Economic
Problems

to the Fore

NCREASINGLY, as the period of our own participation in the war grew longer, the signs of the day have indicated that it was economic rather than military problems with which the belligerent states primarily, but the present neutral states along with them, were now confronted. Foremost among them were the new phenomena affecting production, distribution, and price, both for war material and for the ordinary necessities of life. To Germany's European antagonists, the problem of war finance was simplified by the entry of the United States into the war; but their problem of war expenditure was aggravated. The advances of our government to its Allies, between April 6, when our country declared war, and the end of June, had amounted to almost exactly $1,000,000,000; of which $550,000,000 had gone to England, $210,000,000 to France, $100,000,000 each to Italy and Russia, $45,000,000 to Belgium, and $3,000,000 to Servia. How much the direct financial assistance of the United States had been enlarged, as compared even with the earlier subscriptions by the American investment market to the loans of our present Allies, may be judged from the fact that those loans (to England, France, and Russia) had produced last year $819,500,000.

That is to say, our government's advances to the five European powers, during the three first months of our own participation in the war, exceeded the American market's loans to European governments in the whole of 1916. But while Europe's financial situation was thus strongly favored by the belligerent status of this country, its commercial and industrial situation seemed for a time to be imperilled. In part, this was directly

a consequence of the fact that our government's demands on industrial production, for its own war purposes, were necessarily of such magnitude as to introduce new and urgent competition on the markets.

But it also resulted, first from the smallness of the surplus left from the world's short harvests of wheat and cotton during 1916 and the poor outlook for the early harvests of 1917; second, from the sinking of cargoes by the German submarines. It was these considerations, and the extraordinary movement of prices which accompanied them, that led almost immediately to the sweeping measures for governmental regulation or control of prices and distribution-measures never resorted to before, in the history of this great producing country of ours, and creating deeply interesting problems for the future.

THE purely financial aspect of Ameri

Success of

ca's entry into war was emphasized by the manner in which the money was raised for the large advances to our Allies. As with the European belligerent states -England particularly-so in our own case, funds for these Astounding loans of nearly $1,000,000,000 the Liberty were first obtained through Loan placing with the banks, at 3 to 32 per cent interest, the short-term obligations of the United States; authorized by the Bond Issue Law of April, limited to $2,000,000,000 at any one time outstanding, and with maturity restricted to one year or less. When the thirtyyear $2,000,000,000 "Liberty Loan" was offered during May, it was stipulated that these short-term notes might be received as cash on the subscription. Some of them were thus used, by banks which held the notes, to procure some of the

war bonds for themselves; more, perhaps, were sold by banks to their clients for use in individual subscriptions.

All these preliminary transactions added great interest to the outcome of the public subscription to the war loan itself. That outcome was of a character which astonished even financiers most conversant with the American investing public and with the progress of the canvass. During the month in which applications were received, there occurred frequent alternations of hope and despondency as to the result. At one moment the newspapers would have the war loan three times oversubscribed; at another it was likely to be barely covered. During the final week (quite in line with the experience of every European war loan) the rush of subscribers, large and small, was so great as to overwhelm the accounting and tabulating staffs of the Federal Reserve Banks, which received the applications. When the lists closed on June 15, the Treasury estimated applications for the $2,000,000,000 loan at $2,500,000,000. Another full week was necessary to complete the tabulation; at the end of which, the announcement came that investors had asked for $3,035,226,850.

This achievement was something unprecedented, not only in the history of this war, but in the history of finance. It is quite true that even the three thousand millions of applications fell short of the $5,000,000,000 subscribed to the English war loan of last February, or the $3,600,000,000 which the German people took from the war loan offers of last April and of September, 1915. But in all those instances, the government had asked for as large a sum as the people could subscribe. There was not, as in our own case, any fixed amount requested; a fact which would naturally limit the efforts of subscribers and canvassers to a given objective point.

instead of the par price of our own. It was barely covered; a fact no doubt attributable to the financial disorder of that period (even Comparison with EngGermany subscribed that au- land and tumn only $1,115,000,000 to Germany an unlimited 5-per-cent loan), but nevertheless providing the only basis for comparison in this war. Oversubscription to a war loan has not in itself been unusual in the past. For the British Government's second Boer War loan of 1901, amounting to $55,000,000, subscriptions were $127,500,000. The $80,o00,000 part of the loan of 1902 which was offered to the public was subscribed for twenty times over.

Our own government's $100,000,000 4-per-cent loan of 1896, put out to set the Treasury on its feet in the silver-coinage troubles, attracted $568,000,000 applications, and for its $200,000,000 Spanish War loan of 1898, subscriptions of no less than $1,500,000,000 came in. Probably that was the largest actual oversubscription in all history. Yet none of the subscriptions cited was a parallel case to our own war loan of 1917. Great Britain's Boer War loans were for amounts that now seem trivial; they were an insignificant addition to the government's fiscal burden. Not only did our loans of 1896 and 1898 apply for sums which nowadays would seem unimportant, but both loans were offered on more attractive terms than the market had been paying for outstanding United States bonds, and, what was even more potent an influence in floating them, the lucrative privilege enjoyed by the national banks, of issuing circulating notes, required deposit of United States bonds as security. The supply available for that purpose was not large; therefore either the banks themselves were ready bidders for an attractive new issue, or else the general public took the bonds, to resell them to the banks at an advance in price.

The first American war loan of 1917 enjoyed no such advantage. It asked for the largest total sum ever raised at one time in this country's markets. The interest yield was less than could be obtained on perfectly sound outstanding bonds of governments, cities, or corporations. The bonds had to be taken for

A clay pipe and a concrete building.
Both fireproof!

What about this contradiction?

The purpose of the fireproof clay pipe is to burn up the tobacco inside of it. The idea of the fireproof building is to keep everything inside it from burning up.

What a chance for owners of fireproof buildings to stop and think, and ask questions!

Why is insurance usually so high on the contents of fireproof buildings? Because insurance experts who inspect fire ruins

know that disastrous fires occur in fireproof buildings all the time. Even though the fire-blackened shell of the building still remains standing, the fire destroys the valuable contents and stops the wheels of industry within.

Explaining why the contents of fireproof buildings are so thoroughly destroyed when book,Fire Insurance and How to Build": once ignited, F. C. Moore says, in his "Fireproof construction, like a reverberating furnace or oven, confines the heat until extremely high temperatures are reached. Indeed, firemen who have had experience fighting fires in fireproof buildings claim