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Pearson, Captain William McMullen, I.M.S., care of
Messrs. Thomas Cook and Son, Bombay, India.
Perez, George Victor, M.B., M.R.C.S., Puerto
Orotava, Tenerife, Canary Islands.
Perryman, Charles Wilbraham, J.P., 41, Charing-
cross-road, W.C.

Petherbridge, R. C., The Kinta Association, Ltd.,
Tanjong Rambutan, Perak, Federated Malay States.
Pope, Reginald, A.R.I.B.A., 17, Cheriton-place,
Folkestone.

Pope, William Waller, M.I.Mech.E., Hatfield, The Grove, Slough.

Price, Albert Edward, A.M.I.Mech.E., Cleveland Works, Wolverhampton.

Pries, Robert, A.I.E.E., 82, Bunhill-row, E.C. Pring, Francis E., A.I.E.E., Hazel Dene, Ty Maurroad, Llandaff Station, Cardiff.

Ramsell, A., 187, Wolverhampton-st., Dudley, Worcs.
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Rowbotham, James McKean, M.Inst.C.E., Calle
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Sanders, Carl, care of Messrs. Hatton and Cookson,

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The paper read was

THE FISCAL PROBLEM.

BY SIR CHARLES MALCOLM KENNEDY, K.C.M.G., C.B.

The Society of Arts was founded for “the encouragement of the arts, manufactures and commerce of the country," and one of its specific duties is to endeavour "to increase the trade of the realm by extending the sphere of British commerce." The consideration of the very important question before the country, which is designated briefly-the "Fiscal Problem"-comes, therefore, properly within the functions of the Society, provided that the subject is treated on grounds of general public interest. The subject it is true cannot be placed before the Society without entering upon topics of political as well as economic controversy; yet the aim here must be, while these topics are clearly set forth, to discuss these matters without reference to political or party exigencies. The position of the Society of Arts should enable us to do so. Difference of opinion is to be expected. If, however, the limitations above indicated are observed, our discussion this evening may be of use to our members.

The scope of this paper is first to trace the adoption of the present fiscal policy and tariff of the United Kingdom, the principal European powers, and the United States. Secondly, to explain (sufficiently for the purposes of the paper) the present commercial, industrial, and economic position of these powers, and to advert to some details connected with these questions. Then, after stating the colonial aspect of the case, we shall be able to enter upon the consideration of the proposals now before the country; and to form an opinion on the circumstances which have led up to these proposals, as well as on the objections which are urged against them. It is hoped that in this manner we may aid the members of this Society in their individual appreciation of questions which are of the highest importance, both to our national interests and to the international relations of the Empire.

The fiscal question, taken in its full significance, comprises all matters connected. with public revenue and disbursements-their principles and details. The problem now immediately before the country, is, however, mainly concerned with the Customs systems of the United Kingdom, and of the British colonies and dependencies. written mainly on the latter standpoint; and the general question will only be adverted to

by such incidental references as may be found necessary for our special purposes.

CUSTOMS TARIFFS 1840-1860.

One of the most influential agencies in the extension of international commerce during the latter half of the 19th century was the reform of Customs tariffs. The re-settlement of the political system of Europe in 1814-15 did not effect any direct changes in the commercial relations between the different Powers; but it indirectly prepared the way for improvement in Central Europe by means of the regulations adopted at Vienna in March, 1815, for the free navigation of rivers. The Zollverein, as constituted in 1834, and the gradual accession of German States to this Customs Union, made customs reform known practically on the continent, but without early results. It strengthened, however, the example afforded within the United States of the benefits of unrestricted intercourse, and of a centralised Customs administration.

