Loans Versus Taxes in War Finance

The fiscal problems of the war may be divided into those of a general and of a specific character. War expenditures can be met in three ways: by taxes, by loans, or by paper money. The specific problems have to deal with the nature and the details of each of these expedients; the general problem is concerned with the principles that underlie the preference among the respective methods. Inasmuch as paper money is by common consent to be regarded as the last resort, the general problem at issue here pertains to the choice between loans and taxes and the relative proportions in which each is to be employed. If we look at the facts we observe a marked change in modern warfare. In former times, whether in classic antiquity or in the Middle Ages, the expenses of war were defrayed in large measure out of accumulated funds or treasures reinforced by taxes, and were reimbursed to the victor by the booty of war and the indemnities imposed upon the vanquished. Since the development of public credit, especially since the middle of the eighteenth century, loans have taken the place of the accumulated treasure and taxes have been utilized chiefly for the purpose of raising the interest on the war loans and of furnishing in addition a more or less considerable amortization quota. The facts of the present war are no different. During the last fiscal year Great Britain raised by taxation slightly over 17 per cent of her war expenses; Italy, although also levying heavy taxes, has raised a still larger proportion than England by loans; in Germany only an insignificant fraction of the war expenses has been met by taxes; in France, as a result partly of the occupation of its territory by the enemy, the taxes hitherto levied during the war have not sufficed even to pay the ordinary peace expenses; while Russia has been in a still worse position. Although there is indeed a notable difference between the zero of France and the 17 per cent of Great Britain, the fact remains that in all the countries, with52