/ UNIVERSITY OF CALIFORNIA AT LOS ANGELES GIFT OF CAPT. AND MRS. PAUL MCBRIDE PERIGORD NlVKKSlTY of CALiFUiCi?*!*^ LOS ANGELES LIBRARY Zhc 1t4e\v iBva Series (VOLUME SIX) LABOUR AND NATIONAL FINANCE IN THE SAME SERIES NATIONALISATION OF THE MINES. By Frank Hodges, J. P., Secretary of Miners' Federation. WHAT I SAW IN RUSSIA. By George Lansbury. Being an account of his experiences during his recent visit to Russia. AFTER THE PEACE. By H. N. Brailsford. A POLICY FOR THE LABOUR PARTY. By J. Ramsay MacDonald. A NEW ARISTOCRACY OF COM- RADESHIP. By William Paine. LAND NATIONALISATION. By A.Emil Davies, L.C.C, and Dorothy Evans, formerly Organiser of the Land Nationalisation Society. PUBLIC OWNERSHIP OF THE LIQUOR TRADE. By Arthur Greenwood, V^ice-President of the Workers' Educational Association. THE NEW LABOUR OUTLOOK. By Robert Williams, Secretary of the Transport Workers' Federation. DIRECT ACTION. By William Mellor, Industrial Editor of The Daily Herald. Other volumes will be announced later. Quarter cloth. Crown 8v8. Price 4/6 net each volume. LEONARD PARSONS PORTUGAL STREET, LONDON LABOUR AND NATIONAL FINANCE BY PHILIP SNOWDEN • -'\ .\' >>. ," . LONDON LEONARD PARSONS PORTUGAL STREET First Published October 1 920. -• _ • * • • * » • • • • • • • • • • Leonard Parsons^ Ltd, U1 L CONTENTS I. THE NATIONAL FINANCIAL POSITION II. WAR-TIME FINANCE III. labour's principles OF TAXATION IV. HOW TO DEAL WITH THE DEBT V. THE TAXATION OF WAR-TIME WEALTH VI. THE LEVY ON CAPITAL . VII. AFTER THE CAPITAL LEVY VIII. THE INCOME-TAX •^ IX. LIMITATION OF INHERITANCE IS 2 X. THE ABOLITION OF INTEREST XI. REVENUE FROM PUBLIC SERVICES -b> XII. LOCAL FINANCE AND TAXATION 19 36 50 59 68 82 96 112 124 135 14G APPENDICES I. NINETEENTH ANNUAL CONFERENCE OF THE LABOUR PARTY, SOUTHPORT, 1919 . 158 II. CONSCRIPTION OF WEALTH — TRADE UNION CONGRESS RESOLUTION, BIRMINGHAM, 1916 160 LABOUR AND NATIONAL FINANCE CHAPTER I THE NATIONAL FINANCIAL POSITION Sound finance is the basis of national and commercial prosperity. Few people who have given thought to the subject will deny that the present financial position of the United Kingdom is one of the utmost gravity. There are, it is true, few outward and visible signs of personal or of public economy. This is one of the unfortunate features of the situation. During the war the working people, and the commercial and financial classes, have in the main enjoyed unparal- leled prosperity. Wages have risen to un- heard-of heights, and profits have soared to a point higher than that reached in the early years of the nineteenth century. This prosperity has been wholly artificial. Wages have been paid out of borrowed money, and profits have been made out of inflated credits. The country has been living on the proceeds of money raised on mortgages. 7 LABOUR AND NATIONAL FINANCE This reckless prodigality must come to an end when the substance has been squandered, and the prodigal will be left with the burden of his debt, and with the obligation to meet the interest upon it. This country is now approaching that inevitable crisis. The Chancellor of the Exchequer (Mr. Austen Chamberlain) speaking in the House of Commons on August 7, 1919, said, " If we were to continue to spend at the rate we are spending now it would lead us straight to national bankruptcy, and there is no doubt whatever about it— if we cannot increase production beyond what we are producing now, we shall go to national bankruptcy." This pessimistic statement was confirmed in the same debate by the Prime Minister. In evidence given before the Committee on War Wealth, Mr. Blackett, Controller of Treasury Finance, stated that " the financial crash would eventually come unless special provision was made to get back to a sound economic position." When presenting his Budget statement eight months later, on April 20, 1920, the Chancellor of the Exchequer had to report that the expenditure for the year had ex- ceeded his Budget Estimate by £238,149,000. It is true that the revenue receipts showed an increase over the Budget Estimate of £138,471,000, but more than half of this surplus was due to excess over estimate of THE NATIONAL FINANCIAL POSITION 9 receipts from sales of war materials. The estimated expenditm'e for 1920-21 is £1,184,102,000. This shows a reduction of £255,000,000 over the expenditure of the previbus year. But in view of the fact that the Chancellor of the Exchequer under- estimated the expenditure of the previous year by £221,000,000 no great reliance can be placed upon the accuracy of his estimate of expenditure for the current financial year. The total estimated receipts from taxes for 1920-21 is £1,035,150,000, and from non- taxation sources £383,150,000, making a total of estimated revenue of £1,418,300,000. In- cluded in the estimated revenue for 1920-21 is an item of £302,000,000 from special receipts from the sale of war material. In his Budget for this year the Chancellor of the Exchequer has proposed additions to taxa- tion which are estimated to produce during the current year an additional revenue of £76,650,000, and in a full year £198,230,000. The special receipts from the sale of war material he has appropriated to revenue. Otherwise, notwithstanding the additions to taxation, he would have had an estimated deficit on the balance sheet for 1920-21 of £68,000,000. The last two Budgets introduced by Mr. Bonar Law were based upon the assumption that the existing taxation, if maintained after the war, would provide sufficient revenue 10 LABOUR AND NATIONAL FINANCE to meet the post-war expenditure. How fallacious this assumption was is proved by the fact that in the second year of peace, Mr. Bonar Law's successor has found it necessary to increase taxation to the extent of nearly £200,000,000 when the new taxes operate throughout a full financial year. If Mr. Austen Chamberlain had believed in the possibility of any considerable reduc- tion of present expenditure he would not have imposed new taxation of a permanent char- acter. That he has no such faith was further proved by a statement made by him in a debate in the House of Commons on June 9, 1920, when he said that the Excess Profit Duty would have to be maintained, or its equivalent found. An analysis of the items of expenditure which make up the colossal total of £1,184,102,000 for the year 1920-21, will show that most of the expenditure is for services which are not likely to make a smaller demand upon the Exchequer unless there be some drastic change of policy, which is not likely so long as this Government, or a Government of a similar character, has the control of public policy. Many of the items of expenditure cannot be materially reduced, though small economies, without the loss of efficiency, might no doubt be adopted. The expenditure upon the fighting services for 1920-21 is estimated at £125,000,000 for the army, £84,372,000 for the navy, and THE NATIONAL FINANCIAL POSITION 11 £21,057,000 for the air forces, making a total of £233,429,000. Military expenditure is determined by policy. But in view of the nature of the Peace Treaties, and the addi- tional imperial obligations which Great Britain has assumed under these Treaties, it would be a sanguine hope to entertain that there is any likelihood of a reduction in the expenditure upon these services. There is a much greater likelihood that the expenditure upon the army will this year exceed the Estimate. But a reduction in the strength of the fighting services does not necessarily mean a reduction of expenditure upon them. On the contrary, as Mr. Lloyd George himself pointed out in a speech in the House of Commons in August 1919, a reduction of armaments is likely to be accompanied by an increase of expenditure, because the smaller forces will need to be more thoroughly equipped and better paid. If any considerable reduction of the present national expenditure can be brought about, it will be upon the fighting services, and upon some of the items included under Civil Service expenditure. There are under the Civil Service Vote a number of items of heavy expenditure which cannot be considered to be of a permanent character. These include £27,000,000 of a subsidy to the working of the railways, £45,000,000 of a subsidy on bread, £15,000,000 for the coal-mines, £27,323,000 12 LABOUR AND NATIONAL FINANCE for the Ministry of Munitions, £16,279,000 for the Ministry of Shipping, and £36,000,000 loans to Dominions and AUies. These items accomit for an expenditm'e of £166,600,000 out of a total estimated expenditure under the Civil Service Vote of £497,138,000. The only items which are not likely to be a charge upon the British public for many years to come are the Loans to Dominions and Allies, and the Votes for the Ministry of Munitions and the Ministry of Shipping. If the subsidies to the railways, to the coal-mines and on bread were abolished, and in consequence an increase in the charges and prices for these services and commodities were made, the amount taken out of the pockets of the public would not be less, though the Chancellor of the Exchequer would be relieved from making provision for this expenditure from taxes. ^ By the withdrawal of these svibsidies the present Civil Service expenditure would be reduced by a sum of £166,600,000. In addition, minor economies might be effected by the stricter supervision by the Treasury of Departmental expenditure. The practice begun by Mr. Lloyd George of making the Treasury a spending authority has demoralised both the Treasury and every other Government Department. A Chan- ^ Since this was written the railways and mines have been made self-supporting by increasing the charges, and the bread subsidy is to be withdrawn. THE NATIONAL FINANCIAL POSITION 13 cellor of the Exchequer who is himself at the head of a spending department is less able to insist upon economy by his colleagues in the Government. But, on the other hand, the permanent charges of the Civil Service Vote are certain to increase considerably. The expenditure on Pubhc Education is £56,081,000 for 1920-21 against £38,841,000 for the previous year; for Old Age Pensions the corresponding figures are £25,969,000 and £17,892,000 ; for the Ministry of Pensions, £123,235,000 and £72,855,000; for the Ministry of Health £34,265,000, and £12,228,000; an increase of £97,964,000 in twelve months on permanent services. There is bound to be increased national expenditure upon public health, education and housing, and in view of the serious financial embarrass- ments of the local authorities the National Exchequer will be compelled to come to their assistance more and more by grants from the national taxes. There is, therefore, no reasonable ground for the assumption that in the future the present enormous expenditure of nearly £500,000,000 a year on the Civil Services can be materially reduced. The reduction made in the Civil Service Vote by the withdrawal of the subsidies will not at the best do more than cause a temporary reduction of expenditure under this head. Apart from minor economies the only hope for the substantial reduction of taxation is 14 LABOUR AND NATIONAL FINANCE by lessening the expenditure upon the fight- ing forces and the interest upon the National Debt. For the year 1913-14, the last financial year not affected by the war expenditure, the national revenue was £198,242,897 and the expenditure, including the interest and sinking fund upon the National Debt, was £197,492,969. For that year the expenditure upon the army and navy was £77,179,000 (army £28,346,000, navy £48,833,000). The total Civil Service expenditure amounted to £51,944,000 (the Education Vote being £19,531,000 compared with £56,081,000 for 1920-21). At the outbreak of war the base rate of income-tax was 1^. 