20 
LAND 6? WATER 
October 3 1918 
Who is Paying for the War? : By Hartley Withers 
THE people who are paying for the war are those 
who, whether voluntarily or owing to the pressure 
of taxation and high prices, and Government's 
restrictions, have reduced their consumption, in 
the widest sense of the word, since the war began. 
Of the several ways in which a nation can pay for war, this 
one of enforcing or producing a reduction in consumption is 
the most practicable and effective. Practically there are 
only four ways of solving the problem. The nation can 
borrow abroad, and use the money it so raises to buy from 
foreigners the goods that it needs for its lighting services. 
Its power to do this is obviously limited by the readiness of 
other nations to lend to it and provide it with goods ; and 
when most of the world is at war, this readiness is not likely 
to be extensive. Or, secondly, it can realise its holdings, 
"if any, of foreign securities, and take in exchange for them 
the goods that it needs for the war. Here again this power 
is limited by the power of foreigners to repurchase the securi- 
ties held by the warring nation. In so far as these two 
methods are used, the reduction of consumption takes place 
not in the nation that is at war, but in those which lend it 
money or buy back securities from it. For example, when 
the Americans took up British loans, or bought back from 
British investors the American railroad and other securities 
that we or our ancestors had bought from them before the 
war, the practical result was to set American farmers and 
manufacturers to work to turn out stuff not for home con- 
sumption, but for the feeding and equipment of the British 
Army and Navy. The third way in which a nation can pay 
for a war is by making a great productive and industrial 
effort, and so turning out the stuff that the fighting forces 
need, in addition to the original volume of its production. 
This is a hardly possible achievement for any people to work 
at a time when the best of its manhood is in the field or in 
training for the front. It may, by better organisation and 
by making better use of its stock of possible workers, go a 
long way towards filling the gap in production that the 
withdrawal of its best men from productive work has caused, 
but it can hardly do much more than that. All these methods 
we have used as far as their limits would allow us to do so. 
The fourth way — that of reducing consumption — also has its 
limits, but we are still some way from having reached them ; 
and it has been one of the great surprises of the war, so 
fertile in surprises, to find' what a big margin we had in this 
country, and how far it has been possible to reduce con- 
sumption without cutting into the supply of the necessaries 
of life for the civilian population. 
Pre- War Extravagance 
That big margin was largely given to us by the cheerful 
and careless extravagance which marked so much of our 
pre-war spending. According to calculations, made before 
the war, of British and German national expenditure — ex- 
penditure, that is, of all the citizens of each country, not 
that of the State — the average spent per year by us was 
£42 per head, including the whole population — men, women, 
and children. In Germany the average spent was £23 per 
head. These figures have to be accepted with a good deal 
of caution, because estimates of the aggregate expenditure 
of any nation necessarily are to a great extent a matter of 
guesswork. But if they are anything like correct, then we 
had a margin of £19 per head, which we could save and put 
into war or any other purpose, without stinting ourselves 
more than by reducing our spending per head to the German 
pre-war level. And £19 per head, with a population of 
47 millions means a saving of 900 millions of pre-war pounds 
— real pounds, with purchasing power equivalent to some- 
thing like 1,800 millions of the depreciated pounds that we 
handle in these times. 
Such was the margin of consumption that could be diverted 
to war purposes merely by coming down to the German 
scale of living, as the Germans lived before the war — that is, 
very comfortably, on the whole, though more carefully and 
economically than we did,, domestic management being a 
matter to which the German housewives gave much more 
trouble and thought than the average British woman of a 
similar class. In order to bring this reduction of consump- 
tion about, the Government was able to use three methods 
of compulsion or persuasion. First of all, it could tax. 
