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not be allowed to burn or to run down the sink. All scraps from the table may be utilized in a well regulated household when the plates are left empty, but these are considerations which cannot be properly stated in this place.

At the present time there are special national needs which in part modify and in part reinforce the above principles. Upon the one hand it is the duty of all Americans, so far as possible without great interference with their normal diet, to substitute other substances, especially corn, oats and rye, for wheat. There are also especial demands upon the meat supply of America, and various other demands are almost sure to arise.

The best way to meet these requirements, which duty imposes upon rich and poor alike, but with even greater insistence upon the rich and well-to-do, is loyally to co-operate with the authorities, to obey their orders and to give hearty support to their plans of every kind.

(Prepared for America at War.)


1. Specific References on the Section. See $139 above. Anon. “Financing the War," in New Republic, X, 282-283 (April

7, 1917). Adams, F. S. “Customary War Finance,” in ibid, X, 292-294

(April 7, 1917). Anon. “Democracy in War Taxation,” in ibid, XI, 5-6 (May 5,

1917). Sprague, O. M. W. “War Taxation in Great Britain,” in ibid,

XI, 42-44 (May 12, 1917); “No Conscription of Income,” in

ibid, X, 93-97 (Feb. 24, 1917). Johnson, Alvin. "International Public Finance,” in ibid, XI. 12-13

(May 5, 1917).
Anon. “War Finances in Europe," in New York Times Current

History, V, 624. By a banking expert.
Asquith, H. H. “How England Is Paying for the War,” in ibid,

IV, 49 (April, 1916). Extracts from speech 21st Feb., 1916.
Ribot, Alexandre. “Private Savings as a War Weapon,” in ibid,

V, 62 (Jan., 1917).
Bullock, C. J. “Financing the War," in Quarterly Journal of

Economics, XXXI, 357-379 (May, 1917).
Willis, H. P. “American Finance and the European War," in

Journal of Political Economy, XXIII, 144-165 (Feb., 1915).
Conant, C. A. “Currency Policy and the European War,” in ibid,

XXII, 717-738 (Oct., 1914).
Williamson, C. C. “Public Finance, Banking and Insurance,” in

American Year Book, 1916, pp. 349-378.
Raphael, G. L. “French Money, Banking and Finance During the

Great War," in Quarterly Journal of Economics, XXX, 64.85

(Nov., 1915).
Going, M. C. “German War Finance,” in Journal of Political

Economy, XXIV, pp. 513-546 (June, 1916).
Willis, H. P. “American Business and Finance After the War,"

in ibid, XXIV (June, 1916).
Burton, T. E. “Financial and Industrial Effects After the War,"

in ibid, XXIV, 1-13 (Jan., 1916). 2. Taxation. (a) Reasons for high taxation during the war (the nation pro

duces war supplies anyhow and should tax profits while making.

3. Loans. President Wilson's Second Liberty Loan Proclama

tion, Oct. 13, 1917.
(a) Liberty Loan—"If you cannot enlist-invest."

(b) Later loans—absolute security of Government issues. 4. Paper Money.

(a) To be avoided to the last.

(b) Bad experience of the Revolution, War of 1812, and Civil War, 5. Economy of Private Expense.

(a) Unavoidable disturbance of many incomes.
(b) Not enough for everybody to enjoy the same scale of living.
(c) War must be supported out of savings surplus of production

over ordinary use. (d) Alternative is prodigious bond issues with heavy total interest. 6. Documents and Extracts on the Section.. (a) [$262] Memorial to Congress Regarding War Finance.

By PROFESSORS OF ECONOMICS. . We, the undersigned, teachers of political economy, public finance and political science in American universities and colleges, respectfully urge upon Congress to adopt the policy of taxation rather than that of bond issues as the principal means of financing the expenditures of our own country in the war on which it has embarked.

The taxation policy is practicable. It will prevent the price inflation which must result from large bond issues. It is demanded by social justice. It will increase the efficiency of the nation in the conduct of the war.