4cZ. in the pound. Super-tax was levied on incomes over £3000 a year at rates varying from 5d. to Is. 4c?. in the pound. In 1920-21 the base rate of income-tax is 6s. in the pound; the exemption limit for super-tax has been lowered to £2000, and the rates increased up to 6s. maximum, which begins to operate at £30,000 a year, under a graduated scale. The yield from the income-tax and super-tax in 1913-14 was £47,249,000. The estimated yield for 1920-21 is £385,800,000, and Excess Profits Duty, which is of the nature of an income-tax, is expected to yield £220,000,000 in 1920-21. At the outbreak of war the National Debt stood at £660,000,000. On March 31, 1920, it amounted to £7,835,000,000. THE NATIONAL FINANCIAL POSITION 15 The approximate amount owing to Great Britain by her Alhes in the late war was stated in March 1920 to be £1,666,000,000. Upon this indebtedness no interest is being paid to Great Britain, and the prospects of the debts ever being repaid are very doubt- ful. On November 15, 1919, the indebted- ness of the United Kingdom to the United States was £850,000,000. The present in- debtedness, therefore, of the United Kingdom for which this country has to shoulder the responsibility, may be set down in round figures at £8,000,000,000. Notwithstanding the tremendous efforts which have been made to induce the public to subscribe to the various War Loans, there is outstanding a Floating Debt of £1,250,000,000 which is causing extreme disquietude in financial circles because of its effect upon currency and credit. The total Exchequer issues, that is, the total national expenditure from August 3, 1914, to March 31, 1920, amounted to £11,196,927,000. This sum in- cludes the normal expenditure of the country in addition to the cost of the war. Accord- ing to a statement made by the Secretary to the Treasury, 35*9 per cent, of this sum was raised from revenue, and 64*1 per cent, by borrowing. The percentage of the cost of the war raised by borrowing would, however, be much higher than the figure given, be- cause the whole of the normal expenditure of 16 LABOUR AND NATIONAL FINANCE the country was paid out of revenue. The figures given above show that in 1920 the National Debt is twelve times greater than in 1914, that the national expenditure is, and is likely to remain unless there be a drastic change of policy, five times higher, that the income-tax, which had been regarded by financiers of the Gladstonian school as a resource to be drawn upon in times of emergency, has now been permanently fixed at a base figure five times above that of 1914. Since the above was written the Chancellor of the Exchequer has issued a *' Further Memorandum on the Future Exchequer Balance Sheet." His estimates of the national revenue and expenditure in a " normal " year confirm the figures already given in this chapter. His estimates of revenue are based upon the scales of taxation and Post Office charges proposed in the Budget statement, assuming that Excess Profits Duty and abnormal receipts from war assets have ceased. The estimates of expenditure are based on the same assumptions as those of October, namely — {a) That all war services will have ceased, and that Trading Departments {e. g. food, shipping, etc.) will have been wound up ; {h) That all subsidies and unemploy- THE NATIONAL FINANCIAL POSITION 17 ment donations will have been with- drawn ; (c) That no further loans will be made to Allies and Dominions; (d) That the training schemes for ex- soldiers, etc., will have been completed, and nothing new arisen in their place; (e) That the cost of labour and materials will not have differed materi- ally from that now obtaining. As before, nothing is included on either side of the account for interest or sinking fund on debts due by or to Governments of allied or associated countries ; and no credit is taken for sums to be received on account of the cost of armies of occupation or for reparation. The Chancellor estimates that the expendi- ture in a normal year for debt, interest, sinking fund and other Consolidated Fund charges, the fighting forces, the Civil Services and Revenue Services and Post Office will amount to £880,900,000. The yield of the present taxes (excluding Excess Profits Duty) is estimated to be £1,029,000,000. This leaves an estimated balance for further debt redemption of £148,100,000. This estimate of expenditure does not take into account the progressive cost of education, housing, sub- sidies and the public health department. However, the outstanding fact in this B 18 LABOUR AND NATIONAL FINANCE Memorandum is the admission that there can be no remission of taxation (except the Excess Profits Duty) and that the country must be prepared for annual taxation of about £1,000,000,000 a year, excluding the Post Office revenue. This is the financial position and the financial prospect of the country. Its seri- ousness cannot be doubted. Great Britain has so far stood the shock of this tremendous strain because of the financial resources it had accumulated in the prosperous times before the outbreak of war, and because of the unexploited sources of revenue upon which it has been able to call for the prosecu- tion of the war. No country, however, not even one so rich as this, can continue to bear the burden of a debt which amounts to con- siderably more than one-half of the total wealth of the country in 1914, and an annual expenditure, provided by taxation, which represents nearly one-half of the total income of the nation in pre-war values. CHAPTER II WAR-TIME FINANCE In the previous chapter I have stated the present financial position, and in this chapter I propose to show how this situation has arisen through the financial policy of suc- cessive Governments during the last six years. When Great Britain declared war upon Germany in August 1914, there were few well-informed people who believed that the conflict would be of short duration. But even if the prospects of a short war had been promising, sound financial principles could not have justified the policy of the Government in resorting to borrowing for the purpose of meeting the special expenses of the war. The present National Debt of £8,000,000,000, and the charges of nearly £400,000,000 a year out of the revenue for the payment of the interest upon this debt, constitute the burden the country has to bear for the vicious policy of those who have controlled the national financial affairs since 1914. The words of Mr. Gladstone, spoken in 1853 apply with greater force and truth to 19 20 LABOUR AND NATIONAL FINANCE the present huge National Debt. He said, speaking of the debt accumulated during the Napoleonic Wars, and which still re- mained a burden on posterity in 1914 — " Our debt need not at this moment have existed if there had been resolution enough to submit to the income-tax at an earlier period." With that disastrous example before him, Mr. Gladstone insisted that the cost of the Crimean War should, from the beginning, be paid mainly out of current taxation. " To begin the war by a loan," he said, " would be a confession of financial cowardice and economic weakness, unworthy of the character of the country." In the first half- year of that war he doubled the income-tax. The present Prime Minister, who was Chancellor of the Exchequer at the outbreak of war, had neither the courage nor the moral principle of a Gladstone, and he relieved the immediate exigency by resorting to borrow- ing, leaving the future liberation of public revenue to the care of posterity. It was necessary to gain public support for the war, and a large immediate increase of taxation might have had the effect of damp- ing the patriotism of those who were prepared to applaud the military adventure, but who were unwilling to make a financial sacrifice for its support. WAR-TIME FINANCE 21 Apart from the economic and financial objections to the poHcy of borrowing for the prosecution of the war, there are moral objections which were very powerfully stated by Mr. Gladstone in a speech on the Crimean War. He said — " The expenses of a war are the moral check which it has pleased the Almighty to impose upon the ambition and the lust of conquest, that are inherent in so many nations. There is pomp and cir- cumstance, there is glory and excite- ment, about war which, notwithstanding the miseries it entails, invests it with charms in the eyes of the community, and tends to blind men to those evils to a fearful and dangerous degree. The necessity of meeting from year to year the expenditure which it entails is a salutary and wholesome check, making them feel what they are about, and making them measure the cost of the benefit upon which they may calculate. It is by these means that they may be led and brought to address themselves to a war policy as rational and intelligent beings, and may be induced to keep their eye well fixed both upon the necessity of the war into which they are about to enter and their determination of availing themselves of the first and 22 LABOUR AND NATIONAL FINANCE earliest prospects of concluding an honourable peace." In 1914 the country was in an excep- tionally favourable condition for bearing an immediate and heavy increase of taxation to meet the cost of the war. When intro- ducing his Budget for 1914, two months before the outbreak of war, Mr. Lloyd George said — " The trade of this country has reached the highest point it has ever reached. Unemployment has touched the lowest point it has ever touched in the history of this country.' 53 His Budget estimate of revenue for the previous year had been exceeded by over £9,000,000, whereas he had budgeted for a deficit of £815,000. He stated that the very distinguished statistician. Sir George Paish, had testified that the increase in the national savings in the previous five years had reached the prodigious sum of £1,750,000,000. The gross assessment for income-tax in 1914- 15 was £227,000,000 over the figure of five years before. The nominal rate of income- tax stood at Is. Sd., and even a millionaire paid only 25. 7d. in the pound, including super-tax. To the reluctance of the Government to impose heavy taxation in the first years of WAR-TIME FINANCE 23 the war must be attributed most of the financial and economic evils from which we are suffering to-day, such as high prices, profiteering, lavish expenditure on luxuries, the employment of labour on non-productive and useless work, the huge debt and depre- ciated currency. The panic which prevailed in the early weeks of the war added to the circumstances favourable for increased taxa- tion. The effect of this panic was to cause a restriction of expenditure, and if the Chancellor of the Exchequer had rushed in with proposals for taxation to meet the current expenses of the war, he could have appropriated these economies with highly beneficial results. The steps which were taken to re-establish financial credit, the absence of any suggestions for adequately increasing taxation, the foolish cry of " busi- ness as usual," deluded the public as to the financial burden they were incurring by the war, and set them on that career of reckless extravagance which has had such disastrous results. It may be urged in support of the policy of borrowing that the cost of the late war was so enormous that the taxable capacity of the country could not have been sufficient to meet the current expenditure. This argu- ment might have had some weight in the later years of the war when the expenditure reached £5,000,000 or £6,000,000 a day, but 24 LABOUR AND NATIONAL FINANCE it certainly does not affect the contention that during the first two years at least, the whole cost of the war might have been met by current taxation, as we shall see when we come to analyse the war expenditure and the receipts from taxation during this period. The practice of borrowing had among other evil consequences the effect of actually increasing the spending power of the popu- lation, and as the demand among the civil population for necessaries was restricted there remained a larger sum to be spent upon superfluities. The normal practice of Govern- ments in peace-times is to provide capital and exceptional expenditure out of revenue, thereby avoiding the creation of a National Debt. To provide the cost of a war the practice of borrowing is adopted, the alleged justification being that the country is fight- ing for the advantage of posterity. It is a fallacy to suppose that by borrowing for war purposes the generation prosecuting the war is relieved from any part of the payment of the costs of the war. The war must be paid for at the time it is being waged. The cost of a war is made up of payments for the wages of the soldiers, for their mainte- nance and clothing, and for armaments and munitions. All these things are paid for from day to day, and shortly after the conclusion of the war, when the accounts have been discharged, the whole cost of the WAR-TIME FINANCE 25 war has been paid. What happens in con- sequence of the pohcy of borrowing is that the present generation, having paid for the war, throws upon posterity the burden of also paying for it several times over. The generation which wages the war pays for it in food which is produced during the period of the war, in raw material which is made into clothing and camps, and in the coal and iron and livestock which are consumed for war purposes. The real cost of a war is in the reduction of the natural resources of the world which cannot be replaced, and in the loss of wealth which otherwise would have been created if Labour had not been diverted from peace production to war em- ployment, and in the loss of human life. As the State does not own the raw materials for war, nor the factories essential for producing war supplies, it obtains these from private owners and pays for them by borrowing from those who have savings to lend, or by the creation of credit. Borrow- ing adds nothing to the wealth of the nation. Though the War Debt has added 8000 millions to the nominal wealth of the country there has been no addition to the real wealth which is measured in land, coal, houses, Hvestock, machinery and the like. The War Debt is simply a mortgage held by certain people upon the future wealth production of the country, which enables them to exact a 26 LABOUR AND NATIONAL FINANCE contribution from future annual production of wealth. The war, as we have pointed out, has been paid for by the present generation in three ways. A certain proportion of the cost has been paid by taxation specially levied for the purpose. The owners of Government stock, municipal bonds, debentures and other fixed interest-bearing shares, have paid for it by an enormous depreciation in the capital value of their holdings, and all classes have contributed indirectly in a large measure by the increase of prices which has depreciated the value of all fixed incomes. The depre- ciation in the capital value of fixed interest- bearing bonds, and the increase in the cost of living are the direct results of the policy of borrowing; and if, instead of borrow- ing, the holders of these stocks had contri- buted to the Government, in direct taxation, the amount of the capital depreciation, and if the consumers had contributed the amount of the increase of prices, the cost of the war could have been met without borrowing, and neither capital values nor prices would have been so adversely affected. By resorting to borrowing instead of employing taxation, this generation has not escaped paying for the war, but having paid for it during its progress, they are now left with this burden of debt which they