The Cost of the War

THE vital and continued interest in the cost of the war is caused, in all probability, by a belief that its cost will tend to limit its length, or to enable the student either to identify the probable victor or to forecast in some way the results, both immediate and permanent, which the crisis is likely to have on the economic fabric of individual nations and of the world in general.

M. Guyot estimates that Europe was poorer on the first of February by seventeen billions of dollars than she would have been had the war not been fought; of this sum nine billions represent the direct cost of equipping, transporting, and maintaining the armies. M. Finot calculates this same item for the first year as fifteen billions of dollars for the Allies alone, while their indirect losses, he believes, will be as great. Other statisticians, French, German, English, reach even more considerable figures. The total losses due to the war are usually estimated by adding the direct to the indirect cost. The conclusion follows that the end of the war will see necessarily an impoverished and suffering world, whose economic fabric cannot recover for decades. Indeed, it has been repeatedly said that the cost of the maintenance of the armies alone is too vast to be borne much longer without the probability of national bankruptcy.

A calamity so vast as the war, and so entirely unexpected, predisposes many people to believe that the worst is only too probably true; and it may for that reason be a little difficult for any one to secure a hearing who seeks, in the face of such an array of authorities, statistics, and prophecies of dire disaster, to show that, bad as things are, they are not nearly so bad as people believe them to be. While it would be idle to deny the seriousness of the blowr which the war will inflict upon the world’s economic fabric, and obviously false to claim that the losses will not be stupendous, it does seem necessary to sound a note of caution against many of the estimates and predictions which have been so persistently made. Much that has been written by professional economists does not seem to a student of conditions from a different angle to explain past and present wars, however well it may agree with the premises of theoretical economics. Again, much written by the economists which really seems to explain phenomena is not understood by the general public in the sense apparently meant by the authors. There seem to be also some considerations in regard to the cost of the war, more or less at variance with the interpretations of professional economists, which are yet sufficiently plausible to merit statement, if only for the purpose of securing from some authoritative source a conclusive elucidation.

The commonest fallacy of the general public assumes that the war is costing a certain sum of money daily, hourly, or yearly, and that this estimate indicates the amount of the expenditure and therefore of the loss. In reality, it should be evident that the enormous figures published are merely the estimated value of labor and capital utilized for the purposes of the war. The general public still believes that wars are fought with money; but money is merely the medium by which oil, powder, cannon, and labor with a pick are reduced to a common denominator. War is necessarily fought with commodities; it cannot be fought at all without them; men kill each other with bullets and not with dollars; they sleep upon beds, straw, the ground, but not upon bonds. The cost of the war consists of the commodities, of the labor and capital, of the human lives needed to fight it. We may estimate their exchange value in money if we like; we may distribute by means of money the expense between the various individuals who compose the state; we may facilitate by the usual financial machinery the operation of securing the commodities which are needed; but all the money in the world and all the bonds ever issued cannot of themselves put shoes on the soldiers’ feet or cartridges in their rifles. War costs the commodities with which it is fought; and this cost must be paid at the time, and cannot in any conceivable way be paid in the future, because the commodities must be used during the war or not at all. Obviously, the belligerent nations must produce these commodities themselves or procure them from neutral nations, who will themselves be compelled to produce the actual commodities during the war from labor and capital. The true cost of the war, both direct and indirect, will necessarily be paid at the time by people alive in the world while the war is being fought.

We often hear the words, the cost of the war, used as synonymous with the war’s losses. Indeed, a very general assumption of pacifists treats the sum total of commodities used during the war as economic loss; while the general public seems to believe that the estimated value of capital and labor utilized represents the billions of dollars which the community is losing every day. Does the mere fact that the commodities with which the war is fought are consumed and must be replaced necessarily mean that they are economic loss? Arc not most of the commodities produced in time of peace consumed in exactly the same way? If we say that commodities expended in the prosecut ion of war are wasted because the purpose of the war is non-productive and therefore uneconomic, do we not merely assume our conclusion as our premise? Indeed, the great bulk of all that the world produces is annually consumed. All eatables are raised to be eaten; all clothes and shoes are meant to be worn out; automobiles and locomotives are literally destroyed by the process of being used quite as effectively when they carry tourists as when they transport soldiers. The consumption of commodities is the normal premise of the continued economic prosperity of the world, since a large part of the market for most commodities consists in replacing those just consumed. The increase of the permanent fixtures of the world in buildings, machinery, and factories is small when compared with the value of the food, clothes, and luxuries which are regularly consumed by the ordinary processes of life.

