The Drug Habit in Finance

I

AUSTRIA is the land of millionaires. I have heard my own country so designated, but it is an exaggeration. I have never become a millionaire in my own country, and my observation is that millionaires are the exception in our population. But in Austria even I am a millionaire. It cost me fifty-six dollars and eighty-two cents. A week earlier I could have secured the patent of plutocratic nobility for forty-eight dollars; but I came a little late.

I remember, however, to have heard that there is not so much in being a millionaire as men think. Reminders that riches have wings are also boresomcly familiar. I can now better appreciate the truth of these sayings. I hired a porter to take our hand bags (there were nine of us) across to the hotel, and he charged me three thousand crowns. I gave him thirty-five hundred, for millionaires must be generous. Our dinner cost fifty-nine thousand crowns, and we gave a tip of six thousand. We hired a couple of automobiles for the afternoon for four hundred and eighty thousand and tip. Brewster’s millions would have caused him no embarrassment in Austria.

Here, as elsewhere, wealth seems to induce carelessness. There is a general indifference to small change — that is, anything less than thousands. Quotations, too, are most uncertain. Coming up from Italy, we could buy our tickets only to the Austrian frontier. There remained a distance of fifty-two miles, for which we had to pay our fare in the train and with Italian money. The price was fortyfour thousand and odd crowns. I asked the rate of exchange in Italian currency, and the conductor, a novice who was being initiated into the mysteries by an old hand, said the rate was five hundred and fifty. That relieved me greatly, for forty-four thousand divided by five hundred and fifty gives a very modest quotient. I was getting out my money with alacrity, when the old conductor came along and sternly rebuked the novice for cheating me. He told him to give me six hundred and eighty, which he assured me was the true bank-rate of the day. So I received in exchange for my sixty-five Italian francs (about $3.25) nine firstclass tickets and a balance of one hundred and forty-six crowns.

I thought it very good of the old conductor thus to protect my interests and give me the full rate of exchange. I marveled, too, at his honesty, in these distressful times; for I had not found it characteristic of his kind, even in better days. When I came to pay for our dinner, I still had only Italian money, and I presented it, with the firm demand that I be allowed the full rate of exchange, six hundred and eighty. The cashier ignored my demand and quietly handed me seven hundred and fifty. Then I knew both conductors had robbed me, and only the cashier had been really honest. To protect myself from further extortion, I exchanged the rest of my money at a bank. They gave me eight hundred, which I later found was a most leonine rate.

But it does not greatly matter. My baggage porter’s thirty-five hundred crowns cost the nine of us two and a half cents apiece. For this sum he carried our baggage to a hotel across the square, waited half an hour, and then carried it to another, four blocks away. Our first-class tickets for the beforementioned fifty-two-mile ride cost us thirty-eight cents apiece. Our dinner in the best hotel in Innsbruck, the capital of the Tyrol, cost us, including a liberal tip, an even fifty cents per head. On another occasion, I rode a hundred and fifteen miles in a fine car and a fast train for fifty-one cents. You can live comfortably in the plainer hotels of Innsbruck for a dollar a day. I am told that in out-of-the-way places you can live for twenty cents. And the cost, though ever increasing in crowns, is falling in terms of the world’s more stable currencies.

How do they do it?

First of all, it. must be remembered that a very large part of the population of this and other European countries is comparatively independent of pricerelations. Their contact with nature is direct, and uncomplicated by exchange. The peasant is raising on his land much the same crops as of old; is living on what he raises; and is exchanging the rest with others similarly situated, and for articles produced under similar conditions. It matters little to him that prices cannot keep pace with the headlong depreciation of the crown, and that the price of his product is ridiculous as measured by foreign exchange. He is concerned with domestic exchange. He is apathetic toward the whole matter of price-adjustment, and contributes to the general sluggishness of the process. Of course, the moment he has to buy an imported article, he is stung, but his remedy is the simple one of curtailing this limited class of his purchases.

