War-Time Financial Problems

by Hartley Withers

Total Government expenditure,
August 1, 1914, to November
9, 1918 £8612 millions.
Less estimate of normal peace expenditure 860 "
——-
7752 "
Less Loans to Dominions 220 millions.
Less Loans to Allies
(half face value) 740 "
Realisable assets 1300 "
——
2260 "
——
Net cost of period £5492 "

If war cost would be good enough to cease with the fighting we should thus now be able to see, more or less, how we stand. During the fighting period the Government raised by taxation the sum of £2120 millions,[1] from which we have again to deduct £860 millions as an estimate for normal peace taxation, if the war had not happened, leaving £1350 millions as the net war taxation, and £4142 millions as the net addition to debt from the war.

[Footnote 1: Economist, Nov. 16, 1918.]

But, of course, there are still some large and uncertain sums to come in to both sides of the account. There is the cost of maintaining our Army and Navy during the armistice period, the cost of demobilisation, and the cost of putting an end to war munitions contracts running for many months ahead, holders of which will have to be compensated. Who has enough assurance to venture on an estimate of the cost of these items? Shall we guess them at something between £1000 and £1500 millions? And when we have made this guess are we at the end of the war's cost? Ought we not to include pensions to be paid, and if so, at what figure? Fifty millions a year for thirty years? If so, there is another £1500 millions. And interest on war debt, and for how long?

On the other side of the balance-sheet, the only asset that has not yet been included in the calculation is the sum that we are going to receive from Germany, Some cheery optimists think that it is possible for us and for the Allies to make Germany pay the whole of our war cost. If so, we have halcyon days ahead, for not only shall we be able to repay the whole war debt but also to pay back to the taxpayer all the £1350 millions that he produced during the war, unless, as seems more likely, the Government finds other uses, or abuses, for the money, and sets its motley horde of wasters to work again. But this problem, of course, is not going to arise. It would not be physically possible for Germany to pay the whole of the Allies' war cost, except in the course of many generations, and, moreover, the Allies have bound themselves not to make any such demand by the rider that they added to President Wilson's peace terms, in giving their assent to them as the basis on which they were prepared to make peace. Early in November they stated that President Wilson's reference to "restoration" of invaded countries should, in their view, be expanded into a claim for compensation "for all damage done to the civilian population of the Allies and to their property by the aggression of Germany by land, by sea, and from the air."[1] This is letting Germany off lightly; but, after stating their readiness to make peace on the basis of the fourteen points, if amended as above (and also with regard to the Freedom of the Seas question) it is not possible for the European Allies, as the Prime Minister's late manifesto says they propose to do[2] to expand this claim for civilian damage into a demand for the whole of their war cost up to the limit of the capacity of the Central Powers to pay, without a serious breach of faith. So that the question of how much we can get out of Germany is complicated by the further uncertainty of the size of the bill for damages that we can present. It will be big enough. We know that the Germans have sunk 8-1/2 million tons of British ships during the war. As to the price at which, for "restoration" purposes, we shall value those ships and their cargoes, and all the civilian property damaged by aircraft and bombardment, this is a matter which it would be obviously improper to discuss; but we may be sure that the bill will mount up to many hundreds of millions, and it remains to be seen whether, after Belgium and France have presented their account, it will be possible for us to secure payment even for all the civilian damage that we have suffered.

[Footnote 1: Times, November 7, 1918.]

[Footnote 2: Times, December 6, 1918.]

It thus appears that the net cost of the fighting period has been somewhere in the neighbourhood of £5500 millions, taking our loans to Allies at half their face value; and that the armistice and demobilisation period is likely to cost another £1000 to £1500 millions more, to say nothing of pensions and debt charge that will go on for years (unless the supporters of Levy on Capital have their way and wipe the debt out), and that against this further expenditure we can set whatever sum is recovered from Germany.

Seeing that our total pre-war debt was £710-1/2 millions, or, omitting what the Government returns call the Other Capital Liabilities, £653-1/2 millions, these figures of war debt and war cost are at first sight somewhat appalling. But there is no reason why they should terrify us, and there are several reasons why they are, when looked at with a discriminating eye, much less frightening than when we first set them out.

In the first place, we have always to remember that these figures are in after-war pounds, and that the after-war pound is, thanks to the profligate use by our war Governments of the printing-press and the banking machine, just about half the size, when measured in actual buying power, of the pre-war pound. Any one who pays £100 in taxes to-day thereby surrenders claims to about the same amount of goods and service as he did if he paid £50 in taxes before the war. So that in making any comparison between the position now and the position then we have to divide the figures of to-day by two.