The destruction of property by bombardment, or of commodities and food by the occupation of the country by the armies, differs widely in nature and degree from this quite normal consumption, and is often not represented at all in the estimates given of the daily and yearly national war budget. In fact, most of the so-called destruction in time of war is consumption of commodities in the fashion normal in time of peace. The mere fact that soldiers eat bread and wear shoes; that guns, horses, and automobiles have to be replaced; that powder is consumed by being exploded, does not necessarily demonstrate that this is total economic destruction. They were created by the community in order that they might be used exactly as are used the vast bulk of commodities which the community produces in time of peace. The cost of the war, indeed, consists of the commodities needed to prosecute it, and they must, as a matter of course, be consumed; but they are no more an economic loss than if the nation had made an equal quantity of any other commodities and consumed them. We are, of course, considering here merely inanimate things and not reckoning the question of life.

The direct economic losses of the community in time of war will differ from the direct losses in time of peace not so much in character as in degree. If the nation consumes more commodities than it makes, it has lost, whether they are eaten or worn on the battlefield or in time of peace. It matters comparatively little where the consumer is located or under what conditions the consumption takes place, provided the method is the same. The thing that is consumed is of comparatively little significance provided the nation produced it during the year for that purpose. When, therefore, the nation supplies what it needs, it is entirely solvent, however large may be its consumption or production. When it supplies more than it needs, it gains. When it fails to produce as much as it needs, there is a loss. When it becomes necessary for the nation to buy a part of its supplies for war from neutral nations, there will be no economic loss if the nation pays for them with other commodities which it produces at the time. The war will have cost enormously in commodities, but the bill will have been paid and there will be no loss. In any case, the loss will not be the total amount consumed, but the amount consumed more than the amount produced.

Much of what has been written on the cost of the war is devoted to the extent to which the ordinary operations of business have been diverted or suspended; and here again the popular assumption is plain, that the diversion of capital and labor to the production of commodities to be consumed in the war is a total economic loss. This does not seem to be necessarily true. The diversion of capital and labor from one industry to another is normal enough in time of peace. No doubt the much greater scale on which these diversions take place on the outbreak of the war will involve a certain loss, because part of the labor and capital will be idle, pending t he completion of the transformation ; but is it not a fallacy to suppose that the change in the emphasis of the community’s product ion from eatables to wearables, from fine cloth to khaki, from dancing pumps to cavalry boots, from limousines to motor trucks, is necessarily an economic loss? Is it not palpably an open question whether dancing pumps, face-powder, and gay clothes are of more permanent value to the nation at large and to civilization a hundred years hence, than gunpowder, sheepskin coats, and shoes worn by soldiers?

If the amount of labor and capital devoted to producing articles for the war is the same as that usually devoted to producing articles for immediate consumption in time of peace, why should not the chief economic effect of the war be the same as that of peace? If the army eats in the trenches, those same men would probably have eaten more at home; and if they wear out clothes in the campaign, would they not have been clad in destructible raiment in time of peace? The mere fact that the nation produces a different sort of thing to be consumed does not seem to be of economic significance, for it conforms simply enough to the law of supply and demand; and, if the amount produced is the same and the consumption no greater, the only loss will be due to the idleness of a part of labor and capital during the transformation. So far, too, as the nation diverts effort to the prosecution of the war which would under ordinary circumstances have been devoted to work that has no value for the nation during the war, the failure to expend that effort will be a positive gain for the nation. Nor will the destruction of dwellings, of furniture, and of personal belongings have any effect upon the economic ability of the nation to continue the war. They are of no conceivable value for prosecuting it; and their loss, therefore, does not affect the economic strength of the belligerent.