themselves and posterity will have to bear. WAR-TIME FINANCE 27 The policy of borrowing, therefore, does not even achieve its pretended purpose. It does not reheve the present generation from bearing the full cost of the war, but it creates innumerable evils and adds unnecessary burdens. Government Loans are obtained from three sources : from real savings, from the reserve funds of business concerns, and by the creation of bank credits. When the Government borrows the savings of private individuals, or the reserve funds of public companies, the Government spends what would otherwise have been spent by these private individuals, and there is no inflation of credit. There is, however, this difference : that the Government's spending is unpro- ductive, whereas if the savings and reserve funds had been used by the individuals or business firms, they would have been em- ployed for productive and remunerative pur- poses. A considerable part of the Govern- ment's borrowings has been obtained by the creation of fictitious credits. When the Government borrow by the creation of new credit, the demand for goods on the part of the public is not lessened, but in- creased, with the result that an increase of currency is necessary to facilitate the ex- change of commodities, and consequently an increase of prices takes place. The Government have borrowed extensively on Treasury Bills, which is a pure instance 28 LABOUR AND NATIONAL FINANCE of credit inflation. The banks have been encouraged to lend to their customers for in- vestment in war loans. By this practice additional credit has been created for which there is no security in real wealth. In addition to this, the banks have themselves subscribed largely to the war loans out of deposits standing to the credit of their customers. The war-loan scrip obtained by the banks for their investments have been deposited in the Bank of England as valid security for further loans to the Government. By this manipulation of credits a vast amount of Government indebtedness has been created which is not represented by savings. The case I wish to establish in this chapter is that the National Debt, and all its evil consequences, need not have existed if the Government had courageously imposed taxa- tion at a much higher rate in the early years of the war. It was not until November 17, 1914, that the Chancellor of the Exchequer (Mr. Lloyd George) introduced an Interim War Budget. In this Statement he estimated that the deficit in national accounts at the end of March 1915, after eight months of war, would be £339,571,000. He devoted a considerable part of his speech to a review of the war finance of Pitt, and pointed out that at one period of the Napoleonic Wars one-third of the total income of the country was taken for public purposes. But Mr. WAR-TIME FINANCE 29 Lloyd George failed to apply the Lesson which the disastrous experiences of borrowing in the early days of the Napoleonic Wars had taught his distinguished predecessor in office. Faced with an estimated deficit of nearly £340,000,000 at the end of the financial year, Mr. Lloyd George contented himself with imposing a paltry increase in the income-tax and super-tax which was estimated to realise £12,500,000 during the financial year. In addition to this he imposed increased duties upon beer amounting to £2,500,000, but made a reduction of licence duty amounting to £450,000. In addition to this he obtained rehef by the suspension of the Sinking Fund to the amount of £2,750,000 This left him with a deficiency of £321,321,000, which he proposed to meet by means of a war loan. Even so early in the war as the date of this Budget, it had become manifest that certain trades were making enormous profits out of the war. No steps were taken by the Government to interfere with this profi- teering. The figures subsequently published of the income-tax assessments for the year 1915-16 showed that there had been an increase in the gross income brought under review of £94,684,000 over the preceding year. When it is remembered that the gross assessment was calculated upon a three-years basis, the increase during the first twelve months of the war must have 30 LABOUR AND NATIONAL FINANCE been very considerably higher than the figure just given. In a time of great financial stress, Mr. Lloyd George was content to impose additional taxation upon the income- tax paying class of £12,500,000, although their gross incomes during the year had admittedly risen by certainly more than £100,000,000. In the course of his Budget speech Mr. Lloyd George said — " If we rose to the heroic level of our ancestors we should be raising to-day a revenue of between £450,000,000 and £700,000,000 and no borrowings would be necessary." ■ If Mr. Lloyd George had, in the first year of the war imposed an income-tax at half the rate levied by Pitt, the whole cost of the war during the first year would have been paid out of taxation. Bad as was Mr. Lloyd George's initial effort at war finance, his second Budget, introduced on May 4, 1915, was far more disastrous. Up to the end of the previous financial year (March 31, 1915) the net cost of the war had been £307,416,000. In his second War Budget speech the Chancellor of the Exchequer announced the wonderful buoyancy of the income-tax and super-tax which had yielded £8,000,000 over his esti- mate of the previous November. Up to the end of March, 1915, a sum of £458,148,000 WAR-TIME FINANCE 31 had been added to the National Debt. On the assumption that the war would continue during the whole financial year, 1915-16, he estimated that the total expenditure would be £1,136,434,493. On the basis of existing taxation the deficit to be met would be £862,322,000. After making this appalhng statement the Chancellor of the Exchequer launched into an eloquent dissertation upon the enormous accumulated wealth of the country, and finally concluded his statement without proposing a penny of new taxation, leaving the estimated deficit of £862,322,000 to be met wholly by borrowing. By this time war profiteering had attained scandalous proportions. Every day the news- papers were reporting the profits of com- mercial firms far beyond anything which had been made in peace times. The cost of living was rising continuously. Labour, which at the outbreak of war, patriotically announced its decision to abandon demands for wages advances, was beginning to be clamant under the pinch of the rising cost of living. The Chancellor of the Exchequer deliberately left the profiteer without inter- ference to pursue his exploitation of the national situation. He calmly faced an addition of nearly £1,000,000,000 of National Debt during the coming year. He left the buoyant incomes free to rise still higher. By refusing to increase taxation he per- 32 LABOUR AND NATIONAL FINANCE petrated an act of egregious folly and of criminal negligence. In the summer of 1915 Mr. Lloyd George found a new sphere of operations in the Ministry of Munitions, and he was succeeded at the Treasury by Mr. McKenna. In September 1915 Mr. McKenna introduced an Interim Budget. In the mean- time expenditure had grown to an estimated total of £1,590,000,000 a year. Mr. McKenna made a serious — though by no means an adequate — effort to redress the fatal negligence of his predecessor. He raised the income- tax, increased the super-tax, reduced the limit of exemption from income-tax to £130 a year, and lowered the abatement from £160 to £120. He added to indirect taxa- tion, increased the postal and telegraph charges, and made an attempt to appropriate war profits by the Excess Profits Duty. On April 4, 1916, Mr. McKenna introduced his second Budget. He proposed to raise the revenue to £500,000,000, which was more than double the sum that Mr. Lloyd George raised in the first year of the war. Un- fortunately political intrigue dismissed Mr. McKenna from the post of Chancellor of the Exchequer, and he was succeeded by Mr. Bonar Law, who, in his first Budget, introduced on May 2, 1917, proposed no new taxation whatever, and made small additions to three existing taxes, namely, the Excess Profits Duty, the Tobacco Duty WAR-TIME FINANCE 33 and the Entertainments Tax, which were expected to yield the sum of £27,500,000. Mr. Bonar Law's Budget showed a deficit of £1,650,000,000, and to meet this he proposed the paltry addition of twenty-seven and a half millions to taxation ! In Mr. Bonar Law's second Budget, pro- duced in April 1918, when the total national expenditure had risen to £2,972,000,000 he made an addition of 1^. to the income-tax, raising the standard rate from 5s. to 6s. and raised the maximum rate of super-tax from 3.9. 6d. to 45. 6d. in the pound, beginning at incomes of £2500, instead of £3000. He also made additions to indirect taxation on spirits, beer, tobacco, matches, and sugar, and proposed his ill-fated Luxury Tax, which was afterwards abandoned. For the year 1918-19 the total yield from Inland Revenue taxation, which includes Estate Duties, Stamp Duties, Income- and Super- Tax and the Excess Profits Duty, was £670,575,356. This was more than three times the amount imposed in the first year of the war. The amount raised by Inland Revenue taxation in the first three years of the war was £764,766,000. If the average rate of taxation of the last three years had been levied in the first three years of the war, the yield would have been £1,100,000,000 more than it actually was. This sum avail- able for taxation was left in the pockets of a 34 LABOUR AND NATIONAL FINANCE favoured section of the community, who, instead of paying this surplus in taxation, spent it in luxury or lent it to the Govern- ment at a high rate of interest, and thereby established a hold upon future production. The financial policy of successive Govern- ments of refusing to employ the weapon of taxation more energetically is not the only financial crime of which they have been guilty. Borrowing is bad, but borrowing at an unnecessarily high rate of interest aggravates the offence. At the outbreak of war the Government and public bodies could borrow at 3 per cent. The first War Loan was issued in November 1914. The issue price was £95 and the rate of interest 3| per cent. It was redeemable on March 1, 1928, or at any time after March 1, 1925 on three months' notice by the Treasury. In June 1915 the second War Loan was issued, and upon this the Government gratuitously raised the rate of interest to 4J per cent. In January 1917 another War Loan was issued, the price being £95 and the rate of interest 5 per cent, (actually over 5 J per cent.). The effect of these successive in- creases in the rate of interest was not merely an additional impost upon the taxpayers, but it had a serious effect in raising the price of money, and in depreciating the capital value of all fixed interest-bearing stock. The Government's borrowing policy was. WAR-TIME FINANCE 35 in effect, a repudiation of existing capital values, and an additional indirect impost upon all individuals and firms who required to borrow money. For a time the Govern- ment restricted appeals for new capital issues, and thereby to some extent prevented the competition of private interests for capital investment. But when this restric- tion was removed, after the cessation of hostilities, there was a flood of issues for commercial capital which had a considerable effect upon the money market and upon the rates of interest. The interest on Treasury Bills was successfully raised until it reached the figure of 7 per cent. : but even at this rate of interest, the Government's appeal for subscriptions to be used for the purpose of funding the Floating Debt has met with practically no response. To such an igno- minious position as this has British credit been brought by the financial policy of successive Governments during the past six years. The British Government is unable to raise a loan from its own citizens for a patriotic purpose even at 7 per cent, interest ! Though I have dealt with war-time finance at considerable length, its bearing upon constructive proposals for retrieving the position is so important that this must be my excuse and justification. CHAPTER III labour's principles of taxation Just and sound principles of taxation are equally applicable to peace and to war con- ditions. The financial methods which will have to be adopted for extricating the country from its present financial embarrassments will differ not in principle, but in the severity of their application from those which should be applied for dealing with national financial problems of peace-time. /' The Labour Party has always attached supreme importance to just methods of taxation as a means by which social conditions may be ameliorated. Mr. Asquith once said : " Taxation is a potent instrument of reform." The Labour Party had realised that fact long before Mr. Asquith made this statement. The right of the State to take what it requires for public purposes is not disputed. The right to enjoy property exists by the good- will of the State. There has never existed in any civilised community such a thing as an absolute right to private property. The State protects an individual in the enjoyment of private property so long as such enjoyment is not against the public interest, or so long 36 LABOUR PRINCIPLES OF TAXATION 37 as the State does not require for superior needs the enjoyment of that property, or of the proceeds from it. The State exercises its authority over private property in two ways. Where the acquisition of private property is required for pubhc purposes the State acquires that property, giving to the possessor such com- pensation as may in the circumstances, or in the