gium and Poland. How long can Europe bear this drain on its resources without becoming bankrupt?

At the outset there is a certain confusion in people's minds which needs to be cleared up. War costs money, they are told, to the extent of billions of dollars a year, yet at the end of a year of war the amount of money in Europe has certainly not been reduced by these billions; on the contrary, there is as much gold and silver and paper money in the banks and in circulation as there was at the beginning. What has happened? Has the money merely changed hands, and is the cost of the war really only the transference of money from one person to another? Not at all. The war has really cost-has actually destroyed-things to the value of all these billions of dollars; but the things destroyed are not gold and silver coins, but horses and motor-cars, cannon and rifles, shells and powder, clothes and food and numberless other products of men's labor.

There are three ways in which war might be brought to an end by financial or economic considerations. In the first place, the whole system of exchange-gold and silver coins, paper money, checks, bills of exchange, and other instruments of credit-might be so disorganized by the change from peace to war that the financial system would speedily break down. That is what the prophets of a short war thought would happen; they were wrong.

The second possibility is that the nations at war might be unable to divert enough of the ordinary activity of their countries into war channels to keep the war going. That was the supreme problem of the first year of the war. It was the problem of making enough munitions, enough uniforms for the soldiers, and enough of everything else required at once and month by month. At the time of writing this problem has only been partly solved, but as the countries get further and further away from their normal peace conditions and a larger and larger share of capital and labor is converted into war channels, the solution is more and more nearly reached.

The third possibility is that with the destruction and waste of war the time may come when in some countries, if not in all, the sustenance of the civil population will no longer be compatible with the continued prosecution of the struggle. The form in which this would show itself would be in the increase of the prices of necessaries to a level out of reach of large portions of the people. This is the catastrophe to which the nations of Europe. are daily drawing nearer, and which, unless other causes intervene to stop the war, must ultimately overtake some or all of them. Such a crisis would involve the immediate withdrawal of the nations affected from the arena of the conflict, and if these nations were essential to the continued resistance of their side, would bring an end to the war.

In order to appreciate the magnitude of the figures with which we are dealing it is desirable to compare the thirty billions of dollars, the annual cost to the governments of the war, with a rough estimate of the income and capital wealth of the belligerent countries. It is impossible to be anything like accurate on these matters because reliable statistics have never been obtained, but we shall be within reasonable limits of error if we place the total incomes of all the people, rich and poor, in all the belligerent countries at forty billions of dollars, and the total capital wealth at two hundred1 billions.

These figures show that the annual cost of the war is considerably more than half the total income of the countries engaged and about one seventh of their total capital wealth. But any conclusions based on these figures as to the length of time the war might conceivably last are open to grave error. Looking rather to the rapidly increasing level of prices in Europe, it is difficult to see how the war could possibly go on for much more than two or, at the most, three years from the beginning without Europe becoming bankrupt, and

1 This figure may seem low, but the most recent statistical investigation (see the Royal Statistical Journal for July, 1915) places the total capital wealth of the United Kingdom at about fifty billions of dollars, and none of the other belligerent countries has so great a capital.

it is inconceivable that the war will go on till this final catastrophe is actually reached.

To appreciate what is meant by the bankruptcy of Europe is not very easy, partly because the terms in use as regards men have to be strained considerably out of their ordinary meaning in order to apply them to a continent and partly because it is in the highest degree unlikely that the whole of Europe will, like Oliver Wendell Holmes's famous one-horse shay, all go to pieces at the same moment. It is better, therefore, to select certain countries and see what will be their condition after the war, provided it is brought to an end at some fixed date, as, two years from its beginning. From this may be obtained. an idea of the ruin which will overtake Europe if the war is still further prolonged.

It is obviously impossible to prognosticate the form which the end of the war will actually take, therefore in what follows this factor has been frankly left out of account. It may be objected that this omission entirely vitiates the conclusions arrived at; but this is not really the case. It is true that the vanquished may suffer greater economic disaster than the analysis indicates; but neither victor nor vanquished can suffer less unless, indeed, the victorious countries may be able to recoup themselves by some colossal indemnity, though this is now regarded by most thinking people as unlikely, if not impossible.

The two countries singled out for special analysis are Great Britain and Germany, for both of which sufficiently full particulars are obtainable as to their financial position. They illustrate two widely different economic methods of conducting the war; but they cannot be regarded as typical countries because they are undoubtedly richer than most of the other belligerent nations, and, are therefore capable of holding out longer against bankruptcy.

