New-York tribune., 1918-06-08
Sanity in War Finance

Sanity In War Finance
Not since this country took upon its
shoulders the burdens Of war have we
had more forcible and effective state
ment of the unacceptable alternatives of
war finance than that contained in Sec
retary McAdoo's letter to Representative
Kitchin. To the Presidents sharp re-
minder to the. country of what these al
ternatives are, and to the warnings of
Mr.. Paul WarbYrg, Professor Irving
Fisher and many others, our Secretary
of the Treasury now adds this blunt and
unequivocal declarations:
1--WE cannot wisely contemplate nearly
doubling our cash disbursements in the
fiscal year 1919 without providing addi-
tonal revenue, We cannot afford to rely
upon $4,000, 100000 only from taxation,
because we shall then have to rely on
raising s2o,oo0,ooo0o0 by loans This
would be surrender to the policy of
higher interest rates and imitation, with
all the evil consequences which would
flow inevitably therefrom and which
would, I firmly believe, bring ultimate
disaster to the country.
Will our neighbor "The Times" and
some Of our friends in Wall Street
kindly attend upon this terse summing
up of the situations
of we are to preserve the financial
strength of the nation we must do sound
and safe things, no matter whether they
hurt our pockets or involve sacrifices
sacrifices of relatively insignificant sort
as compared with the sacrifices our SOL
diers and sailors are making to save the
life of the nation. The sound thing to
do is unquestionably to increase taxa
tion, and the increases should be deter
mined upon promptly and made effective
at the earliest possible moment"
1t is very natural that The Tribune
should find satisfaction in such emphatic
Endorsement Of views for which it has
been battling for so many months. 1t
has been incredible to US that alike the
press and the public men of the country
could be so deaf to the warnings of the
ablest economists of the nation as to the
effects Of unrestricted credit expansion
and the rapid rise Of prices which this
inevitably entails. There is no surer
way to create discomfort and SOW the
seeds of dissension than to boost the cost
of production at the rate of the last two
years in this country and especially
since we entered the war; This is the
path to protiteering on the widest and
largest scale, by labor as we'll as capital.
We mean by profiteering merely the in
evitable struggle of every one to take
care of himself and his own in the con-
fusion and excitement of rising prices.
Mr. McAdoo is at pains to say that that
is what he means also by profiteering.
Bond issues are very largely financed
by the banks, with corresponding in
crease of bank loans. To whatever ex-
tent that is true the effect of bond is
sues upon prices is practically the same
as the effect of printing paper money.
Therefore, bond issues beyond the power
of the people to buy and pay for them
out of earnings instead of borrowing,
tend to accentuate conditions which are
already much complained of-conditions
in which certain classes of labor and GER
tain users of capital are benefited ex-
travagantly at the expense of all the
rest
The vital difference between raising
money by bonds and by taxes is that
while man will borrow to buy bonds
his business sense resists the idea of
borrowing to pay taxes in order that he
may continue his extravagant personal
! expenditures. So long as he can cheat
{ himself with the idea that he has some
thing to show for his borrowing to buy
bonds ne can ignore to his own con-
science the evil effects Of his borrowings
and his extravaganza. When he has
taxes to pay he cannot.
1t would be obviously bad policy to at
tempt to raise the whole of the colossal
expenditures of the war by taxation
alone, or even a half of it, because that
is to ignore all the powerful basic drive
of patriotic enthusiasm, the instinct for
saving, the desire to get ahead, the wish
for the fine feeling that one is making
a voluntary and free-will effort to help
win the war. We need this enthusiasm
and this feeling.
But bond issues alone, save in such a
rigidly governed state as Germany, in
evitably have exactly the effect which
Secretary McAdoo describes. They tend
to policy Of "higher interest rates and
initiation, with all the evil consequences
which inevitably flow IT, refrom." No
one likes to give up 10 per cent or more
OF his income, even under the high emo
tional stress Of the war. But ours is