After the breakdown of the war chest as a method of financing emergencies such as war, other methods of securing funds had to be found. Various schemes were hit upon, the efficacy and advisability of which caused no little discussion from fiscal authorities and theorists. The demands of the Great War renewed and intensified the interest in this subject. The sums demanded by the various countries surpassed those contemplated by the wildest imaginations, while the estimated expenditures for a year usually sank into insignificance when compared with the sums which were actually demanded.
Superficial Aspect of Money. - While the demands for revenue have been monetary, and the calculations have been in terms of money, in reality the money represents but a superficial aspect of the situation. During the Revolutionary War, when the revenue was insufficient to meet the needs of the government, requisitions of goods were made upon the Colonies. In the end, the demand of the government is for goods - clothing, munitions, food - and it is with these that the war is actually fought. The situation is much the same as with the money income and real income of individuals - the important item is what the money will purchase. When the war is over the stock of money may be intact or increased, while it is the goods, over which it has given command, which have been used up. The value of the goods destroyed, moreover, may vastly exceed the total stock of money values, for the same money may be used more than once by a government in making purchases. Funds secured from taxes, for example, may be used to purchase uniforms; the manufacturers of uniforms will purchase bonds and the same funds will be used again by the government.
Burden upon Present Production. - A large part of the goods must be taken from present production, though it is possible that both past and future incomes might be made to contribute. Past production could be made to pay by the indefensible scheme of taxation so severe that it would deplete a part of the capital which had already been produced. Future income could be made the basis of payment by buying the goods abroad and mortgaging future production to pay for them. Neither of these plans can be used extensively; consequently the burden falls upon present production. This cannot be accomplished without some rearrangements and, perhaps, hardships in industry. The slogan, " business as usual," current in industrial circles at the beginning of the Great War, presents an impossible situation. The demands of war are not the demands of peace, and industry does not have time to go through a process of evolution to meet the demands of war, but must adjust itself by revolution. This may be done in a number of ways. Capital and labor, which have been producing goods nonessential to the conduct of the war, may be put to producing necessary materials. Machinery which has been idle one third of the day may be run the full day. The public may substitute cheaper products for more costly goods, and save in productive energy. All these changes necessitated by the sudden demands will bring about some deviation from former business procedure.
In securing funds, then, the fiscal authorities should keep continually in mind not only the securing of revenue, but what effect the method of securing it will have in the ultimate source of all revenue - the wealth of the citizenship. The maintenance of the patrimony of the state is an important consideration, and this patrimony should be impaired just as little as possible. In the securing of the funds, such questions as the probable incidence, the equalization of burden, the return, and the effect on future generations should not be overlooked. The means for securing revenue lies in the power of the state to tax, to borrow, and to issue fiat money. Any combination of these three possible methods might also be used. The insufficiency of the use of fiat money to any extent has often been demonstrated, consequently most of the present discussion as to means of raising revenue is concerned with the relative merits of taxation and borrowing as methods of supplying the government with funds.