(3) The increase of production and the maintenance of reasonably low interest rates has not been achieved without conscious effort on the part of both citizens and the govern ment. Our citizens quite generally have elimi nated unnecessary expenditures and confined their consumption to the essentials of an effi cient life. They have thus been able to produce more while consuming less. Those who have been able to save something each month and each year have quite generally used better judg ment in investing their earnings, although as yet there is, as always in the past, a strong tend ency to take a chance on enterprises supported wholly or almost wholly by the glowing promises of their promoters. It is, however, chiefly by organized effort that the investment of new capital has been more wisely directed. Early in the war, bankers' associations, cham bers of commerce, clearing-house associations and other organized groups of the smaller as well as the larger investors began to preach the doctrine that to win the war every dollar must be placed where it could do the most good. In this work the Investment Bankers' Association has performed a most valuable service. It first formed a capital issues com mittee* and then entered upon a campaign to secure the creation by the government of a commission whose function was to be to pre vent the investment of new capital in non-essen tial lines. This movement to conserve capital by directing its investment into the more needed lines was inaugurated by the British government early in the war and through the efforts of the bankers and the Secretary of the Treasuryt the Federal Reserve Board established in the latter part of the year 1917 a voluntary plan for passing upon capital issues of $500,000 or over in the case of corporations and $250,000 or over in the case of States, counties and mu nicipalities. This Capital Issues Committee of the Federal Reserve Board was, however, not intended to be a permanent feature, for in the annual report of the Secretary of the Treasury for 1917 a plan for a war finance cor poration was outlined, an institution which was intended to assist in the financing of essential industries as well as to restrict the flow of new capital into the non-essential ones. The plan of the Secretary of the Treasury met with some opposition but after its purposes were fully explained, it was passed by Congress early in April and on the fifth day of the month was approved by the President.$ The War Finance Corporation Act created a cor poration with $500,000,000 capital stock, all subscribed by the government, and empowered it to borrow on its own bonds not more than six times its paid-in capital. With the funds thus secured it was authorized to loan under conditions stated at length in the act to bank ing institutions and in certain exceptional cases directly to corporations. As a supplement to its financing power, the act authorized the President of the United States to appoint a Capital Issues Committee, three of whose mem bers should be chosen from among the mem bers of the Federal Reserve Board. This committee was authorized by the act to °investi gate, pass upon and determine whether it is compatible with the national interest that there should be sold or offered for sale or for sub scription any issue or any part of any issue of securities hereafter issued by any person, firm, corporation or association, the total aggre gated par or face value of which issue and any other securities issued by the same person, firm, corporation or association since the passing of this act is in excess of $100,000.§ Since the creation of the War Finance Corporation with its auxiliary capital issues committee it may be affirmed that comparatively little of the new capital created by American industry has been squandered, and conversely that substantially all of it has been devoted to industries essential to the effective prosecution of the war.
B. As in the case of capital, war diverts labor from productive industries to the work of de struction and after having accomplished its immediate purpose proceeds to kill, maim and invalidate a portion of those whom it has thus diverted. In this respect the effect of war on labor is entirely similar to that which it has on capital. There is, however, one marked difference that must not be overlooked, viz., the longer period generally required to replace the labor power which has thus been destroyed. A fleet of ships or a squadron of airplanes can be created from existing raw material within a period of from one to two years—but for a new army a nation must wait for its children to grow to men. As a necessary consequence of this well-known fact, the rate of wages is ordinarily more vitally affected by a war than the rate of interest and the present war is no exception. At the beginning of the war, in dustry was necessarily disorganized and during the period of readjustments that followed a large number of workingmen were laid off and unemployment threatened to become a serious menace to industrial peace. Just as gold pools and cotton pools were formed by the financial interests, so commissions on un employment were formed in the larger cities to study the questions involved and to formulate plans for providing the unemployed with op portunities for earning a living. So early in
the war as the winter of 1915 it was estimated that 2,000,000 wage-earners in the United States were without employment, although, as a result of the war, immigration from Europe had al most entirely ceased. This situation was, how ever, only temporary. By June 1915 the call for skilled mechanics exceeded the supply and common labor began to be short in the mines and the shops of Pennsylvania and West Virginia. By August, labor troubles began to loom up seriously, owing to the scarcity of labor, the consequent high wages offered to secure laborers by rival industries and rival plants, and the failure to advance wages of employees that had been continuously employed by individual establishments for a period of years. In England the labor situation became so menacing to national efficiency that in De cember 1915 a joint conference was called to consider the labor question and the demands of the wage-earners for increased pay. This conference was participated in by representa tives of the government and of the labor unions and served to call attention to the underlying principles of the whole question of rising wages and the effects of such increases upon prices of products. Fortunately for England and the cause of the allied nations the labor situation was considered at this and other similar meet ings in connection with its relationship to the national efficiency and the problems of war and as a result a system was gradually adopted of basing wages upon the general average of prices of commodities from month to month. Since the early part of 1916 the expansion of the industries in the United States has been limited more by labor shortage than by the lack of necessary capital. The shortage of labor was especially felt by the railways and seizing the favorable opportunity the railway trainmen began a campaign to secure an advance in wages as their fellows in the steel and textile mills had already done. In the spring of 1916, the shortage of labor extended to the farms and by May of that year it was generally considered that the labor shortage was the most important question in the industrial world. The advance in wages granted by the United States Steel Corporation for the 10-year period ending with the summer of 1916 is illustrative of the move ment of wages in an expanding industry in response to a rising price level and an increas ing shortage of labor due to the war. On 1 Jan. 1907 the United States Steel Corporation increased wages by 7 per cent; in 1910 by 634 per cent; in February 1913 by 10 per cent; on 1 February, on 1 May, and again 1 Nov. 1916, 10 per cent; on 1 May and again on 1 Oct. 1917, 10 per cent; while in March 1917 the steel companies generally advanced wages of common labor by 15 per cent. Advances in other lines were perhaps less frequent and in some cases less rapid, but in every line the ad vance was marked, especially so in the essential industries, such as the railways, textiles and the mining of coal. As already stated the railway trainmen began their campaign for an increase in wages early in 1916 and in April of that year a conference between their represen tatives and those of the railways was held for the purpose of considering the demands of the railway labor unions, which, stated in its simplest terms, was for an eight-hour day. The demands translated into actualities really amounted to an increase of wages owing to the obvious impossibility of rearranging the runs of the trainmen in such a way that each could be given a working day of eight hours. The result of granting the demands of the railway trainmens' unions must necessarily be to in crease their pay by increasing the amount of overtime work, a result that was actually achieved in September 1916 by the passage of the Adamson bill and its subsequent approval by the Supreme Court of the United States. In the copper industry, one of those most af fected by the war, the demand for labor has exceeded the normal supply and since April 1917 especial efforts have been made to pre vent the shortage of labor from interfering with the supply of copper necessary for the successful prosecution of the war. For the first three years of the war a plan of basing wages upon the price of copper was followed with favorable results. During the past year, owing to German propaganda on the one hand and to the artificial control of the price of copper by the government on the other, the wage situation became alarming in certain dis tricts in the West; strikes and their attendant incidents becoming the order of the day, with the result that a serious shortage of an essen tial article was feared. Fortunately here as in other industries the good sense and patriotism of our citizens, laborers and managers alike, re-established peaceful relations and the threat ened disaster was averted. As for the other industries, such as the manufacture of brass goods not directly used in war, automobiles, hardware, etc., the demand for men in the war industries has been so abnormal that every em ployer of labor in the less essential occupations has been obliged to advance his scale, following often somewhat behind that established by the essential industries in order to hold his force at all.