state of pubhc opinion, be considered to be just. The second method by which the State acquires the means necessary for dis- charging its functions is taxation. There is no hmit to the right of the State to levy taxation. But the only justification for levy- ing taxation on private individuals for public purposes is that the revenue derived thereby will be used in the public welfare. The Labour and Socialist argument for taxation is that a large part of the wealth and incomes now enjoyed by private indivi- duals is the result of exploitation of the com- munity, and that pending such changes in the system of property-owning, and the relations of capital and labour as will deprive indivi- duals of the means to appropriate unearned wealth and incomes, the instrument of tax- ation may be usefully employed by the State to obtain a return of some portion of this exaction, to be used for the purpose of improving the conditions of life of the dispossessed classes./ 14 438:1 38 LABOUR AND NATIONAL FINANCE A less extreme justification may be put forward. The State is a partner in all pro- duction and in all private enterprise. It is only by the protection which law gives that a private individual can enjoy his wealth and income. The State (including the municipali- ties) is entitled therefore to participate in the profits of industry and in the rents which individuals derive from land and other forms of property. Taxation, therefore, may be defined as that part of the national income which the State takes as its share as a partner. As civilisation advances the activity of the State as a factor in production increases, and it is in consequence entitled to an increasing share of the net return. In exercising its rights the State must, of course, be guided by principles of equity. The State could not justify taxation solely on the ground that it had the right to impose taxation. Taxation must be justified by proof that the revenue derived thereby will be used in a way which will promote a larger measure of general well-being. The State must also levy taxation in such a way as not to discriminate unjustly between different individuals and classes. Taxation, when rightly understood, will not be regarded as a necessary evil. On the contrary, when justly levied for necessary purposes, it is a blessing to the community. If the proceeds of the taxes and rates are wisely and economically LABOUR PRINCIPLES OF TAXATION 39 spent they bring a return to tlie community far more abundant than can be derived from the private expenditure of the same amounts. No country was ever ruined, or ever could be ruined, by liigh taxation, provided it is justly levied and the proceeds are wisely expended. Taxation, it is true, is often found to be oppressive, but that is because its incidence is not justly distributed. There is a popular impression that taxation diminishes the production of national wealth. The very opposite is the fact. If the revenue derived from taxation be wisely expended by the Government, or by the municipality, it is a direct aid to production. It gives greater stability to public confidence, it improves trade facilities, it increases the intelligence and productivity of labour, and, as McCulloch points out, " it stimulates individuals to endeavour by increased industry and economy to repair the breach taxation has made in their fortunes, and it not infrequently hap- pens that their efforts do more than this, and that consequently the national wealth is increased through increased taxation." These beneficial results are of course conditional upon the just incidence of the tax and the use of the proceeds for beneficial purposes. In the years immediately preceding the outbreak of war there had been a decided improvement in the methods of levying national taxation. The British system of 40 LABOUR AND NATIONAL FINANCE taxation, like the British Constitution itself, had not been devised according to any ordered plan, but steps were being taken before 1914 to eliminate some of the more flagrant injustices in the incidence of tax- ation, and to apportion the burden more in accordance with the capacity of the various classes to bear it. At one time by far the largest part of the national revenue was raised by the vicious system of indirect taxation, but by 1914 the relative proportions of the whole national revenue raised from direct and indirect taxes had been reversed. This satisfactory movement was in the main due to the persistent agitation which had been carried on by the Labour and Socialist Party for a reform of taxation. The Labour Party's general principles of taxation may perhaps be best expressed by quoting from a Memorandum drawn up by the writer for the Executive of the Labour Party, and which was submitted to a special session of the Annual Conference of the Party held at Portsmouth in January 1909, and which was accepted by the Conference as the financial programme of the Party. This Memorandum stated that the following con- siderations should form the basis of demo- cratic finance — (a) Taxation should be in proportion to ability to pay and to the protection LABOUR PRINCIPLES OF TAXATION 41 and benefit conferred on the individual by the State; , (b) No taxation should be imposed which encroaches on the individual's means to satisfy his physical and primary needs ; (c) Taxation should aim at securing the unearned increment of wealth for communal use; (d) Therefore taxation should be levied on unearned incomes and should aim deliberately at preventing the retention of great fortunes in private hands. These basic principles were embodied in a resolution passed by the Conference declar- ing that the present indirect taxation falls oppressively on the industrial classes and should be repealed; and being of opinion that the cost of social reforms should be borne by socially-created wealth, now appropriated by the rich in the form of rent, interest and profit, calls for the following reforms in the next Budget, namely, a super-tax on large incomes, a special tax on State-conferred monopolies, the increase of Estate and Legacy Duties, and a really substantial beginning of the taxation of land values. In all the Budget debates which took place from the advent of the Labour Party in 1906 to the outbreak of war, these principles of taxation and these practical proposals were 42 LABOUR AND NATIONAL FINANCE put forward, and it became a commonplace observation during the debates on Mr. Lloyd George's Budget of 1909 that some of its more drastic provisions had been inspired by the suggestions made from the Labour benches of the House of Commons. It will be noted that the main point in the Labour Party's financial programme as stated above, is that taxation should be in propor- tion to ability to pay and to the protection and benefit conferred on the individual by the State. There is a close connection be- tween ability to pay and the protection and benefit conferred on the individual by the State. An individual's ability to pay is usually in proportion to the protection and benefit conferred upon him by the State. We may therefore say that the Labour Party's taxation programme is based upon ability to pay. Let us try to make it clear what we mean by " ability to pay." No writer on this sub- ject can fail to express his indebtedness to Mr. J. A. Hobson, who by his books and articles on this subject, has done so much to popularise " ability to pay " as the supreme canon of economy and equity in taxation. ^ Taxation is the transference from the individual to the State of some part of his resources. His ability to pay is determined 1 See Taxation and the Neiv State. By J. A. Hobson (Methuen, 5.9.). LABOUR PRINCIPLES OF TAXATION 43 by the excess of his income over what is necessary to maintain him and his dependants in a state of efficiency — physical, mental and cultvn-al. It follows upon this definition that no taxation should be levied upon the individual whose income is not more than sufficient to maintain him in the condition described. This principle of taxation is urged not merely in the individual's interests, but in the wider interests of the State; for it cannot be a social advantage to depress a standard of living which is already low. To do so would impair the productive efficiency of the nation, and would create social evils which would necessitate more expenditure by the State to treat and repair, than the sum derived by the taxation of this class. The wealth and income of the country from which the national revenue must be derived depends mainly upon the maintenance of the pro- ductive capacity of the nation, and that productive capacity depends mainly upon leaving unimpaired the standard of life of the working classes. No arbitrary point could be fixed at which ability to pay begins, but it may in general terms be said that there is no ability to pay where the income of a family is no more than sufficient to provide the necessary food, shelter, clothing, education, health and reasonable recreation. Above that point there may be some small ability to pay, which 44 LABOUR AND NATIONAL FINANCE will rise as the income is larger. But here we are faced with this practical considera- tion, that with the advance of improvement, expenditure, which does not enter into the economy of the poorest paid classes, becomes incorporated as a part of the necessary ex- penses of maintenance. It is not desirable in the national interests that the aspirations after a higher standard of existence on the part of those who enjoy few of the benefits of civilisation should be discouraged. The ability to pay, therefore, of that large class above the poverty line, and struggling to raise themselves still higher by thrift and self-denial, is very small, and should not be encroached upon until the ability to pay of the classes above them has been fully ex- ploited. This argument against the taxation of people with small incomes applies to the exemption of that part of the gross profits of employers which may be necessary for, or which could be advantageously employed in, improving the efficiency of the plant and busi- ness organisation. In other words, that part of the income justly available for taxation consists of the surplus after expenditure from income and profits of what is necessary to maintain and improve the efficiency of labour and production. Contrary to the popular impression, the Labour Party has no hostility to saving, nor is it lacking in sympathy with the middle LxVBOUll PRINCIPLES OF TAXATION 45 class whose lot before the war was often hard to bear, and who, burdened with the high cost of living and war taxation, now find the struggle to live almost intolerable. The financial proposals of the Labour Party would relieve this deserving class. The Labour Party has no desire to discourage that laud- able desire on the part of the self-respecting working and middle classes — "To gather gear by every wile that's justified by honour : Not for to hide it in a hedge, Nor for a train attendant ; But for the glorious privilege of being independent." The practical application of these general principles involves a change in the incidence of taxation at both ends of the social scale. The total estimated tax revenue for 1920-21 amounts to £1,035,150,000. The expected receipts from the Customs and Excise are £348,650,000 and from Inland Revenue Duties £686,500,000. For the purpose of ascertaining approximately the amount of taxation contributed by the wage-earners and the middle and upper classes, we may assign the whole of the Inland Revenue taxes to the non-wage-earning classes, though since the reduction of the income-tax limit and the advance of wages in recent years, a considerable number of wage-earners are brought within the toils of the income-tax 46 LABOUR AND NATIONAL FINANCE authorities, though their aggregate contribu- tion is not relatively large. Of the Customs and Excise Duties (that is, the taxes on beer, spirits, tobacco, sugar, coffee, etc.) it is esti- mated that four-fifths will be paid by the wage-earning classes, that is, a sum of £280,000,000. It is interesting and important to note, in view of the common contention that the well-to-do classes are being dis- proportionately taxed, that in the last three years the Customs and Excise taxes have been raised by £238,000,000 (of which £190,000,000 will be paid by the wage-earning classes), whereas Inland Revenue taxes have been increased by £179,000,000. Assigning to the well-to-do classes the payment of one- fifth of the Customs and Excise Duties, the amount of additional taxation upon them during the last three years (including Inland Revenue taxation) is £227,000,000, which can be compared with the addition of £190,000,000 to the taxation of the working classes. This division of the burden certainly is not in proportion to the respective ability to pay. To exact £280,000,000 a year from the wage- earning classes in national taxation is an unjust and disproportionate imposition. In- direct taxation is a vicious method of rais- ing revenue, and invariably places a much heavier burden upon the poor than upon the rich. Indirect taxation violates every prin- ciple of sound economy. It does not tax LABOUR nilNCIFLES OF TAXATION 17 individuals according to ability to pay, but according to their necessities or tastes. It takes out of the pockets of the taxpayers much more than it brings to the Treasury. It is uncertain in its incidence, and is open to evasion. It taxes one individual of the same class more heavily than another. In- direct taxation is a very bad schoolmaster, for it does not encourage the critical super- vision of taxation among those who pay the taxes. Indirect