The San Francisco call., 1904-04-17
Var and the Markets.

The reason why an International war
should have a far-reaching effect on
financial values deserves explanation,
because it is very imperfectly grasped
by the community at large. To most
people the matter seems simple enough.
In ordinary comment in such events.
there will be found a prevalent infer
ence that the securities of given state.
in time of war, rise or fall according
as that state is victorious or unsuc-
cessful, because success in the contest
will make for national prosperity and
defeat for national adversely. There is
a grain of truth in the theory thus out
lined, but it is not complete explana-
ton. 1t does not, for example, explain
why public securities of both bellige-
rents should decline on the outbreak of
a war. even when, as in our Spanish
war, the result of the conflict Is not
in doubt. 1t does not explain why the
state victorious in the Transvaal war
should have suffered more heavily in
its markets than the defeated power in
the war of 1898. 1t cannot account for
the fact that, during our Revolutionary
war, British Government securities
used" to decline all the more rapidly
when news of British victory was
received in London.
This last incident points to the funda-
mental truth, which is, that security
values are affected simply and solely
because of the enormous expense of
war, which leads to sale of new securi-
ties, whereby the general level of
values necessarily is lowered. In the
case of England. during our Revolu-
tionary war, the London market held
the opinion that, if the Americans were
successful in a few engagements, the
war would be brought to a close, but
that, if the English were to gain the
advantage the struggle would be pro-
tracted without the probability of
bringing it to a close. The underlying
principle of war markets is that the
enormous co-tliness ofwar, particular
ly in modern times, makes absolutely
necessary very large borrowing opera
tions by the contending governments.
Estimates of recent wars, including the
japanese war with China in 1894 and
England's war in the Transvaal be-
tween 1899 and 1902. indicate that even
small war of that character can
not be fought to a finish except by an
average expenditure of fully million
dollars daily. French statisticians have
lately reckoned that a conflict in
Europe between. two first-class conti-
mental powers would cost each of them
in the neighborhood of $5,000,000 day.
These estimates may or may not be
exaggerated, but they show what fin
anciaI requirements may be involved in
such a conflict
Now no Government possesses fund
of money sufficient to wage such a war
for any long period, nor is it possible
for any Government to introduce new
taxes such as would raise from its peo-
ple the sum required. Hence it must
have recourse to the accumulated capt.
tai of the worlds money market. In
the case of the Japanese war of 1894
with China, which lasted only seven
months, all the money was raised at
home through loans or through in
creased taxes But in the Boer war,
England had to borrow $500. 900, 900; and
the strain of these loans, with that of
the increased taxes which accompanied
them. was such as fairly to exhaust the
resources of English capital At least
two of the British war loans were
placed, in large measure, on other mar
kets. such as Paris and New York; and
even where this expedient was not fol-
lowed, the English money, taken from
the open market and invested in the
new bonds, had to be replaced on that
open market by French and American
capital. But since the resources of the