When John Jones of the U.S.A. puts his thousand dollars into an English, French, Russian or German bond he becomes part and parcel of the mightiest financial structure ever dedicated to a single purpose. He cannot tell how his funds will be used. They may buy a few hundred shells, clothe a thousand soldiers, feed a battalion or build a trench. All he knows is that his mite joins the continuous and colossal stream of expense that makes up the Red Wage of War.

Now if John Jones employs his money in the stock or bond of a railroad, corporation, or public utility enterprise he can find out almost precisely what it does, for it lays down a track, provides new equipment or builds a power house. The investment, in short, represents something that produces more wealth.

War, on the other hand, is a gigantic engine of destruction. Instead of building up, it tears down. It is a monster machine consecrated to waste. The only possible dividend can be peace.

The cost of the European conflict has a deeper interest for us than mere curiosity over staggering statistics. The reason is that we have joined the Paymaster's Corps. In other words, we have backed up our sympathy with cash. We are silent partners in the costliest and deadliest of all businesses.

Up to the present stupendous struggle and with the exception of the Russo-Japanese War in which we floated several issues for the little yellow men, we have had no definite economic part in the wars that shook other nations. The losses in money and in men fell on the combatants.

This war, which has shattered so many precedents, has drawn the United States out of its one-time aloofness. To the dignity of World Trader we have added the twin distinction of World Banker. Already we have poured out practically two billions of dollars for securities and credits of the warring countries. To this must be added an even greater sum representing our enormous war exports. The price, therefore, of whatever freedom emerges from these years of bloodshed intimately touches thousands of American pocketbooks in one way or another.

What is the final toll that Battle will take: more important than this, what is the future of the treasure that we have laid on its Consuming Altar?

Before making any analysis of the American stake in the cost of the European War, it is important to find out first just how much money has been expended and what the likelihood of future outlay will be. Like every other phase of the stupendous upheaval this one is both speculative and problematical.

To deal with these European War figures is to flirt with Titanic Numerals. They are more the Playthings of the Gods than matters for mere mortals to juggle with.

Up to the first of January, 1917, the total military expenses of both sides had reached approximately $61,000,000,000. It is only when you reduce this enormous sum to terms that every man and woman can understand that you begin to get some idea of the amazing cost of conflict.

The amount of money expended for direct war purposes alone since August 1, 1914, is equal to three times the par value capitalization of all the American railroads. It represents fifty times the net national debt of the United States: eighteen times the amount of money in actual circulation in this country: and eleven times the total deposits in all our savings banks. With it you could build 146 Panama Canals or pay for the Napoleonic, Crimean, Russo-Japanese, South African and American Civil Wars and still have a surplus of $34,000,000,000 left. Such is the New and High Cost of War!

The price of glory is being constantly advanced. The expenditures for the first year of the war were $17,500,000,000: for the second they had increased to $28,000,000,000: the estimate for the third year, to end August 1, 1917, at the present rate of spending is about $33,000,000,000. This means that by the time the next harvest moon shines (and no man in Europe to-day doubts that it will gleam on carnage), the war will have represented a sacrifice for military purposes alone of $78,500,000,000.

Taking the daily cost of the war you find that England is $25,000,000 poorer for every twenty-four hours that pass: that France must check out $20,000,000: Russia $16,000,000: Italy $5,000,000. Little Roumania is cutting her war expenditure teeth at the rate of $1,000,000 per diem.

Cross the frontier (for war expense is no respecter of cause or creed), and Germany is "discovered," as they say in play-books, spending $17,500,000 every day: Austria, Turkey and Bulgaria, $11,000,000. Thus between sunrises that break over these warring hosts very nearly $100,000,000 has gone up in smoke, splinters or ruin of some kind, or the upkeep of fighting.

Since England's cost each day is heavier than any of the other countries at war, due to the fact that she is Financial First Aid to most of her Allies and is maintaining a fleet almost equal to all the others combined, let us reduce her enormous daily war bill of $25,000,000 to simpler form. It means that participation in the greatest of all wars is costing her $1,410,666 an hour, $17,361 a minute and a little over $289 a second. At this rate of waste John D. Rockefeller would be bankrupt in forty days; Andrew Carnegie would be in the bread line in ten. The sum is greater than the entire net public debt of Chicago; it equals the assessed valuation of all the taxable property in Poughkeepsie, New York.

Work out this immense daily outlay from still another angle and these striking facts develop: the war is costing at the rate of 29 cents a day for every inhabitant of the United Kingdom: 31 cents for every individual in France: 22 cents for every person in the Kaiser's domain, and 6 cents for each human unit in the Russian Empire.