taxation is defended on the ground that it is the only method by which the poorer classes can be made to contribute towards the cost of national government; but that contention assumes that it is just to tax those who have not the surplus of income which can be assessed by direct taxation. Apart from the objections to taxation of the poor, Avhich have already been set forth, it may be stated that the existence of a large population under or upon the border line of poverty, is a condemnation of the State for its failure to provide decent conditions of living for all its citizens, and that the State, having failed to afford them adequate pro- tection and opportunity, has no just claim to impose taxation upon them. Waiving that point, however, and admitting that no incon- siderable proportion of the wage-earners may have some small ability to pay, the fact remains that the amount of taxation imposed upon them at present is grossly unjust and 48 LABOUR AND NATIONAL FINANCE burdensome. It may be properly urged that the bulk of the indirect taxation paid by the wage- earning class is upon articles of luxury, like liquor and tobacco. That is undoubtedly true; but expenditure upon these commo- dities by the working people is not really evidence of ability to pay. It is rather a case of ill-spent means which ought properly to be devoted to personal and household expendi- ture of a necessary and beneficial character. The taxes upon sugar, tea, coffee and certain food-stuffs is the taxation of necessaries — taxation which even the poorest are unable to evade. The Labour Party, therefore, while it puts forward no claim for the complete exemption of the working classes from taxation, protests against the imposition of taxation upon articles of necessity, and against the method of indirect taxation in general, though for reasons other than economic, it is not opposed to the duties upon luxuries like liquor and tobacco. The acceptance of the principle of " ability to pay " as the basic consideration in impos- ing taxation, opens up vast resources still available for appropriation by the State. The Labour Party's main principle of taxa- tion is that the surplus of all individual incomes, after provision for the maintenance of a reasonable standard of efficiency and comfort, and provision for saving for capital LABOUR PRINCIPLES OF TAXATION 49 renewal and expansion, is available for tax- ation. If this principle be admitted there will be found available a surplus of incomes which in the aggregate amounts to a colossal sum. The methods by which these surpluses constituting ability to pay may be secured by the National Exchequer will be considered in succeeding chapters. CHAPTER IV HOW TO DEAL WITH THE DEBT The first step towards financial recon- struction is to deal with the National Debt. The Debt would never have been incurred if Governments had had the courage to call upon the nation for greater financial sacri- fices during the war, or if they had really understood the nature and effects of public borrowing. But the Debt is upon our shoulders, and the immediate task of states- manship is to discharge its obligation with least injustice and hardship and with the utmost expedition. " The same amount of sacrifice," wrote John Stuart Mill, " which would have been worth incurring to avoid the contracting of the Debt, it is worth while to incur at any subsequent time for the purpose of extinguishing it." As I am endeavouring in this volume to state the views of Labour on national finance, it may be useful, in view of the popular idea that the Socialists are advocates of whole- sale confiscation, to deal with the question of repudiating the Debt. Such a proposal finds no place in the programme of the Labour Party. Repudiation is not either 50 HOW TO DEAL WITH THE DEBT 51 practical politics or social justice. A demo- cratic community must pay for the sins of a Government it chooses to elect. It would be destructive of public confidence if, when wisdom returned after a period of temporary insanity, the evil results of past follies were repaired by visiting the sins of the majority upon an innocent minority. If the National Debt were held by all members of the com- munity in equal sums, then repudiation might be adopted without injustice. But such is not the case. It is quite true that during the war, as a consequence of the financial policy of the Government, there has been the anonymous repudiation of a vast amount of debt. The 387 representative securities, which the Bankers' Magazine has selected for the pur- pose of its monthly comparisons, were valued on July 20, 1914, at £3,371,000,000. On May 18, 1920, these securities had a capital value of £2,433,237, showing a loss of capital value since the outbreak of war of £937,773, or no less than 28 per cent. The market price of Consols on July 27, 1914, was 72|. In June 1920 they stood at 46j. This shows a decline of 36 points. All Government bonds and fixed interest bearing securities show a somewhat similar decline of capital value. But the decline in the nominal value of these securities does not by any means fully represent the amount of 52 LABOUR AND NATIONAL FINANCE anonymous repudiation which has taken place. The holder of Consols in July 1914 could have sold for £72 10s. To-day he would receive £46 10^., but that £46 106-. can only to-day purchase the same volume of commodities as £17 could have bought in 1914. In other words the real value of Consols has fallen from £72 IO5. in July 1914 to £17 in June 1920. Such a decline as this approaches very near complete confiscation. A Government whose financial policy is responsible for this repudiation of the public Debt is certainly not entitled to hold up its hands in horror when deliberate confiscation is suggested. In a sense all taxation is confiscation, but such confiscation can be justified, and indeed is often necessary to preserve the existence of the State. The justice of the conscrip- tion of wealth by the State was admitted by Mr. Bonar Law in a speech in the House of Commons on November 15, 1915. Speaking of military conscription he said : " We are asking these men who go to the trenches to give up everything, not merely their capital, but their lives. I agree absolutely that we have no right whatever to make a demand like that unless we are prepared to spread it over the whole nation and to take from every man and every class everything that is necessary to bring the war to a successful issue." HOW TO DEAL WITH TIIF: DEBT 53 The State to-day is faced by a danger ndt less serious than that which confronted it in the summer of 1914. The very existence of the State and the security of the private property of its citizens are threatened by its financial embarrassments. It is sometimes said that the parallel which speakers from Labour platforms so often draw between military conscription and the conscription of wealth is of the nature of a claptrap appeal and rests on no sound parallel. But the relation of military conscripton and the conscription of wealth is very close. Military conscription was justified on the ground that the peril of the State demanded that certain men (not every man be it noted) must be required to give up everything, not merely their capital, but perhaps their lives. It is, therefore, a relatively small thing to ask those who remained at home in the secure enjoy- ment of their property, now to make some sacrifice to save the country from financial ruin. The owners of wealth and property will not themselves deny that they are now in the enjoyment of their wealth through the sacrifices of those who lost their lives and others who fought and suffered in the war. Many of those who remained at home have been enriched as a result of the sufferings and sacrifices of others. The statement has been put forward some- times that the existence of a huge National 54 LABOUR AND NATIONAL FINANCE Debt is no drain upon the financial resources of a country. Where the Debt is owned internally, and is maintained by the payment of interest, it is no national loss, but a mere transfer. John Stuart Mill supports this view, though he admits that the transfer, being compulsory, is a serious evil, and the raising a great extra revenue by any system of taxation necessitates so much expense, vexation, disturbance of the channels of industry and other mischiefs over and above the mere payment of the money wanted by the Government, that to get rid of the necessity of all such taxation is at all times worth a considerable effort. But is it really true that the National Debt is not, apart from these admitted evils, an additional burden upon the community ? If every member of the community held the Debt in equal proportions, and if he received as interest the same sum he paid in taxation, then this argument might be valid. But such is not the case, and the interest upon the National Debt is, in effect, an enormous tribute, not levied by the community on the community, but by certain individuals within the community upon other members of the community. The older political economists never con- templated a National Debt of the colossal magnitude of that with which this country is now burdened. Adam Smith, however. HOW TO DEAL WITH THE DEBT 55 realised the disastrous effects of public debts, and he wrote of " the progress of the enormous debt which at present oppresses and will in the long run probably ruin all the great nations of Europe." To the evils arising from the existence of a huge National Debt, which have already been enumerated, others may be added. There is all the difference between a debt which has been contracted for productive and remunerative purposes, and loans the proceeds of which have been destroyed and left nothing but the obligation to pay an annual interest which must be raised from the general annual production of the com- munity. The interest upon the war debt is a subtraction from the current wealth production. Were this sum not taken by the State for the payment of interest, it would no doubt, in a considerable measure, be reinvested as savings in productive enter- prises, thus stimulating useful trade. Government borrowing creates a rentier class who can live in idleness on the produc- tive work of others. It enables them to with- draw labour from useful work and emj^loy it in personal services and in the provision of luxuries. This is especially destructive at a time like this when, to repair the ravages of war, increased production of necessaries is so urgently needed. In the time of severe international trade competition which is 56 LABOUR AND NATIONAL FINANCE undoubtedly in front of us the burden of unproductive taxation, must be a heavy handicap upon the trade of this country. And it is by no means improbable that the State may find great difficulty, when the depression comes and the sources of taxation are diminished, in raising the sum required to pay the interest. In fact, this difficulty has already arisen. In June 1920 the Treasury had to borrow very heavily from the Bank of England in order to provide the funds required for the War Loan divi- dends. This made a substantial addition to the volume of inflated money, with the inevitable effect of raising prices. The investing public realises these facts, and is not attracted by the appeals of the Government to invest in the " best security in the world." All the recent loan issues have been comparative failures, and the latest issue of Treasury Bonds bearing in- terest at the rate of 7 per cent., promoted for the purpose of funding the Floating Debt, is a grotesque fiasco. In the three months the subscriptions to these bonds amounted to the small sum of £10,000,000. The funding of the Floating Debt by direct subscriptions from the public is a matter of the gravest urgency. The present amount of the Floating Debt is about £1,200,000,000, and this wholly represents the creation of credit. It exists in the form of Treasury HOW TO DEAL WITH THE DEBT 57 Bills which are drawn by the Government against no existing assets, the only prospect of being able to meet them on maturity being the expectation of the acceptance of new bills. The increasing difficulty of securing the acceptance by the banks of these bills is shown by the necessity of having to increase the rate of discount on successive renewals. Should this Floating Debt remain, one of two things is bound to happen : either further increases in the rate of discount, followed by an increase in the bank rate, making money for trade and commerce still dearer ; or, the refusal of the banks to discount these bills, which would bring the State to bankruptcy. Two other reasons for the immediate reduction of the National Debt may be given. At simple interest at the rate of 5 per cent, the taxpayers return to the holders of the Debt the whole amount of the Debt in twenty years. The second point is this : the great bulk of the Debt has been incurred with money at its present depreciated value. Though there may be little prospect at present of an appreciation of the value of money which will bring the pound sterling to a point approaching its pre-war value, the State cannot afford to take the risk by the postponement of the reduction of the Debt of having in the future to repay the bond- 58 LABOUR AND NATIONAL FINANCE holders in a currency considerably appre- ciated beyond the value at the time the Debt was incurred. This important point may be simply stated as follows : The State borrowed when £100 represented, say, twenty-five quarters of wheat at SOs. per quarter. In other words, the State borrowed twenty-five quarters of wheat, but the obliga- tion of the State was incurred, not in quarters of wheat, but