63
HOW THE WAR WAS PAID FOR
IN 1914 we went to war. War is frightfully expensive and frightfully destructive: it results in a dead loss as far as money is concerned. And everything has to be paid for on the nail; for you cannot kill Germans with promissory notes or mortgages or national debts: you must have actual stores of food, clothing, weapons, munitions, fighting men, and nursing, car driving, munition making women of military age. When the army has worn out the clothes and eaten up the food, and fired off the munitions, and shed its blood in rivers, there is nothing eatable, drinkable, wearable, or livable-in left to shew for it: nothing visible or tangible but ruin and desolation. For most of these military stores the Government in 1914-18 went heavily into debt. It took the blood and work of the young men as a matter of course, compelling them to serve whether they liked it or not, and breaking up their businesses, when they had any, without compensation of any kind. But being a Capitalist Government it did not take all the needed ready money from the capitalists in the same way. It took some of it by taxation. But in the main, it borrowed it.
Naturally the Labor Party objected very strongly to this exemption of the money of the rich from the conscription that was applied ruthlessly to the lives and livelihoods and limbs of the poor. Its protests were disregarded. The spare subsistence needed to support the soldiers and the workers who were producing food and munitions for them, instead of being all taken without compensation by taxation, was for the most part hired from capitalists, their price being the right to take without working, for every hundred pounds worth of spare subsistence lent, five pounds a year out of the future income of the country for waiting until the hundred pounds they put down was repaid to them in full.
Roughly, and in round figures, what happened was that the National Debt of 660 millions owing in 1914 from former wars was increased by the new war to over 7000 millions. Until we are able to repay this in full we have to pay more than 350 millions a year to the lenders for waiting; and as the current expenses of our civil services (300 millions), with our army, our navy, our air force, and all the other socialized national establishments, come to more than as much again, the Chancellor of the Exchequer has now to budget for more than two millions a day, and get that out of our pockets as best he can. And as it is no use asking the proletarians for it at a time when perhaps a million or so of them are unemployed, and have to be supported out of the taxes instead of paying any, he has to make the property holders contribute, in income tax, supertax, and estate duties, over 380 millions a year: that is, a million and fifty thousand a day, or more than half the total taxation. This is confiscation with a vengeance.
Does it strike you that there is something funny about this business of borrowing most of the 7000 millions from our own capitalists by promising to pay them, say 325 millions a year whilst they are waiting for repayment, and then taxing them to the tune of 382 millions a year to pay not only their own waiting money but that of the foreign lenders as well? They are paying over 50 millions a year more than they are getting, and are therefore, as a class, losing by the transaction. The Government pays them with one hand, and takes the money back again, plus over 17 per cent interest, with the other. Why do they put up with it so tamely?
The explanation is easy. If the Government took back from each holder of War Loan exactly what it had paid him plus three and sixpence in the pound, all the holders would very promptly cry “Thank you for worse than nothing: we will cancel the debt; and much good may it do you”. But that is not what happens. The holders of War Loan Stock are only a part of the general body of property owners; but all the property owners have to pay income tax and death duties, and, when their income exceeds £2000, supertax. Those who did not lend money to the Government for the war get nothing from it. Those who did lend get the 325 millions a year all to themselves; but their liability for the taxation out of which it is paid is shared with all the other property owners. Therefore, though the property owners as a whole lose by the transaction, those property owners who hold War Loan Stock gain by it at the expense of those who do not. The Government not only robs capitalist Peter to pay capitalist Paul, but robs both of more than it pays to Paul; yet though Peter and Paul taken together are poorer, Paul taken by himself is richer, and therefore supports the Government in the arrangement, whilst Peter complains that the burden of taxation is intolerable.
To illustrate, my wife and I are capitalists, but I hold some War Loan stock, whilst all her money is in bank, railway, and other stocks. We are both taxed equally to pay me the interest on my War Loan; but as the Government pays me that interest and does not pay her anything, I gain by the transaction at her expense; so that if we were not, as it happens, on the communal footing of man and wife, we should never agree about it. Most capitalists do not understand the deal, and are in effect humbugged by it; but those who do understand it will never be unanimous in resisting it; consequently it is voteproof at the parliamentary elections.
This quaint state of things enables the Labor Party to demonstrate that it would pay the propertied class, as a whole, to cancel the National Debt, and put an end to the absurdity of a nation complaining that it is staggering under an intolerable burden of debt when as a matter of fact it owes most of the money to itself. The cancellation of the debt (except the fraction due to foreigners) would be simply a redistribution of income between its citizens without costing the nation, as a whole, a single farthing.
