of Sept. 24, 1917, authorizes an additional issue of bonds of $3,538,945,460, thus leaving $3,906,861,554 which is covered neither by taxation nor by loans, and which will have to be provided for during the next session of Congress.

Senator Smoot in an analysis of the Government's finances shows that the United States is raising 36 per cent. of its expenditure by direct taxation, while the percentage raised by direct taxation in other countries after three years are the following: Great Britain, 26; France, 142; Germany, nearly 15, and Canada, 8.

Drastic Income Taxation

The War Revenue bill was the last important measure disposed of by Congress before the conclusion of the special session. It had been under discussion nearly four months and imposes taxation on a drastic and comprehensive scale. An additional tax and a surtax are levied on the incomes of all married men over $2,000 a year and on those of unmarried men over $1,000 a year. Grouping together the old tax, the new tax, and the surtax, the levy on a number of typical incomes of married men will work out as follows:

5,000..

80 25,000.

6,000.

130

7,000..

180

8,000.

9,000..

10,000....

1,780 50,000. 5,180 100,000....... 16,280 235 500,000...... .192,680 295 1,000,000.. .475,180 355

The most striking feature of the new taxation is the levy on profits. A graduated tax of from 20 to 60 per cent. on excess profits of corporations, partnerships, and individuals will be levied on a basis of invested capital, as compared with invested capital of the three years 1911-1913. The graduated excess profit rates are 20 per cent. of excess profits not in excess of 15 per cent. of the invested capital for the taxable year; 25 per cent. on profits in excess of 15 per cent. and not over 20 per cent. of such capital; 35 per cent. on excess over 20 and under 25 per cent. of capital; 45 per cent. on over 25 per cent. and under 33 per cent. of capital, and a maximum of

60 per cent. on profits in excess of 33 per cent. of such capital.

The War Revenue act also contains new imposts on tobacco, liquor, insurance, transportation, amusements, (theatre tickets, &c.,) and club dues, cosmetics, perfumes, and proprietary medicines, and increases postal rates. Letters, except drop letters, will require three cents postage; while increases are made on second-class mail matter, the latter not to go into effect until July, 1918, and thereafter in an annual progressive scale. Second Liberty Loan

Secretary McAdoo announced on Sept. 27 the terms and details of the second issue of Liberty Loan bonds. The announcement read in part:

With the approval of the President, I have determined to offer on Oct. 1, 1917, three billion or more dollars of United States of America 4 per cent. convertible gold bonds, due on Nov. 15, 1942, and subject to redemption at the option of the United States at par and accrued interest on and after Nov. 15, 1927. The bonds will bear interest from Nov. 15, 1917.

The exact amount of bonds to be issued under this offering will depend on the amount of subscriptions received. It is, of course, to be expected that subscriptions considerably in excess of $3,000,000,000 will be received, and in that event the right is reserved to allot bonds in excess of $3,000,000,000 to the extent of not over one-half of the sum by which the subscriptions received exceed $3,000,000,000. In other words, if subscriptions to the extent of $5,000,000,000 are filed $4,000,000,000 of bonds may be allotted.

The bonds will be offered as before at par and accrued interest and will be in denominations of $50 and multiples thereof.

The bonds shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess profits and war profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds and certificates authorized by said act, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above.

If a new issue at a higher rate of interest is offered, holders of these bonds will have the right to convert.