Yet this well-nigh overwhelming rush of figures only accounts for the actual cost of hostilities. By this I mean arms and armament, food and military supplies, the construction, maintenance and renewal of fleets, the cost of transport and the pay of soldiers and sailors.

To the vast sum already recorded must be added the loss registered by the destruction of cities, towns and villages, the sinking of ships, the wiping out of factories, warehouses, bridges, roads and railways.

Then, too, you must allow for the almost incalculable productive loss due to the killing and maiming of millions of men: the shrinkage of agricultural yields and the more or less general dislocation of the machinery of output. All these factors pile up a total, the calculation of which would almost cause a compound fracture of the brain. Sufficient to say it puts a terrific human and financial tax on coming generations and we in America will feel its effects when the world begins to readjust itself to the altered social and economic conditions which will come with peace.

Of course the inevitable question arises: Who is paying the Scarlet Piper? In seeking the answer you encounter for the first time America's intimate and all-important part in the costly drama now being unfolded to the tune of billions. She sits in the armoured box-office with the Treasurers of the embattled nations.

At the outset of the war all the belligerent countries believed that they could finance their needs without seeking neutral aid. Less than a year was enough to dispel this delusion. Although England and France immediately voted immense credits they were not long in finding out that they must back up their unprecedented mobilisation of resources with outside help. They came to us.

When the great Anglo-French loan of $500,000,000 was first discussed as a possible American financial feat, people over here began to wonder why Great Britain and France, whose combined wealth exceeds that of all the other nations at war, should want overseas assistance. Since the reason for this loan as well as the disposition of proceeds are practically the same as that of most of the other Allied issues in this country in which thousands of our investors have participated, it is well worth explaining because it also carries with it a lesson in international barter. Here it is:

Before the war our foreign trade was growing fast. England and France, in particular, were good customers for our wheat and other foodstuffs, iron and cotton manufactures, oil and automobiles. In exchange we imported the product of many European factories.

Business relations between nations are not settled like transactions between individuals and firms, that is, with checks or cash. They are settled by balances. England's imports from the United States, for example, are paid by her exports to us. Usually exports and imports so nearly balance that the difference is paid by gold or with the temporary use of bank credit. Therefore it is not a question of actual money but of exchange and this foreign exchange is a commodity whose value fluctuates with supply and demand.

Along came the war. Millions of artisans in France and England were withdrawn from lathe and loom to fight in the battle line. What workers remained at their posts had to produce war supplies. Yet civilian and soldier needed food, clothing and arms. The demand for our products increased and the United States suddenly became the work-shop and the granary of the world.

The Allies, in control of the seas, became our principal foreign customers. American exports soared: those of France and England declined correspondingly. A huge balance of trade—the biggest in our history—swung to our favour.

This balance of trade had to be settled, but on an abnormal basis. What was ordinarily a comparatively trivial matter of a few millions suddenly became an item of many millions and it was all owed on one side. The demand for exchange on New York greatly exceeded the supply and the inevitable dislocation happened. England and France had to pay a drastic premium on the American dollar. The English pound, normally rated $4.86, dropped to $4.50; the franc, ordinarily worth 19.29 cents, fell to 16.94 cents. This shrinkage in values was not due to any impairment of the resource or wealth of the Allies but because the machinery of international payment works automatically and unsentimentally.

Here was a crisis that without aid from us might have eventually cost us dear. Rather than submit to the terrific drain on the exchange value of the pound and franc, England and France could have set about emulating the example of Germany and become self-sufficient. It was not a month's work or even a year's work, but ultimately it would have made these countries more independent of the United States after the war is over.

Of course England and France could have met the situation by shipping gold. Each had a large reserve but the United States had all the gold it wanted, and still has. Besides, in such an emergency gold is an inert and unproductive commodity.

Again, the Allies might have "dumped" their American securities representing an investment of over three billions of dollars, which would have upset the American stock market and sent prices down. Either one of these performances would have done us no good.

It was important, therefore, for the benefit of all interest involved, that the Allies establish a credit in the United States that would enable them to buy freely and remove the costly handicap on American exchange. In a word, instead of having to pay their bills through an intricate mechanism that rose and fell with the tides of trade and put a premium on trading with us, a medium was needed that would restore the whole economic trade balance. It was as essential to us as to our customers.

Hence the Anglo-French Five Hundred Million Dollar Loan was floated and Uncle Sam became a war banker. This loan, however, was nothing more or less than the setting up of a credit of half a billion dollars for England and France in the United States. To put it in another way, it is just as if the two Allies had deposited this sum in an American bank and then drew checks against it for goods and raw materials made or mined in America. In a word, we lent to ourselves.