The first reform on a comprehensive scale took place in the United Kingdom. It began with enactments introduced by Mr. Canning and Mr. Huskisson; but after these early improvements a committee of the House of Commons on Import Duties reported in 1840 that the tariff possessed "neither congruity nor unity of purpose: no general principles seem to have been applied. The tariff often aims at incompatible ends: the duties are sometimes meant to be both productive of revenue and for protective objects, which are frequently inconsistent with each other. Hence they sometimes operate to the complete exclusion of foreign produce, and in so far no revenue can of course be received; and sometime when the duty is inordinately high, the amount of revenue becomes in consequence trifling. An attempt is made to protect a great variety of particular interests at the expense of the revenue, and of the commercial intercourse with other countries." The above remarks are supported by a tabular statement showing the duties received in the financial year 1838-39 under the Customs tariff of 1833 which was then in force :£

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The total number of headings or items in the tariff was thus in 1840-862.

The principles of Sir Robert Peel's fiscal legislation were to clear the tariff from charges which did not defray the cost and trouble of collection; to cheapen raw materials for use in manufacture; to assist manufacturers by the reduction of certain duties and the repeal of others; and to replace a sliding scale of duties on corn by a fixed charge of one shilling per quarter. As regards colonial produce, the tariff in force in 1840 contained 82 different headings, under which preferential duties were allowed in favour of British colonial products. The repeal of duties lessened this number; but the principle of preferential treatment in favour of British possessions was maintained. Such was the free trade system inaugurated by Sir Robert Peel between 1842 and 1846. The number of distinct headings in the Customs tariff of the United Kingdom was reduced from 862 to 450.

It is necessary now to explain how this reform of the British Customs tariff was brought about. Before 1830, the political and social system of the country was based upon the predominant influence of the landed interest. The Reform Act of 1832 was the outcome of events which had occurred in the preceding half century. During this period, population had largely increased; new interests had become cstablished, and fresh opinions had entered men's minds. In the Parliaments successively elected under the Act of 1832, the industrial element in the House of Commons obtained a constantly increasing influence. Up to about 1765, England was a grain exporting country. In the preceding 50 years there were only five deficient harvests. After 1765, unfavourable seasons became frequent, and the country needed food supplies from abroad to provide for home requirements. The policy of the Corn Laws of the 18th century, was to check the importation of corn; and by favouring the cultivation of arable land to provide employment and remuneration for the agricultural population; and to uphold rents. At the close of this era of corn-law legislation, wheat was admitted from abroad on payment of duties varying in amount according to market prices, preferential rates being levied on British colonial corn. In 1841, however, as before observed, great changes had taken place. The census returns showed a population in Great Britain of 9,000,000 in 1801, and of 18,500,000 in 1841. This large increase, chiefly in towns, and the

great development of trade and manufactures, rendered a relaxation of restrictions on the importation of food stuffs and raw materials absolutely necessary. A great popular movement arose in favour of the policy designated Free Trade, and in 1838 the Anti-Corn Law League gave stronger effect to previous action for tariff reform. Its objects, in the words first used, were the abolition of the duty on the importation of foreign corn, and the adoption of free trade as "the only security for manufacturing, and the welfare of every portion of the community." It will thus be readily understood that in 1841 and the next ensuing years the whole fiscal system of this country was no longer in harmony with the ideas and requirements of the times. The relative position of the agricultural, commercial, industrial, social, and political interests of the country, and the wants of each class, had much changed. Bad harvests, contraction of the currency, financial crises, and trade depression, created dangerous conditions of public affairs; and it was well for the whole empire, and for us who have lived in subsequent years, that British statesmanship between 1842 and 1846 carried into effect changes then necessary for the public safety, although in some details beyond what was really needed, before the revolutionary storm of 1848 burst over Europe.

The advocates of the Free Trade movement in England had large expectations as to the influence which it would exert abroad. Mr. Cobden said on the 15th of January, 1846, "I believe that if you abolish the Corn Laws honestly, and adopt Free Trade in its simplicity, there will not be a tariff in Europe that will not be changed in less than five years to follow your example." In a letter to Mr. Ashworth, written in 1842, Mr. Cobden expressed his anticipation that Free Trade "will gradually and imperceptibly loosen the bonds that unite our colonies to us by a mistaken notion of self interest"; and will also be the "only human means of effecting universal permanent peace." On the 27th of January, 1846, Sir Robert Peel, while admitting that the beginning of his tariff reforms, foreign countries "have not only not followed our example, but have applied to the importation of British goods higher rates of duty than formerly," added: "But your exports, whatever be the tariffs of other countries, or however apparent the ingratitude with which they have treated you-your export trade has been constantly increasing. By the remission of your