How will Great Britain stand if the war comes to an end in July, 1916? After bringing her soldiers home and disbanding all those she does not permanently require,

the Government1 will have expended a sum of at least fourteen billions of dollars. Little or none of this has been found during the progress of the war, so that the country will be saddled with an annual charge in the shape of interest of some 650 millions. But this is by no means all. A huge sum will have to be found to provide pensions for disabled soldiers and for the widows and orphans of the killed. Further, it is an accepted maxim of British finance that a sinking-fund must be formed to wipe out the debt as years go by. The effect of these additions will be to bring up the total annual charge on account of the war to at least 850 millions of dollars. Previous to the war, national expenditure and taxation revenue balanced each other at just about 850 millions, so that the effect of the war will be to double the required taxation revenue of the country.

This bald statement hardly conveys the full gravity of the situation unless it is amplified in various ways. The first point to realize is that apart from the existence of the new national debt, the people of Great Britain will be essentially poorer owing to the war-how much poorer it is worth devoting a little space to discuss. It is true that the policy of the British nation has been to pay the full moneyvalue of the things it has taken for the war. The employers who have converted their plant in order to make war munitions have been handsomely paid for their expenditure; their employees have received standard rates of wages and, working overtime, have made more money than usual. The coal-owners, ship-owners, and others whose industries are specially important in war-time have not only not suffered, but have made extra profits. Even the soldiers who have gone out to fight, though no money reward can recompense them for their heroic sacrifice, have been paid, on the average, wages fully equivalent to those they would have earned at home in peace.

1 Throughout the discussion the part played by the oversea dominions of Great Britain has been left out of account; the finances of Great Britain in Europe have alone been taken into consideration.

But there is another side to the picture. An enormous number of businesses have been partly or utterly ruined. Trade has been so dislocated by the change from peace to war, and will be so much more dislocated by the further change from war to peace, that it will take years to recover. The rise of prices has impoverished great numbers of people. For a time peace will cause appalling unemployment. The overstrain of war work must be followed by a period of slackness and inefficiency. Finally, many taxpayers will have been disabled for life, and many have been killed. Striking a balance between these two conflicting factors, there is little doubt that when peace comes and the nation is faced with the problem of meeting the huge war debt, it will find that the people as a whole are poorer than they were before the war began. From this it follows that the same taxes will not bring in so large a return as they did in 1913.

The second point to be remembered is that an increase in a tax does not generally bring in a proportionate increase in the revenue from that tax. If, for instance, the excise duty in Great Britain levied on the production of beer and spirits, which in 1913 brought in two hundred million dollars of revenue, should be doubled, it would certainly not bring in four hundred millions. It might, indeed, scarcely bring in more than the original two hundred. The main result would be that less beer and spirits would be drunk, which, however satisfactory to the temperance reformer, would not be a solution of the financial problem. Customs duties which brought in 180 million dollars to the British exchequer in 1913 are in somewhat the same position. On the other hand, income tax and super-tax are not very much affected by this consideration; and partly owing to this and partly. owing to the fact that these taxes are the principal means in Great Britain of attaching the funds of the well to do, there is little doubt that much of the required new taxation will be of this shape.

Before the war the British income tax and super-tax formed between them a

joint system of taxation of incomes graduated from a tax of about 4 cents on the dollar on moderate incomes up to about 122 cents on the dollar on really large incomes. These taxes were doubled in November, 1914, and were again increased in October, 1915, so as to run from II cents to 35 cents. If the war lasts till July, 1916, further increases will be necessary; and it is not unlikely that for many years to come the tax will run from some 15 cents on the dollar up to as much as 40 or even 45 cents, so that the very rich will be called on to pay away nearly half their income every year to provide the charges involved by the war. This gives an idea of the approach to the bankruptcy with which Great Britain will be faced if the war lasts for two whole years from its beginning.

Turning to Germany, it will be found that the cost of the war to the German Imperial Government is approximately the same as the cost to the British Government. To those who have not followed the national financial statements the fact that Germany, with its much larger number of men engaged, is not spending at a much greater rate may come as a surprise. It is due partly to the fact that Germany is fighting at smaller distances from its base, partly to really greater economy, but largely because of its entirely different method of paying for the war. The German Imperial Government does not pay for what it takes. It demands sacrifices on the part of its citizens. It does not pay its soldiers in the field wages, but only the minute pocket money of five cents (American money) a day. Unless I am mistaken, it does not itself pay full allowances to wives and dependents of soldiers, but leaves these charges to be supplemented, where necessary, by the finances of the separate German kingdoms or by the municipalities. Similarly it makes a demand on other men not in the field for their services in mines and munitions at rates of wages less than they could command in open competition. Also, it has to a greater extent than the British Government prevented employers in certain cases from

making large profits, while a larger number of other businesses have been ruined. For all these reasons the impoverishment of the German people owing to the war is far greater than that of the people in Great Britain, and this despite the greater personal economy which the Germans have practised during its continuance.