More serious is the embargo laid upon the saving of money. Savings hoarded in the form of money (paper, of course, for gold and silver are gone and forgotten), or deposited in the savings bank, rapidly become worthless. But the peasant, never much addicted to these modern forms of saving, easily accommodates himself. His thrift, if it survives, learns to forego these conveniences, and he embodies his savings in the less convenient but more enduring forms of concrete wealth. Economic life tends to revert to more primitive forms. Exchange inclines toward barter, and local wares displace the products of foreign factories. All told, these basic elements of the population suffer little from inflation. They may even profit by the hardships that it inflicts upon another class.

That class includes all persons whose income is predetermined in terms of money. It includes the holders of bonds, the beneficiaries of life insurance, of pensions and annuities, the depositors in banks and savings institutions, and a multitude of others whose dependence is upon claims expressed in terms of money. The moral character of these claims we need not here stop to discuss. They are, no doubt, very various. Some of the claimants are loafers and parasites. Others, like orphans and widows, are inevitable dependents, to whom no society can deny its obligation and remain civilized. Still others are superannuates from long careers of industry and thrift..

Closely allied to the foregoing class of absolute dependents is a large and more productive class of relative dependents, chiefly the receivers of fixed salaries. Salaries can be changed, but not easily or often. An annual revision is about the most that can be expected. What is that, in a country where the merchant closes his shop early every day in order to mark up his goods for the next morning? It is scarcely a year since you could buy a dollar for five hundred crowns. To-day it requires twenty thousand. Think you that teachers’ or postmasters’ salaries have been marked up in proportion?

It is these holders of money claims whom Austria has sacrificed. She found herself at the close of the war totally unable to raise the funds for the maintenance of Government. This was due primarily to the impoverishment of the nation, the destruction of its capital, the paralysis of its industries, and the reduction of the national income. But it was due also to the fact that Government was weak, that it was proletarian in origin and sympathy, and that it had little power to impose unwelcome measures upon a newly enfranchised and restive electorate. The people neither would nor could pay the cost of maintaining the traditional functions of government. Yet these functions had to be continued, as the alternative to chaos. Where was the money to come from?

There was but one possible answer. It must come from those dependent on money incomes. Not that they could better spare it, or that it could be more justly taken from them, but simply because their savings could be got hold of. If the Government had taken the peasant’s cows or sheep, or, what is the same thing, if it had levied upon him a tax proportioned to its needs, there would have been an agrarian revolution. A direct tax upon industry or other forms of wealth would have been equally disastrous. There was a single category of wealth that was accessible and defenseless. Government had but to press the button, so to speak, and the wealth represented by these myriads of money claims flowed silently into its coffers. The flow could be made as slow or as rapid as desired. The device had but one defect. The flow must inevitably cease when the reservoir was empty.

The flow has been rapid, indeed. Four years have sufficed to empty the reservoir. For four years the Government has lived on the accumulations of past thrift, on the loot of those who have trusted to its monetary good faith. The receiver of an income of ten thousand crowns could, before the war, support his family in decency and comfort in the average Austrian city. Today that year’s income is worth fifty cents. Fortunes invested against money claims have thus been confiscated, while salaries, despite frequent revision, have been scaled down to the starvation point. We talk of the starvation wage of our ministers and teachers at home, not without reason; but, after all, is not the term used metaphorically? Do our teachers and ministers ever really hunger from inability to get plain food? They do in Austria. The Government, necessary guardian of the sanctity of the monetary unit, has looted its wards, those who had trusted their all to its monetary good faith. It was all so easy and simple. No assessments, no proscribed list, were necessary. The printing press determined automatically the incidence of taxation, and collected the taxes. There was no tax-dodging, no resistance, scarcely even a protest. The suffering was enormous, but the agent was impersonal, intangible, and insensible to the pain inflicted.

This headlong descent to Avernus is not without its incidental advantages. A new distribution of wealth is clearly being effected. Just so certainly as it is disastrous to hoard wealth in the form of money, just so certainly it is advantageous to hoard it in the form of concrete property. Buy a building, a farm, a chattel, anything that is durable and of permanent value, and you escape the terrible levy. If, in addition, you can buy on credit and give your note in part payment, you can pay it a year hence with the price of a dinner. Similarly, if not quite so obviously, it pays to build, to create durable wealth. Labor, always slow-footed in the race, is cheap. Home-produced materials also are cheap, reflecting the price of labor. There is a hectic building-boom in Austria — building largely anticipatory of uncertain future demand, and in marked contrast with the bankruptcy of the nation.

