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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 5007. 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 15007. 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 36001. 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. We 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.

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.

men individually.' The following is a comparison of melters' earnings in several countries before the war:

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The weight of steel made per shift is approximately in the ratio of: English, 1·0; American, 1·5; German, 20. Thus the German workman got little more than a quarter of the Englishman's wage, and turned out twice as much work. The accuracy of these startling figures was challenged, but the general conclusions of the Committee appear to have been fully established.

Assuming that we can reconstruct the national finances on the lines I have indicated and at the same time increase our production over the pre-war level by about 50 per cent., what is the economic problem which we shall have to face after the declaration of peace? We shall have to provide work for four or five million men who are at present in the Army and Navy or employed as munition workers, and one million women who are employed in munition works. At the same time we shall have to readjust our foreign trade policy to the new position which we shall hold in international finance.

A sub-committee of the executive of the Labour Party have put forward an interesting programme of reconstruction. The report states, inter alia, that, in order 'to prepare for the possibility of any unemployment either during demobilisation or in the first years of peace, the Government should make preparations for putting instantly in hand' a large number of social and other domestic reforms involving a huge outlay. It is disappointing to find that an important body, which will have so large a share in the determination of the future economic policy of this country, should have taken such purely domestic views of our post-war problems. We cannot afford an extravagant programme of internal

development until we have restored our position in foreign trade.

The report states: To-day no man dares to say anything is impracticable.' I will dare to say that it is impossible to evolve a satisfactory and adequate scheme of economic reconstruction unless it is based upon (1) a great increase in the production of commodities and services in the United Kingdom, and (2) a vast expansion of our foreign trade. We all recognise that domestic reforms are urgently necessary, that our agricultural industry must be fostered, and that home industries, particularly the dye and chemical industries, must be greatly developed; but, whatever schemes we may adopt, we shall ultimately find that they are of little account unless they comply with the two conditions which I have laid down above. The expansion of our foreign trade is, therefore, a matter of profound importance.

The Government are at present spending in this country about 57. millions per day. During demobilisation they will probably spend not much more than 2,000,000l. per day. Who is going to take the place of the Government as the purchaser of commodities or services to the value of 3,000,000l. per day? It will be a much more difficult task to move from war production to peace production than it was to move from peace production to war production. In the latter case we had at our disposal the wealth and resources accumulated through a century of industrial expansion. The manufacturer, in transforming his works, knew that he had behind him a Government contract, at, to say the least of it, remunerative prices, with no risk of bad debts or a falling off in the demand. How is the British manufacturer to shape his peace programme and to move from war production to peace production with a heavy burden of taxation, a problematical demand for his products, and an unknown volume of competition from foreign manufacturers? Before the war we imported mainly foodstuffs and raw materials and exported manufactured goods and coal, and it does not seem probable that the war will make any fundamental alterations in our dependence upon foreign trade. As to foodstuffs, in spite of the progress made in agriculture, we shall hardly be able to produce all the food we require in these Islands.

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