Put out at a time when money was scarce, the loan would have been unpatriotic and uneconomic. But our banks were filled with idle cash: everywhere capital sought safe and profitable employment. Now you begin to see why these allied loans are really good business in more ways than one.

What is our financial stake in the cost of the war: what does it yield: how is it safeguarded?

Clearly to understand this whole situation you must know just how these foreign bonds are put out. There are two kinds. One is the internal loan issued in the money of the country whose name it bears. This means that if it is a French bond it is in terms of francs: if English it calls for payment in pounds sterling: if Russian, in roubles: if German, in marks. An external loan, on the other hand, is issued in the money of the country in which it is floated. The Anglo-French loan is an example of this kind because both principal and interest are to be paid in United States gold coin. These internal and external loans may be direct obligations of the issuing governments or may be secured by collateral.

There is still a third medium for the employment of American money in the war. Technically it is known as bank credit. Through this agency, foreign firms make deposits of money or collateral in the national banks of their respective countries and purchase goods in America through credits thus established for them in a group of New York banks or trust companies. The acceptances for the goods thus bought become negotiable documents and are bought and sold by institutions and investors at a discount.

This evidence of debt is not the kind of foreign investment suitable for the man or woman with savings to employ because it is more or less a banking transaction. These credits usually net about 6½ per cent.

With the exception of a comparatively small amount of German and Austrian Bonds bought in the main by natives of these two countries for purely sentimental and patriotic reasons, the entire bulk of European loans placed in America is for the Allied countries, principally England and France who are our heaviest customers in trade.

The largest foreign loan brought out here so far is the Anglo-French 5 per cent External Loan which was negotiated through J.P. Morgan & Company—Fiscal Agents for the Allies over here—by the Commission headed by Lord Reading and Sir Edward Holden. It is the Joint and Several Obligation of the Governments of the United Kingdom of Great Britain and Ireland and the French Republic, is dated October 15, 1915, and is due five years after that date. It ranks first amongst the foreign war obligations of these countries.

This was the first big credit arranged by England or France in the United States and the proceeds were used, in the manner that I have already described, for the purchase of American goods and to stabilize the foreign exchange. These bonds which have had a very wide sale in America were brought out at 98 and interest and at the time of issue represented an investment that paid nearly 5½ per cent.

These bonds, I might add, are convertible at the option of the holder on any date not later than April 15, 1920, or provided that notice is given not later than this date, par for par, into 15-25 Year Joint and Several 4½ per cent bonds of the Governments of the United Kingdom of Great Britain and Ireland and the French Republic. Such 4½ per cent bonds, payable, principal and interest, in United States gold coin, in New York City, and free from deduction for any present or future British or French taxes, will mature October 15, 1940, but will be redeemable, at par and accrued interest, in whole or in part, on any interest date not earlier than October 15, 1930, upon three months' notice.

The equity behind these bonds is the good name, wealth and taxing power of the issuing countries. The interest on this loan equals only one-fifth of one per cent of the total estimated income of the British people in 1914. It is slightly more than one-third of one per cent of the French Republic in 1914.

Between this loan and the next large borrowing by England or France in the United States occurred an event of significance to the American investor interested in the securities of foreign nations. The Anglo-French loan, as you know, was simply the promise to pay of two great countries whose Government Bonds at home represented the last word in unshakable security.

But when England and France stepped up to our money counters again, Uncle Sam put sentiment aside and became a pawn broker. "I think you are all right," he said, "but you are in a war that may last a very long time and I must have collateral."

To English pride this was a terrific jolt. I happened to be in England at the time and I recall the astonishment of no less a distinguished individual than the Chancellor of the British Exchequer. It was unbelievable that any nation could demand greater security than the good name of the Empire. "If the elder J.P. Morgan were alive this would never have happened," said the London bankers. They knew that the Grizzled Old Lion of American Finance always held that character was the best collateral. In the war emergency, however, many American bankers thought to the contrary and the net result was that with all external loans thereafter England and France have been forced to dig into their strong boxes and do what any individual does when he borrows money—put up a good margin of security.

An illustration of this secured obligation of the British Government is the issue of $300,000,000 Five and a Half Per Cent Gold Notes dated November 1, 1916. Principal and interest are payable without deduction of any English tax in New York and in United States gold coin. The holder of these notes, however, has the option to get his money in London but at a fixed rate of $4.86 per pound sterling, the normal value of the pound in peace time. Since the pound sterling at the time this article is written is quoted at $4.76, this is a decided advantage.