in sterling. If the price of wheat should in the future fall to 405. and the State should desire to repay the debt at that time, it will not be able to discharge its obligation by paying twenty-five quarters of wheat, but £100 sterling, which will represent fifty quarters of wheat. In other words should there be an appreciation of the sterling to the extent of 100 per cent, the State will have to repay the bondholders at a premium of 100 per cent, on their original loan. The urgency of the matter of the immediate reduction of at least a considerable part of the National Debt having been established, we must now proceed to discuss practical proposals for achieving that object. CHAPTER V THE TAXATION OF WAR-TIME WEALTH The abstract justice of calling upon people who have made fortunes during and out of the war to refund at least a considerable part of their gains to the State for the purpose of reducing the War Debt is admitted. There is a widespread feeling that it is inhuman and immoral that certain individuals should have become rich by the exploitation of the opportunities afforded by a war. If the Government had, from the beginning of the war, taken drastic steps to prevent profiteer- ing, and had, in addition, imposed heavier taxation, the problem of dealing with a colossal National Debt and the disgraceful spectacle of war-made millionaires, would not have existed. The demand for the special taxation of the war-time increases of wealth is a belated effort to undo in a measure the evil results of financial mismanagement. Though this demand for the special taxation of war-time increases of wealth is undoubtedly a just demand, its practical enforcement presents many difficulties. Much of the wealth made 59 60 LABOUR AND NATIONAL FINANCE during and out of the war has, no doubt, been dissipated. It would be dii?icult, too, in practice to discriminate between increases of wealth made during the war and increases directly due to the war. The question, however, of taxing war-time increases of wealth has been investigated by the Board of Inland Revenue, \\'Iio, after an exhaustive and critical examination of the proposal, have come to the conclusion that, notwithstanding the difficulties, a practical scheme could be devised. The Board of Inland Revenue approached the consideration of this subject with the idea of ascertaining whether it might be possible to impose special taxation upon this class of wealth for the purpose of reducing the Floating Debt. The Controller of Treasury Finance, in evidence before the Select Com- mittee on War Wealth, stated that the opinion of the Treasury was that it was almost impossible without some special pro- vision, to obtain a reduction of the Floating Debt, and to get back to a sound economic position. To put a stop to the present vicious circle by which, first of all, the Government created a new credit, followed by a rise of prices and an advance of wages, and again a new creation of Government credit and further rise of prices and advance of wages, it was urgently necessary that a sum of £1,000,000,000 should be raised for THE TAXATION OF WAR-TIME WEALTH 61 the reduction of the Floating Debt. The serious financial situation justifies expedients which might not be justifiable in ordinary circumstances. The Controller expressed the view that the revenue authorities could arrange for the collection and levy on war- time increases of wealth without doing serious damage to the country. The Memorandum issued by the Board of Inland Revenue dealing with this subject is a document of great statistical importance. It gives the endorsement of the authority of a Government Department to the popular impression that great fortunes have been made during and out of the war. Though the following point has no special bearing upon the proposal to tax these war-time fortunes, it is interesting and important, as supplementing the figures given by the Board of Inland Revenue as to the amount of war- time made wealth still remaining in private possession. Since the imposition of the Ex- cess Profits Duty, the yield of this duty has been £936,000,000. In the four years before the war the yield of the income-tax was £289,000,000. During the four years of the war the yield was £1,084,000 an increase of £795,000,000. That is to say, that out of profits made during war-time a sum of £1,731,000,000 has been taken in direct taxation in excess of the amount contributed in the corresponding period before the war. 62 LABOUR AND NATIONAL FINANCE Notwithstanding this appropriation from profits of the sum of £1,731,000,000, the Memorandum of the Board of Inland Revenue states that the value of the wealth remaining in the possession of individuals on June 30, 1919, was £5,065,000,000 in excess of that in their possession at the outbreak of war. Against this must be set a figure of decrease of £1,075,000,000 which has been suffered by other individuals. The estimate of Dr. Stamp puts the net increase much higher than the Board of Inland Revenue, namely, £5,300,000,000. The aggregate of the post-war wealth of those individuals whose total wealth has increased since June 1914 which has come under the notice of the Board of Inland Revenue is £13,046,000,000. It does not include the post-war wealth of individuals whose total wealth has not increased. Of this total of £13,046,000,000 a sum of £3,948,000,000 is held by persons whose individual share does not exceed £5000. This class has increased their wealth during war-time by £1,334,000,000. Among these about 170,000 are from £3000 to £5000 richer than they were at the outbreak of war. Two-thirds of the aggregate net in- crease, that is, nearly £3,000,000,000 is com- puted to be in the hands of 340,000 persons. There are 3620 individuals each owning over £250,000, their aggregate wealth amounting THE TAXATION OF AVAR-TIME WEALTH 03 to £1,995,000,000. These 3,620 individuals have increased their pre-war wealth by £707,000,000. The Board of Inland Revenue have cognisance of 280 individuals each owning more than a million pounds and the aggregate war-time increase of wealth of these millionaires is put down at £200,000,000, the total of their post-war wealth being £590,000,000. The increase of war-time wealth involves a permanent charge on the industry of the country. At 6 per cent, the increased income of the owners of these fortunes would amount to £240,000,000 a year in perpetuity. The appropriation by the State of the whole of this income would relieve the community of this perpetual burden. It is not, of course, maintained that the whole of these war-time increases of wealth is due to special opportunities created by the war. On a previous page we have quoted a statement made by Mr. Lloyd George that Sir George Paish estimated that the increase of capital wealth in the five years before the outbreak of war amounted to £1,750,000,000. This is probably an extreme figure, but if we admit that the normal increase of the national capital due to what may be called legitimate savings, was £350,000,000 a year before the war, we should reach the conclusion that more than one half, namely, £2,400,000,000 of war-time increment of wealth was directly 64. LABOUR AND NATIONAL FINANCE due to the special opportunities of war-time circumstances. This sum of £2,400,000,000 is therefore justly available for appropriation by the State if some practical scheme could be devised for securing it. Fortunately it is not incumbent upon the advocates of a special tax on war-time increases of wealth to formulate a scheme or to defend its practicability. The Board of Inland Revenue, in the Memorandum to which reference has already been made, discussed all the practical difficulties, and though they do not minimise their serious- ness, they came to the conclusion that they are not insurmountable. They propose that the owners of all forms of property should be called upon to make a return of the capital value of their estates in July 1914 and in July 1919. It is a great misfortune that there has not been in existence in the past any record of the capital wealth of all individuals. Such a return, if made annually, would not only be of great statistical importance as throwing light upon the distribution of national wealth and its movement, but would be valuable for new schemes of taxation which it might be considered desirable to impose. In the early days of the war the Commonwealth Government of Australia carried out such a census of capital wealth as is now suggested for this country by the Board of Inland Revenue. THE TAXATION OF WAR-TIME WEALTH 65 The difficulty of making a return is not greater than that whieh is eneountered and overeome in making the returns for Estate Duty. If the suggested tax on the increment of wealth between 1914 and 1919 were imposed, it would not be a tax exclusively on profits made either out of the war or in consequence of the war, but would be of the. nature of a capital levy on all war-time increases of wealth. But as it is not proposed that the tax shall attempt to appropriate the whole of the increment disclosed as having acciTied between these dates, that part of the increment left in private ownership might properly be regarded as the exemption from taxation of legitimate savings during that period. The practicability of the tax is admitted by the Select Committee appointed by the Chancellor of the Exchequer in their Report upon their inquiry. The Committee expressed the opinion that although the administration of a tax of this character would involve many difficulties, yet those difficulties would not be insurmountable, and they report that in its many features the scheme of the Board of Inland Revenue is practical in an administrative sense. The Committee, however, did not recommend the adoption of the scheme, but left this decision to the House of Commons. The House of Commons has since very emphatically re- jected the proposal, a course which was only 66 LABOUR AND NATIONAL FINANCE to be expected from " hard-faced men who have done well out of the war." The original proposal of the Board of Inland Revenue was to raise a sum of £1,000,000,000 by a graduated tax upon the war-time increases of wealth. Later a modi- fied scheme was submitted to the Committee for a reduced yield of £500,000,000. Under this latter- scheme provision was made for abatements equivalent to a percentage of the pre-war wealth. That percentage would be 100 per cent, where the pre-war wealth did not exceed £2500 and would diminish by very small steps until it reached a limit of 30 per cent, in cases where the pre-war wealth exceeded £500,000. After allowing for these abatements a graduated scale of taxation on post-war wealth was proposed, rising to 80 per cent, on fortunes of £500,000 and over. The great value of the discussions upon this subject of the special taxation of war-time increases of wealth lies in the fact that it has been admitted by the financial experts of the Government, and though the diffi- culties of such a tax are not less, but greater, than those which would be involved in the imposition of a general capital levy, that it is practicable. The advocates of a capital levy can now pursue their demand, fortified by the support, so far as the practicability of a capital levy is concerned, of the Govern- ment Department which would have the duty THE TAXATION OF WAR-TIME WEALTH 67 imposed upon it of assessing and collecting the capital levy. It is with reluctance that one abandons a demand for the expropriation of the war profiteers. It is so eminently fair and just that the profits they have accumu- lated should be disgorged and devoted to restoring the financial stability of the country, which has been so rudely shaken by the war. It is only fair, too, that those who have made fortunes directly due to the war should be treated very drastically, more so than those whose wealth has been accumulated by methods which are still generally regarded as legitimate. Time is a material factor in any scheme for the special taxation of war-made fortunes, and if at an early date a Labour Government should come into power, it would be the duty of the Chancellor of the Exchequer of that Government to carry through some scheme, belated though it might be, by which as much as possible of the ill-gotten gains of war-time should be disgorged by their possessors for the relief of the financial embarrassment of the nation. CHAPTER VI THE LEVY ON CAPITAL The proposal to levy a special tax on increases of war-time wealth is advocated and supported quite as much on the ground that it would be an act of compulsory restitution as on the ground that the revenue thereby obtained is needed to assist national financial recovery. But the demand for a general levy on capital is put forward solely on the ground that the reduction of the National Debt, being a matter of grave importance and urgency, it is necessary that some drastic step should be taken which will secure that object. Without stretching the application of the old adage in this case too far, that necessity knows no law, it is quite right to urge demands in necessitous circumstances which in ordinary times might be open to grave objections. This argument was used to justify military conscription during the war, and if, the urgency being admitted, the ordinary financial methods are insufficient to rapidly discharge a considerable part of the National Debt, then exceptional measures become necessary. 