since

duties upon the raw material, by inciting your skill and industry, by competition with foreign goods, you have defied your competitors in foreign markets, and you have been able to exclude them. Notwithstanding their hostile tariffs, the declared value of British exports has increased above ten millions during the period which has elapsed since the relaxation of the duties on your part. I say, therefore, to you that these hostile tariffs, so far from being an objection to continuing your policy are an argument in its favour. But depend upon it your example will ultimately prevail. When your example could be quoted in favour of restriction it was quoted largely; when your example can be quoted in favour of relaxation, as conducive to your interests, it may perhaps excite at first in foreign Governments or Boards of Trade but little interest or feeling; but the sense of the people-of the great body of consumers will prevail, and in spite of the desire of Governments and Boards of Trade to raise revenue by restrictive duties, reason and common sense will induce relaxation of high duties. That is my firm belief; I see symptoms of it already." In his last speech on economic questions in July, 1849, Sir Robert Peel maintained his previous opinions and said, "I maintain that the best way to compete with hostile tariffs is to encourage free imports."

The anticipations entertained by the promoters of the Free Trade movement in England were (1) That this policy would be followed at home by an extension of trade and prosperity; and that the example thus set by Great Britain would be soon followed by other States. The latter anticipation was not fulfilled. Fruitless negotiations took place between 1842 and 1845; but the relaxation of foreign Customs tariffs was deferred until 1860, and was occasioned by other circumstances. The beneficial effects at home, contemporaneous with the tariff reform of 1842-46 were, in a large measure, also owing to other circumstances. The admission of sea-borne corn at low rates of duty between 1846 and 1849, when the duty became uniform at one shilling per quarter, took away the sense of public grievance. But it did not effect at once a permanent lowering of the price of bread, which continued to fluctuate, and in 1854 wheat attained the high figure of 74s. 8d. per imperial quarter. Mr. Gladstone recognised this fact. Speaking of the results of free trade legislation in connection with the working classes, he said.—

"Take the great change in the Corn Laws; it may even possibly be doubted whether up to this time you have given them cheaper bread, at best it has been but a trifle cheaper than before; that change, however, is one material indeed, yet, it may almost be said, comparatively immaterial; but you have created a regular and steady trade in corn, which may be stated at £15,000,000 a year; by that trade you have created a corresponding demand for the commodities of which they are the producers, their labour being an essential and principal element in their production, and it is the enhanced price their labour thus brings, even more than the cheapened price of commodities, that forms the main benefit they receive." (Financial Statements, 1853-63, p. 129, Budget Speech, February 10th, 1860.).

The price of wheat did not fall permanently below 40s. per quarter until 1884; and it was occasioned by the extension of wheat cultivation under means of communication unforeseen in 1846. The uncertainty of the incidence of duty under a sliding scale, when the carrying capacity of vessels was limited and communication was slow, was the main cause of dearness of food. There is, however, reason to think that while Free Trade has been beneficial in past years to England and Scotland, its effects have not been equally satisfactory in Ireland. Agricultural distress had much to do with agrarian troubles.

Mr. Newmarch, in his paper read in June, 1878, before the Royal Statistical Society, shows how industry was impeded before the gold discoveries of 1848-51. He said: "Prior to 1849 the annual supplies of gold available for all the purposes of coinage, bullion reserver, and commerce, had been about £4,000,000, an amount barely sufficient to meet the wear and tear of the gold coins in circulation. In 1850 the supply was raised to £9,000,000, in 1852 to £27,000,000, and in 1856 to £32,000,000, a revolution far surpassing any economic change within record." These gold supplies created what is now termed a "boom;" confidence in commercial transactions revived, railways opened out new channels of communication, and trade was largely extended. While it is shown that the expectations of the leaders of the Free Trade movement were partly not realised, and partly brought about by events which they could not foresee, it is to be remembered that the period of the forties was an era of social amelioration, and of enthusiastic anticipations. Notwithstanding much distress and discontent, it was a period of expectancy, and possessed the great charm

of the years when these popular feelings prevail. "Coningsby" and "Sybil" aided in uniting together the two nations of the rich and the poor; and many of the advantages enjoyed in these latter years had their origin in efforts made without much notice, in the decade of the forties, in furtherance of social improvements.