The new English loan is secured by stocks and bonds whose total market value is not less than $360,000,000. One group of this collateral consists of stocks, bonds and other obligations of American corporations and the obligation, either as maker or guarantor, of the Government of the Dominion of Canada, the Colony of Newfoundland and Canadian Provinces and Municipalities. The second group included obligations of Australia, Union of South Africa, New Zealand, Argentina, Chili, Cuba, Japan, Egypt, India and a group of English Railway Companies. I enumerate this collateral to show the inroads upon British securities that increasing war cost is making. This collateral must always show a market value margin of twenty per cent above the amount of the loan. It means that should there be any slump the English Government must supply additional security.

This issue was brought out in two forms. Half of the loan is in Three Year Notes due November 1, 1919, which were issued at 99¼ and interest and yielding over 5.75 per cent: the other half is in Five Year Notes due November 1, 1921, brought out at 98½ and interest and yielding about 5.85 per cent. These Notes are redeemable at the option of the Government at various interest dates between 1917 and 1920 at prices ranging from 101 to 105 and interest.

Having established the precedent of a secured loan, all succeeding English issues in this country have been backed up with ample collateral. These bonds have a ready market, an important detail that the investor must not overlook in purchasing foreign securities.

Now turn to the borrowings of France in the United States. With this great nation, whose middle name is Thrift, Uncle Sam was no respecter of past performance. For the one separate French external loan he exacted his pound of collateral. As a matter of fact it amounted to nearly a ton.

I refer to the issue of $100,000,000 Three Year Five Per Cent Gold Notes bearing the date of August 1, 1916. To float this loan the American Foreign Securities Company was formed which arranged to lend the French Government $100,000,000. As security the Company—it was merely a group of American bankers, required France to deposit stocks and bonds having a value at prevailing market and exchange rate of $120,000,000. Should the value of these securities fall below this sum they must be replenished until there is a margin of twenty per cent in excess of the principal of the loan.

These securities throw an interesting sidelight upon the resource of the French Republic and its ability to borrow desirable collateral from patriotic citizens. They include obligations of the Government of Argentine, Sweden, Norway, Denmark, Switzerland, Holland, Uruguay, Egypt, Brazil, Spain, and Quebec. The most picturesque parcel in the lot is $11,000,000 in Suez Canal shares. This stock is one of the corporate heirlooms of France and is very closely held. It not only pays a large dividend but shares in the profits of the company which in peace times are big. The fact that France should put these prize securities in "hock" is evidence of her determination to keep her credit absolutely above reproach.

The Three Year French Notes were brought out at 98 and interest and at the time of issue yielded about 5.73 per cent.

But all direct French borrowing in America has not been on the pound of flesh basis. For now we come to what might well be called The Loan of Sentiment. It is the $50,000,000 City of Paris Five Year Six Per Cent Gold Bond Issue dated October 15, 1916. It gave Americans the opportunity to pay a substantial tribute of affectionate gratitude for happy hours spent in the Queen City of Europe and have the prospect of a desirable dividend at the same time. Here is a piece of foreign financing with a distinction and a background all its own. Aside from its purely sentimental phase it is perhaps the only loan floated in America since the war which is dedicated to construction instead of destruction. The proceeds are to be used to reimburse the City of Paris for expenditures in building hospitals and making other necessary humanitarian improvements and to provide a sinking fund to meet similar disbursements. Amid the incessant hate and passion of war it is pleasant to find this back water of cooling relief.

Like most of the foreign issues made during the war it follows the highly intelligent European practice of putting out loans in small denominations so as to be within the reach of the great mass of the people. These bonds may be had in multiples of $100 and upward. The Government of France has agreed to permit the exportation of sufficient gold to permit the payment of principal and interest in the yellow metal in New York. The loan—the only external one of the City of Paris—was brought out at 98¾ and interest, which would make an investment of 6.30 per cent. In addition to this yield as an investment there is the possibility of profit in exchange in view of the option to collect principal and interest at the rate of 5.50 francs per dollar instead of the normal rate of exchange before the war.

This statement of possible exchange profits leads us to one of the conspicuous features of the latest National French Loan, which although internal in form has been put within the ken of the American investor.

Fully to comprehend it you must know that in ordinary times a dollar in American money is worth 5.18 francs. On account of the dislocation in foreign exchange the value of a dollar in French money has risen to approximately 5.85 francs. Therefore when you buy a French security in terms of francs for American dollars you get a great deal more for your money than you would have received before the war. Hence the possibility of profit when francs return to normal is large.

