War Time Borrowing by the Government

Abstract

We have not been a borrowing nation and it is a new departure for us to have recourse to loans to provide for our needs. This is very apparent if we compare our national debt with that of other countries. Before the war, ours was only about $11 per capita, while that of England and Germany was about $75 each and that of France about $160. The war has changed this and, as closely as one can estimate, our per capita debt has risen already to about $70, while that of England and France is over $500 each and that of Germany about $350. We are dependent on our own resources, and it is our own people who must find the funds for financing our expenditures. We borrow at home and require no special safeguards for our bonds, such as some nations have been forced to provide in order to interest foreign capital. With us there are no questions involved of pledging certain revenues, of giving collateral security or of having lottery features. The simple promise to pay of our government is sufficient, and the main questions which our authorities have to consider are the amount and frequency of the offerings, the price of issue, the rate of interest, the length of time which the bonds are to run and whether they are to be taxable or not. It is the policy of our government that its loans shall be offered for public popular subscription without discrimination, that they shall be issued at par and that no commissions or advertising expenses shall be paid. There can be no disagreement as to the first proposition, the second and third are somewhat open to question. European governments have never hesitated to issue bonds at a discount, realizing that this is simply a method of expressing the interest rate to be paid. In addition, there is a certain appeal to the investor in a bond at a discount, which is lacking in one issued at par, as experience has shown that in the former case there is as a rule more chance of the market price advancing towards par, than in the latter of its going to a premium.