A Financier's War Service Frank A. Vanderlip, President of the National City Bank of New York, the largest national bank in the United States, entered the service of the Government on Sept. 25 for the purpose of floating the $2,000,000,000 certificates of indebtedness authorized by Congress on April 24 in addition to the $5,000,000,000 of war bonds then authorized to provide $3,000,000,000 to be loaned to the Allies and $2,000,000,000 to be employed in our own projects of military preparedness. Mr. Vanderlip's salary is one dollar a year. He is spending four days a week at Washington, and while absent from New York is keeping in touch with his office in the National City Bank continually by telephone. As Assistant Secretary of the Treasury under Secretary Gage, Mr. Vanderlip had direct charge of placing on the market the

Mr.

bonds required to build up the United States Army and Navy, especially for the Spanish war. For several months Russell C. Leffinwell, a banking lawyer of New York and one of Mr. Vanderlip's aids in the conduct of the National City Bank, has had an office in the Treasury Department Building, where he has been a constant adviser of Secretary McAdoo in shaping the terms and conditions of the first two issues of war bonds. Leffinwell remains on duty in the Treasury Department, and is co-operating with Mr. Vanderlip in the work of selling not only the certificates of indebtedness, but the bonds of the Second Liberty Loan. In answering Secretary McAdoo's request for his aid Mr. Vanderlip surrendered for the period of the war not only active direction of his office as President of the National City Bank, but his active connections with the American International Corporation and the International Mercantile Marine Company, in both of which he was an influential factor.

|OSTA RICA formally severed diplomatic relations with Germany Sept. 21, 1917. Passports were handed to the diplomatic and Consular representatives of Germany at San José, and the Costa Rican delegation and Consuls of Germany were recalled. President Tinico is reported to have discovered that German residents had joined with the former President, Gonzales, in conspiring against the Government. German residents at Costa Rican ports were interned.

On Oct. 6 the Peruvian Government handed his passports to Dr. Perl, the German Minister, the Peruvian Congress by a vote of 105 to 6 having passed a resolution presented by the Minister of Foreign Affairs providing for a rupture of diplomatic relations. Prior to this

action efforts were made to blow up the interned German steamships in the harbor of Callao, the seaport of Lima; it was believed that the Germans attempted to wreck the vessels to prevent their falling into the hands of the Allies. On Oct. 10 the British and United States Governments were notified by the Peruvian Foreign Office that the use of Peruvian ports was extended to their war vessels. This action opened to the Allies practically the entire coast of South America without the usual restrictions of neutrality-except the ports of Argentina and Colombia.

The Republic of Ecuador, on Oct. 8, took a step tantamount to a severance of relations with Germany by announcing that the German Minister, Dr. Perl, who had been handed his passports by Peru,

would not be officially received by the Ecuadorean Government in case he attempted to come to Quito.

Uruguay officially broke relations with Germany on Oct. 7 by decree of the President, and all functionaries of the republic were ordered to withdraw from German territory. The Chamber of Deputies voted in favor of the rupture by 74 to 23. The President of Uruguay previously-on June 20-had issued an order announcing that "no American country which, in defense of its own rights, should find itself in a state of war with nations of other continents, will be treated as a belligerent." President Viera, in his message to the Parliament, declared that the Uruguayan Government had not received any direct offense from Germany, but that it was necessary to espouse the cause of the defenders of justice, democracy, and small nationalities.

Uruguay, with other neutrals, has been a sufferer from Germany's U-boat warfare and other actions in disregard of international rights. In a note to the United States Government on April 14 the Montevideo Government said it did not recognize Germany's unrestricted warfare, and did recognize that the action of the United States in declaring war was a proper answer to Germany's actions.

Uruguay, on May 1, sent a note to London and Paris, asking for information as to the sinking of the Gorizia, a Uruguayan ship, and later made a protest to Germany. In May it joined in the suggestion for concentrated action by South American countries toward Germany. On Sept. 14 the Uruguayan Government, in a note to Argentina, approved the action of the Buenos Aires Government in handing his passports to Count von Luxburg.

The following German ships interned at Montevideo were seized by the Uruguayan Government:

President Irigoyen of Argentina up to Oct. 18 had succeeded in maintaining his country's neutrality, notwithstanding the vote of both houses of Congress in favor of a rupture in relations. The Argentine Foreign Minister announced on Oct. 9 that relations with Germany would not be broken so long as Germany fulfills its latest pledge, made early in October, "to recognize the Argentine flag and respect the nation and people." Feeling ran high throughout Argentina, and the country was almost in a state of civil war owing to bitter conflicts between the prowar and neutrality factions. A nationwide strike on the railways was a serious cause of disturbance and produced a crisis which was not allayed until the demands of the strikers were practically granted.