The National French Loan was sold to American investors at an exchange rate of 5.90, which means that every dollar you employ gives you a principal of 5.90 francs. On this basis the price for the security issued at a par of 100 would be 87½, which would make the direct yield over 5.70 per cent. Should exchange return to normal, the subscription price would be equivalent to 75½, which would make the direct yield over 6-5/8 per cent.

Translating this loan into terms of money, you find that for every $14.83 you invest you get 100 francs capital: for every $148.30 you get 1000 francs capital: for $741.52 you receive 5000 francs capital. If French exchange should return to normal and the securities sell at the issue price—87½—the investor would receive $16.89 for every 100 francs of capital: $168.88 for every 1000 francs: $844.39 for every 5000 francs. On this basis without regard to income return the holder of 5000 francs capital would receive a profit of $103.94 or over 13.75 per cent on his investment.

Should the market price of the issue advance to 100 and exchange return to normal the investor would get $19.30 for every 100 francs capital; $193.00 for every 1000 francs capital; $965.00 for every 5000 francs capital. In this case and again without regard to income return, the holder of 5000 francs capital would receive a net profit of $223.50 or approximately 30 per cent.

This loan is issued in Rentes and in denominations of 100 francs and multiples. Rentes is the form in which all French Government issues are brought out at home. The word means interest or income. The French always refer to their Government Bonds in terms of interest without any mention of principal. This is because rentes are supposed to be perpetual. The new French loan just explained is not redeemable or convertible before 1931.

Usually there is no limit to these National French loans. To be in France during the war and see the popular response to the appeal for funds is to have a thrilling experience in the practical side of patriotism.

I chanced to be in Paris when one of these loans was launched. Throughout a day of driving rain thousands of people stood in line at the post offices and private institutions waiting for a chance to put their money out to work for their country. The French wage worker, be he artisan or street cleaner, needed no coaching in the art of employing his funds safely and profitably. Just as saving is instinct with him, so is the putting of these savings out to work in a Government bond second nature. He is the thriftiest and most cautious investor in the world. He has established a close and confidential relation with his banker such as exists in no other nation. Therefore when the French financier offers him Government Bonds or "Loans of Victory" as the war issues are emotionally termed, he does not hesitate. He knows it is all right.

Alluring as is the possibility of profit in the new French Rente at the present abnormal exchange basis, it fades before the prospects for similar profit that lie in some of the Russian Government Bonds available in the United States. The Imperial Russian Internal Five and a Half Per Cent Loan of 1916 amounting to 2,000,000,000 roubles will illustrate.

Ordinarily the Russian rouble is worth 51.45 cents in American money. It has gone down to 32 cents. At this rate of exchange a thousand rouble bond bearing interest at 5½ per cent would only cost $320.00. Based on the normal value of the rouble this bond would be worth $514.60 or $194.60 above the present price of the bond—an increase of about 60.8 per cent on the investment. Figuring roubles at the normal rate of exchange the yearly yield would be $28.28 or 8.8 per cent on the investment.

The fact that roubles are down so low is evidence that Russian credit at the moment is not as high as it might be. The principal equity behind this bond, as well as most other Russian securities available in America, is the fact that Russia has immense post-war possibilities. She will emerge from the conflict like a giant awakened and with the first realisation of her enormous undeveloped resources. To offset this, however, is the lack of stability of Russian Government as compared with the other Allies which makes all Russian Bonds speculative.

On account of the difficulty in shipping bonds and the preponderance of pro-Ally sentiment here, there has been a comparatively small market for German and Austrian war issues in the United States. Yet, in the face of these handicaps, a considerable market has developed. It is due to two definite reasons. One is the desire of the native born and transplanted Teuton to help his country. Many of them appear at the German banks with their savings books eager and ready to make financial sacrifice for the Fatherland. The other reason is that the German mark has so greatly depreciated (it has gone down from 23.82 cents to 17.65 cents) that should it ever come back to anything like normal and the Government does not repudiate its issues the investment will be very profitable.

Here is the way it works out: in ordinary times a 4000 mark bond which would be the equivalent of a $1000 American piece, costs about $960. At the present low rate of exchange the same German bond costs $690.00 in American money and therefore shows a profit on the exchange basis alone of $270.00 or over 28 per cent. Austrian Bonds show even a larger profit.

Summarise our war lending and you get a total of all loans to belligerent Governments since the outbreak of the war that aggregate $1,828,600,000, which is nearly one-third of the whole cost of the Civil War. Add to this our loans of $185,000,000 to Canadian Provinces and Cities and $8,200,000 to the City of Dublin and to the City of London for water works improvements, a grand total of $2,075,800,000 is rolled up. Of this sum $156,400,000 in obligations have matured and been paid off, which leaves a net debt to us of $1,919,400,000. It divides up as follows:

Having taken this financial plunge into European financial waters, Uncle Sam has got the foreign lending habit and has loaned $117,000,000 to Latin-America, mainly to Argentina and Chili: $39,000,000 to neutral European nations, including Switzerland, Norway, Greece and Sweden. Not desiring to play any race favourites, he has speeded China on her way to enlightenment to the extent of $4,000,000.

