22 
LAND &> WATER 
November 21, 1918 
Facing the Cost: By Hartley Withers 
THOUGH with licartfclt thanksgiving we can 
welcome tlie end of the war, in so far "as it involved 
the slaying and maiming of the best of our man- 
hood, its linancial end is by no means yet, and 
will not necessarily come even when peace is 
definitely signed. Financially, it will only end when the 
dead weight debt — debt unrepresented by any reproductive 
and profit -yielding assets — leaves off being heaped up and 
begins to be reduced. That can liardly happen for some 
time, since in any case the demobilisation period is sure to 
he long and costly. It is not even possible yet to arrive 
with any certainty at the actual cost of the fighting period, 
which ma\- be taken, roughly, as four and a quarter years. 
During that time, as is shown by the weekly table published 
in the Economist, the British Government spent 8,6iiJ 
millions, from which we have to deduct some 8(30 millions 
as the cost for that period on the pre-war peace basis, making 
a small allowance for normal increase. This leaves a total 
gross expenditure, on war and war purposes, of 7,7512 
millions during the fighting period, but included in this sum 
there are not only loans to Allies and Dominions, but the 
cost of a large number of assets that are or will be saleable 
or recjverable, in the shape of ships, food, land, buildings, 
balances in the hands of agents, arrears of taxation, and 
so on. The amount of loans to allies amounted on October 
19th — so the Chancellor of the Exchequer stated in his 
Vote of Credit speech on November 13th — to 1,465 millions, 
and the loans to Dominions to 2i8| millions. These loans 
to Dominions are, of course, as good as gold ; but with regard 
to loans to Allies, in view of the position in Russia and the 
far greater economic losses that the war has involved to our 
Allies, relatively to their financial strength, than it has to us, 
most people will agree that the Chancellor's proposal to 
take them at half their face value, in drawing up our war 
balance-sheet, docs not err on the side of financial austerity. 
As to the other recoverable assets, they were estimated 
by the Chancellor when he made his Budget speech last 
April, to be going to amount to 1,172 millions by March 31st 
next ; and it is very satisfactory to note that in his Vote of 
Credit speech he said that recent inquiries had shown that 
their value is far greater than' the very conservative valuation 
that he had put on them last April. On the other hand, we 
have to remember the big aftermath of expenditure that the 
transition period from war to peace will surely involve. It 
is thus very difficult to see how we shall really stand when 
the war's liquidation is over. All that we can be sure of is 
that the splendid bravery of the Allied armies, the astonishing 
feat performed by their navies and merchantmen in trans- 
porting the American forces, and the straightforward diplo- 
macy of President Wilson have, by bringing the war to an 
end some months earlier than the most sanguine among us 
expected, reduced its final cost by many hundreds of millions. 
"For this relief much thanks." 
This shortening of the war has also helped to make good 
the Chancellor's estimate of 6,800 millions as our debt at 
the end of the war, supposing it to end on March 31st next. 
When he made this estimate he left out, with his usual cheery 
optimism so untimely in a War Finance Minister, the expenses 
of demobilisation and arrears of expenditure. Now he is 
able, apparently, to hope that demobilisation, etc., will be 
covered by the sums that will be got in during the present 
financial year, since he says that 6,800 millions can be looked 
on as the limit of the debt for which we shall be responsible. 
If, then, his hopes with regard to the value of our recoveralple 
assets are well founded, we may hope to see the final amount 
of our after-war debt brought well below 6,000 millions. 