Every pound that it took out of our pockets in taxation 
meant, as a rule, that we had so much less to spend on our- 
v,elves, and so we were forced to reduce consumption, and 
so we set free goods to be used for the Army, and the work 
of those who made them. The larger the proportion of war- 
cost that a Government raises by taxation, the smaller 
(obviously) is the pile of war debt that it heaps up, and the 
smaller (less obviously) is the cost of the war because taxa- 
tion usually forces people to cut down consuinption, and so 
there is less competition for goods between the citizens and 
the Government, and the rise in prices is less. In the matter 
of taxation, our war Governments have dealt with us gently. 
The Burden of Taxation 
War taxation seems heavy if we look at it by itself ; but 
when we consider it in relation to the cost of the war, to the 
tremendous question that is at stake, and, above all, to the 
sacrifices that the best of our manhood is making all day 
and all night at the front, its burden is a very small thing to 
complain of. In this fifth year of war we are rising to a total 
revenue, from taxes and State services, of 842 millions, 
according to the Budget estimate. It looks enormous at 
first sight when we compare it with the 198 millions that we 
so raised before the war ; but we have to allow again for 
currency depreciation, and then we see that these 842 millions 
are worth, in actual buying power, only about 420. millions 
of pre-war pounds. So that when we measure our war effort 
by this test we find that we are only handing over to the 
State, in revenue, little more than double the buying power 
that we paid to it before the war, which is not such a gigantic 
achievement, in view of what is at stake. The second way 
of reducing consumption that the Government could use 
was by borrowing. This niethod it has used with so much 
vigour that the estimated gross debt of the country will be, 
according to the Chancellor's estimate, £7,980 miOions on 
March 31st next — an increase since the war began of over 
£7,200 millions. Borrowing is, at first sight, a comfortable 
way of paying for war, because it makes people think that 
thereby part — not to say most — of the business of paying 
for the war is put on to the shoulders of posterity. In fact, 
we have to pay for the war now, as it goes on, and every 
million of debt makes us taxpayers immediately so much 
poorer in proportion to the taxation that we have to pay in 
order to meet the interest-charge. There is also this very 
serious objection to the policy of paying for war by borrowing 
that it involves great unfairness to the men who are fighting 
for us or doing war work for a soldier's pay. They, owing 
to their low rate of pay, can subscribe little or nothing to 
war loans, but when they come back to civil life they will 
be expected to take their share of the high taxation that 
the debt charge will involve, for interest which will be 
pocketed by those who were able, out of high war profits and 
high war wages, to make big investments. Apart from this 
serious evil, borrowing has less effect in reducing consump- 
tion than taxation. When a man pays taxes he knows that 
the money is gone ; when he subscribes to War Bonds he 
has got an asset ; it is also a liability which he shares with 
other taxpayers, but he probably forgets that aspect of it, 
and so is not so likely to be stimulated along the path of 
economic austerity. So that borrowing even of money 
saved by the investor is a much less satisfactory method of 
war finance than taxation. When borrowing is not done 
by means of money saved by investors, we come to the third 
method by which Governments can enforce reduction of 
consumption, namely, inflation of the currency. This is too 
complicated a question to be discussed fully now. It wants 
a page — not to say many pages — to itself. For the present, 
I must be allowed to assert, without further explanation, 
that when a Government prints paper-money in hatfuls, as 
our Government has and all the other warring Governments 
have — either themselves or through their bankers — or when 
a Government borrows from you and me not money that we 
have saved, but money that we have borrowed from banks, 
or, again, when a Government borrows not from investors 
but from banks, then there is an increase in the supply ol 
purchasing power instead of a transfer of it, such as takes 
place through taxation, or borrowing of saved money. But 
if you increase the supply of purchasing power with no corre- 
sponding increase in the supply of goods to be bought, up go 
prices, and so everybody's consumption is reduced by a 
financial process which in effect amounts to a tax on all 
purchases. Which, again, is quite the unfairest way of 
taxing because it hits hardest those least able to bear it. 
By these devices payment for war — which means diverting 
goods from citizens' consumption to the State's — is carried out. 
