ST

TRANGERS in San Francisco after the earthquake were filled with a common astonishment and asked invariably the same question: "The money that people are spending so freely-where does it come from?" It was impossible that people should be really richer than before, and yet evidence of their seeming to be so was on every hand and in every direction, especially in places of eating, drinking, and amusement. The answer, when forthcoming, was simple enough. It was insurance money. The people at large were enjoying the capital of the few. The rich, there or somewhere, were poorer, but all the rest were for the present richer.

The Money Rich

There now is somewhat of that same phenomenon in Germany. More money is in circulation than was ever the case before, and money in hand is already half spent. There is that illusion of money prosperity which invariably accompanies currency inflation. The rich are each day poorer, and the very poor remain so, as is always the case. Between is the great other class through whose hands the money passes. In all the large cities the restaurants, the cafés, and the theatres are continually crowded with patrons. There is no dancing in Germany; that is principally what one misses. At the opera the highest-priced seats, 5 to 10 marks, as well as the cheaper ones, are all taken for every performance. At Munich the Bavarian King's famous Hofbrau Haus is as interesting as ever, and, notwithstanding a rise of 10 pfennigs in the price of beer per litre, one may have to look through several great rooms before finding a place at which to sit and drink it. On the first floor, where the people are the King's children still, petulant, noisy, unpolitical, and easily made happy, the visitor's sensation is that of falling unawares into a hive of colossal bees. They are as disinterested and as uncurious

as bees. They sit, men and women, all together at long tables, as tight as they can sit, buzzing incessantly, beating the tables with their palms, sipping amber fluid out of glasses with pewter lids that pop open when the glass is raised and close when it is put down, with a click, click, click that adds a continuous metallic note to the confusion of human voices.

But at Munich, also, is a well-known collector of porcelains who points to his beloved and beautiful things, saying: "I tell my American friends that if the war lasts much longer they can have these objects at any price they will name. cannot afford to keep them."

At the Hofbrau Haus

I

The people at the Hofbrau Haus are drinking up his porcelains. So is wealth transmitted in this modern world. They do not know it. He does.

This is to put the worst of it first. Germans naturally put the other side first. They say-even bankers and economists say: "You can see for yourself how it is. Money is very abundant. The people are richer than they were before. Our money does not go abroad as England's money does. It remains here among us, and circulates endlessly."

Thinking Further

One is sure from this that it is as one suspected. The war has set economic thought on its head in Germany. Nobody is thinking straight about what is taking place. So one is obliged to an

swer:

"To say that the German people are really richer than before the war started is to say a meaningless thing. No neutral can understand it. Economic laws cannot, like international law, he suddenly suspended. This perpetual circulatory motion of money you boast of, and the abundance of the medium, only tend to conceal the fact that Germany is using up its capital."

To this the German banker, or the

"Of

economist, unexpectedly replies: course. We know that, too. That is what capital is for. We may not be using it up as fast as you think, because at the same time we are saving a great deal more relatively than in peace times. The rich-they especially are saying. But, notwithstanding that, it is true, as you say, we are using up capital in Germany. We shall get it back. That is the point."

"You mean in the form of indemnities?"

"Yes. Either money indemnities or commercial concessions; both perhaps. Yes, both. And then you shall see."

"But when you have won the war your enemies may be unable to pay."

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They can pay," the answer is. "They will have to pay."

This idea of obtaining large money indemnities in the conditions of peace is prominent, not to say paramount, in Germany's financial calculations.

Two Ways of Paying

There are only two ways of meeting the cost of war. One way is to pay the bill as you go, out of your own resources, which entails both heroic saving and the consumption of accumulated capital. The other way is to borrow. The general practice is to adopt both methods, as England does, as France, Italy, and Russia do. They pay what they can, as they go, deriving the means partly from economy in private expenditures and partly from stores of accumulated capital; and then, besides, they borrow heavily abroad.

The advantage of borrowing is that the cost is spread over a long period of years, and may be paid off by easy installments after the return of peace, under normal conditions of commerce and trade.

But Germany does not borrow abroad, at least very little, and pays almost the whole cost out of her own resources as she goes. There are advantages in this plan, too. That, indeed, would be the ideal way to pay for warprovided only that at the end you were able to replenish the stores of capital that had been used up in the process. There is at least one other advantage.