68 THE LEVY ON. CAPITAL 69 Taxation is insufficient to effect an imme- diate considerable reduction of the National Debt. The proposal for a general capital levy for that purpose is a plank in the financial platform of the Labour Party. From the early days of the war the demand for a capital levy has been made in resolu- tions passed by Socialist, Labour and Trade Union Congresses. It is only just, however, to give credit for the advocacy of this proposal in Parliament to Mr. Sydney Arnold, M.P., the Radical Member for Penistone, who has made a special study of this question, Mr. F. W. Pethick-Lawrence has also done much to popularise this question by his books and pamphlets and press articles.^ It is not in Great Britain alone that financial embarrassment has driven the people to look to a general capital levy as a means of relieving the situation. A proposal of this character was made by the German Government in January 1919, and at the time of writing the newspapers announce that a capital levy and the appropriation of war fortunes are proposals put forward by Signor Giollitti, the new Italian Premier. It is not proposed that the capital levy shall become a part of the permanent taxa- tion system of Great Britain. There are grave objections to using the capital levy 1 See The Capital Levy. By F. W. Pethick-Lawrence (Allen & Unwin, 2*. Or/.). 70 LABOUR AND NATIONAL FINANCE except in necessitous circumstances. It is incumbent upon those who oppose a capital levy for the purpose of reducing the National Debt to put forward some alternative scheme. So far they have failed to do so, for the simple reason that there is no other practical plan. That a capital levy will cause inconvenience, and may be in rare cases hardship, may be granted, but that objection may be urged against all forms of taxation, and with con- siderable force against a permanent high income-tax. Most of the objections to a capital levy, with some of which we shall deal later, are based upon the false assumption that the levy will be made periodically. If that were the proposal then there would be fatal objections to it. The possibility of a periodic levy on capital would discourage saving, it would keep the commercial world in a continual state of uncertainty, and it would arrest trade enterprise. These fears, however, need not be enter- tained in regard to a special levy on capital once and for all for the purpose of reducing the National Debt. The words " capital levy," unfortunately, do not clearly express what is meant by the proposal. The words convey to the popular mind the idea that it is proposed to tax only capital which is employed in industrial enterprise. The scheme would be more accurately described as a tax upon accumulated wealth. The THE LEVY ON CAPITAL 71 " capital " which would be taxed would include all forms of wealth OAvned by indi- viduals, but not capital collectively owned. Like the income-tax, a capital levy would be a tax upon individuals. The forms of wealth which would come within the grasp of a capital levy are land, minerals, houses, Government and municipal bonds, shares, mortgages, stock-in-trade, furniture, pictures, jewellery, in short, just the same wealth which would be liable for assessment to Estate and Succession Duties. In fact, a capital levy bears the closest analogy to the Estate Duties. It would be assessed in the same way and collected in the same manner. There would be no difficulty in the assess- ment and collection of a capital levy which is not encountered and surmounted in the assessment and collection of the Estate Duties. The assessment and collection of a capital levy would present fewer difficulties than assessment for a war-wealth increment tax. In the latter case two assessments would be necessary : one of the individual's wealth at a date six years old, and the second at a date five years later. But for the purpose of a capital levy only one valuation would be required, and that would be upon the wealth possessed by the individual at the time of the assessment. The Board of Inland Revenue were prepared with the machinery at their disposal to undertake the difficult IS 2 LABOUR AND NATIONAL FINANCE task of the dual valuation for a war-time wealth tax. For the purposes of a capital levy they would experience far less difficulty. The practical difficulties which would have been encountered in assessing and collecting a capital levy six years ago have been greatly minimised by the fact that so much of the^ wealth which would be liable to the capital levy is now held in the form of war-loan bonds. It was stated some time ago by an official of the War Savings Committee that nearly twenty million persons in the United King- dom hold war-loan stock. If this be so the collection of the capital levy would be greatly facilitated. It must be remembered that the purpose of the capital levy is to cancel a proportion of the War Debt. Persons who were called upon to pay the levy would, therefore, surrender the due proportion of their war-loan scrip. There would be no penalisation of investors in war-loans. Their contributions to the capital levy would bear just the same proportion to their total wealth as that made by people whose wealth was in other forms. The amount of war debt which would be cancelled by the proceeds of a capital levy would, of course, be much higher than that paid by holders of war-loan stock surrendered in payment of their contribution. A con- siderable part of the levy would be paid in cash or by arrangement, in some form of THE LEVY ON CAPITAL saleable property. The Treasury could accept as payment of the levy marketable share securities in lieu of cash payments where it is inconvenient or impossible for the taxpayer to discharge his liability in cash or war bonds. It may be said that the payment of the levy in this form would throw upon the market a vast number of securities, the effect of which would be to disorganise the Stock Exchange, to cause a depression of prices, and to glut the market with unsaleable securities. But that assump- tion is wholly unfounded. As has been suggested by Mr. Sydney Arnold, the Trea- sury could issue a list of securities they were prepared to accept in payment of the capital levy, and in this list there would be only such securities as were of a sound char- acter. There would be no immediate need for the Government to realise these securities. There would be several courses open to the Government. They could keep the securities if they thought fit and the interest upon them would be received by the Treasury and would augment the revenue of the country, or the securities could be exchanged for war- loan stock. There might be a few cases where a person liable to the capital levy was not in a position either to pay cash, surrender war bonds or marketable securities. Such cases would be those of persons whose whole wealth was 74 LABOUR AND NATIONAL FINANCE locked up in business or in house or landed property. In such cases the Government could regard the capital levy as a debt on which interest would be paid, and arrange- ments could be made by the banks for credit facilities for its gradual payment. The capital levy would, as has been said, be made upon individuals and not upon companies. It is a controversial point as to whether the reserve funds of public companies should be subject to the capital levy. It may be pointed ovit that these reserve funds are reflected in the Stock Exchange values of the shares of the com- panies, and that, therefore, they would be included in the individual owner's assessment. We may now consider how much it might be possible to raise by means of a capital levy. Estimates of the total capital wealth of the United Kingdom vary very consider- ably. The Memorandum of the Board of Inland Revenue on the Taxation of War- time Increases of Wealth brings under review the estates of 340,000 individuals who are worth more than £5000 each. The Board estimate the total post-war wealth of these 340,000 individuals and the wealth of those whose individual estates are less than £5000 (the number of such individuals not being stated) at £13,406,000,000. As has already been pointed out, this estimate includes only the total post-war wealth of those individuals THE LEVY ON CAPITAL 75 whose total wealth has increased since June 1914. It does not include the total post- war wealth of individuals whose total wealth has not increased. For the individuals con- cerned the estimates include private wealth in the form of war-loan investments at their market value on June 30, 1919. Dr. Stamp, in The Economic Journal of September 1918, estimated the value (ex- pressed in terms of money) of all the property owned by individuals as a whole which would be available for a general capital levy just before the outbreak of war at £11,000,000,000. He estimates the war-time increase up to September 1918 at £5,250,000,000. Accord- ing to this estimate there would be a sum of £16,250,000,000 available for a capital levy. Mr. Crammond, in a paper read before the Institute of Bankers on June 7, 1920, esti- mated the national wealth at the present time at a sum of £24,000,000,000. He arrived at this figure by taking his own estimate of the pre-war national wealth at £16,500,000,000, which he said would represent, in post-war money, £27,500,000,000. Mr. Crammond's figure agrees precisely with the estimate made by Mr. Sydney Arnold, namely, that for the purpose of the capital levy the tax- able wealth of the country will amount to £24,000,000,000. Mr. Pethiek-Lawrencc has based his estimate of the yield of a capital levy on the TO LABOUR AND NATIONAL FINANCE assumption that the taxable capital of the country is about £15,000,000,000. The wide disparity between the lower and the higher of these various estimates is probably ex- plained by the inclusion in Mr. Crammond's and Mr. Arnold's estimates of the war-loans as an addition to the capital of the country. The war-loans do not represent any addition to the real capital, but it appears to be sound to regard these sums as available for the purpose of a capital levy. It is not much use at this stage to attempt to estimate precisely what would be the yield of a capital levy. The Board of Inland Revenue alone are in possession of the material for arriving at an accurate estimate of the yield of such a tax. Nor do tables setting forth the rates of duty upon estates of di^erent values serve a very useful pur- pose. But it may be said that the capital levy is hardly worth imposing unless it can be made to realise a substantial sum for the reduction of the Debt. Labour Party Con- ferences and the last Co-operative Congress have passed resolutions demanding a capital levy which would operate on all individual estates exceeding £1000 in value. There are objections to imposing the capital levy on individuals of comparatively small means. The Board of Inland Revenue in their scheme for the taxation of war-time increases of wealth exempt all individual cases where the THE LEVY ON CAPITAL 77 total wealth does not exceed £5000. Tliey did this because of the practical difficulties of assessment of these comparatively small estates, and because of the difficulties of collection and of the hardship which might be inflicted. A capital levy is not a vindictive proposal for the punishment of those who have saved a reasonable sum for protection against adversity, and unless it were proved to be impossible to raise an adequate sum without including persons in the lower ranges of individual estates it is desirable to exempt such. There is this further important objection to beginning the capital levy at a very low point, namely, that the yield of the tax would not be commensurate with the trouble involved in assessment and collection. On the assumption that the capital sum assess- able to a levy would be approximately the figiu'c estimated by Mr. Crammond and Mr. Arnold it would require an average rate of tax of about 14 per cent, to yield £3,000,000,000. The graduation would, no doubt, folloAv approximately the scales of the Estate Duties, avoiding the abruptness in the gradu- ation which results in an unfair charge when the higher rate begins to operate. The sum which would be raised by a caj^ital levy would have to be definitely ear-marked for the reduction of the Debt. There would have to be efficient safeguards against the 78 LABOUR AND NATIONAL FINANCE revenue being diverted to new militarist adventures. If the National Debt were re- duced to the extent of £3,000,000,000, it would be possible if it were considered desirable to relieve annual taxation by nearly £200,000,000. We may now proceed to consider some of the objections to a capital levy, in addition to those with which we have already dealt. It is said that a capital levy would destroy the incentive to save, and in consequence the sources from which trade and industry are fed would be stopped. The answer to this objection is that if the capital levy were imposed once and for all, and imposed as it would be on accumulated capital, it could not have any effect upon the incentive to save in future. It may be further pointed out that the existence of the Debt, with all its evil consequences in the form of the enormous repudiation of capital values by the dejDreciation of the value of money, is a far greater discouragement of saving than a capital levy could possibly be. The purpose of a capital levy is to relieve trade and industry, and the taxpayers now burdened by an intolerable income-tax. x'Ynother objection which contains more substance is that it is as unfair to tax accumulated wealth and to leave free from special taxation large incomes which are made by professional and business men. To THE LEVY ON CAPITAL 79 meet this objection it has been suggested that these large incomes might be capitahscd and their possessors should be called upon to pay a special income-tax. There would be practical difficulty in the way of carrying out such a plan, and it is doubtful if the revenue derived thereby would be com- mensurate with the trouble involved. The complete answer to the objection is that no system of taxation could be uniformly just in its incidence, that the capital levy is a special emergency tax, that capital is the most convenient form of wealth for such emergency taxation. An objection related to this takes the form of pointing out that a capital levy exempts from special taxation those who have squandered their incomes in riotous living, while it penalises those who have been thrifty. This is true, but the same objection may be brought against the income-tax. If a person increases his income by hard work, skill and saving, his contribu- tion to the income-tax rises proportionately, whereas the lazy and indifferent persons suffer in income and therefore escape income- tax. There is no way by which revenue can be raised except by the taxation of persons who have taxable means. It may appear a hardship to the energetic and thrifty that the spendthrift and the indifferent should escape taxation, but this is inevitable in any system of taxation. 