neighbourhood of 2000l. millions, without taking into account loss of profits, etc.; but against this must be set the increased power of production.

If we should finish the war with a net National Debt of 70001. millions, what is our National Budget likely to be? We should have first to provide, say, 5 per cent. for interest and sinking fund, which would mean an annual charge of 3851. millions. Before the war the Civil Government cost 971. millions per annum. We are committed to a large and expensive scheme of educational reform; we know that old-age pensions will cost 18,000,000, instead of 12,000,000l.; and the recent increases in salaries in the Government Departments will involve a large annual sum. It would be prudent to reckon that in the first years of peace the cost of Civil Government will not be less than 150l. millions, while pensions will form an annual charge of at least 501. millions.

In the year before the war the Army cost 28,300,0001. It is my belief that, notwithstanding the proposed League of Nations, the British Empire will find it very difficult for many years to come to reduce its standing Army below 500,000 men, and its annual expenditure on the Army below 801. millions. In the year before the war the expenditure on the Navy amounted to 48,800,000Z. Naval shipbuilding costs 70 per cent. more than it did before the war. The development of the submarine may alter the whole conception of sea-power, and we shall get off lightly if we can keep our expenditure on the Navy below 701. millions per annum. The third arm, Aircraft, is yet only in its infancy, and an annual expenditure of 20l. millions on this service would not be an excessive estimate.

Summarising the conclusions arrived at, we may estimate our post-bellum expenditure as follows:

The pecuniary cost of defending the Empire has naturally fallen mainly upon the United Kingdom. Our burden of war debt will be about 150l. per head, while that of the Overseas Dominions will probably be very much less.

We may apparently, then, look forward to an annual expenditure of about 7501. millions. How is this vast sum to be provided? The Labour Party propose 'a special capital levy to pay off a very substantial part of the National Debt, chargeable, like the death duties, on all property.' This appears to me to be wholly impracticable in the form in which it is suggested by the Labour Party. What the Government requires is income, not capital. The capital of the Government is the national production.

There are many alternative methods of meeting the charge for the National Government after the war, but it is of vital importance that we should adopt a course which will impose the minimum of hardship and will not check our industrial development. We have already gone much further than America or Germany in the matter of direct taxation; and it would be unfortunate if the treatment accorded to capital should be so much more unfavourable in this country as to divert both home and foreign capital from London.

We might continue the Excess Profits Duty, but this is open to the grave objections: (1) that it constitutes a restraint upon the development of trade and tends to standardise production at the low level of 1913; (2) that it will probably cease to yield any substantial amount of revenue in a few years after the war. Of course, this duty cannot be suddenly dropped, but I think it should be fixed for a period of, say, five years ahead on a descending scale, say 50 per cent. in the first year of peace, declining to 10 per cent. in the fifth year after peace. Another course would be to increase the Income Tax and Super-tax; but the Income Tax is already at an oppressive level, and any further substantial advances would impose a check upon individual enterprise at a time when it should be most actively encouraged, and would probably result in a diminished yield. The Death Duties will doubtless be further increased, and they might possibly be advanced considerably without causing

Art. 12.-BRITISH FINANCE DURING AND AFTER THE

WAR.

In order to obtain a correct view of our War Finance it is necessary to review briefly the economic history of the past four years. In the first place it should be borne in mind that during the forty-four years of intensive economic development which preceded the outbreak of war, Great Britain, in common with the other leading industrial States of the world, had been accumulating immense reserves of economic strength. Our merchant fleet amounted to over 20 million tons gross, only about one-half of that tonnage being employed in the carrying trade of the United Kingdom. The national wealth of the United Kingdom was about 16,500l. millions, and the annual national income 21401. millions. The national wealth of the Overseas Dominions and Possessions was about 9500l. millions and the national income approximately 1350l. millions,† making the total wealth of the Empire 26,000l. millions and the total income 34901. millions. The United Kingdom's share of the international trade of the world was 15.9 per cent., and the share of the Overseas Dominions and Possessions was 12.7 per cent., so that the British Empire transacted 28.6 per cent., or nearly three-tenths of the trade of the whole world. The steam-power equipment of our industries amounted to over 10,755,000 horse-power, and our output of coal was 280 million tons per annum. Our investments abroad were valued at 4000l. millions, and brought us an annual income of 2001. millions.

