Early in 1917 Lord Northcliffe as a special representative of the British Government emphasized in addresses in this country the necessity of industrial mobilization. He helped to rouse the business men to their duty, but the leaders of American thought had not been unobservant. They were already preparing. Much had still to be learned, but American business men are quick to learn. They made mistakes, but they corrected their mistakes.

No doubt, there was profiteering, no doubt many of the great factories were able to enrich their owners, but the great mass of the business men were patriotic and honest. They not only were willing to give their fortunes and their abilities, and their time to serve the government, but the immense sums of money contributed by them to the great charities and organizations of mercy, instituted during the war, have made a record for the United States of which the American business man may well be proud,

T

CHAPTER XXX

HOW AMERICA RAISED FUNDS

HE cost of the World War was enormous.

After the

Revolutionary War the debt of our government was $76,781,953. After the war of 1812 it was $127,041,341. After the Mexican War it amounted to $68,304,796. And the total debt after the close of the Civil War was $2,844,649,616. This amount had been reduced so that the debt of the United States at the time the United States entered the war was in round figures one billion of dollars. When adjustments and settlements have all been made the maximum debt for the present war will be about $30,000,000,000 against which total should be placed an asset of about $10,000,000,000 of interest-bearing obligations of foreign governments, representing loans made to our allies during the progress of the war. These loans in the natural course of events will be repaid, and according to the law under which they were made, such repayments must be used in the liquidation of a corresponding amount of our national indebtedness.

The national wealth of the United States is estimated as about $300,000,000,000, so that the debt today is about ten per cent of the national wealth. As great as this debt is, it is small compared with the debt of the other great nations, taking part in the war, compared with their resources. The national debt of Great Britain is now about $36,000,000,000, while its wealth is estimated at $120,000,000,000. Great Britain, too, has made loans to her allies and Dominions amounting to about $5,000,000,000, which presumably will be repaid. The gross debt of France is about $36,000,000,000, the gross debt of Italy about $12,600,000,000, the gross debt of Germany about $39,000,000,000.

In order to pay its debt the Congress of the United States has instituted an annual sinking fund beginning in 1920, which calls for the retirement each year of two and one-half

per cent of the aggregate amount of bonds and notes issued for war purposes. The specific appropriation called for by this act in addition to that for the interest charge is in the neighborhood of $500,000,000, and taking into consideration the development of the resources of the nation which have taken place since 1865, it ought to be possible to liquidate the new debt quite as easily as it was to dispose of the Civil War debt.

The United States wisely undertook to raise about twenty per cent of the war-time expenses by taxation, a proportion which assures a solid foundation for the loans, and does not hamper the social output or interfere with desirable consumption.

The main sources of revenue from taxation were the property tax, which is in large part a tax on real estate, the inheritance tax, the income tax, the excess profits tax, and indirect taxation by tariffs and excises. The main increases in taxes were naturally in the income tax and the tax on excess profits. The United States was extremely fortunate that when the war broke out she had on hand ready for immediate application the machinery of the income tax, which also was valuable for the tax on excess profits. If that machinery had to be set up from the beginning, it would have taken many months, perhaps several years before it would have been in such good working order that anything like the revenue produced could have been obtained from it.

ease.

The greatest good fortune, however, was the preparedness of the United States to issue great government loans. The establishing of the Federal Reserve System, co-ordinating the banking resources of the country and stabilizing the currency made it possible to finance the present war with comparative The method used is briefly as follows: In anticipation of the receipt of the proceeds of Liberty loans the Treasury issued certificates of indebtedness. These certificates were apportioned to the Twelve Federal Reserve Districts, and divided among the banks in each district according to their respective standing. When the time seemed suitable for the issuance of a permanent loan, the advances of the banks were repaid from the proceeds of such loans. When it was thought

wise to finance a Liberty loan, the Secretary of the Treasury notified the governors of the twelve Federal Reserve Banks. These governors each appointed a committee, made up of men of prominence and wide activity, and the country was portioned out, and in each large federal reserve center two or three men, experts but unknown to the public undertook to sell in four weeks billions of dollars in bonds. And every city, town or village had its Liberty Loan committee, acting under the direction of these experts.

There were five loans issued under such conditions; in

each case a large portion of the loan had already been used by the government through certificates of indebtedness. The reports of the Treasury Department show that certificates for $868,205,000 were issued in anticipation of the first loan; $2,320,293,000 in anticipation of the second loan; $3,012,085,500 in anticipation of the third loan; $4,659,820,000 in anticipation of the fourth loan, and about five billion in anticipation of the Victory loan. In addition to the certificates based upon the Liberty loan, certificates for about four millions of dollars were issued in anticipation of the payment of taxes. The major part of these certificates bears interest at four and one-half per cent.

Another class of certificates has been issued in anticipation of the revenue from internal revenue taxes, and to tide over special emergencies. All of these certificates of indebtedness have been placed directly with the banks, and all subsequent transactions have been between the banks and their clients.

The war debt includes besides these certificates of indebtedness, most of which have already been automatically retired, Liberty bonds, Victory Liberty notes, and War Savings Certifi

cates.

There have been five issues of Liberty bonds. The subscription for the first issue opened on May 14, 1917, there were 4,500,000 subscribers, and the total amount subscribed was $3,035,426,850. The bonds bore interest at three and one-half per cent and were exempt from all taxation except the inheritance tax. The holder had the privilege of exchanging these bonds for bonds of any subsequent series bearing a higher rate of interest. Only $2,000,000 of this issue were alloted.

The Second Liberty Loan campaign opened October 1, 1917, and closed October 27th. The total amount offered was $3,000,000,000, bearing interest at four per cent. The amount subscribed was $4,617,532,300. The amount alloted was $3,808,716,150. There were nine million subscribers. These bonds bore interest from October 2, and were convertible to any subsequent series bearing interest at a higher rate than four per cent.

The Third Liberty Loan opened its books for subscription on April 6, 1918, and closed on May 4th. The bonds bear interest at a rate of four and one-fourth per cent. The amount offered was $3,000,000,000. The amount subscribed was $4,176,516,250, all of which was alloted. There were about eighteen million subscribers.

The Fourth Liberty Loan was opened on September 28th, 1918, the campaign closing on October 19th. The amount offered was $6,000,000,000 with interest at four and onefourth per cent, the amount subscribed and alloted was $6,593,073,250, and there were about twenty-one million subscribers to this loan.

The Fifth Liberty Loan, known as the Victory loan, was