The argument in support of these statements is briefly as follows:

THE TAXATION PLAN IS PRACTICABLE. The taxation policy is practicable, because the current income of the people in any case must pay the war expenditures. The choice between bond issues and taxation is merely a choice whether the Government shall take income with a promise to repay those who furnish it or take income without such promise. The actual arms, munitions and other equipment and supplies for use in the war, except to the small extent that they have been stored up in the past, must be produced now, during the war itself, not after the war, and moreover must be produced by our own people. The policy of borrowing within the country itself does not shift any part of the nation's burden of war expenditures from the present to the future. All it does is to make possible a different distribution of the burden among individuals and social classes, to permit repayment to certain persons, who have contributed income during the war, by other persons after the war. If the people can support the war at all, they can do it on a cash basis. Borrowing creates nothing. Except by borrowing abroad, which we cannot do, we can get nothing which we do not ourselves produce.

It may be necessary for a month or two at the outset to issue a limited amount of bonds, pending the collection of increased taxes, but beyond these, which might well be made repayable within a year, no necessity for bonds exists.

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· TAXATION PREVENTS PRICE INFLATION. . The taxation policy and no other will enable the country to escape the enormous evils of further inflation. The present high level of prices in Europe and America is primarily due to the war bonds and the paper money issued abroad. If the United States joins on a huge scale in this policy of borrowing, prices are bound to become far higher still. ·

Price inflation is harmful even in times of peace. During a war it is disastrous. It increases the cost of conducting the war. It postpones victory and thus adds to the war's toll of lives as well as to its money expenditures. By every bond issue the Government enhances the price it must pay, and thus creates the need of more bonds. The policy works against itself.

Moreover, inflation of prices works injustice between different classes of society. The burden rests chiefly upon wage earners and salary receivers, whose pay never rises as fast as prices, and upon those who receive fixed or contractual incomes. The hardship which millions of our people are already suffering from the increased cost of living will be made many fold greater if the Government issues billions of dollars of bonds to finance the war.

The manner in which bond issues inflate prices may be briefly explained. The bond policy increases the amount of bank credit, which is equivalent in effect to an increase in the currency. .

For example, if the Government takes $1,000 from a man in taxes, his credit or purchasing power is lessened to the same extent as the Government's is increased. On the other hand, if the Government borrows $1,000 from him, the quantity of purchasing power in existence is greatly increased. He now has a bond worth $1,000 on which he can and very often will borrow at the bank. Say he borrows $800; to lend him $800 the bank does not have to give up 800 actual dollars. Instead, it gives him a deposit account of $800 and, inasmuch as most of those who present checks do not ask for actual cash, but have their checks credited to their deposit accounts, the bank can keep this $800 in checks floating by setting aside, say, only $200 of actual cash. In other words, this bond issue transaction has resulted in increasing the Government's credit by $1,000, in decreasing the man's credit by only $200 and in decreasing the bank's money by only $200; that is, there has been a net increase of credit currency (checking deposit accounts) of $600, in contrast with no net increase if taxes had been adopted instead of bonds.

If the man had given up his money in taxes, he would have ceased to compete with the Government and other buyers of commodities and labor, to the extent of $1,000; but when the Government gives him a bond for his payment, he is still enabled to compete to the extent of $800. The purchasing power of society as a whole has increased by $600. This inevitably forces up prices.

The above illustrates the result of a bond issue that is taken by the public. As a matter of fact, if bonds are isued, a large part of them will be taken by banks. It is likely that the Federal Reserve Banks will buy these bonds wholesale by giving the Government checking accounts to the extent of the bonds. This

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causes immediate inflation to the full amount of the checking accounts thus created—that is, inflation to 100 per cent. instead of to 60 per cent. of the bond issue, as outlined in the illustration above.

As the Government draws checks on these bank accounts to meet its requirements, the banks will try to recoup themselves by retailing the bonds to the public. To the extent that they succeed, the bonds get into the hands of the ultimate investor with the resulting inflation already described. In so far as the banks are unsuccessful in this distribution, they are almost certain to issue bank notes on the basis of bonds left in their hands and these notes will cause inflation even worse than that due to the checking accounts of the public based on bond collateral.

JUSTICE DEMANDS THE TAX POLICY. The policy of taxation for war expenditures is demanded by justice. Apart from the injustice arising from price inflation, the policy of paying for the war by bond issues gives property a preference over life; it deals unjustly as between citizen and citizen. The question of taxation versus bonds is not merely one of economics; it is one of morals, of right against wrong.

