Never has this method of financiering been illustrated on so stupendous a scale as during the European War, which began in 1914. Tax ation was resorted to sparingly during the strug gle itself, England being the only country which made vigorous use of this source of revenue. General resort was had to the issue of paper money, either directly by the government or indirectly through the increased circulation of bank notes issued by government-controlled in-1 stitutions. But the main reliance of all, and the sole financial resource of some nations, was loans. By the middle of 1918 the new war loans created since July 1914 by the seven leading pow ers amounted to about $150,000,000,000. As the debts of these same nations, namely, the United States, France, Great Britain, Italy, Russia, Austria-Hungary and the German Empire, amounted to about $23,000,000,000 before the charge war, their aggregate debt on 1 Aug. 1918 was not far from 175,000,000,000. This represented a per capita arge on the populations of these seven nations of about $361, as against $47 in 1914. It has been estimated that this indebted ness is equal to about 15 per cent of their national wealth. The burden involved in such a charge is perhaps made clearest by comparing it with the per capita debt of the United States, which amounted to $10.59 in 1913, representing one-half of 1 per cent of our national wealth.
Public Works.-- There is one other pur pose for which the employment of public credit is justifiable and that is the construction of public works. If a canal or an electric light plant is to be constructed it is essential both from an engineering and a fiscal point of view that the money for this purpose must be instantly available so that the work can be car ried through to completion without any unnec essary delay. From the engineering standpoint any interruption means waste, for an idle plant, half constructed, would rapidly deteriorate and much of the work would have to be done over again. While from a fiscal standpoint it is essential that the whole work be completed as speedily as possible in order that it may become productive; a half finished canal or electric light plant involves expense but brings in no return. To raise the large sums necessary to carry out a modern public work it is necessary to resort to public loans, as it would be both impracticable and unjust to attempt to secure them by taxation. Moreover, in the case of an improvement whose use extends over a long period of time, it is not unreasonable to as future generations to share in the burden.
Advantages of We may at this point endeavor to summarize briefly some of the alleged advantages and disadvantages of public debts. It is necessary to emphasize the fact that the question is not as to whether the money asked for shall be spent. We must as
sume that the need exists and that the proper authority has decided upon the expenditure. Then the only question is as to the relative merits of public borrowing as contrasted with other methods of raising the necessary funds. Numerous advantages have been cited in favor of the policy of public debts, such as that it affords a safe and convenient form of invest ment; this may have been true in the 18th cen tury, but could tianinuch force in this age of corporate and public utility securities. It has also been urged, as by Alexander Hamilton in this country, that the issue of government bonds is equivalent to the creation of so much new capital in the country. Some writers have even carried this doctrine so far as to suggest that the cause of England's wealth was the ex istence of her large national debt.
A more solid advantage lies in the fact that by a policy of borrowing a government can secure that part of the national capital which is easily disposable, while a system of ex tremely heavy taxation might have serious eco nomic consequentes and resgit in nrarttral con fiscation of some incomes. The purchaser of a government bond gives his property voluntarily for public uses in exchange for an equivalent; it is not, therefore, in ordinary circumstances withdrawn from production, but only the free capital, the surplus froth current income, is placed at the disposal of the government. Pri vate industry is, therefore, interfered with as little as possible under this system. Of course this argument assumes that the rate of interest offered by the government is not so high as to cause the withdrawal of capital from existing industries. In case this is done this argument loses much of its force.
But the most convincing argument in of a policy of public borrowing lies in the fact/ that the financial burden of the present genera-k • n i e e sened and future enerations part at east o w ose ene is t ey will share. This is particularly true when very large sums are needed for undertakings that will last for a time, as any great engineering work, like a state-owned railroad or a canal or a road sys tem, or municipal improvements such as sewers, street pavements or a lighting plant. In all such cases the expenditure is an investment of capital, the returns from which will be enjoyed by pos sibly several generations of taxpayers, and it is consequently argued that they should be ex pected to bear a part of the cost. The same argument would apply to expenditures for war, at least for a war of defence, which should protect the country and possibly preserve its very integrity and independence. Here is an immeasurable benefit, the costs of which may fairly be distributed among successive genera tions through the medium of a public debt.