The Empire, therefore, entered upon the war with almost immeasurable reserves of economic power; but, owing to our neglect of the problem of financial preparation for war and the contempt of our people and politicians for statistics, these vast resources were utterly unorganised. The task before our Government and the nation was, first, to survey and organise the national resources; secondly, to enrol and equip an army on the Continental standard; thirdly, to transform the entire

Economic Relations of the British and German Empires,' Journal of the Royal Statistical Society, July 1914.

+ Imperial Defence and Finance,'Nineteenth Century,' August 1913.

fabric of our economic life, with all its international complexities and ramifications, from peace production to war production; fourthly, to increase the output of commodities on the new basis necessitated by the war; and, fifthly, to convert the resources accumulated through three centuries of commercial intercourse with the world into war munitions or war services.

Before the war, out of a total national income of 21501. millions, only 777. millions, or 3.5 per cent., were allocated for the purposes of the Army and Navy. By the end of the third year of war it had become necessary to allocate for the purposes of the war 27001. millions. As a matter of fact, part of this amount was borrowed abroad; but the United Kingdom in 1917 provided about 18007. millions, or, say, 50 per cent. of the increased national income, for the purpose of carrying on the war.

Notwithstanding the withdrawal of over five millions of men for naval and military service, the production of the country appears to have been not only maintained but increased. Dr Addison stated on June 28, 1917, that before the war the output of steel in this country had been more or less stationary at a little over 7 million tons per annum. The output then (June 1917) was about 10 million tons, and he would be disappointed if they had not reached a 12-million ton output by the end of 1918. With regard to coal, the production appears to have been well maintained. The total output in 1916 was 256,375,000 tons, as compared with 253,206,000 tons in 1915. The returns as to electricity show an increase of 528 million units or 68.6 per cent. All these facts point to the same conclusion, namely, that since August 1914 there has been an increase in the production of the United Kingdom; and I am convinced that during the war our power of production has increased by 30 per cent.

The problem of financing the war was naturally the most formidable of the economic tasks which had to be undertaken by the Government. Our war expenditure began at an average of 1,000,000l. per day. As the Army grew and the scope of our activities steadily widened, and the prices of commodities and foodstuffs advanced, the war expenditure rapidly increased. From August 1914, to March 31, 1915, it averaged 2,050,8647. per day;

for the year to March 31, 1916, 4,271,6661.; for the year to March 31, 1917, 6,022,2227.; for the year to March 31, 1918, 7,387,0002.

The first war budget was introduced by Mr Lloyd George on Nov. 17, 1914. Its main features were the doubling of the income tax and super-tax, an additional d. on the half-pint of beer and 3d. per lb. on tea. The second war budget, presented on May 4, 1915, contained no new taxation proposals. The expenditure for the year 1914-15 amounted to 560,474,000l., and the revenue to 226,694,000l. (189,305,000l. from taxes and 37,389,0007. from non-tax revenue), leaving a deficiency of 333,780,000l. The third war budget was presented by Mr McKenna on Sept. 21, 1915. Under this budget 40 per cent. was added to the existing rates of income tax, and certain alterations were made in the exemption and abatement limits. The super-tax was raised, the Excess Profits Duty was instituted, and the duties on many imported articles were largely increased. The fourth War Budget, introduced on April 4, 1916, provided for a graduated increase of the Income Tax, making the maximum rate 58. in the £. The duties on sugar, cocoa, coffee and chicory were appreciably advanced, while new taxes were levied on matches and table waters. The expenditure for the year to March 31, 1916, amounted to 1,559,158,000l., and the revenue to 336,765,000l. (from taxes 290,088,000%., non-tax revenue 46,679,000l.), leaving a deficiency of 1,222,391,0007.

On May 2, 1917, Mr Bonar Law introduced the fifth War Budget, under which the excess profits duty was increased from 60 per cent. to 80 per cent. as from Jan. 1, 1917, and the entertainments tax was substantially increased. The expenditure for the year to March 31, 1917, was 2,198,113,000l. and the revenue 573,428,0007. (from taxes 514,105,000l., non-tax revenue 59,323,000), leaving a deficiency of 1,624,685,000l. The sixth War Budget was introduced by Mr Bonar Law on April 22, 1918. The total expenditure for the year to March 31, 1918, was 2,696,221,000l., including 505,000,000l. for advances to the Dominions and our Allies, leaving a net expenditure of 2,191,221,000. It is gratifying and significant that our Dominions and India were able to finance so large a proportion of their own expenditure. The