Though it lies in the region of remote contingency it is nevertheless real for purposes of present consideration. A Government that owes money only to its own people, which is the same as to say that the people owe it to themselves and each other, is obviously in a position very different from that of a Government that owes a great deal of money abroad to strangers. One could halve its debt, cut the rate of interest or repudiate it altogether, a majority of the people assenting, without impairing its credit abroad or reducing in the least the power to borrow among strangers. The other Government, owing money abroad, could not diminish the principal of its debt or alter the rate of interest without ruining its credit abroad.

Repudiation

A shrewd-minded German economist asked suddenly this staggering question: "What would be the effect if in the conditions of peace it were stipulated that all the belligerent countries should repudiate their war loans?"

After some reflection, the answer of a neutral was: "It is a very immoral thing to consider. It is too large a question to be met offhand. What shall one say? The obvious effect, of course, would be a relocation of wealth so sudden as perhaps to be very disastrous, certainly ruinous."

"No," he said, "the effect on the people at large. What would that be?"

"Perhaps, if you consider only the people at large, the noncapitalistic mass, it would be a great relief to them not tɔ have to go on for generations, perhaps forever, paying interest on this huge, unimaginable debt that Europe is piling up. It would mean simply that they were not obliged to restore to private hands the capital that had been dispersed among them during war."

Flexible Conditions

But there again was the former problem. Germany might repudiate her war debt, or a portion of it, by reducing the rate of interest, purely as a matter of internal policy, without reference to the feelings or economic beliefs of the world outside, whereas, nations that had borrowed outside could do no such thing at

all. They would have to consider facts of international policy.

The Power to Tax

It must not be assumed from this that the thought of repudiation is working in Germany. But repudiation, besides being a very ugly word, is a matter of terms and relations. Many arrangements may be repudiation really which seem not to be, and go by other names. For example, it is very well known that the rich will be enormously taxed and super-taxed after the war, and it is already decided that war profits will be partly confiscated by a special kind of tax that may be called almost punitive. The difficulty of capturing war profits that have become widely diffused in private hands will be solved arbitrarily. A man's wealth will be compared with what it was before the war. If it has increased, the assumption will be that the increase arose from war profits, and it will bear the confiscatory tax accordingly. Corporations that are now thriving on war contracts are required to hold their extraordinary profits in suspense. They will be attended to suitably. Besides all of this, it is already suggested that an ideal way of levying an income tax after the war would be to reduce the rate of interest on the war loans. In that way the rich would pay the most, having been individually the largest purchasers of the war loans.

Buyers of the Loan

Each loan has had a wider popular base than its predecessor. Subscriptions of 100 to 2,000 marks ($25 to $250) were on the first loan, 926,059 in number, yielding 734,000,000 marks; on the second, 2,113,220, yielding 1,662,000,000 marks, and on the third, 2,883,799, yielding 2,165,000,000 marks. That fact, of course, is in theory if not in practice a strong protection against repudiation of interest or principal after the war, though not one that may be trusted absolutely. The people must be persuaded to see that the cost of the war in the actual sense had already been paid, and that keeping up interest and amortization payments on the loans would be merely paying money from pocket to

pocket, to the ultimate advantage of the rich.

The aspects of the case are clear enough to the bankers, the economists, and the rich. They are not deluding themselves; and yet they go on putting their money into the loan, cheerfully, patriotically, with a spirit that must be rare in the world. You may say to a banker whom you know to have put a large portion of his private fortune into the war loans: "Do you not see what I will be the case? After the war taxes will be terrific, much worse than now they are, because the Government is borrowing at compound interest, paying interest on previous loans from the principal of new ones. The people under you cannot be made to pay more than they can afford." And he will answer: "The rich should pay. Why not? They expect to do it. We may be taxed 40 per cent., 50 per cent. We may have to give everything we possess. We cannot give more than all. What then? We can begin again. I am willing to do that. The people fight and the rich must pay. Yes, we see all that."

Spirit of the Rich

This is not the attitude of one, or two, or a few. It is the spirit of the rich in Germany. All will not be lost. Nobody believes that, of course. It is a patriotic exaggeration of speech, the effect of which is but to intensify the faith they have in Germany's future. On the Boerse they pay 5 marks and 20 pfennigs for the American dollar, normal price 4 marks 20 pfennigs, and, with the other hand buy-of all things!-shipping shares. They have been very strong and active, without a sea on which to sail a German ship. That is faith.

There is a considerable business doing on the Boerse, transactions all for cash, no quotations allowed for publication, and one would not guess a war was going on until one's attention is called to the fact that all the men going to and fro are above forty. "We are not much crowded now," some one says. "All our young men are in the war." But there is no speculation in the war loans. People put their money into war bonds without