The plan of raising public money by borrowing money from capitalists instead of confiscating it by direct taxation is called funding; and lending money to the Government used to be called putting it in the Funds. And as the terms of the borrowing are that the lender is to have an income for nothing by waiting until his money is repaid, we get the queer phenomenon of lenders who, instead of being anxious to get their money back, dread nothing more; so that the Government, in order to get the loans, has actually to promise that it will not pay back the loan before a certain date, the further off the better. According to Capitalist morality people who live on their capital instead of on interest (as the payment for waiting is called) are spendthrifts and wasters. The capitalist must never consume his spare subsistence himself even when it is of a kind that will keep until he is hungry again. He must use it to purchase an income; and if the purchaser stops paying the income and repays the sum lent him, the lender must not spend that sum, but must immediately buy another income with it, or, as we say, invest it.
This is not merely a matter of prudence: it is a matter of necessity; for as investing capital means lending it to be consumed before it rots, it can never really be restored to the investor. Investing it means, as we have seen, allowing a body of workmen to eat it up whilst they are engaged in preparing some income producing concern like a railway or factory; and when it is once consumed no mortal power can bring it back into existence. If you do a man or a company or a Government the good turn of letting them use up what you can spare this year, he or she or they may do you the good turn of letting you have an equivalent if they can spare it twenty years hence, and pay you for waiting meanwhile; but they cannot restore what you actually lend them.
The war applied our spare money, not to a producing concern but to a destroying one. In the books of the Bank of England are written the names of a number of persons as the owners of capital to the value of 7000 million pounds. They are said in common speech to be “worth 7000 millions”. Now they are in fact “worth” nothing at all. Their 7000 millions have long since been eaten, drunk, worn out, or blown to smithereens, along with much other valuable property and precious lives, on battle-fields all over the world. We are therefore in the ridiculous position of pretending that our country is enriched by property to the value of 7000 millions when as a matter of fact it is impoverished by having to find 350 fresh millions a year for people who are not doing a stroke of work for her in return: that is, who are consuming a huge mass of wealth without producing any. It is as if a bankrupt, asked if he has any assets, should reply proudly, “Oh no: I have made ducks and drakes of all my assets; but then I have a tremendous lot of debts”. The 7000 millions of capital standing in the names of the stockholders in the Bank of England is not wealth, it is debt. If we flatly repudiated it, the nation would be richer not only by 350 millions a year, but by the work the stockholders would have to do to support themselves when their incomes were cut off. The objection to repudiating it is not that it would make the nation poorer, but that repudiation would seem a breach of contract after which nobody would ever lend money to the Government again. Besides, the United States, which lent us a thousand millions of it, might distrain on us for that amount by force of arms. Therefore we protest that nothing would induce us to commit such an act of cynical dishonesty. But that does not prevent us, as far as the debt is due to our own capitalists, from paying them honestly with one hand, and forcibly taking back the money plus seventeen per cent interest with the other.
By the way, lest somebody should come along and assure you that these figures are inaccurate, and that I am not to be trusted, I had better warn you that the figures are in round numbers; that they vary from year to year through paying off and fluctuation of values; that the thousand millions borrowed from America were lent by us to allies of whom some cannot afford to pay us at all, and others, who can, are trying how little we can be induced to take; that the rest of the money was raised through the banks in such a way that indignant statisticians have proved that we accepted indebtedness for nearly twice what we actually spent; that the rise in the market price of hiring spare money must have enriched the capitalists more than the war taxation impoverished them: in short, that the simplicity of the case can be addled by a hundred inessential circumstances when the object is to addle and not to elucidate. My object being elucidatory, I have left them all out, as I want to shew you the nest, not the hedge.
The point is that the war has produced an enormous consumption of capital; and instead of this consumption leaving behind it an addition to our industrial plant and means of communication and other contrivances for increasing our output of wealth, it has effected a wholesale destruction of such things, leaving the world with less income to distribute than before. The fact that it has swept away three empires, and substituted republicanism for monarchy as the prevalent form of government in Europe, thus bringing Europe into line with America as a republican continent, may seem to you to be worth the money; or, as this is not in the least what was intended by the British or any other of the belligerent Powers, it may seem to you a scandalous disaster. But that is a matter of sentiment, not of economics. Whether you regard the political result with satisfaction or dismay, the cost of the war remains the same, and so does the effect of our way of paying it on the distribution of our national income. We are all heavily taxed to enable that section of the capitalist class which invested in War Loan for five per cent interest (a high rate considering the security), to draw henceforth a million a day from the fruits of our daily labor without contributing to them. True, we take that much, and more, back from the whole capitalist class by taxation; so that what really happens is a redistribution of income among the capitalists, leaving the proletariat rather better off than worse, though unfortunately it is not the sort of redistribution that makes for equality of income or discredit of idleness. But it illustrates the point of this chapter, which is that a virtual confiscation of capital to the amount of thousands of millions proved perfectly feasible when the Government had employment in the shape of national service, even in work of destruction, instantly ready for an unlimited number of proletarians, male and female. Those had been halcyon days but for the bloodshed.