Many of those who foresaw this and took advantage of it, buying, building, and borrowing, have made fortunes. The rise of Hugo Stinnes has had its myriads of lesser counterparts. It required but foresight and nerve to make them partners with the Government in the great looting process. There is nothing illegal, nothing even immoral in their activities, as judged by longrecognized standards. They have but done what we perhaps regret that we did not have the foresight to do. But, guilty or guiltless, they have furnished the other millstone, and bondholder, pensioner, and salaried worker have been ground between the publican and the profiteer.

II

The situation, however desperate for the present, has in it the potentiality of a redoubtable economic future. The new deal is placing the cards in the hands of stronger players, men of quick perception, aggressive temperament, and moderate scruple. The Central European peoples (for Germany and the rest are all in the same boat) are unloading their dead weight — weight that they were under obligation to carry, no doubt, but weight, and largely dead weight, none the less. The little bondholder and the pensioner were not, in general, creative economic forces. They drew their income and consumed it. The new’ holders are investors and entrepreneurs, men whose passion it is to accumulate, to organize, to create. As in the case of the French Revolution, the sacrifice is appalling, but the purging of the clogged system portends ultimate vigor.

The change, too, promises an ultimate impetus to the accumulation of capital when once again the wheels of industry are in motion. The capitalistic temper of the new holders of productive wealth will find its opportunity in the tremendous pressure which the new order puts upon those whose temper is not capitalistic at all. This holds especially of the wage-earning class, a class whose power of accumulation is limited even more by its psychology than by its resources. No possible increase of wages for this class would result in any considerable accumulation of capital on their part. Capital is recruited, — must always be recruited, — not from that which is paid to them, but from that which is withheld from them.

The process of inflation which has gone steadily on in Austria, in Germany, and generally throughout Central Europe, has acted as a gigantic squeeze to extract from labor, as from the passive investor, the utmost that it can yield. It is fashionable now to report that these peoples are living high while the victims of their aggression are tightening their belts. A recent traveler in Germany reports that he found the people ‘sleek and podgy,’and expresses the opinion that all their talk of poverty is a studied part, dictated to them from Berlin.

Doubtless the parvenu is in evidence in Germany; but a few inquiries as to wages and living costs would throw more light upon actual conditions than observations from a speeding automobile. Take the case of an engineer who supports a family on two thousand marks a month, the equivalent of from three to six dollars. Fortunately he does not need to buy dollars, and his purchase of domestic products is favored by retarded price-adjustments. But black bread, still to be had only on a bread card, costs nineteen marks per pound loaf. To tap a pair of shoes costs two hundred and twenty-five marks. Have any of you had the experience of keeping a family of growing children supplied with shoes?

Germany is economizing, rest quite assured of that. The brilliant café life of which we hear so much is a tinsel show. I am convinced from personal observation that the German who spends more than thirty cents on a café dinner is the rare exception. The guest in a first-class hotel sits down to a paper-covered table, and unfolds the plainest of paper napkins. His continental breakfast, once abundant, has dwindled to a mere symbol. Milk is measured to him in thimblefuls; he gets a teaspoonful of sugar, and bread and butter in proportion. Lunch and dinner are wholesome and sufficient, but amazingly simple and plain. I have heard constantly that you can get anything you want, to eat in Germany if you are willing to pay for it. I presume you can, — a Lucullus would manage to get nightingales’ tongues anywhere, —but I should not know where to go for it. It certainly is not thrust upon you. The same is true of clothing. The German is not in rags, — at least not on the main thoroughfares, — but our working girls would disdain the clothing which German middleclass women are wearing. In a three days’ stay in one of the largest German cities, I did not see one expensively dressed man or woman.

No, these people arc economizing, not to pay reparations, not because they wish to, but because the great machine which they have started squeezes the life out of them. The cultural reactions of all this give ground for serious apprehension, and perhaps some of the economic reactions as well; but, for a time at least, the division between capital and labor is being revised, enormously to the advantage of the former. A large part of the capitalist’s gain goes to the foreigner, in the shape of lower export-prices; but this is the price the German is paying for his world-market, probably the best investment he can now make.

