of Hapsburg, by two coups during the year, tried to recover the Hungarian throne. As a result of the second coup, he is now resident at Funchal in the Madeiras, and the House of Hapsburg has been declared forever barred from the throne of St. Stephen. Eastward and westward the lines of battle have swayed in Anatolia during the past year. Once the Greeks were almost in sight of Angora, and doubtless they hoped to make such a slaughter of Turks beneath the walls as did Timur the Lame when he met there and conquered the Sultan Bayezid. But instead they have been driven back and still farther back toward the wine-dark Ægean, and now they are begging the Allies to mediate for them with Mustapha Kemal; foiled, it seems, of their great adventure.

Mustapha Kemal lacks not of friends, for the French have just made peace with him, turning over in return for economic concessions Cilicia with its Tarsus plain, one of the richest regions of the world.

China? The events there are incident to a process of transformation, and the recital of them would not edify the reader. I think of China as having reverted to the condition which existed towards the end of the Chóu dynasty. The Empire has been parcelled out among a number of feudal barons called Tuchuns, and the President corresponds to the last shadowy Chóu Emperor, Nan-wang. May we not hope to see a new Shi Hwang-ti arise and restore the ideal government, the government of literati (Plato's "philosopher-guardians")?

Upon the whole, then, the outlook for the twelvemonth ahead is hopeful, whereas a year ago it was, almost however viewed, gloomy. Should the Washington Conference achieve genuine success, the outlook will be rosy. One may then feel that man is at last by way of becoming master of his fate. The American bugler sounding taps at the tomb of the Unknown Soldier will become a familiar symbolic figure.

HENRY W. BUNN.

NEW PROSPECTS FOR AMERICAN

CAPITAL-I

BY C. REINOLD NOYES

It will be difficult for the historian of the twenty-first century to exaggerate the sensational character of the changes in the world situation which were brought about by the Great War. The development of civilization seems to proceed through long periods of comparative quiescence, during which the incubation of new forms of human growth takes place, and the rearrangement of the stresses and strains of the human conglomerate accumulates statically; until in a sudden dynamic catastrophe the old shell cracks and bursts and, with all the labor and pains of birth, a new era is introduced to the light of day.

The catastrophe of the four years, 1914 to 1918, has had consequences as radical as were the combined effects of the great movements at the close of the eighteenth and the beginning of the nineteenth centuries, when the French Revolution, the Industrial Revolution and the Napoleonic era remade Europe, politically and industrially, in a period of twenty years. Perhaps it would be necessary to go back to the fifteenth and sixteenth centuries, and to the effects of the discovery of the new road to the Old World and the road to the New World, to find a parallel for the rise and fall of empires and the complete upsetting of trade relations and routes that have recently occurred.

But changes equivalent to those that occupied the greater part of the fifteenth and sixteenth centuries, and more than two decades one hundred years ago, have in our time been condensed into four years.

It is little wonder then that we have not been able to grasp the significance of the revolution that has occurred; that we have not adjusted ourselves to changed conditions; and that we still talk,

work and govern our affairs, public and private, largely according to policies which were derived from the experience of the last century under circumstances which have passed not to return.

Out of the throes of this upheaval the United States has been thrust into a position of preeminence. It is now the great Power, financially, industrially, and perhaps even commercially. The period of European preeminence has closed. That of North America has opened. We are no longer a debtor nation, but the world's greatest creditor. We are no longer a seller of food and a buyer of manufactures, a frontier, colonial people. Our status in the world at large and our relations with other nations have been suddenly and completely changed.

Among the most radical changes that our new position as a financial creditor and an industrial exporter has brought about is in the field of the investment of capital. Not only has the future supply of domestic capital for investment been greatly enhanced, but also the channels into which these funds will or should flow have been fundamentally modified. If a proper appreciation of these new ruling factors does not become common, it is likely that much capital will be dissipated in ventures which might have been successful under the old auspices, but which will now have the stars in the heavens set against them.