This war is a great social enterprise. The American people have undertaken it as a people. The future welfare of the country as a whole is involved; the future welfare of every citizen is involved. It is the duty, therefore, of every citizen to share in war's burden to his utmost. For some the duty is to fight; for others to furnish money. For all the duty is without limit of amount. 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.

The man who goes to the front cannot be paid back the life or limb he may lose. The man who stays at home should contribute his just share of the money cost without expectation of repayment. That the soldier or sailor who gives himself to his country should, if he be so fortunate as to return, be taxed to pay interest and repay principal to him who has contributed the lesser thing, money, is a crying injustice. If conscription of men is just and right, conscription of income is the more so; conscription of both is just and right when the nation's life and honor are at stake.


The policy of taxation for war expenditures will increase the efficiency of the nation in the war. Its effect in keeping down the cost of the war has already been pointed out. Its effect on the spirit of the people is still more important. The general recognition of the justice of requiring every one, according to his ability, to share the burdens of war, will bind the people together; the sense of injustice in the policy of borrowing will tend to drive them apart, to array class against class. Our soldiers and sailors will fight loyally in any case, but their spirit will be the more indomitable if they feel that every man who stays at home is serving the country to the utmost with his substance. An America in which every citizen without discrimina

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tion is called upon to do and to give all that he can, all that his powers permit, will be a united America, and a united America is bound to be victorious.


Without entering into details, concerning which opinions may differ, we recommend that, among the tax measures to be adopted for the war period, the following should be included:

(1) A tax which will take substantially all of special war profits.

(2) A material lowering of the present income tax exemption.

(3) A drastic increase in the rates of the income tax, with a. sharper progression in rates as incomes become larger.

(4) High consumption taxes on luxuries.
(Congressional Record, LV, 2136, May 10, 1917.)


1. Specific References on the Section.

Anon. “Plan for Constructive Patriotism,” in Outlook, vol. 115,

p. 224 (Feb. 7, 1917). Liebermann, E. “Why I Am a Patriot,” in ibid, vol. 113, pp.

909-911 (Aug. 16, 1916).
Aron. “Constructive Patriotism,” in ibid, vol. 114, pp. 784-785

Dec. 13, 1916).
Robinson, J. H. “What is National Spirit?” in Century, XCIII, 57.

64 (Nov., 1916).
Rose, J. H. “National Idea,” in Contemporary Review, vol. 109,
. pp. 331-337 (March, 1916).
Dane, R. “Fears and Scruples,” in New Republic, VIII, 291-293

(Oct. 21, 1916).
Anon. “Red Cross Military Units”; “Red Cross Civilian Plane,” in

Survey, XXXVII, 578-579 (Feb. 17, 1917).
Lane, F. K. "American Spirit,” in ibid, XXXVI, 411-412 (July

15, 1916).
Krehbiel, E. “Is Nationalism an Anachronism?” in ibid,

XXXVI, 247-250 (June 3, 1916).
Butler, N. M. “Patriotism,” in Educational Review, LI, 78-86

(Jan., 1916).
McCracken, E. “How to Teach Children to Be Patriots," in

Home Progress, V, 369-371 (April, 1916).
Harvey, G. “Learn to Think Nationally,” in North American

Review, vol. 203, pp. 20-22 (Jan., 1916).
Brooks, S. “Dream of Universal Peace,in Harper's, vol. 133,

pp. 862-869 (Nov., 1916).
Dewey, S. “Organizing Sentiment,” in Nation, vol. 103, pp. 103-104

(Aug. 3, 1916). Anon “Meaning of Nationality,” in New Republic, V, 279-280

(Jan. 15, 1916). Slosson, P. W. “What Is Nationality?" in Unpopular Review, V,

40-50 (Jan., 1916). Anon. “Teaching of Patriotism,” in Spectator, vol. 116, pp. 184-185

(Feb. 5, 1916).
Zimmern, A. E. "Meaning of Nationality,” in New Republic,

V, 215-217 (Jan. 1, 1916).
Hagedorn, Herman. You Are the Hope of the World. (N. Y.,

Macmillan, 1917.) To the children of America. 2. Treatment of Opponents of the War. (a) See letter of the Chairman to the branches of the National

Security League May 28, 1917. (See 8265.)

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