The Way to Win

by William Le Queux

Now the German method of financing the War has constituted one of the most extraordinary gambles known in the history of finance. She has piled up an enormous debt in paper. The Economist estimates the total of Germany’s war credits up to the end of December last at 1,500 million pounds sterling, and the average monthly war expenditure at 92.350 million pounds. Towards this Germany had raised up to September 15, 1915, 1,280 million pounds. In Germany these loans have been cited as a proof that financially the country is impregnable. But this assertion does not convince. The loans have been obtained only by wholesale inflation through borrowing on Treasury bills from the Reichsbank. The amount of these bills outstanding is carefully concealed from the world, but it is certainly enormous, and it seems to be rising rapidly again, though Germany’s third loan was floated quite recently. The amount of these bills on January 15 was estimated at 250 million pounds. It is easier to trace the amount of the inflation of the currency by paper, and by paper without any gold backing. Between July, 1914, and January 15, 1916, the amount of Reichsbank notes in circulation increased from 95 million pounds to 319 million pounds and the amount of Treasury notes from 7 million pounds to 16 million pounds, while another 54 million pounds in paper was added in the form of Loan Office notes. That is to say, since the outbreak of war the amount of paper currency has increased from 101 million pounds to 389 million pounds, or about 285 per cent. How much the financial position has been worsened by the extension of banking credits we do not know, as the bi-monthly statements of the great banks have, most significantly, been discontinued. It is true that during the same period the amount of gold in the Reichsbank has been increased by 55 million pounds. But a large part of this increase, it is believed, came from the reserve of the Austro-Hungarian Bank, and in any case it is not nearly sufficient to have the smallest effect in counteracting the flood of paper. The effects of the inflation of the currency and its debasement by the huge issues of paper money are seen in the rapid collapse of the mark and the equally rapid rise in prices which in Germany to-day is making the lives of the poorer people well-nigh unbearable. And it is most noteworthy that in those countries where Germany has been able to trade with the greatest freedom the collapse of German credit is most unmistakable. That is for Germany, as well as for ourselves, a grave and unmistakable fact; it is verily the writing on the wall. Germany has been weighed and found wanting in the balance of the neutral nations who are more friendly disposed towards her.

To meet the expense of the War Germany has issued paper to her own population on a scale of which the world has had no experience. In return for the paper promises of the Government they have poured out with a lavish hand everything of which the Government stood in need, and it is impossible not to marvel at what is either patriotism or a very high order of gullibility carried to the extremest limits. In either case Germany’s people have lent to her vast sums for a mere paper security, quite apart from the amounts she has expended in other countries and which she will have to pay for in gold or exports, which come to the same thing. What, we may well ask, will be the position when, after the War, German merchants want money—not paper—to resume their trading with the rest of the world, to purchase the raw material upon which the very life of her commerce depends? How is the Government to raise the gigantic sums that will be required not merely to pay interest on this stupendous pile of debt, but to begin to form a sinking fund to pay it off?

My own view—and it is shared by many others—is that Germany’s borrowings on such a stupendous scale were made possible only because the German people, convinced that they were really and truly the supermen they fancied themselves to be, were firmly persuaded that they were going to win the War “hands down.” They were assured ad nauseam that speedy victory was certain, that France was to be instantly crushed and Russia crippled, that Britain could not intervene in anything like decisive fashion in time to save her Allies, and that the end of the War would come in a few months at most, with a triumphant Germany extorting untold millions in the shape of indemnities from her trampled and bleeding enemies. The War was to be, in fact, a highly profitable trade undertaking, in which Germany’s losses in killed and maimed were to be more than compensated for by increased wealth drawn from the coffers of her enemies, and especially England, the worst enemy of all.

But the War has not quite “panned out” to schedule, and Germany is to-day rapidly realising the fact. “In my opinion,” said Lord Inchcape, speaking at the annual meeting of the National Provincial Bank of England, “Germany is already irretrievably beaten, and no one knows this better than she does herself.” That is a very strong expression of opinion from a man who is in a position to know what he speaks of when he deals with matters of finance. As I have said before, I do not believe that money alone can win the War, but there can be no reasonable doubt that the growing financial difficulties of Germany are swiftly bringing her to a position in which she will find it impossible to oppose with any hope of success the steadily growing power of the Allies. So much at least money can do and is doing, though the final blow must be dealt in decisive military action. Otherwise Germany will never be convinced that she is really and truly beaten, her people will be told again that they are unconquerable, and she will begin with all her wonderful organising powers to prepare for a renewed campaign of aggression in the future.