In now placing before this meeting certain statistics, it is right to call attention to some cautions connected with them. Scarcely any one year can truly be designated a "normal" year in commercial transactions, undisturbed by exceptional conditions in some quarter or other of the world. International commerce is now so complicated and interwoven, and credit is so sensitive, that events in distant regions effect markets in far off countries. For scientific statistical purposes, an average of years should be taken, and these averages often need to be checked, and allowance made for disturbing causes. The statistics now placed before you are to be regarded as illustrations and indications rather than as exact correlations to each other. The increase in British trade after Sir Robert Peel's tariff reforms, may be thus shown. In 1842 the official values, in round figures, were— Imports, £65,250,000; exports, £100,000,000. In 1853, £123,000,000 and £214,000,000. Customs receipts were--in 1839, £22,100,000; in 1842, £22,700,000; and in 1853, £22,500,000. Although after 1841, Custom duties were reduced to the estimated amount of £10,000,000, yet the loss to the revenue was only about £200,000 as compared with 1842. The Excise receipts (part of which were closely associated with Customs duties) in 1842, £14,600,000; in 1853, £16,300,000.

THE COMMERCIAL TREATY SYSTEM, 1860-82. The tariff reform in Europe which Sir Robert Peel and Mr. Cobden had expected in 1846, did not come to pass. In ths words of Sir Louis Mallet, one of Mr. Cobden's most eminent followers, "during the fourteen years which succeeded the repeal of the Corn Laws, notwithstanding all the tariff reforms which preceded and followed that measure, no reduction of any importance was made in the tariffs of Europe; and, great as was the impulse given to our foreign trade by the independent remission of duties upon our imports, the restrictions still maintained in foreign countries was beginning to be seriously felt. In 1847, the year after the repeal, the value of British exports to the countries which entered

into the treaty system of 1860 was £18,394,000. In 1856 it had advanced to £35,936,000, but in 1859, the year before the treaty with France, it had fallen to £32,489,000. In 1868, after the conclusion of the French treaty and the 50 or 60 similar European treaties to which it gave rise, the British export trade to the same countries had advanced again to £60,739,000, while the total addition to our trade with them in imports and exports was no less than £84,000,000."

The main characteristics of continental tariffs before 1860 were prohibitions to import, high duties more or less equivalent to prohibitions, and Customs regulations restrictive to foreign trade. In the French tariff, which was the worst in these respects, the importation of cotton manufactures, iron in bars and prisms, brass wire, lead shot, prepared skins, refined sugar, and tobacco (except for Government factories) was altogether prohibited; certain goods were only admitted when imported in French vessels. There was on the continent no generally recognised system of Customs imposts; and in commercial treaties the wording of the most favoured nation article was usually limited and defective. In 1860, a Government existed in France, sufficiently enlightened and powerful to revert to the policy which had established by the commercial treaty of 1786, but which was brought to an end by the French Revolution. The basis of the treaty of 1860, and its supplementary conventions, were-(1) on the part of Great Britain, the abandonment of the remaining protective duties in the British Customs tariff, and of most preferential rates in favour of British colonial produce, and the reduction of the duties which were maintained to rates fixed to serve fiscal purposes only; (2) on the part of France a general transition from prohibition or high duties to a moderate Customs tariff.

The fiscal system which then prevailed in Europe, enabled France to withhold from other countries the benefits of the new tariff, unless and until each of these countries modified their tariffs in a corresponding manner. All European States in effect were thus obliged, in order to maintain their trade with France, to conclude new treaties which were drawn up in conformity with the Anglo-French Treaty. In the words of Sir Louis Mallet, a new era was begun in the free trade policy, "its leading principles were the international regulation of international trade, and the simultaneous removal of international restrictions, not for the pur

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