In fact, many observers seem to feel that the economic cost of the war lies in the value of the commodities which the nation might have made with that same labor and capital if the war had not taken place. This view, in fact, contemplates the expense of the war, not in the light of what is being used, but in the satisfactions, the material luxuries, which the same individuals might be enjoying were they not engaged in the war. Obviously, this assumes either that the things produced would have been an addition to the community’s fixtures and permanent wealth, or that the nation would really have preferred to use the labor and capital for these material satisfactions instead of for t he war. Now it seems to be true that the larger part of what the community makes consists of temporary economic satisfactions which are meant to be consumed at once. And it is reasonably clear to all observers that the European nations are entirely ready to expend commodities and even life in the prosecution of this war, and that they would put behind them as unworthy the suggestion that they ought not to sacrifice certain material comforts. If the nation truly prefers to produce and consume commodities necessary for the war instead of other varieties of commodities, it has an entire right to do so. Why should the process not be considered economic in every sense of the word ? Why should it involve a loss unless it diverts to commodities for immediate consumption capital and labor which it would otherwise have spent for permanent improvements; or unless it invests in the commodities consumed a larger amount than the total which it would otherwise have spent? It seems plausible to claim that the loss will, in any case, be the difference between the amount of labor and capital which the nation usually devoted to commodities for immediate consumption, and the amount actually used during the war for commodities which were entirely consumed. The total consumption will in no case be economic loss.

Much of the confusion in regard to the economics of war seems to be due to an attempt to apply to the situation the premises of individual economics as normally treated in works on economic theory. They assume a complex situation; they assume the interplay of individual interest free from artificial interference; and they attempt to explain the variety and character of individual interests under the present international interdependent industrial fabric. Does not war demolish the premise, substitute artificial conditions for natural, and an utterly simple situation for one inextricably complex? It almost seems as if war reduced the world to a half dozen individuals proposing in an entirely primitive fashion to accomplish certain obvious ends. It promptly creates a new unit, the community, composed of all individuals, which proposes to utilize each individual in the ways most advantageous to the community at large, without regard for his desires or interests. Individual economics assumes that the individual is free to choose means and methods for furthering his selfish interests in preference to the int erests of other individuals; the war promptly nullifies this premise and creates a new entity which announces its intention of disregarding all the interests of the individual in favor of t hose of the community as a whole. Necessarily war makes an enormous difference to the individual and proceeds to cost him in visible and tangible ways much that is contrary to his previous interests and desires. If the community takes him from the factory and puts him on the firing line, it is quite obvious that the character of his work is changed. But is it unproductive and therefore uneconomic? Has not the community superposed a new test of productive labor, and is he not the most important of workers? Has not the prosecution of the war been substituted for the accumulation and multiplication of’ creature comforts, as the goal of the state’s efforts and those of its citizens? Shall we declare this change unjustifiable and economically wrong, because certain premises meant to be applied to a fundamentally different situation do not apply to this one? The economic cost of the war can hardly be dealt with in terms of individual economics, unless we declare the whole cost waste because its immediate purpose is not the productive use of labor and capital. This is scarcely dealing with the situation, for any such premise excludes from consideration those phenomena which are most characteristic of war. In the usual sense of the words, war is in itself non-productive and therefore non-economic; there cannot be any economics of war.

The true cost of the war will consist of the totality of effort made by the community to prosecute it, and will include, not only economic factors, but an immense number of physical, mental, and moral losses and sacrifices. It will embrace, not only the total amount of labor and capital consumed, but the amount of labor and capital wasted; the amount of property destroyed; and the time, labor, and capital needed to replace things essential to the community’s future welfare. Some of the most important parts of this total effort will be the loss in life and the physical and mental suffering entailed for individuals, whether by pain, grief, or privation. These will not be economic, but they will be losses and an important part of the cost.

While the consumption of the commodities by the nation during the war will not be a total loss unless the nation should entirely cease to produce, it will be extremely evident that nearly every nation is expending in the prosecution of war an immensely greater amount of energy, labor, and capital than it is accustomed to use in time of peace. Will this excess be lost? It cannot be a total loss or uneconomic if the nation provides it at the time, and the nation may easily provide in an economic way for this additional effort and material. In the first place, much of this excess of labor and capital is apparent rather than real. The abstention from luxuries is very great in time of war and is a positive economic saving to the nation. In time of peace the great bulk of the community consumes more food and clothes than it needs and a great variety of luxuries which it can easily forego without real detriment to its health or pleasure. If it is willing to make these material sacrifices in order to prosecute the war, the economic gain is clear, and the mental satisfaction of the war has been substituted for the mental satisfaction obtained from the luxuries. Prohibition in Russia has resulted in a stupendous saving of labor and capital, energy and human life; and the loss of revenue to the government is not an economic loss at all, because theamount which the people paid to the government as profits of the distilleries, or in excise taxes, they will now simply pay by some other method of taxation. They will have sacrificed the pleasure of getting drunk, and will have made a very positive economic saving.