In buying foreign war bonds—a procedure which in war time naturally involves sentiment—it is wise for the investor to watch his step. Patriotism is all right in its place but unless you can afford to contribute money for purely emotional reasons, a cold business estimate of the situation is advisable. This applies especially to the man or woman with savings who cannot afford to take chances. He or she will find it a good rule to stick to external bonds except under exceptional conditions.

One objection to the average internal bond is that with the exception of England the native money has greatly depreciated in international value. Of course, if all these countries finally get back to their old standards of wealth, these investments will yield a very large profit. To reap this benefit, however, it will be necessary to hold the securities for a considerable period because it will take the warring countries a long time to "come back." Another fact in connection with internal bonds well worth remembering is that while belligerent countries will scrupulously respect their obligations held by a great neutral like the United States whose good will and resources will be very necessary after the close of hostilities, there is the possibility, remote though it may be, that repudiation of home issues may come in the shock of readjustment.

In a word, in purchasing a foreign war bond be sure to get a stable national name, accumulated wealth, habits of thrift, an ample taxing power, and a good conversion basis behind the security.

Amid all our war lending lurks a menace to future and necessary American financing. In flush times like these it is comparatively easy for us to spare large sums of money, because such capital is available and not missed at home. If there was the absolute certainty that all the foreign short term loans would be paid on maturity there would be no reason to show the red light.

But any man who knows anything about the European financial situation also knows that it will be extremely difficult, almost impossible, for the fighting nations to meet their obligations within the time specified. This does not mean that they will be unable to pay. It does mean, however, that the inroads of the war will have been so terrific that pressing needs will so continue to pile up that renewals must be sought. Thus our money will still be tied up.

What will happen at home? Simply this. American enterprise which will need capital for expansion may have to wait. In discussing this matter one of the best known American bankers said this to me the other day:

"If America had a benevolent despot I believe that he ought to set aside an arbitrary sum which would represent the limit that we as a nation could lend each year to foreign countries."

There is still another hardship in this outward flow of our capital. It lies in the fact that the very attractive terms of the war loans have made it very difficult for American railroads and corporations to finance their needs. They must pay more for their requirements than ever before.

Yet this war financing has done more for us than merely provide an opportunity for the profitable employment of hundreds of millions of dollars. It has brought back home about $1,500,000,000 of our securities, mostly in railroad, that were held abroad. This has not only meant a considerable cutting down in the sum that we formerly had to send to Europe in interest and dividends, but it has helped to make us more economically independent. There is still $1,780,000,000 of our securities held abroad, and if the war keeps on much longer a great portion of it is likely to come back.

There were two good reasons for this liquidation. One was that the holder of the American security in England is subject to a very high tax in addition to the normal income tax on large fortunes. Another was the necessity for the mobilisation of American securities to become part of the collateral offered by the British Government for the loans made in this country. In many instances the English owner of American securities has simply loaned them to his country as a patriotic act. In numerous other cases, however, he has sold them outright and put the proceeds into home war issues.

You have seen how our millions have joined that greater stream of European billions to meet the rising tide of war cost. How is this vast debt to be paid and what is the paying capacity of the nations involved?

In analysing the war debt and its costly hangover for posterity, you must remember that not all of it is in actual money. The nations at war have not only taxed their economic reserve through the destruction of productive capacity in the loss of men and material—as I have already pointed out—but have made a costly and well-nigh permanent drain upon what might be called their nervous systems.

Look for a moment at the American Civil War whose cost was a mere flea bite as compared with the stupendous price of the European Conflagration. At the end of that war only half of its reckoning was represented in the country's bonded debt. After fifty years we are still paying in some way for the other and larger outlay, the invisible strain on the country.

Strange as it may seem in the light of the present frightful ravage in Europe, no country has ever been completely ravaged by war. When I returned from Europe more than a year ago, I was convinced that economic exhaustion would be the determining factor: that victory would perch on the side of the biggest bank roll. After a second trip to the warring lands I am convinced that I was wrong in my first impression. Observation again in England and France leads me to believe that man power—beef, not gold—will win. The extents to which financial credit can be extended in the countries at war seem to be almost without limit.

This leads to the final but all essential detail: How will the European nations pay?

