Reduced production is sufficient to account for all the economic disturbances that were produced during the war, according to the London Statist, which says:
"It is enough to say that production is reduced almost to a minimum, while consumption is going on at a most extravagant rate. Those who wish to pose as economists without competent knowledge are telling the public that all the evil is due to this, that, and the other thing—such, for example, as inflation, the rise in prices, the enormous loans raised, and several other fads. It is pure moonshine. The world is impoverished, firstly, because so much of the world's manhood is withdrawn from production to consumption; and, secondly, because reduction in production is so serious that very little has been saved either by the belligerents or the neutral countries of Europe, at all events. International trade is really carried on by barter. It is true that money is frequently paid. At the present time money has in some markets to be paid because credit has been injured, and those who possess wealth are not as willing as they used to be to trust to mere credit."
QUESTIONS OF INFLATION
The enormous advance of prices in England was synchronous with the issue of currency notes to an excess of £700,000,000 beyond the gold reserve. High officials in British administration ascribed this rise to the increased consuming capacity. According to the British Board of Trade a sovereign could purchase no more during the war time than eleven shillings would just before the war started. A writer in the Fortnightly Review, Mr. W. F. Ford, quotes Jevons' remark in his classical book on money in explanation of the phenomenon. "A number of bankers all trying to issue additional notes resemble a number of merchants offering to sell corn for future delivery, and the value of gold will be affected as the price of corn certainly is. We are too much inclined to look upon the value of gold as a fixed datum line in commerce, but in reality it is a very variable thing." Substitute today the word Government for bankers and one can see the reason for the upward rise in prices. This rise would take place apart from any questions of war waste, profiteering, difficulties of transport by sea or land or shortage of labor. All the countries involved have followed the same policy of inflation. The operation is depicted in the following passage:
"The inevitable result of extensive note issues by a number of Governments was that prices were irresistibly impelled upwards in all belligerent countries—apart from any questions of war waste, profiteering, difficulties of transport by sea or land, or shortage of labor. Belligerent countries became extraordinarily good markets in which to sell goods; and a golden harvest was temptingly displayed to neutral nations, in whose favor enormous trade balances rapidly grew up. In large part these balances were met by payment in gold.... But just as gold substitutes in the shape of paper money swelled the currencies and increased prices in the belligerent countries, so also the large quantities of gold coin sent to neutral States in payment for goods supplied to the warring nations swelled the currencies and increased prices in the neutral states themselves. The withdrawal of gold set up a natural tendency for prices to fall in the countries from which it had been exported; but not only was this tendency overcome, but the upward movement of prices was continued by the action of the several Governments in placing still further issues of inconvertible paper money on their respective markets. The net results have been that currencies have been inflated and prices forced up all over the world, that inconvertible paper money is tending more and more to drive out gold from the currencies of the states that issue it, and that the gold so driven out is being absorbed into the currencies of the neutral nations. Between August, 1914, and the date of her own declaration of war, America increased the amount of her gold currency by approximately £200,000,000 sterling. No real benefit has accrued.
"The currencies of the whole world have been artificially inflated to the extent that, under the most favorable circumstances existing in any part of the world, £5 are now needed to do the work in circulation that before the war was accomplished by £3. The loss to people with fixed incomes, the disturbance of trade, the potential labor difficulties are stupendous. And as a result of purchasing war material at excessively high prices, the dead weight of debt incurred by all the countries at war is very much greater than it need have been had currencies been kept within reasonable bounds."
CURRENCY EXPANSION IN GREAT BRITAIN
In Great Britain £200,000,000 worth of new paper currency was placed in circulation and there was a considerable expansion in the use of banknotes, silver and copper coinage. Proposals were made that the famous English Bank Act should be repealed and that excess issues of banknotes should be made legal on the payment of a tax. But apart from these theories of involving the banking system there was a good deal of adverse criticism.
"Mr. Herbert Samuel made a masterly attack upon the vicious system of War Finance, by which no less a sum than £196,170,000 is added to the expenditure by bonuses and increases of wages, which, in their turn, only force prices still higher and raise the cost of living. Lives have been conscripted; incomes have been conscripted; the only thing which has not been conscripted is labor. If the Government had at an early stage of the war had the courage to fix wages, instead of prices, the cost of living would then have been regulated by supply and demand. By fixing prices of commodities, after they had risen to almost famine figures, we have the maximum of loss and inconvenience, high wages, dear food, and a war bill that increases day by day. Despite Mr. Bonar Law's assurance that the bill of the year would not be so high as he expected, we have the fact that we are spending over seven millions a day. The satire of 'the cheap loaf' consists in its cost to the nation at large of £45,000,000 a year. Bonuses to munition workers amount to £40,000,000, bonuses to miners come to £20,000,000, to railway workers £10,000,000, to potato growers £5,000,000. Is this anything else but a system of gigantic corruption? In order that artisans and agriculturists may be kept in good humor with the war, they are bribed with bonsuses bonuses and allowed to buy food at prices which are partially paid by the rest of the community. If ever there was a case of robbing Peter to pay Paul it is here."