The excess of labor demanded in time of war is much greater than the excess of capital, because the prosecution of the war calls for physical effort to a greater extent than it does for materials, outside of the actual munitions of war; and, while the value of these munitions is considerable, it is relatively small compared to the total material output of the community in time of peace. When the army goes to the firing line, a type of labor is required from the community which it ordinarily does not perform at all; and the time and effort expended by the soldiers will be total economic loss, unless effort and labor can be obtained by the community which is ordinarily not available or utilized in time of peace. It is only too evident that millions of individuals are working in Europe extremely hard at a great variety of tasks, running the whole gamut of the community’s effort, who in time of peace are in an economic sense parasites, — who toil not, neither do they spin. Many of them are performing tasks which are analogous to productive labor in time of peace. To the extent to which these parasites provide the extra effort demanded by the war, the additional cost of the war is not loss, because it has been paid. It cannot be loss if the nation provides the capital and labor at the time.

In the last analysis, the economic losses of war, whose real magnitude it is entirely unnecessary to exaggerate, will ordinarily fall into the following categories. First and foremost, the permanent loss of labor from the death of citizens; buildings and capital destroyed by the campaigns; permanent improvements which would have been made if the war had not occurred. All these losses will be very considerable, but they will not of themselves necessarily bankrupt the nation. A much more considerable loss will be due to the necessity of borrowing commodities from neutral countries, of which the whole amount cannot be paid in commodities during the war because of the nation’s failure to produce its usual amount of goods suitable for export. The deficit must be paid in commodities after the war; this payment, however, will partake of the nature of a delayed payment rather than a total loss. In reality, it will cost the interest on the value of the commodity charged by the neutral country for the delay in payment, plus the loss of interest or profit on the labor and capital utilized by the nation in future years while producing the commodity to return.

In spite of the fact that the total bonded indebtedness after the war will not represent a total economic loss, the loss will be extremely large. Loss will also be involved by the sharpness and artificiality of the transfer of labor and capital at the outbreak of the war to the war industries. Usually, in time of war, the proportion of commodities for immediate consumption to commodities intended for permanent improvement is much greater than in time of peace, and the difference will of course be economic loss.

Perhaps the most considerable sum is the payment by the community to the individual of an indemnity for his losses in the service of the state. War brings immediately to the forefront a new entity which is confessedly ready to sacrifice any individual for the benefit of the community as a whole; and which usually attempts, so far as is possible, to restore to the individuals making the chief sacrifices such economic losses as can be ascertained with reasonable certainty. The wages for soldiers in lieu of the wages they ordinarily receive for productive labor; support for their families at home; pensions, — all of these are in an economic sense losses due to the war, and they usually amount to a very large total indeed. Army contracts also are usually made at sufficiently high rates to recompense capitalists for the losses involved in the transfer of capital from one industry to another, and for its transfer back to productive labor at the end of the war. It is often essential for the state to adopt as a political expedient the payment of a bonus to individuals for taking part in the war in order to insure unity of effort. Not every individual can be reached by the higher impulses of patriotism and self-sacrifice, and it has usually been felt expedient to appeal to more sordid personal motives to make certain of the assistance of those people who could be moved by nothing less. Any such bonus is, of course, an uneconomic payment and total economic loss.

In so brief an article, it is not possible to make many reservations and exceptions, or to discuss every important aspect of the situation. My purpose has been to suggest that the cost of the war is being exaggerated and the character of the true losses misunderstood; that the fundamental difficulty rises from the assumption that the interests of the individual are the test of loss or gain; and that the economics of war must start from the premise of the community as an economic unit, whose interests are by no means the sum total of the interests of its individual citizens.