Before the war it was commonly estimated that about two billion dollars of new capital was available for investment each year. As soon as we have recovered from the temporary ills of our surprisingly rapid and radical deflation and liquidation, it is reasonable to expect that the savings of the people will again yield about this annual increment. The price level may remain somewhat higher for a time, which would tend to make this figure proportionately greater. But to offset this influence there will be the counteracting effect of the lessened share which goes to the capitalist-the saver-in a time of gradually declining prices. The high taxes will have little effect in diminishing savings, because as soon as there is a settled and permanent fiscal policy the business world will, as always, adjust itself, and taxation will be absorbed into cost of production. In this particular instance, since practically the whole industrial world is equally debt-ridden, there will be no competition to speak of which will be enabled to under

sell our producers because of a lower tax rate. In former cases foreign competition sometimes forced the capitalist to pay the taxes out of his current savings. But now such a necessity is practically eliminated. In view of all these considerations it is safe to assume that our normal savings will at least equal our figures before the war.

During the next twenty-five or fifty years there will be an additional increment of investible capital from two new sources which will greatly increase the total funds available each year. I allude to the retirement of our national debt and the liquidation of foreign indebtedness to the Government and people of the United States.

It seems not to be generally recognized that taxation for the purpose of retiring national debt is a form of compulsory savings, when it is looked at from the point of view of the whole people. Liberty bonds were originally paid for out of the current savings of the nation over a period of three years, and out of the credits issued to individuals on pledges of savings not yet accomplished. This latter fund of frozen credit is rapidly being liquidated and most of the outstanding national securities are now owned outright by the investor. The proceeds of this financing have been spent or lent, not invested, by the Government. Deducting the loans made to foreign Governments, about fifteen billion dollars of the savings of the people have been used up in current expenditures. There are no assets to speak of to counter this liability, for the credit of the Government lies in its power to tax the individual proprietors of the country, not in its owned assets. Though the individual naturally regards his Government bonds. as a part of his capital, the aggregate of the bonds is not a part of the national capital, but represents property used up with nothing permanent or tangible to show for it.

To retire such a debt, the people must produce each year additional savings over and above their personal expenditures and pay them over to the Government in the form of taxes. The Government in turn will indemnify the original lenders of capital until the whole account is settled. To the lender the cash received at maturity appears to be merely the repayment of his principal, formerly advanced, and there is therefore a strong tendency to retain it as capital and to re-invest it. What was at first largely

a paper lien against non-existent savings becomes, as the bonds are retired, a real enhancement of the national capital fund, and is an additional increment available for productive investment as long as the process lasts.

During the next quarter to half-century twenty-five billion dollars of paper assets will in this way be converted into real assets in the hands of our people. And since no one will regard his share of this national accumulation as a part of his individual accumulation during the period, there will be little or no tendency for the process to diminish or replace normal savings.

The second of the new sources of supply of investible capital will arise from the repayment of the world's indebtedness to the United States. Europe is the principal debtor, and probably through the ramifications of international trade the repayment of the entire amount will devolve upon Europe; therefore I shall refer hereafter to this debt as the European debt. While a greater or less part of this debt may be refunded at maturity, the necessity now exists that this collection of obligations must be paid off during the next twenty-five to fifty years, for the option to refund lies with the creditor, not the debtor. Reinvestment of the proceeds of these foreign loans in the same form will be considered in connection with the other possible fields of investment. Suffice it to say at this point that a sum variously estimated at from fifteen to twenty billions is now owing us. As it is paid it will constitute an addition to our normal supply of new capital. Nearly ten billions of this is owing to our own Government and will therefore be paid to our capitalists as a part of the retirement of our own national debt in the way already described. But there is between five and ten billions besides which exists in the form of credits of short or long term to foreign Governments and foreign individuals, extended by private interests in this country. The unfunded debt of foreign buyers which now rests in our banks, in the form of frozen loans, is estimated to be about four and onehalf billions. In addition to this there is the funded debt in the form of external bonds of foreign Governments, municipalities and private concerns, owned by our investors and corporations; the credits granted by the United States Food Corporation and other official bodies; the purchase of foreign drafts by speculators