The action of Uruguay and the hesitation of Argentina created some friction between the two republics, which was aggravated by the following statement, said to have been made by the Foreign Minister of Uruguay, in urging the Uruguayan Congress to break off relations with Germany:

Uruguay, as a small nation between two great ones, must seek a balance of force to resist the possible hegemony of Argentina, with which nation we still have questions which are not settled definitely. This balance consists in bringing closer together Brazil and the States of our connection with the great States of the present conflict so that it will make impossible an attack on Uruguayan sovereignty without an immediate reverberation throughout the American Continent.

The unsettled questions between Uruguay and Argentina concern the River Plate. Argentina asserts that the river belongs to her, while Uruguay insists that she owns half of it. The dispute involves the ownership of the important island of Martin Garcia, now held by Argentina.

South American nations that have broken relations with Germany are Brazil, Peru, Bolivia, Paraguay, and Uruguay. The Central American Gov

ernments breaking with Germany are Guatemala, Nicaragua, Costa Rica, and Honduras. Panama and Cuba declared war on Germany on April 7, the day following the American declaration. Haiti broke relations with Germany in June.

The Pan-American nations that have not yet severed diplomatic relations are Colombia, Venezuela, Ecuador, Chile, Argentina, Salvador, and Mexico. As stated above, however, Ecuador has practically ruptured relations.

D

The record for the week ended Sept. 30 was the lowest since the U-boat war was proclaimed. During the week ended Oct. 7 British shipyards launched more tonnage than the Germans sank. French Admiralty figures showed that for the two weeks ended Sept. 30 the losses were: Over 1,600 tons, 12; under 1,600 tons, 10; fishing vessels, 6. During the week ended Oct. 14 Italy lost four steamers of over 1,600 tons each. During the month of September Norway lost nineteen merchant ships representing 30,800 tons. Twenty Norwegian sailors were killed and seventeen reported missing.

The most disastrous sinking was that of the French munitions steamer Medie, 4,470 tons, which was torpedoed in the Mediterranean on Sept. 23. The number of lives lost was 250 out of the 500 members of the crew and passengers, including sailors and prisoners of war. The explosion of the torpedo detonated the munitions in the ship's cargo. Five officers and fifty-one men were lost when the British armed mercantile cruiser Champagne was torpedoed and sunk. Charles H. Grasty,

in a cable

dispatch dated London, Oct. 6, to THE NEW YORK TIMES, said that it looked as if the September total of losses had dropped as low as 350,000 tons, or a weekly average of less than 90,000. The actual figures for the first two weeks included the allied and neutral as well as British losses. The average compares with a weekly average of nearly 130,000 tons for the eight months from January to August, inclusive, these also being the losses for the Allies and neutrals. Adding the September figures to those given in CURRENT HISTORY MAGAZINE in October, Page 137, the total amount of shipping lost during the first nine months of 1917 amounts approximately to 4,911,000 tons.

The most hopeful sign of the slackening of the German submarine campaign was seen in the announcement on Oct. 6 of reduced premiums by the United States War Risk Insurance Bureau. The official statement said that the reduction of insurance rates from 6% to 5 per cent. for American vessels and cargoes traversing the war zone was made "because of the decrease in the risks."

The British cruiser Drake, 14,100 tons, was, according to an Admiralty announcement, torpedoed and sunk off the north coast of Ireland on Oct. 2. One officer and eighteen men were killed by the explosion. The remainder of the ship's company was saved. The Drake was well known to vessels entering and leaving New York Harbor during the first eighteen months of the war, for she overhauled many and examined their papers. In January, 1916, she was refitted at the Bermuda naval dockyard and went in search of the German raider Möwe.