But while there are these elements of compensation, appreciable in the present and looming large in the future, the essential fact of the present is exhaustion and misery. These governments are humoring their people in their determination not to pay through taxation the legitimate cost of government. They are dissipating the accumulations of generations of thrift. They are laying up wrath unto the day of wrath — a day not far distant.

The most remarkable thing about it all is that this misery-inflicting process is relatively painless at the moment of application. Wages are never reduced, but always raised; and while this is the certain guaranty of diminished purchasing power, each increment of the process is agreeable. The merchant never has to mark down his goods, but always up; and, although the selling price may not cover cost of replacement, the margin of apparent profit is most gratifying. The process is immediately soothing, if ultimately ruinous. It is the drug habit in industry.

Compare this with the situation in England, France, and Italy. They have had their brief fling and have sternly resolved to indulge no further. England has brought her pound sterling nearly back to par, having added a full dollar to its value in the last two years. She refuses to scale her debts, or to sacrifice her money claimants. She is faced, therefore, with the dread alternative of reducing wages and prices, — an immensely unwelcome and distressing step, — or raising her prices in the foreigner’s currency to a point where he cannot buy. The one means exhausting industrial war and the other blank ruin, for England lives almost entirely by selling to the foreigner the products of her workshops. In a word, England is trying to stop the drug habit, and the symptoms of drug-poisoning manifest themselves with painful acuteness. Strikes and unemployment, usurious liquidation of war-time debts, and capital diminished by unemployment doles — this is her unhappy lot. It is impossible not to recognize this policy as sound and the guaranty of ultimate health. But meanwhile Germany is at work, while Britain is idle, and Germany threatens to capture the world-markets upon which the existence of Britain depends. Unwilling and unwitting, Germany, subsidizing her industry by the loot of her thrift, is serving the world at a losing figure, wdiile Britain, equally unconscious and unintending, is posing ever more impossible conditions for the coveted privilege. For the moment the way of the transgressor seems the less hard.

Between these two divergent paths there are some strange stragglers. On one of my journeys into Austria, our compartment was somewhat more than occupied by two elderly Belgian ladies. They seemed to have all their belongings with them. Seats, racks, floor, and aisle were crowded with their effects, among which I detected kitchen utensils and other travel novelties. Little by little they revealed their situation. They were in receipt of small fixed incomes, which before the war had been sufficient to keep them in comfort. But the exigencies of the war had reduced the purchasing powder of the Belgian franc by three fifths. There the sturdy people called a halt. A return to par was impossible, but the franc was stabilized at its diminished value, and prices eventually adjusted themselves to the new standard.

Prices of goods, yes, but not prices of coupons. Our two little bondholders received no more francs than before. Three fifths of their income had been confiscated, and they were on the verge of starvation. Casting about for a way of escape, their eyes fell upon Austria, where, with the continuance of inflation, prices were still behind in the race. Here their cheapened francs would exchange for enough of the still cheaper crowns to enable them to live.

There are tens of thousands of these strange refugees in Germany and Austria. In Italian Cortina, most famous of resorts in the eastern Alps, I found the hotels empty; while in Innsbruck, a few miles across the border, they were crammed to the roof. These people, some of them necessitous, others merely thrifty, had come from all the countries of Western Europe, even from Germany, because living was cheap. The looting of their own class was here in progress, and their strength in foreign exchange enabled them to share in the loot. They ate the country bare, like a swarm of locusts, but neither they nor their hosts understood the mischief they wrought. Of old, an influx of visitors or of foreign buyers meant prosperity. Why not now? Yet the uneasy consciousness that it did not bring profit was deepening. The foreign buyer is already restricted. He can no longer rush across the border, and buy up whole stocks with each new fall of the mark. The embroidered shirt-waists that the ladies of our party bought were confiscated at the border. Hotel rates are increased to the foreigner, avowedly to offset the disparity of exchange. Even the expulsion of the foreign resident is being urged. Think of it: a nation that lives largely by manufacturing for foreign markets reduced to the necessity of forbidding the export of her commodities!

