exceeds her imports. In 1912, for instance, this excess was over $179,000,000. In 1913, it was over $75,000,000. In 1915 the balance against her was over $369,000,000, and for the first eight months of 1916 it was more than $520,000,000. But Russia's resources are great. With an estimated population of 174,099,600; with an area of 8,417,115 square miles; an estimated national wealth of between fifty and sixty billions, and annual production approximating $7,725,000,000; with its vast areas of uncut forests; with its agricultural resources, as yet scarcely developed to a fraction of their possibilities-it would seem that the Russian Empire can face the future with confidence, even though confronted with the payment of interest on an abnormal public debt.

The estimated present debt of the empire is about one and two-thirds the normal annual production, and the amount per capita equals about $75, which is small when compared with the per capita debt which the other great powers will have to face.

Russia has made two loans of $50,000,000 each in the United States, and large advances have been made to her by both the British and French Governments and by bankers of both of those powers. Only a small proportion of her war debt has been funded as yet, the expenses of the war being met by advances from the Bank of Russia, Treasury bills, and the loans mentioned above. Some idea of the tremendous resources of Russia may be gained from the following figures, which show the revenue and expenditure of the Government, not including the extraordinary expenditures of war, for the last four years, together with the esti