Effects of the War on Money, Credit and Banking in France and the United States

By Benjamin M. Anderson | Go to book overview

CHAPTER VII
French Fiscal Methods during the War
The financial expedients of a state in war time may be listed under five main heads:
I. Taxes
II. Long time bond issues
III. Short time Treasury loans issued in anticipation of receipts from taxes and long time loans
IV. Direct advances to the state by a state bank of issue
V. The issue of government paper money

Between the last two methods, when specie payment is suspended by the state bank, the line is often difficult to draw. The issue of government paper money as a means of meeting the current expenses of the state is generally recognized as the least desirable form of financing; the last resource of financial weakness. This was a case with the greenback issues of the North during the Civil War, although in that case it represented financial inaptitude rather than real weakness, and was held within reasonable limits after a strong tax and loan policy was begun. It represented much less weakness than the advances by the state banks of Russia and Austria have meant during the present war.

During the present war the doctrine that the entire expenses of the state should be met by taxes has occasionally been stated. This is an extreme view which probably today has few if any responsible advocates. It is impossible to carry out. The theory underlying it is that the essential problem is a problem of goods and services; that the amount of goods and services available is fixed; that the problem is simply to divert goods and services from private to public use; and that the simplest way to accomplish this is for the state to take private incomes and spend them, thus reducing private demand by exactly the same amount that

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