The cost, however reckoned, is sure to be stupendous. Prof. Richet is quoted as reckoning it at $50,000,000 a day. This is probably more than half the total income of all the inhabitants of the warring countries. The highest estimates of the total income of the United Kingdom, France, and Germany, estimates of Bowley, Laverge, and Buchel, respectively, total up less than $70,000,000 a day. Russia and Austria are poor countries per capita, and would scarcely bring the grand total to $100,000,000 a day. Moreover, the loss of real income to Europe is, I imagine, in reality much greater than Richet's estimate, chiefly because he takes little account of the indirect costs, which may well be the greatest of all. The cost to the fiscal departments of Government is probably only a small part of the total cost which the people will have to bear. The killing and disabling of the men engaged will cut off the financial support of European families to the tune of hundreds of millions of dollars per year. The physical destruction of capital through the devastation of crops, the burning and demolishing of merchant ships and buildings, the crippling of industry through the sudden withdrawal of labor and raw materials, the introduction of new trade risks, and the cutting off of transportation, both internal and foreign, make up a sum of items which cannot be measured, but which may exceed those which can. Last, but not least, is the impairment of that subtle but vital basis of business, commercial credit.
In short, the central effect is a vast impairment of Europe's current income and of the capital from which her future income will flow. It means a veritable impoverishment of vast populations. The great burden will bear heaviest, of course, on the poor. It will impinge very unequally and will cause a great redistribution of wealth. As always happens, some people, mostly lucky speculators, will come out of the mêlée wealthier than before. This fact will not serve to lessen the discontent of the masses, which their impoverishment is sure to create. Food prices will be high, the earnings of labor will be low, and after the war unemployment will be great, due to the impossibility of quick absorption into the industrial system of returned soldiers, as well as other maladjustments which the war is sure to bring.
The victor may secure indemnity for part of the loss, but not for all; he will, in spite of himself, be a net loser. Taxes will be a crushing burden, merely to secure funds with which to pay high interest on vast new war debts, to say nothing of funds with which to purchase new armaments—if again the nations are forced, by lack of international control, to resume the stupendous folly of racing each other in military equipments.
Bankruptcy and Revolution.
It may well be that among the economic consequences of the war there will be some national bankruptcies, and that among the political consequences will be revolutions. High prices, high taxes, low wages, and unemployment make an ominous combination. We may be sure that discontent will be profound and widespread. This discontent is pretty sure to lead, especially in the defeated nations where there is no compensating "glory," to strong revolutionary movements just as was the case in Russia after her defeat by Japan. Whether or to what extent these movements, in which "Socialism" in the various meanings of that word is sure to play a part, will succeed, depends on the relative strength of opposing tendencies which cannot yet be measured. One possible if not probable result may be, as I suggested in THE TIMES two weeks ago, some international device to secure disarmament and to safeguard peace.
Though part of the losses to Europe will be permanent, her chief loss will be coterminous with the war. She will, therefore, seek ways and means to fill in this immediate hole in her income in order to "get by." To do this she must borrow; that is, she must secure her present bread and butter from us and other nations and arrange to repay later out of the fruits of peace. She can stint herself, but not enough to meet the situation. She must borrow. And in one way and another she will satisfy this necessity by borrowing in the United States.
Most of the strange and unprecedented phenomena which we have witnessed in the last month, in rapid succession, are due to this pressing necessity of the belligerent peoples to cash in now and trust to good fortune to pay later. As soon as the war became even probable Europe tried to cash in on our securities. The pressure for our gold pushed it toward Europe faster than it could move. Exchange jumped to the gold-shipping point of $4.89 per pound sterling, and did not stop. In some cases it reached $7. This was partly due to the desire to get our gold and bolster up a credit structure, tottering before the deadly blow of war; but it was also partly due to the need of ready money for supplies of all kinds. This need applies not only to the Governments, but to the individual people. To obtain this ready money they threw back on us the securities they had purchased of us in former years. They wanted us to take back these titles to future income and give them instead titles to present income. Had they secured our gold their next step would have been to spend part of it for supplies, and this would have caused any foreign dealers to whom they applied to place orders with us. The gold then might have turned the exchanges and have been brought back to us in return for our wheat and other products.
This double transaction is in essence one—a barter of present income in the form of our wheat to Europe for future income in the form of investment securities. It was interfered with by the refusal of the insurance companies to insure the gold and by the closing of Stock Exchanges against the inundating flood of securities. The first difficulty, as to transporting gold, has been largely removed by arranging for drafts against stocks of it kept on both sides of the Atlantic. This will save the need of sending it on risky voyages back and forth, and any final net balances can be liquidated after the war. The second obstacle, the closure of the Stock Exchanges, is more formidable, but cannot completely or permanently prevent the transactions which so many people on both sides are anxious to consummate. Curb markets and limited cash sales on the Exchanges themselves are doing some of this business, and, sooner or later, much more will be done, whether the Exchanges are open or not. Europe needs our wheat and cannot pay for it except with securities, partly because her own industry is paralyzed, partly because ocean transportation is difficult.
What Dumping Securities Means.
Few people seem to realize that the dumping of securities on our shores and the efforts of foreign Governments, such as France and Switzerland, to borrow money in our markets are at the bottom very much the same thing. They are simply two forms of securing present supplies from America in return for future supplies, the dividends and interest on securities from Europe.