I cannot see how Germany is to be preserved from national bankruptcy; I cannot conceive any means by which she can hope to pay off the enormous debt she has piled up. Her export trade is utterly smashed, and it must take years to get it back even if the Allies are foolish enough after the War to allow her the commercial privileges she has enjoyed in the past, which is most unlikely. Her losses in men and material have been stupendous, she is eating herself up, she is blazing away her piled-up wealth at a time when she cannot keep going even a fraction of her commerce to make up for the steady drain upon her. We at least are free to trade overseas to as great an extent as we can manufacture, and it is a very gratifying fact that the trade of the United Kingdom has in the past few months shown a steady increase; February showed an advance of 10 million pounds on the corresponding month of 1915. We are not losing our markets to the extent that Germany is, for the simple reason, again, that our Fleet can keep open our trade routes. And we have also to pay regard to the fact that the German is not going to be a popular individual for a good many years to come in any civilised country. At the best he is going to have a good deal of trouble to persuade any of the Allies to do business with him on any terms whatever; at the worst it is more than likely that he will find himself shut out completely by an overwhelming tariff from every British, French, Russian, Italian, and Japanese market. How, under such conditions, Germany will ever succeed in paying her debts I cannot understand.

Borrowing in such a War as this is unavoidable for any of the belligerents; it is impossible to defray the stupendous cost out of income. The whole problem to be solved is whether it is possible to secure by taxation the interest on the increased debts and also a margin of revenue which during the War will help to pay for it, and after the War will provide a sinking fund to gradually pay off the sums borrowed. Germany’s paper system is all wrong, because, in the first place, she has not the gold to back it up, and, in the second place, because no provision has been made by taxation to raise sums sufficient to provide interest and sinking fund. Even before the War Germany’s yearly budgets have been showing a series of deficits, and with the stupendous amount she has added to her debts it is difficult to see how after the War is over she will be able to avoid defaulting. She will certainly not succeed in securing any indemnity as she did from France in 1871; she will far more probably find herself condemned to pay at least sufficient money to provide for the rehabilitation, so far as is possible, of Belgium.

There is, it is true, one aspect of the case which is to some extent favourable to Germany. A great portion of her war debt—in fact, practically the whole of it—is held at home, and it is quite possible that at the end of the War the people who have entrusted her with their savings will find themselves told that they will have to wait indefinitely for their money. Repudiation on this scale would perhaps enable Germany to keep herself right with the rest of the world and avoid actual default in the international sense. But the effect on her own people would be appalling! Now it is a very remarkable fact that though the German Government has carefully kept from the mass of the people any real knowledge of the facts of the situation as we know it exists, it has during the past few months been allowing certain newspapers to warn the public in guarded terms of what is coming. The Berliner Post states openly that the situation is “terrifying.” That is a good deal of an admission for a people who a few months ago were setting out, as they themselves said, on a conquest of the world, and were going to extort the cost from their beaten enemies. Warning the German people that they must be prepared for very bad times, the Post goes on to say:

Even the highest war indemnity that is thinkable cannot preserve us from a stupendous addition to the Imperial Budget for 1916-17. Without war damages we shall have to reckon upon an increase in the yearly taxation of at least four milliards of marks. From a technical point of view alone such amount cannot be procured immediately by taxation. From the political point of view it would be a great mistake if the population was not gradually acquainted with the situation, which, looked upon as a whole, has something terrifying about it.

Only by slowly being made accustomed to it can the situation become softened for the people. Probably the State Secretary for Finance, when he introduces his proposals for the new taxation, will give as near as possible a review of what the annual deficit will be. German people will only then be able to understand what wounds the War has made and what great measures will be necessary for years to come to heal them. At present the greatest part of the people probably has no idea of the situation.

It is perhaps permissible to ask, in view of this outburst, what the German people, deluded and hoodwinked for so long, are likely to say when the full facts break upon their minds. It will be noted that the Berliner Post deals with the financial situation apart from the war expenses, and finds very little comfort in it. The German people will find still less to be exultant about when the whole truth appears, as sooner or later it must, for it cannot be hidden much longer. Up to the present Germany has imposed practically no new taxes; they will be on a crushing scale when the German people have to set themselves to pay the damages involved in the conflagration which they so wantonly provoked.

But, doubters will ask, are we in any better case? I will quote in answer Sir George Paish, one of our leading financial authorities. “We may confidently expect,” he recently declared, “that the nation after the War will have as much capital for investment as before the War.”