The opening of the war found France in a very different economic condition than that which prevailed in England. The finances were none too sound, and the current revenue was not meeting current expenditures, while a bond issue had been provided to make up the deficiency. Payment on this bond issue was to be made in installments, two of which had been made at the outbreak of the war. The general derangement after this event put the treasury in a condition of distress; first, because individuals could not secure funds to meet the remaining installments on their loan subscription, and, second, because the occupation of one of the richest sections of France wiped out the accustomed revenue from this territory. The problem of France at first was much the same as that of England - to stabilize the domestic credit system. This she attempted to do through regulating the withdrawal of bank deposits, closing and supervising the Stock Exchange, and declaring a moratorium.

Bank Aid and Loans. - Those who are acquainted with the nature of the bank of France would expect the government to rely upon it extensively for aid, which proved to be the situation throughout the war. This aid was given through the large loans to the government, and through the large increase in the number of bank notes. The enlarged mass of this cheap currency began to endanger the gold supply, and specie payments were stopped. So much of the specie had been hoarded that a scarcity of money for small transactions was felt and paper notes of small denominations were struck. The needs of the government soon outgrew any aid the banks could give, and treasury bills were issued and sold both at home and abroad. Their insufficiency was soon manifest, and resort was made to long-term loans. Because of the weakened credit conditions, the terms upon which they could be sold were unfavorable to the government. Citizens loaned their American securities to the government, and these were used as collateral in securing credit from America. The entrance of the United States into the war, and the subsequent extension of credit, improved the situation.

Tax Measures. - Nothing was done for more than a year after the outbreak of hostilities to increase the revenue from taxes, but the authorities were finally driven to adopt more stringent tax measures. The income tax, adopted two years before, became operative in 1916. The rate was 2 per cent, but the exemptions were so arranged as to make it progressive. The war profits tax was also inaugurated in 1916 after much opposition, and imposed a 50 per cent tax on such returns. At the same time various other new taxes were levied, while some of the old rates were increased. In 1917 still other new taxes were imposed on business profits, and on the turnover in retail establishments. Other rulings were that taxes should be placed upon agricultural profits, salaries, and similar returns. Had this policy been adopted earlier, the credit of the nation would doubtless have remained more firm.

Other Allied Countries. - The fiscal policy of the other Entente allies was just as indefinite, but space does not permit a review of the systems used. Suffice it to point out that Canada, after appealing to banks for aid, started a vigorous system of taxes which, of course, did not prove adequate, and loans were resorted to at various times. In Australia public works were being built with borrowed funds, yet her war loans were successful, as was also the income tax. In Russia taxes were used only sparingly, but most reliance was put upon loans and the issue of paper. In Italy, first resort was taken to aid from banks, followed by the use of both new and old taxes to secure revenue. A liberal amount of borrowing was also done.