accorded to them in other directions, it may be safely affirmed that the capital of farmers has been more than doubled during the war.

Even if effect were given to the proposals outlined above, it would not produce sufficient revenue for the purposes of the Government; and the best course appears to me to be the institution of a small annual tax on capital, graduated so as to yield an average return of 1 per cent. per annum on the capital wealth of the country, and to be strictly limited to a term of ten years. An exemption limit of, say, 20007., might be adopted. If such a tax were imposed, it should yield a revenue of not less than 1207. millions per annum in the United Kingdom. The method of assessment should be comparatively simple and inexpensive. Each taxpayer, when making his return to Income Tax, should be required to include a valuation of his capital. In case of dispute the valuation should bear a certain specified ratio to the gross income assessed to Income Tax, the ratios varying in relation to the nature and state of development of the property. The Income Tax returns would provide an annual check; but, if there should be found to have been evasion, the arrears could be recovered when the estate ultimately came to valuation for probate purposes. If effect were given to the above proposals, the post-war revenue might be as follows (the actual revenue for 1913-14 and 1917-18 are included for comparison):

It should, therefore, be possible, by increasing indirect

Average for, say, ten years.

taxation to 2007. millions, by advancing the Death Duties and by instituting a small annual tax on capital, to meet our post-war charges, to abolish the Excess Profits Duty in five years' time, and reduce the Income Tax to the standard rate of 58. in the £. In 1929 the Government will have the option of paying off the 5 per cent. War Loan; and many of the other Government obligations will become liable to redemption. It is probable that we shall then be in a position to reduce the rate of interest and consolidate the war debt; and, if the monetary conditions are suitable, we might issue a Consolidation Loan at the rate of 33 per cent. Of course, due consideration must be given to the condition of the money markets, the cost of living, and the rate of income tax. A reduction of 14 per cent. interest on 70007. millions would mean an annual saving of 1057, millions per annum to the Exchequer. I think, therefore, that for the next decade we should adopt what may be termed transitional methods in national finance, and at the end of that time reconsider our national economic policy.

Expenditure must always be considered in relation to income; and we must remember that in 1914, when the Imperial expenditure was 2007. millions per annum, the national income was about 2400l. millions per annum. That is to say, the cost of Government represented about 8 per cent. of the entire national income. What is the national income at the present time? The following table gives an estimate of the income and expenditure of the United Kingdom for the years 1907 and 1917:

From the estimates furnished in the above table, it may be said that, while in 1907 we produced commodities and services sufficient to feed, clothe, and maintain us, and leave a surplus of about 500l. millions for repairs and renewals and new investments at home and abroad, in 1917 we produced commodities and services sufficient to feed, clothe, and maintain us, and provide a surplus of approximately 1500l. millions, which we devoted to the carrying on of the war; but there was practically nothing available in 1917 for renewals and new investments. This great surplus was produced partly by increased production, partly by restricting consumption, partly by using up accumulated stocks, and partly by the rise in prices. It will be noted that I estimate that the national income advanced from 21537. in 1907 to 34651. millions in 1917. This estimate is borne out by the amount of gross income brought under the review of the Commissioners of Inland Revenue, which advanced from 980,117,000l. in 1907-08 to 1,600,000,000l. in 1916-1917. The number of income-tax payers in 1913-14 was 1,200,000, and in 1916-17, 3,200,000.

All this conduces to show that the solution of our domestic post-war financial problem can only be found by increased production. If we can maintain the production of the United Kingdom at not less than 36007. millions per annum, the estimated Imperial expenditure 7501. millions per annum will not amount to more than 21 per cent. of the national income; and this is a burden of taxation which the nation should be able to bear with

comparative ease. I believe we can maintain the production of the United Kingdom at the level I have indicated if we profit fully by the lessons which the war has taught us, improve our very defective commercial organisation, and place the relations between capital and labour on a happier footing than they were on before the war.

Ordeal by battle has shown the weakness of our old economic policy as well as its advantages. For centuries it was our practice to throw out from the centre, as it were, our different sources of strength. In pursuance of this policy we encouraged our people to emigrate to the remote parts of the world. We invested about onefourth of the national wealth outside the limits of the United Kingdom. Our investments abroad have proved of inestimable value during the war. They have been our real war treasure, and without them it is difficult to believe that we should have been able to finance our Allies and provide for our own expenditure. We also derived great advantage from our Free Trade policy through the development of British shipping. When the war broke out, we owned one-half of the mercantile tonnage of the world; and it was the magnitude of our mercantile marine, and the fact that through its use we were able to call upon not only the Empire but the whole world for supplies of food and raw materials, that saved the Empire and our Allies from disaster. On the other hand, under our Free Trade policy agriculture declined, and the factory and the furnace flourished by the ruin of English agriculture. The general tendency of our economic policy was to subordinate everything to the development of international trade and finance. threw down all the barriors which restricted the freedom of commerce. Thus we became dependent upon foreign countries for more than half our supplies of foodstuffs and raw materials, and upon Germany in particular for various commodities vital to the conduct of some of our greatest industries.

We

Now the final purpose of economic labour is production to meet consumption; and I venture to think that in the past we paid too much attention to production and too little attention to consumption. There was waste in the production and consumption of food. The report of the

Food (War) Committee of the Royal Society (Cd 8421) showed that the amount of food produced and imported into the United Kingdom during the period 1909-13 was 15 per cent. in excess of the amount required to feed the entire population; and yet there is irrefutable evidence that a large proportion of the population was undernourished. Our industrial organisation was defective; there was waste in the production, consumption, and distribution of coal and motive power. The present coal consumption (say our experts) would, if used economically, produce at least three times the present amount of power.' The Coal Controller estimates that, by bringing the consumption of coal as near as possible to the source it will be possible to save, roundly, 700 million ton-miles per annum. Again, we did not make the most economical use of our shipping. Under war conditions the carrying power in weight per 100 tons net of shipping entrances increased from 118 tons in 1914 to 143 tons in 1916. Further, a large number of people were engaged in services which were not essential to national welfare. There were too many people employed in distribution and too few employed in production; the drink traffic was not sufficiently controlled; there were too many domestic servants. In short, any one who will take the trouble to examine closely the reports made under the Census of Production Act cannot fail to be impressed by the smallness of the national output in relation to our capacity to produce.

An interesting statement with regard to pre-war industrial conditions and output was made in a report of the Mechanical Section Committee of the Iron and Steel Institute issued in the latter part of 1917 as to the causes of the smaller output of steel in British steelworks as compared with foreign practice. On the question of labour conditions the report states: There is a general agreement that our labour conditions, as compared with the Continent, are detrimental to output. It is not, however, suggested that this is due to inferiority of the

• Reconstruction Committee, Coal Conservation Sub-Committee (Cd 8880).

↑ Annual Report of the Liverpool Steam Shipowners Association for the year 1916.