Since the Allies practically have a monopoly on the American money sent abroad for war purposes, let us briefly look at the equity behind the Thing known as National Honour. Its first and foremost bulwark is Wealth. Take England first. The wealth of the United Kingdom is $90,000,000,000: the annual income of the people $12,000,000,000. To this you can add the wealth, resource and income of all her far-flung colonies and the immense amount of money due to her from foreign countries. Unlike France and save for a few Zeppelin raids, the Empire is absolutely free from the ravage of war. The principal assault has been upon her income, for her great Principal is still intact.

In examining the methods adopted by England and France to meet the cost of the war, you find a sharp difference of procedure which is characteristic of the countries. Following the British tradition, England is trying to make the war "pay its way" with taxation. Out of a total expenditure of $9,500,000,000 for the current year, no less than $2,500,000,000 was raised by taxation. The rest was obtained by loans at home and abroad.

The income tax alone will serve to show the enormous increase in tribute. From .04 per cent on small incomes to 13 per cent on large ones before the war it has risen to 1 per cent on small incomes to over 41½ per cent on big ones. Again, 60 per cent of all excess profits earned since the war are surrendered to the State.

I can give no better evidence of the result of this taxation than to repeat what Reginald McKenna, Chancellor of the British Exchequer, said to me in London last August:

"The English position is so sound," he declared, "that if the war ended at the end of the current financial year, that is, on March the 31st, 1917, our present scale of taxation would provide not only for the whole of our peace expenditures and the interest on the entire National Debt but also for a sinking fund calculated to redeem that debt in less than forty years. There would still remain a surplus sufficient to allow me to wipe out the excess profit tax and to reduce other taxes considerably."

When I asked him to make this more specific, he continued:

"The total revenue for the current year is $2,545,000,000. Our last Peace Budget was $1,000,000,000. Assuming that the war would end by next March 1st, you must add another $590,000,000 for interest and sinking fund on the war debt together with a further $100,000,000 for pensions which would make the total yearly expenditure for the first year of peace $1,690,000,000. Deducting this from the existing taxation you get a surplus of $855,000,000. Thus after withdrawing the $430,000,000 received from the excess profits tax there still remains a margin of $425,000,000."

Indeed, to analyze British war finance to-day is to find something besides debits and credits and balances. It is a great moral force that does not reckon in terms of pounds or pence. There is no thought of indemnity to soothe the scars of waste: no dream of conquest to atone for friendly land despoiled.

Money grubbing has gone, if only for the moment, along with the other baser things that have evaporated in the giant melting pot of the war. In England to-day there are only two things, Work and Fight. They are giving the nation an economic rebirth: a new idea of the dignity of toil: they have begot a spirit of denial that is rearing an impregnable rampart of resource.

Even more marvellous is the financial devotion of the French who present a spectacle of unselfish sacrifice that merely to touch, as alien, is to have a thrilling and unforgettable experience.

When you look into the French method of paying for the war you get the really picturesque and human interest details. In place of taxation you find that the war is being paid, in the main, out of the savings of the people. Instead of mortgaging the future, the Gaul is utilising his thrifty past.

Never in all history is there a more impressive or inspiring demonstration of the value of thrift as a national asset. It has reared the bulwark that will enable France to withstand whatever economic attack the war will make.

The difference between the English and French system of war financing is psychological as well as material. The average Frenchman has a great deal of the peasant in him. He is willing to give his life and his honour to the nation but he absolutely draws the line at paying taxes. This is why the French have made it a war of loans.

Go up and down the battle line in France and you get startling evidence of the French devotion to savings. More than one English officer has told me of tearful requests from French peasants for permission to go back to their steel-swept and war-torn little farms to dig up the few hundreds of francs buried in some corner of field or garden. Equally impressive is the sight of farmers—usually old men and women—working in the fields while shells shriek overhead and the artillery rumbles along dusty highways.

Thus the French war debt will be met because of the almost incredible saving power of the French people. It is at once their pride and their prosperity. When all is said and done, you discover that with nations as with individuals it is not what they make but what they save that makes them strong and enduring.

One afternoon last summer I talked in Paris with M. Alexandre Ribot, the French Minister of Finance: a stately white-bearded figure of a man who looked as if he had just stepped out of a Rembrandt etching. He sat in a richly tapestried room in the old Louvre Palace where more than one King had danced to merry tune. Now this stately apartment was the nerve centre of a marvellous and close-knit structure that represented a real financial democracy.

"How long can France stand the financial strain of war?" I asked the Minister.

Light flashed in his eyes as he replied:

"So long as the French people know how to save, and this means indefinitely."