At the same time, the war debt of the German Imperial Government for a twoyears war will be nearly as great as in Great Britain, namely, twelve billions of dollars. This gives an annual charge for interest of six hundred millions; to this must be added a further fifty millions a year, the average amount by which the German imperial revenue fell short of expenditure in the years preceding the war. So that even if there is to be no sinkingfund and no pension-money, the additional revenue to be found by taxation will not be less than 650 millions and may easily be more. As in Great Britain, this means doubling the required taxation revenue of the country.

The chancellor who attempts to budget for Germany after the war will be faced, therefore, with the same problems already noticed in the case of Great Britain, except that his problem will be harder because the wealth of Germany was less before the war than that of her rival, and in addition the impoverishment caused by the war will be greater. As in the case of Great Britain, a large part of the imposts will have to fall upon the wealthy class either in the form of income tax or of a tax on capital, an experimental form of which was adopted shortly before the war. If the main taxation takes the form of income tax, it can hardly be less than thirty or forty or even fifty cents on the dollar.

Before proceeding to a final conclusion one exceedingly important reservation has to be noticed. In the analysis of the finan

cial position of Great Britain and Germany after the conclusion of a war lasting two years it has been assumed that the expenditure of these countries other than that of paying the war charges will remain the same after as before the war. That is, of course, a very big assumption, but it has been made in order to have some basis from which to start. If this expenditure be materially increased or diminished, then to the extent of the alteration a corresponding additional burden or relief will be given to taxation. It is difficult to suppose that there can be any considerable alteration in the civil expenditure of the countries; but the military and naval expenditure before the war was enormous (in Great Britain about 400 million dollars a year, and in Germany about 350 millions), and it may well be that the political events at the close of the war may be such as to reduce materially these items. On the other hand, there are some people who believe that expenditure on armaments will be actually increased.

Further discussion of this question is outside the scope of this article, but the fact remains that the financial condition of Great Britain and Germany at the end of a two-years war, whether there be reductions in armament expenditure or not, will be exceedingly grave. Moreover, these two powers are among the richest of the belligerent nations, and up to the time of writing neither of them has suffered seriously from the destructive effects of invasion. The other countries, which are worse off in this respect, cannot fail to feel the situation still more acutely.

Such will be the effects of a two-years war. If the struggle is prolonged beyond that period, then for every additional month that it is continued Europe will draw nearer and nearer to that state of actual bankruptcy which the British exchancellor predicted.

"HENRY dear," said Mrs. Blodger,

gently, without raising her pretty head from the pillow, "it 's nearly halfpast eight."

"What!" exclaimed her husband, sitting up vehemently and staring at the clock. "Where 's Maria? She 's supposed to be here by seven, is n't she?"

"Perhaps she did n't come to-day." "That good-for-nothing darky! I'll go and investigate." Plunging energetically into his bath-robe and slippers, he sallied forth on a tour of the apartment.

No Maria sweeping in the hall; no Maria straightening up the living-room or library; no Maria dusting in the diningroom; no Maria preparing breakfast in the kitchen.

"How provoking!" sighed Mrs. Blod

ger.

"Provoking? I call it outrageous." "Yes; I'm sorry, dear, that this will make you late to your office."

"Oh, I 'm not bothered about that, for I've just put through some new efficiency. systems which enable me to accomplish a tremendous amount of work in a very short time. What I can't stand is having that darky impose on us."

"But, dearest, maybe she 's sick."

"Then she could have sent us word by telephone. No; she 's taking advantage of the fact that you are young and inexperienced. But she 'll be sorry for it. I'll discharge her myself."

"Now, please don't get excited, dear. If you discharged her, it might be days

"It won't be any trouble at all. Nothing is, no matter how unfamiliar it may be to you, if you go at it intelligently, scientifically." When Mr. Blodger was obsessed with an idea, it was useless to oppose him. The best policy was to let it take its course. "As I have often told you," he continued, "housekeeping could be greatly simplified if you women would only-'

Seeing that he was about to launch into a homily on efficiency, such as she had heard him deliver at least twenty times in the three months she had been married to him, she said:

"If you 're going to get breakfast, had n't you better hurry and take your bath?"

"That 's so," he admitted. Shuffling briskly to the bath-room, he was soon foaming at the mouth with tooth-paste.

There was a loud buzzing sound from the direction of the kitchen.

"Henry!" called Mrs. Blodger, "there goes the dumb-waiter. Shall I answer it?" "No; I'll ho," he replied pastily out of