Here the topic can solely be briefly treated in its connexion with the plan of the federal government for the monetary administration of the warfare. Public credit score supplied through the conflict two-thirds of the income or receipts. This decreased the credit score pressure by stopping the concentration of funds in the federal government coffers, and “developed the additional advantage that in the difference between the rate borne by the securities and the speed charged on the deposit, banks discovered some compensation for their time, hassle and the lack of deposits, ensuing from the sale of securities to investors” (Leffingwell). As an essential part of the credit score machinery, the Treasury adopted as notably suited to the decentralized character of the nation’s banking system, upon which the burden of distributing the conflict loans fell, the gadget of “payment by credit,” by which banks subscribing for Government loans held their subscriptions as a credit score to the account of the government till the government referred to as for the funds.
In each cases loans to international Governments, $9,500,000,000 in round figures, are included within the struggle prices. That plan was based mostly upon the coverage of sedulously avoiding using Government paper money; of raising not less than one-third (and, if doable, one-half) of the required income by taxation; of holding the inflation which inevitably accompanies war to a minimum, by restricting “non-essential” commercial credit, encouraging subscribers to the Liberty and Victory loans to pay for them from current savings; and (in minor degree) by repressing pointless consumption by means of the ample taxation of personal incomes and the use of luxurious taxes. “The Treasury’s conflict problem was to satisfy the monetary necessities of the Governments of the United States and the Allies promptly and without stint, and to meet them as far as doable from the saved incomes of the people, avoiding avoidable inflation. War modified all this. The Federal Government’s expenditures and revenues in peace, warfare and reconstruction are presented in Table I., through which it needs to be noted that the figures symbolize web expenditures and web revenues, the expenditures of each department being credited with the earnings of that department and the tax receipts being similarly lowered by the refunds allowed throughout the identical period.
Mr. E. B. Rosa, in his authoritative analysis, Expenditures and Revenues of the Federal Government, makes a extra cautious estimate, for the four years 1917-20, of the “excess of expenditures over the estimated normal expenditures on a pre-war basis,” and reaches a figure of $35,427,730,074, against which he locations an estimate of the special war revenue, i.e. “the excess of income over the estimated value of authorities on pre-conflict basis,” $11,818,699,300. The price of the war could also be estimated with tough accuracy, defining such cost as the excess of the expenditures which really occurred over the quantities which most likely would have been expended had the warfare not taken place. If there have been a demand for residence spinning and weaving machinery on a big scale, as there may be on a small scale, for residence knitting machines throughout the nation, homespun clothes again would take its place on the farm. That objection is that farming does not yield as massive a income in proportion to the capital invested and the intelligence, enterprise capacity, and enterprise possessed by the farmer, as do different business or professional careers. Such a plant undoubtedly could be an excellent funding if it have been judiciously selected and bought at a fair price, provided all the time that (1) the farm and the system of farming have been adapted to using a tractor, (2) that the farmer or some member of his family had the required mechanical skill to see that this equipment have been properly operated and kept in restore, (3) that the capital of the farmer was sufficient to supply such a plant, and (4) that the earnings of the farm was enough to assist such a plant without severely interfering with the other necessities of the family and the farm enterprise.
Indeed many farmers thus repaid not solely the capital they’d borrowed, but also their small floating debts, in order that when deflation started within the summer of 1920 they could face without worry the inevitable onerous instances, through which economic readjustments should be made. This is an element of great significance in all readjustments of the price of farm merchandise. If the Treasury had actually drawn into the reserve banks and its personal places of work the proceeds of these great loans, not solely would it have demoralized the cash market and elevated money rates, however after a period of agitation perhaps panic there would have been heavy requires discounts upon the reserve banks and “upon the re-deposit of the proceeds of certificates, depositary banks would be put in possession of loanable funds. This technique of fee by credit has been criticized each as paying huge sums to the banks for creating credit which may have been as simply manufactured by the government itself; and also as productive of inflation.