Although the invader has crossed her threshold, France continues to save. Every wife in the Republic who is earning her livelihood while her husband is at the front (and nearly every man who can carry a gun is fighting or in training), is putting something by. It means the building up of a future financial reserve against which the nation can draw for war or peace.

One rock of French economic solidity lies in her immense gold supply. The per capita amount of gold is $30.02 and is larger than any other country in the world. The United States is next with $19.39, after which come the United Kingdom with $18.28, and Germany $14.08. Let me add, in this connection, that a good deal of the French gold is still in stocking and cupboard.

By the end of 1916 the war had cost France $11,000,000,000, which means an annual fixed charge of $600,000,000, to which must be added $200,000,000 for pensions, making the total fixed burden of $800,000,000.

All this cannot be paid out of savings, although in normal times France saves exactly $1,000,000,000 a year. But the Government has one big trump card up its sleeve. It is the large fortunes of her citizens. They have been untouched by the war because practically no income tax has been levied.

While the average Frenchman will sacrifice his life rather than submit to taxation, the upper and wealthy class will do both. The annual income of the people of France is $6,000,000,000. Therefore a 12 per cent tax on this income would very nearly produce the entire fixed charge on the war debt. France looks into the financial future unafraid.

Financially, Russia ambles along like the Big Bear she typifies. In one respect her method of financing the war cost differs distinctly from her Allies in the fact that she has received heavy advances from England and France. From England alone she borrowed $1,250,000,000 which was expended for arms and ammunition and field equipment. The Czar's Empire has put out five internal loans while the rest of the money needed has been raised out of the sale of short term Treasury Bills, paper money issues and tax levies.

Except for the few millions of dollars obtained in the United States, Germany's financing—like her whole conduct of the war—is self-contained. Through five Imperial 5 per cent loans ranging from one to three billion dollars each, she has established a war credit of $12,500,000,000. This money—to a smaller degree than in France—has come from the great mass of the German people.

Other sources of revenue that are enabling the Kaiser to pay for the war are Treasury Bills sold at home and a taxation that is moderate compared with the colossal pre-war taxation which spelled Germany's Preparedness. At the time I write this chapter her war expenditure had passed the $14,000,000,000 mark. Tack on to this Germany's peace debt of $5,000,000,000 more and you begin to see—with all the uncertainty of the war's duration—the immense burden that the Fatherland will have to carry. The war's drain on the German future is perhaps greater than that of any other country because all her war loans are long term. She has also loaned nearly $1,000,000,000 to Austria, Turkey and Bulgaria.

The Teutonic war cost has one distinct advantage over all others in that it is confined within the German borders. Hence Germany can do as she pleases with regard to its settlement. If the Mailed Fist obtains after the war she can clamp it down on her loans, wipe them out as she chooses and no one can offer a protest.

Now let us dump all these statistics that represent so much blood, agony and sacrifice into the middle of the table and strike a final balance sheet.

On one hand you have the assets of the warring countries as represented by their national wealth. For the Allies, including Roumania, they show a total of $273,000,000,000: for the Central Powers they register $134,000,000,000. If wealth is the winning factor then the Allies have the advantage in weight of buying metal.

Take the other side of the ledger and you see that up to November 1, 1916, the four principal allied countries, England, France, Russia and Italy, had spent on direct war cost approximately $34,000,000,000, while the total Teutonic war expenditures have been $21,000,000,000. To this actual war cost must be added the peace debts of the belligerent nations which would supplement the allied expense account by $17,465,000,000 and that of the enemy nations by $9,808,000,000.

Striking a grand total of liabilities, you find that if the war mercifully ends by August 1, 1917 (as Kitchener predicted it might), the fighting peoples would face a debt burden of all kinds that had reached $105,773,000,000.

After this colossal scale of expenditures you may well ask: Will it ever be possible for European finance to see straight or count normally again?

Be that as it may, no one can doubt that the battling nations, individually or with the marvellous team-work that kinship in their respective causes has begot, are able to pay their way while the struggle lasts. Grim To-day will take care of itself under the stress of passion born of desire to win. It is the Reckoning of that Uncertain To-morrow that will prove to be the problem.

You cannot bankrupt a nation any more than you can ruin an individual so long as brains and energy are available. Peace therefore will not find a ruined Europe but it will dawn on a group of depleted countries facing enormous responsibilities. War ends but the cost of it endures. Just as present millions are paying with their lives so will unborn hosts pay with the sweat of their brows.

Meanwhile our Financial Stake in the Great Struggle is secure. How much more we will have to put into Europe's Red Pay Envelope remains to be seen. In any event, we have learned how to do it.