and taxation. The adroit politician advocates borrowing because taxation would make his policy or himself unpopular. By borrowing, the public thinks it avoids taxation and thus hands on to posterity the task of finding the money that is required for present needs. "Posterity," says a bank circular published during the recent war, "will chiefly benefit from this struggle for freedom and should pay its part." This is largely a delusion. Says Mr. Withers:

"We cannot hand its burden on to posterity. It has to be paid for now by somebody, and all wars have always been paid for during the time in which they were fought and finished up. War cannot be carried on with goods produced or work done either by our ancestors or by our posterity. The goods consumed in war-shot, shells, rifles, food, clothes, horses, motor-lorries, wagons, ships, and everything else have to be new and up to date, and, apart from the store of them with which the contending nations began, are made and produced as the war goes on. As they clearly have to be in existence before they can be used it is obvious that they cannot be produced by posterity. The British army cannot eat the bread that is going to be sown in 1930, or wear boots made out of hides whose original owners are yet unborn. Whatever posterity produces will belong to posterity for its own use, and nothing that we do now can deprive posterity of a single ear of wheat that it sows and grows."

The point is that the sacrifice is a present one, because $500 paid for bonds means less for other

things, and interest and principal must be paid by the bondholder as taxpayer; and not only that, but higher prices for all necessities ensue because of the inflation. The borrowing system gives the citizen the choice of paying up his share of the war cost now by subscribing to a loan, and afterwards being taxed to pay himself interest and to pay himself back, or of paying nothing at the time when the loan is issued, and being made to pay regularly thereafter interest and redemption money to those who did subscribe.

"By borrowing money for war purposes a Government sets up a roundabout process by which the war, in so far as it is paid for by this means, is paid for three times over. First, it is paid for as it goes on by citizens who subscribe to the loans; then it is paid for by the citizens as a whole, who provide the money needed for this purpose, plus interest, by taxation; and the Government finally hands the money back to the original subscribers, or their estates."

Goods and services in war are destroyed, and there is nothing to show for them, and so the sacrifice is made by the present and not the future. Therefore

"War is certainly the worst purpose for which the borrowing system can be used, because in war time, especially when war is on a stupendous scale as now, taxation (1) is easily raised, (2) is little if any hindrance to industry, and, (3) produces a beneficial effect on the consumption of the commodity. Moreover, war, especially when on a stupendous scale, is certain to be followed by

a period of dislocation and uncertainty in which industry should be as free as possible to contend with the difficulties that face it, and should therefore be as little as possible burdened by taxes that have to be paid to debtholders."

The conclusion is that the burden of production and destruction necessary in war must be borne during the fighting, and financing by bond issues can provide only for future redistribution of the losses. The individual who buys a thousand-dollar bond has just so much less to spend for various commodities; it is impossible to eat one's cake and have it too. The burden is a present one and is not shifted to the future. In only one way can the burden be shifted to the future and that is in case a nation borrows from a foreign country and purchases abroad the products needed to prosecute the war. By doing this the nation may continue to live as usual and the burden will fall when the bonds become due. Otherwise the burden is borne and the sacrifice made during the war. The payment of the bonds in the future is merely a transfer of the wealth of the future from one class of society to another, because the bonds must be paid out of taxes. As one writer has said, the sons of the plumbers may well be taxed in the future to pay for the bonds inherited by the sons of the carpenter. Concerning the whole matter at issue Professor Ely well says:

"The loss comes, not in contracting a debt, but in spending and destroying the property consumed by war. This loss comes out of wealth existing or produced at the time, no matter what arrangement is made. In former times each man bore the loss as it happened to fall on him. The modern method differs in just this, that the loss is transferred to the whole public."

A very good illustration of the contention that the present and not the future pays for war is afforded by the issuance of greenbacks during the Civil War. The cost of the contest is said to have been doubled by the issuance of irredeemable money (nothing but a forced loan) in the place of taxation, and the bill was not paid by posterity.

Practical necessity may make borrowing wise, but such issuance of bonds should be relative to taxation. A close connection should be kept between taxes and bonds because taxes restrain inflation and also act as a brake on the personal expenditure of the taxpayer.

2 Ely, Outlines of Economics, p. 667.

A

VII

THE TAX ON THE INCREASE IN

LAND VALUES

MARKED feature of public finance in re

cent years is the remarkable growth of public expenditure by national, state, and local bodies. The phenomenon is world wide and is caused not only by increased preparation for war or by the burdens of past wars, but also by increased public improvements, outlays for sanitation and health, education in public schools and universities, parks and playgrounds, to mention only a few out of many causes. The idea that that government is best which governs the least is giving way to the belief that that government is best which produces the best results for its citizens. In a word, the social point of view is emerging. A state is seen to be not a mere congeries of warring atoms