There are a number of "ifs" involved in this calculation 
however, and we are on safer ground when we try to see how 
the financial position of the country, as a whole, has been 
altered by the war. Many gloomy prophets, going as far on 
the side of pessimism as our cheerv Chancellor has erred in 
the other direction, have told us that we should end the war 
no longer a creditor country. If the estimates of statisticians, 
which put our total holding of investments abroad in foreign 
countries and our Dominions at 4,000 millions, were any- 
' where near the mark, there seemed to be no reason to fear 
that we should have used up the whole of that huge asset 
for a long time. The Chancellor now tells us that the burden 
of the debt that we have raised abroad during the war will 
not at the outside reach 1,000 millions. The published 
figures seem to indicate its gross amount at over 1,260 mil- 
lions, so the Chancellor is apparently putting against it our 
loans to Dominions and something over on" account of loans 
to Allies. He also stated, in an interview in the Observer 
of November lotli, that practically the whole of our holding 
of American securities had been returned by us to America 
for sale or as collateral against our borrowings, and that 
their value was about "3 billion dollars," or 600 millicn 
pounds. In so far as they arc held as collateral, they will, 
if now or hereafter sold, reduce the amoimt of our foreign 
debt. But if we take the whole amount as gone, and add 
another 100 millions or so for other lands of foreign Securities 
sold, we are still well below 2,000 millicns as the amount 
by which we have impaired our position as a creditor country, 
by parting with foreign securities and raising loans abroac'. 
In other words, we are not only still a creditor country, but 
more than Jjalf as big a one (so to speak) as we were when we 
began drawing on our capital for the sake of our Allies. The 
net result is that instead of receiving about 200 millions a 
vear in interest from investments abroad, we shall receive 
about 160 and have to pay about 50 so that our net receipt 
on this account will be about no millions. 
Another invisible export that we used to make in the shape 
of freights earned by our merchant ships will have been 
considerably affected by the war, owing to the number of 
our ships that have been sunk by sumbarines. We have 
lost nearly 9 million tons in this way out of a total of 19 
million tons of merchant ships owned by us when the war 
began. On the other hand, we have built during the course 
of the war 5| millions of new tonnage, so that the net loss is 
31 million tons. 
The Necessity of Production 
We have thus good reason for facing the after-war financial 
position with calm serenity, if only we can feel sure that 
the industrial and commercial production which is the basis 
of all financial strength will be set about with energy and 
goodwill. Finance deals in promises to pay. But the pay- 
ments ultimately have to be made in goods and services. 
Our equipment for providing goods and services has not been 
seriously impaired apart from the loss of ships referred to 
above. We have not been as careful in the matter of upkeep 
as we should have been if we had had more material and 
labour to spare, but we have imported a mass of machinery 
for war purposes, some, at least, of which will be useful for 
peace work ; we have improved our organisation, and we 
have shown what can be done with machinery if it is given 
a fair chance with no restrictions on its output, or with less 
than were imposed on it before the war. If we can make 
use, full use, in the future of these benefits that we have 
gained there is no reason why, after the difficulties of the 
transition period have once been dealt with, our industrial 
output should not be greater than it has ever been. And 
after all, a nation's industrial output, in the widest sense of 
the term, is its income — the source, that is, of the necessaries 
and comforts that it is able to enjoy. 
On the purely financial side of things we have to see to it 
that our financial machinery is clean, that sound enterprises, 
giving the investor a fair chance of a return on his money, 
may stimulate saving, that our currency is brought back 
to a sound basis on the lines indicated by Lord Cunliffe's 
committee's report, and that measures are promptly taken 
to put our system of taxation in order. On these questions 
there is likely to be acute differences among the political 
groups and parties that are now bidding for the public favour. 
Whatever be our political predilections, we must all admit 
that in order to ensure our industrial and financial recovery, 
industry must be hampered as little as possible, especially in 
its demand for raw material and for any imports that it 
uses in production, and that direct taxation, which will 
clearly have to bear the chief weight of the war debt charge, 
shall as far as possible affect, not industry, but the net income 
from it that comes into the pocket of the individual citizen. 
In other words, that long overdue reform of the income-tax, 
the absence of which has hampered us so severely in our 
war finance, ought to be set about at once. During the war, 
we were told, it could not be done because the Inland Revenue 
Office had been too seriously weakened by enlistment and 
conscription. Now that the fighting is over and a return to 
financial sanity is imperatively needed, one of the first things 
to be done is to put back our taxing experts into their right 
place and set them to work to relieve the income-tax of its 
unfair pressure on fathers of families, which has had so 
disastrous an effect in reducing the fertility of the middle 
class. 
