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Rh Government before the war. The Federal Government's expenditures and revenues in peace, war and reconstruction are presented in Table I., in which it should be noted that the figures represent net expenditures and net revenues, the expenditures of each department being credited with the earnings of that department and the tax receipts being similarly reduced by the refunds allowed during the same period.

From 1910 to 1916, inclusive, the net expenditures of the Federal Government showed no striking tendency to increase, being only $35,000,000 greater in 1916 than in 1910. The net expenditures for the army and navy were only $23,000,000 greater in the fiscal year 1916 than in the fiscal year 1914, which closed so far as Americans knew to the contrary amid conditions of secure peace—a striking commentary upon the attitude of the Administration in power toward preparedness. Between 1917 and 1919, however, the net expenditures of the army and navy rose from $668,852,948 to $11,192,817,468. It is needless to add that this expansion checked the development of the civil functions. Even before the World War, expenditures for the army, navy, pensions and interest upon old war debt absorbed about two-thirds of the Federal expenditures, leaving less than one-third for the civil functions. But in 1920, at the close of the decade, the expenditures chargeable to war consumed three-fourths of the very much greater aggregate. The total expenditures for primary governmental functions, research, education and development, and for public works, representing the civil functions, were actually less per capita in 1919 ($2.21) than in 1910 ($2.24), the principal reductions coming in the expenditures for public works which amounted to $54,332,139 in 1919 as contrasted with $79,503,701 in 1910. In 1920, after the war, the expenditures for civil purposes rose materially; but considering the fall in the purchasing power of money, even the later and higher figures suggest decrease in the equipment, personnel and efficiency of the civil branches of the Government.

The cost of the war may be estimated with rough accuracy, defining such cost as the excess of the expenditures which actually occurred over the amounts which probably would have been expended had the war not taken place. The Secretary of the Treasury (Annual Report, 1920, p. 105), assuming that expenditures on a peace basis during the three fiscal years 1917-9, would have been $1,000,000,000 a year and during the following fiscal year $1,500,000,000, estimated the net war expenditure to June 30 1920 at $33,455,000,000, and the net war-tax receipts, i.e. the excess of the annual tax revenue over the normal tax revenue of peace-times, at $10,703,000,000. On this basis, 32 per cent of the special war expense was paid from special war taxes. Mr. E. B.

Rosa, in his authoritative analysis, Expenditures and Revenues of the Federal Government, makes a more careful estimate, for the four years 1917-20, of the “excess of expenditures over the estimated normal expenditures on a pre-war basis,” and reaches a figure of $35,427,730,074, against which he places an estimate of the special war revenue, i.e. “the excess of revenue over the estimated cost of government on pre-war basis,” $11,818,699,300. Mr. Rosa's estimate agrees with that of the Secretary of the Treasury in indicating that one-third of the special war costs were paid from special war revenues. In both cases loans to foreign Governments, $9,500,000,000 in round figures, are included in the war costs.

Federal revenues during the decade were revolutionized. At its beginning in 1910, customs supplied more than one-half the total receipts; and customs together with the duties on distilled spirits, beverages and tobacco produced more than 95% of their total net revenues. The income tax (special corporation excise tax) was then in the first year of its collection and yielded less than 4% of the total. By the end of the decade, customs and the old duties on alcoholic beverages were subordinate. In the year 1920 customs yielded less than 6%, and the combined duties on imports, distilled spirits, beverages and tobacco yielded only 14% of the total tax revenue; while the income and profits taxes produced $3,956,936,003 or nearly 70% of the total net tax revenue, which was large enough in this year of readjustment to meet the entire current cost of the Government and to create a surplus of more than $1,000,000,000. Other noteworthy developments of this decade from the viewpoint of revenue are found in the introduction in 1916 of the Federal estate or inheritance tax, the development of the excess-profits tax, the loss of one of the most important of the older taxes through the adoption of Federal prohibition, and the reëstablishment of the Tariff Commission. The most significant change, however, was the revolutionary readjustment of taxes by which a system of taxation, predominantly indirect and regressive, gave way to a system predominantly direct and progressive.

Public credit supplied during the war two-thirds of the revenue or receipts. Details concerning the management and yield of the huge war loans are given in the article. Here the subject can only be briefly treated in its connexion with the plan of the Government for the financial management of the war. That plan was based upon the policy of sedulously avoiding the use of Government paper money; of raising at least one-third (and, if possible, one-half) of the necessary revenue by taxation; of keeping the inflation which inevitably accompanies war to a minimum, by restricting