But, whatever the advantages of printing-press taxation, it has this limitation — that it cannot continue. Drafts upon the reservoir must stop

when the reservoir is empty. When the ten-thousand-crown income is drawn upon until its value of two thousand dollars is reduced to fifty cents, obviously it can yield but little more, whatever the device. The end announces itself in the form of certain concrete obstacles which, in the case of the Central Powers, have already appeared.

For one thing, a point is finally reached where the notes will not pay the cost of their own printing. Bank notes cost money. Before the war, Bank of England five-pound and tenpound notes cost twelve cents apiece. The one hundred and forty-six crowns that my conductor gave me consisted of six or seven bills, with a total value of about one cent. From my knowledge of engraving and printing, I should not be willing to manufacture them for that amount.

Further, the process of confiscation turns impartially upon governmental and upon private incomes. You cannot mark up the price of postage stamps overnight. The five-cent postage to which Germany is entitled on foreign letters now yields less than a cent, though the nominal value has been increased twentyfold. Countries with state-owned railways are especially hard hit. You can ride all night in a German sleeping-car for thirtyseven cents, and can have a whole compartment for seventy-five. Ordinary fares are in proportion. Austrian fares are much lower. Huge postal and railway deficits are inevitable. Even in Italy, where depreciation is relatively moderate and is largely covered by rate increases, the state railways show a deficit of nine hundred million francs a year. Additional issues to cover these deficits automatically create new and larger deficits in their turn.

There comes a time, at last, when the notes are refused. Somebody starts it, demanding payment in kind or in foreign currency, and the thing goes like a prairie fire. What people cannot pass, people do not want. This is already foreshadowed in the now universal practice of quoting the capital of new companies in Swiss francs, the only currency in Europe that has kept its gold parity. The new bank recently projected in Vienna to avert the threatened Austrian collapse thus quotes its capital. A monetary union between Austria and Italy is now in prospect, probably involving the substitution of Italian francs for the worthless crow ns.

III

All this may not seem so very momentous; but there is another possibility, the gravity of which all will recognize, and from which it is doubtful if any of these countries can escape unaided. Among those most affected by repudiation, and perhaps the first to initiate it, would be the great class of government employees. What would happen if the Austrian government employees refused to serve longer if paid in crowns? That is said to have happened in Russia. It is possible elsewhere. It happens automatically if the crowns cease to circulate. It. was a dread possibility in Austria this summer.

What would happen if government employees went on strike? What happened when the Boston police went on strike? How many minutes was it before hoodlums were smashing plateglass windows and filling gunny sacks with stolen goods? It would take about, as many minutes to turn starved and shivering Vienna into a hell. And out of the turmoil would emerge a despotism with unknown political affiliations, and only the certainty that it would embroil all Europe. The menace of such a collapse in Austria fills Europe with consternation. Even bankrupt France, herself some billions behind in this year’s accounts, advanced fifty-five millions a few weeks since to avert the catastrophe, her Prime Minister declaring that the collapse of Austria was a danger that outweighed all financial considerations, and one that France could not contemplate.

Europe is bankrupt. Not one of the great nations of Continental Europe can pay its debts. Not one can pay the current interest, on its debts. A good half cannot pay their running expenses.

Incidentally, we are interested. Europe owes us eleven billions and cannot pay. What are we going to do about it? We expostulate and argue. We urge that the note was given ‘ for value received,’ that the terms of the note are unequivocal. Yes, but Europe cannot pay. What are we going to do about it? We cannot foreclose. If we did, we could levy only on white elephants. We cannot crowd, for a sullen Europe would not pay if she could. We cannot take the property, for that would be merely to assume its burdens.

Europe cannot pay. What are we going to do about it? What do sensible men do with bankrupts? Abuse them? Imprison them? Enslave them? Do they set themselves as taskmasters over them, forcing them to work off a debt that willing effort cannot pay? Thus to collect our debt would cost a dollar for every dime received, and make us the skinflint among nations.

And, after all, does it not reconcile us to the inevitable sacrifice, to recall that bankruptcy was incurred in defense of a cause which, by our own ultimate action, we recognized as ours? And may it not further reconcile us to our inevitable clemency, to recall that our debtors are of those who are treading manfully the toilsome path of financial honor, and refusing to lessen their burdens by confiscation of that which they hold in trust?