The Iron Ration: Three Years in Warring Central Europe

by George Abel Schreiner

The figures I have cited may well suggest the question:

How was it possible under such conditions to make war loans?

The superficial reply to that would be:

By raising the money in the country—inducing the people to subscribe to the loans.

The reply has no value, since it does not disclose how the necessary money was made available. The funds invested in the war loans were a part of the national capital, not a portion of the national wealth, the term wealth standing for the natural resources of a community. But capital is the surplus of production, and production results only from applying labor to natural resources; for instance, by tilling the soil, mining coal and ore, and engaging in the conversion of the less useful into the more useful, as is done in industry. A surplus of production is possible only, however, when consumption falls below production, for that which is left over of the thing produced makes the surplus. This surplus is capital.

Incomplete figures which I was able to gather in 1916 showed that before the war the average wage-earner of Central Europe had produced and consumed in a ratio of 55 against 48, so far as the scale of pay and cost-of-living showed. The difference of 7 points represented the amount of money he could save if he wanted to do that. The 7 points, then, were the actual increase in the national capital.

In the winter of 1916-17 the figures had undergone a remarkable change. Wages had been increased to 70 points, while the cost of food had risen to 115 points as against 48 formerly. In other words, while the wage-earner was getting 15 points more for his labor, he was paying 67 points more for his food and the necessities of life. The place of the 7 positives in capital production had been taken by 45 negatives, which meant that the national capital of Central Europe had fallen below static, the point where neither increase nor reduction takes place, by 38 points. The national capital had been decreased 38 per cent., therefore. That much of all present and former surplus production of the two states had been used up in the pursuit of the war.

Governments deem it a safe policy to issue in times of financial stress three times as much paper currency as they have bullion in the vaults. One million in gold makes three millions in paper with that formula. This had been done in Germany and Austria-Hungary to quite an extent by the end of 1916. For every million of gold in the vaults there was a million of bona fide paper money. That was well enough. The currency system of the United States adheres to that principle in times of peace even. But upon the same million of metal there had been heaped other paper currency which carried the promise of the government that on the given date it would be redeemed for gold or its equivalent. This method of national finance is known as inflation. It was this inflation that caused the wage-earner to show in his own little budget a deficit of 38 points.

Why the government should have inflated its currency in that manner is not so difficult to understand as it may seem. From its own point of view, the wage-earner had to be lashed into greater effort if the moneys needed for the war were to be available and if the food and material consumed by the army were to be produced. The more the consumer had to pay for what he required to sustain life the harder he had to work. His deficit of 38 points was the yoke under which he labored for the army in the field, which was consuming without producing anything. These 38 points were only 17 points less than the 55 which had represented his income before the war—in round terms every two wage-earners in Central Europe were supporting in food, clothing, munition, and ammunition a soldier at the front. It could not be otherwise since two political aggregates having then approximately, with the women included, twenty-five million wage-earners, were keeping under arms about ten million soldiers, and were meanwhile providing the heavy profits made by the war purveyors.

Though the 38 points were a deficit, the producer-consumer was not allowed to look at them in that manner. It was his task to cover this deficit. This he did by paying more for his food and necessities, through a channel which the inflated currency had filled with water in the familiar stock-jobbing phrase. The middlemen who owned the barges in the channel were taxed by the government on their war profits, but enough was left them to preserve interest in the scheme of war economy, a friendly act which the middlemen reciprocated by generous subscriptions to the war loans.