Such an analysis would enable us to form conclusions as to the repressive or nonrepressive effects of various taxes.

As applied to incomes in general, without regard to their source, a progressive, even a highly progressive, tax will occasion, on the whole, less direct sacrifice to the taxpayers than a proportional tax. A progressive tax is therefore to be commended, unless the rate of progression is made so high as to discourage the receivers of large incomes from trying to increase them. If the rate of progression is as high as this, the indirect form of sacrifice, growing out of the repressive effects of the tax, will counteract, wholly or in part, the reduction in the direct form of sacrifice. A moderately progressive income tax would, therefore, seem to be more desirable than a proportional one. But as between different kinds of income and different kinds of property, the preference should be given to those taxes which fall upon natural products, such as land, rather than upon artificially produced goods, and upon increments of wealth which come to an individual through natural causes over which he has no control-inheritances, for instance —rather than upon incomes earned by the individuals themselves. Such taxes are less repressive than most other special forms of taxation and therefore occasion less sacrifice of the indirect kind.

64

CHAPTER XLIX

THE FINANCING OF A WAR

It is sincerely to be hoped that it will never be necessary to finance another war and that this chapter will therefore have nothing more than an academic interest; but until we have reasonable assurance that wars shall be no more, the problem of financing a war must have a very practical interest.

What is meant by the financing of a war. By the financing of a war is meant the keeping of the National Treasury supplied with money with which to purchase military supplies and pay other war expenses. This problem should be kept distinct from the physical problem of producing supplies and war materials. The latter is a problem not for the financial expert but rather for the industrial engineer, the business manager, or some other expert in the organization and coördination of the factors of physical production. While the financial problem is one of tremendous importance, it is not only less important but also very much less difficult than that of producing the supplies themselves.

Financial problems less difficult than problems of production. Difficult as is the financial problem, all the factors are within the control of the government, or at least of the people behind the government. Consequently, if they fail in their attempts to handle the problem they have only themselves to blame; their failure cannot be laid to the physical difficulties or to factors which lie beyond their own control. In short, the failure will be due to the stupidity of their rulers or of the people who refuse to support a sound financial policy on the part of the rulers. The problem of producing supplies, on the other hand, especially on the part of a beleaguered country, may depend upon factors which lie beyond the control of either govern

ment or people. For example, the difficulties of the South during the Civil War were on the physical side insuperable, hemmed in, as they were, by blockading fleets and invading armies. On the financial side, however, their difficulties were of their own creation. In other words, the difficulties in the way of supplying themselves with horses, salt, nitrogen, and a number of other necessaries were insuperable, but the difficulties which they, as well as the Northern people, had in finding money with which to pay for such supplies as they could get were within their own control.

In most of our discussions of the problems of war finance too little attention is given to certain large elementary principles. The practical financiers are fully absorbed with the details of the question, and the financial writers in the ephemeral press are more concerned with finding out what the people want them to say, and then saying it, than they are in getting at the root of the problem.

Speeding up the circulation of money. One large economic fact which greatly simplifies the financing of a war is that an increase in the rapidity of the circulation of money has, in all essential particulars, the same effect as an increase in the physical quantity of money. To double the speed of circulation, for example, enables a given quantity of money to do twice as much work. Analogies, though often dangerous, are sometimes useful. A helpful one is found between the circulation of blood in the human system and the circulation of money in the country. When increased muscular exertion calls for larger supplies of blood in the limbs, it is not necessary to increase the total volume-the need is met by speeding up the circulation. But in order that the heart may send increasing quantities of blood per unit of time to those parts where it is demanded, it must have means of getting increased quantities per unit of time back again from the extremities; in other words, the problem of getting the blood back is obviously as important as that of pumping it out to the places where it is needed. The National Treasury is confronted by a similar

problem in time of war. It is called upon to send out money in increasing quantities to pay the enormously increased expenses of the government. In order that it may always have sufficient money to pay out for war supplies at an extraordinary rate, it must find means of recovering it at the same extraordinary rate. Since all the money not actually in the Treasury is in the hands of the people, it is they who must be induced to return it to the Treasury at this extraordinary rate. If the rulers can devise a plan for doing this, and if the people are sufficiently wise, devoted, and loyal to support the plan, there will be no difficulty in the financing of a war. These are two very large ifs.

More money not absolutely necessary. Another large fact of even greater importance is that the country, as distinct from its government, does not need very much more money in time of war than in time of peace, except for the purchase of foreign supplies. So far as its domestic economy is concerned, it needs only a little more. There are not many more men to be hired; there is not much more work which can be done, because there are not many more men to do it; and there are not many more goods to be bought in time of war than in time of peace. The difference is that the government, instead of private individuals, must hire the men and buy the goods. This makes it physically necessary that private individuals should hire fewer men and buy fewer goods.

Private consumption must be cut down. For example, when I am spending my income in time of peace I am merely hiring men to make things for my consumption and to wait upon me. All the men in the country are presumably engaged in producing things for consumers and in waiting upon them; that is, upon one another. In time of war it is necessary that a large number of men stop producing things for private consumption and waiting upon one another as private consumers, and begin to produce things for the government and to wait upon the government and serve it as soldiers. It is physically impossible for them to do this unless private consumers are willing to consume less and to wait upon themselves instead of hiring others

to do so. Moreover, it need not take any more money to hire these men to work for the government than to hire them to work for private consumers.

If, for example, I am spending so much on myself that it takes, in the aggregate, ten men to make things for my consumption and to wait upon me, it will be necessary in time of war for me to live on less, because the government must have some of these ten men. Another way of expressing the same thing would be to say that I need them to work for me in another capacity in time of war; I need them to produce war supplies and to fight in my defense. The government is my agent in hiring these men and directing the fighting; therefore I must turn a part of my income over to my agent, the government, to hire some of these ten men, while I, with the remainder of my income, may hire the rest to continue working for me. What has just been said in the first person singular can be repeated in the first person plural, and thus it will include us all.

The private consumer bids against the government for man power. If we are all left undisturbed in the enjoyment of our income and continue spending it in such a way as to require as many men as before to produce for and to wait upon each of us, while our agent, the government, without taxing us, undertakes to find means to hire the men whom it needs, we shalleach and every one-be competing for these men against our own agent, the government. If the government opens a war chest or gets its money from another source than our incomes, it will have to bid against us to get men to work and fight for it. Literally, it will be trying with a lot of new money to hire them away from us, while we are trying with our full income to hire them away from the government and keep them working for us. Aside from the obvious futility and stupidity of this process, it results in inflation of prices, no matter what the source of the government's money may be.

Taxation enforces economy in private consumption. Here is the first great mistake which almost every government has made, up to the present time, in its efforts to finance a war: it