FINANCIAL PROBLEMS OF THE WORLD WAR. The financial problems cre ated by the war naturally divide themselves into four classes, each of which has to be dealt with in the light of the immediate circumstances under which the problems arose. The problems which were believed, before the war began, to be inevitable in case such a war should occur, make up the first of these four classes. The problems which actually arose for instantaneous solution, and in extremely urgent form, at the moment when the war broke out, come second; they differed in many respects from what had been predicted. Into the third class fall the time problems which arose from time to time as the actual task for providing for the financial needs of war developed. These prob •lems to a greater or lesser extent changed their shape as the war continued, and were depend ent, both in their origin and in their character, on the actual events of the war itself. Finally _there come up for consideration the problems, fiMncial and economic as well as social and political, which will confront practically the whole world on return of peace.
The question, what problems would have to be met in case of war between the first class European Powers, had been seriously consid ered and carefully discussed in financial cirdes during a generation before 1914, So far as they had been outlined, the main questions which suggested themselves were those which would affect international •commerce, interna tional exchange and the home and international money markets. It seemed probable in advance that such a war would be fought very largely on the sea, with the navy of each belligerent power destroying the merchant ships of its an tagonists, and that this would largely destroy international commerce until one side or the other, as a result of protracted sea fights—a process which occupied a considerable series of years in the Napoleonic wars— should have destroyed the enemy fleet and gained control of the ocean.
It appeared to be inevitable that bankruptcies on a portentous scale would occur in every country engaged in international finance (not ably England) as a result of inability by bank ing houses to collect their immense mass of foreign credits while their home liabilities were coming to maturity. This of itself, it was imagined beforehand, would snake the financ ing of war on a modern scale a task of supreme difficulty; in addition to which, the cost of such a war under moderis conditions would be beyond the powers even of a solvent money market to sustain for any great length of time.
Recourse to fiat money, on a scale never wit nessed in previous history, appeared therefore to be an inevitable consequence. One of the corollaries from this argument was that neutral countries, dependent in a financial and economic way on such belligerent countries as England, France or Germany, would be financially ruined, not only by the shutting off of supplies to which they were accustomed, but by the sudden recall of capital from them by the belligerent •markets. Actually, experience proved that these expectations were in each case to a certain extent and in some form ized, but not in the least to the degree which had been anticipated.
When the war actually did break out, the problem of international trade was settled al most immediately by the refusal of the German navy to fight, and by the consequent complete control of the seas by the British navy, after a few German raiders had been captured or de stroyed. The problem of international ex change, however, of the assets and liabilities of concerns doing an international business, be came at once a most formidable problem for all financial markets. It was especially so at London, whose investments in bills of exchange payable by enemy bankers and merchants were of immense magnitude; but it also affected every other market doing an international business.
The stock exchanges were instantly and very powerfully affected; first because, so long as any stock exchange dealing in the securities of foreign countries remained freely open for business, it would be possible for the enemy or his agents to sell on that market stocks held by them, and to convert them into money; but, second, because merchants and bankers, con fronted with loss of the funds due them on foreign account, would be driven to realize in their own stock markets on their own holdings of negotiable securities. The whole compli cated structure of finance was threatened with collapse as a consequence, and the problem called for instantaneous solution.