BUSINESS AFTER THE WAR1

By Hon. George E. Roberts, Assistant to the President, The National City Bank of New York, formerly Director of the United States Mint

What are the economic effects of the war the world over, and particularly in the United States? We recognize, to begin with, that the war is in a class by itself. There are no precedents that signify much. We hesitate to even lay down fundamental principles for fear that under the extraordinary conditions they may not apply. If anybody had told us at the beginning of the war that it would be going on at the end of two years, at a cost of nearly $100,000,000 per day, few would have believed him. But we have learned that the conduct of war is largely a matter of industrial organization. If a people can restrict their wants, or curtail their consumption of some things, and organize the women and children and men above military age to supply the necessities, and can produce all they require at home, they can keep the fighting men on the firing line as long as they last. We see that the war is not likely to come to an end from mere financial exhaustion; that "finance" is only a name for a process in the organization of industry. Productive industry is the substantial thing.

We see that the amazing figures of expenditures and indebtedness are not as significant or appalling as at first they seemed. People have said that all the gains and accumulations of the past were being swept away, but this is not true even in the warring countries.

The wealth of the world is in the land, the forests, mines, water powers and other resources of nature, and in the

1 An address before the Michigan Bankers' Association, Flint, Michigan, June 13, 1916.

plant of buildings, machinery, railways, and equipment of every kind that has been gradually acquired for working those resources, and for converting them into the commodities of trade and for distributing them in the exchanges. Besides these the gains of the past are in the stock of knowledge, the progress that has been made in the arts and industries, in command over the resources of nature, and in the organization that has been developed for carrying on the work of the world. In short, the wealth of the world is in its productive properties, and the gains of the past are not so much in what has been accumulated as in the knowledge of how to produce it.

The general position which society has attained in the arts and industries will not be lost, and the amount of productive property destroyed, as compared with the total amount of property, is comparatively small, even in the countries at war. The two leading industrial countries, Great Britain and Germany, are practically untouched. The class of productive property that is suffering most is shipping, and the world is building ships almost as fast as they are sunk.

The greater part of this enormous destruction is of equipment and supplies of current production. It is a consumption of powder, shells, guns, motor cars, gasoline, food, clothing, shoes and stores of many kinds, for the armies and ships. And all over the world, in neutral as well as in the warring countries, we see tremendous activity in the production of these things. Thousands of factories are converted from other purposes, and vast new works are constructed, for the making of war supplies. Everywhere men are working long hours, women literally by millions are entering shops and offices, new machinery and new methods are invented and installed, and industry is speeded to the limit to meet the emergency. Furthermore, this demand and scarcity causes a rise of prices throughout the world, and a restraint upon trade and consumption and normal enterprise, which helps to supply the war's requirements. It is these things, which all the world is working night and day to produce, that are being destroyed, while

the productive capacity in many lines is being actually enlarged.

But it will be said that the most important factor in production is the able-bodied and skillful workman, and that millions of these are being killed or disabled. This is true, and it is the most depressing factor in the situation, but there is a possible offset even to this, in the effect of the war upon the men and women who survive. The efficiency of a people, the productive capacity of a given population is not always the same. The most profound and important truth in the world is the fact that that capacity is subject to unlimited development. Lloyd George has said that the improvements in industry, and the more effective control of the liquor traffic, resulting from the war, will compensate for all the economic losses. It is a remarkable fact that British exports for the month of May just closed were greater than for the same month of 1914, and when we consider the enormous interference due to the war we are bound to conclude that industry is now being much more efficiently conducted. No one can calculate the full effects of the stimulus and discipline of war upon the population. The greatest forces in the world are the invisible ones; a single invention may revolutionize an industry, and these peoples may be more alert, more enterprising, more resourceful and capable than ever before.

But what about the debt? Is it true that these countries are drawing on the future, that they are expending capital before it is created, and heaping burdens upon generations yet unborn? There is very great exaggeration about that. If you say that they are wasting capital which should be passed down to the future, and that the progress of the world is retarded, I will agree, but that is a different thing.

In the first place, there is no such thing as expending capital before it is created. Capital must exist in tangible form. There are no economic losses except in tangible things. The war, as we have seen, is carried on with tangible things—with equipment and supplies and these must be furnished now, not after the war is over. The armies are

not being fed this year from next year's crops, nor are they using supplies of next year's make. Whatever else may be obscure about the incidence and effects of this body of indebtedness, one thing is clear, viz.: that all of the production of the future will belong to the future, and none of it will belong to the past. A popular speaker is quoted as saying that 500 years after the war is over, the people will be toiling to pay the interest on these loans. That may be so, but if it is, it is certain that the payments will be made to people then living, and that their use of the capital will react upon the entire community.

In discussing the indebtedness the fact is commonly overlooked that the payment of indebtedness does not extinguish the capital transferred or involve an economic loss. If we were to conceive of these payments as required to be somehow made to the inhabitants of another planet, with whom no other intercourse was possible, or of the products of the country to the value of these payments as regularly heaped up and burned, then we would have the idea that is generally accepted as to the burden of this indebtedness. But nothing of this kind will occur. The capital raised by taxation will flow from the public into the treasury, and from the treasury back to the people, practically undiminished.

This proposition should not be confused with the fallacious excuse that is often given for wasteful extravagance, to wit: that it gives employment to wage-people and puts money in circulation. In the latter case the expenditure represents an economic loss because the wage-earners are not productively employed. The war indebtedness also represents an economic loss, but the loss occurred when the proceeds of the loans were expended, and does not occur again when the loans are paid off.

The war loans, for the most part, are a capitalization of labor and production during the war, and if they are held at home, and paid off by savings, the countries will be richer than before the war.

If every tax-payer held a corresponding proportion of the bonds, his income and outgo on account of the debt would

cancel. The problem of the indebtedness is that of levying taxation in such a manner that it will not fall unfairly upon any portion of the community, but that all will be speedily reimbursed by the return flow. The portion of the public which participates in the loans will receive the return flow direct, but if all payments upon the loans are new savings, which did not exist before the war, then the investment of this capital in productive industries is bound to react favorably upon all classes, so that a moderate degree of taxation can be paid by all without being worse off than before the war. The taxation will amount to enforced saving for the capital fund, and if wisely applied will help the country to recover from the failure to make normal progress during the war.

If this view is correct, recovery from the war will be more rapid than has been anticipated, and there is no reason why, after order and confidence are restored, enterprise and industry should not go on in these countries about as before.

The critical period will be at the end of the war, when the armies are dissolved and millions of men must find their places in civil life, and while there is still bewilderment and uncertainty as to what the state of industry and trade will be. The problem will be to integrate the industries, not only at home but throughout the world, and get them on a mutually-supporting basis, for every man who has work will be able to buy the products of others.

Unfortunately the animosities of the war will prevent an immediate resumption of many former trade relationships, and legislation may increase the confusion and intensify the struggle for markets. This confusion and uncertainty, and the apprehension which it engenders, creates the real danger of industrial prostration after the war, rather than lack of capital or buying power. The buying power of every country is in its own powers of production.

And now what about the effect of the war in the United States? When it began there were two opinions about it. One was optimistic, it held that the war opened a great new opportunity for the United States to increase its pro