80 LABOUR AND NATIONAL FINANCE The business community is undoubtedly opposed to a capital levy, but their opposi- tion is in the main based upon a misunder- standing of the nature of the proposal. Their objection assumes that the tax would withdraw capital from trade and would result in considerable embarrassment. The fact is that the capital levy would not reduce in the least the amount of existing capital avail- able for business purposes. It would cause a transfer, it is true, and there might be individual cases where some temporary em- barrassment might be caused, but, as I have pointed out, in dealing with the method of collection, it would be an easy thing for the Government to make arrangements with the banks by which exceptional cases of hardship could be eased by the grant of credit. The important thing that the business commu- nity should realise is this, that no hardship or embarrassment which could be caused by a capital levy could possibly be so great as that which is inflicted to-day by the high rate of interest, the depreciated value of money, the high income-tax and (if we accept the complaints of the business community) by the Excess Profits Duty. The capital levy is the only practical proposal for reliev- ing the present financial situation. It is for those who object to it to propound some other plan for relieving the situation, and so far they have been unable to do so. The THE LEVY ON CAPITAL 81 simple fact is that there is no alternative to the capital levy. If this be not imposed then the existence of the National Debt will inevitably bring upon the country sufferings and hardships, compared with which the most dismal criticisms of the capital levy are of no importance. F CHAPTER VII AFTER THE CAPITAL LEVY If a sum of £3,000,000,000 were raised by the capital levy, and devoted to the reduc- tion of the National Debt, there would still remain a burden of debt amounting to roughly £5,000,000,000, involving an annual payment of interest of about £250,000,000. Other steps would have to be taken for the gradual liquidation of this debt. Various proposals have been made to deal with the Debt apart from the capital levy, among which is the suggestion of a forced loan at a low rate of interest. Mr. Austen Chamberlain on May 11, 1920, said that he could not see the advan- tage of a forced loan over a capital levy. The objections to a forced loan are stronger than those which could be brought against the capital levy. The objection to a capital levy that it would withdraw capital from industry, create commercial embarrassment, and increase unemployment, would apply equally to a forced loan. The objection that a capital levy would be confiscation would apply to the forced loan if it were issued at a lower rate of interest than those who contribute to it could obtain 82 AFTER THE CAPITAL LEVY 83 by the free disposal of their capital. It may be urged that the forced loan would possess this advantage over the capital levy, that the lender would have bonds which could be lodged as security for credit. But that is a very doubtful advantage, as it would lead directly to the inflation of credit and the consequent increase of prices. The forced loan could only apply to the Floating Debt, and the difference betAveen the rate of interest payable on the forced loan and that now paid by the Treasury on its Bills would not make a very material difference, though there would be some advantage in funding the Floating Debt. A witness before the Select Committee on the Taxation of War- time Increases of Wealth suggested the issue of a loan for the purpose of funding the Floating Debt which would be free of income- tax and super-tax. This proposal is highly objectionable, as it would give preferential treatment to one set of investors who obvi- ously would belong to the wealthier classes. It would destroy the principle of the gradua- tion of the income-tax in accordance with ability to pay. It would in effect be the issue of a loan at a high rate of interest, and though we attach no importance to it, the capitalist objection to a levy that it would divert capital needed for commercial expansion would, if the objection is sound, apply equally to this proposal. 84 LABOUR AND NATIONAL FINANCE There are those who maintain that the only effective way of reheving the financial situation is by drastic economy of expen- diture. This point has been briefly dealt with in a preceding chapter, but a few additional observations may perhaps be use- fully made. In a speech delivered by Mr. McKenna — an ex- Chancellor of the Exchequer and at present Chairman of one of the largest Joint Stock Banks — at the Annual Dinner of the National Union of Manufacturers, on June 14, 1920, he said that the conclusion to which he had been driven was that the country could not afford to pay in taxation more than £1,000,000,000 a year. It should not be difficult, for the next few years, with- out sacrificing efficiency, to keep the national expenditure which has to be supported from tax revenue within the sum mentioned by Mr. McKcnna, though we do not admit for a moment that the taxable capacity of the country would be exhausted by levying taxes under an equitable system to the amount of this sum. The total estimated expendi- ture for 1920-21 is £1,157,452,000. If the Loans to Dominions and Allies, the railway subsidy, the bread subsidy, the coal-mines subsidy, and the expenditure on the Ministry of Munitions and the Ministry of Shipping (none of which items can complacently be regarded as permanent expenditure) were abolished, the expenditure would be reduced AFTER THE CAPITAL LEVY 85 by £160,000,000, thus bringing the figure within Mr. MeKenna's estimate of the expen- diture the taxable capacity of the country is able to bear. If the League of Nations could be made a real instrument for securing international peace, a very considerable reduction of the present expenditure upon the army, navy and air force, which for 1920-21 amounts to £230,000,000, could be effected. There is bound to be a progressive increase in expenditure upon many items under the Civil Service Vote. We cannot retrench upon expenditure on education. The grants from national taxes for public education in 1920-21 amounted to £56,081,000. Tliis item of expenditure has risen since 1913 from £19,450,000. The Chancellor of the Exchequer in his last Budget statement said that the expenditure on education will go up to £70,000,000 a year automatically before very long. We must expect, too, a considerable increase in expenditure upon the public health department, including housing. The " New Jerusalem " which the present Prime Minister promised the workers of the country cannot be built without expen- diture, and vast sums will have to be expended in the immediate future upon schemes of reconstruction which will not be immediately remunerative, though they will eventually become so. It may be pointed out that a 86 LABOUR AND NATIONAL FINANCE reduction of Government expenditure upon permanent services will not fall propor- tionately should there be a decline of prices and an increase in the purchasing value of money, because no Government would, for instance, dare to incur the unpopularity of reducing war pensions and old age pensions, nor the salaries of the permanent civil ser- vants. We may accept Mr. McKenna's limit of a national expenditure from tax revenue as being sufficient to meet annual expenditure in the immediate future. The reduction of the National Debt by a capital levy would, as we have seen, release a sum of nearly £200,000,000 a year, which could be devoted either to a reduction of taxation or to trans- ferring the receipts from revenue to meet the cost of improved education, the public health services and reconstruction schemes, or to making provision for a sinking fund which would rapidly extinguish the National Debt. If, as Mr. McKenna admits, the country, even with production about 80 per cent, of the pre-war standard, is able to bear annual taxation to the extent of £1,000,000,000, there is no reason why the saving on the National Debt, effected by the proceeds of the capital levy, should be given to relieve taxation. It would be far better, both from the point of view of immediate and ultimate national benefit, that the country AFTER THE CAPITAL LEVY 87 should bear its utmost taxable burden vuitil such time as the Debt had been extinguished. This does not, of course, mean that the incidence of particular taxes should not be varied. Present taxation undoubtedly presses with uneven weight upon different classes, and it will be the duty of some Chan- cellor of the Exchequer in the near future to re-arrange the national taxes to lighten the burden where it presses heavily; and to transfer it to stronger and broader backs. In dealing with the possibilities of a reduc- tion of expenditure I have pointed out that economies might be effected without impair- ing national efficiency or security which would keep the national expenditure within the limit of £1,000,000,000 a year. The total estimated revenue for 1920-21 from taxes is just over this sum, namely, £1,035,000,000, but some of these taxes are not productive for the whole of the year, and in a full year the revenue is estimated at £1,238,000,000. Included in this figure is the Excess Profits duty, which is estimated to yield in 1920-21 a sum of £220,000,000. The yield from this tax is a declining yield, and it cannot be regarded as a permanent source of revenue. It was imposed as a war-emergency tax and it has proved to be exceedingly remunerative. \Vc may, there- fore, eliminate the Excess Profits duty from our estimate of permanent taxation. 88 LABOUR AND NATIONAL FINANCE and excluding this the yield from the existing customs and excise duties, death duties, stamp duty, land tax and house duty, income-tax (including super-tax), should amount to £1,000,000,000, in a full year on the basis of the present yield. We should not be justified, however, in assuming that the existing taxes will maintain their pro- ductivity unless something is done, which is eminently desirable, to increase the annual output of wealth. If that be done, on the basis of existing taxation the revenue may be expected to yield sufficient, after the Excess Profits duty has been abolished, to meet an expenditure of £1,000,000,000 a year. It should be borne in mind that a considerable part of this expenditure will be devoted to the interest and sinking fund on the un- redeemed National Debt, but each year this item of expenditure will decline, thus releasing millions either for the relief of taxation or for meeting the inevitable increases of expen- diture upon necessary services. With the limit of expenditure fixed at £1,000,000,000 a Chancellor of the Exchequer will have considerable room to operate in readjusting taxation. Though the limit be fixed at £1,000,000,000 for the immediate future as the extent of the taxable capacity of the country as a whole, we by no means admit that there are not individuals and classes who arc well able to bear additional AFTER THE CAPITAL LEVY 89 taxation for the relief of those classes which at present are bearing a burden quite dis- proportionate to their strength. The estimated yield from Customs and Excise duties for 1921 is £348,650,000. It is generally assumed that four-fifths of these duties are paid by the wage-earning classes. The family expenditure upon tea, cocoa, coffee, sugar, varies little per head among the different classes. Indeed, it is highly probable that the poorer classes spend as much per head upon tea, and possibly upon sugar, as the well-to-do. The Customs and Excise duties fall into two classes : taxes upon necessaries, and taxes upon articles which may be described as luxuries or non-neces- saries. The estimated yield from the duties upon liquor for 1920-21 is £204,900,000, from tea £17,000,000, from cocoa £2,450,000, from coffee and chicory £650,000, from sugar £32,200,000, from dried fruits £1,000,000, from tobacco £62,500,000. We may take tea, cocoa, coffee, sugar and dried fruits as being necessaries of life, and spirits, beer and tobacco as non-essentials. The five necessaries enumerated are taxed in the aggregate to the extent of £53,300,000. Four-fifths of this sum which may be allocated as the contribution of the wage-earning class amounts to £42,600,000. This is a monstrous burden to be placed upon a class whose ability to pay taxation is in individual 90 LABOUR AND NATIONAL FINANCE cases very small, and in the majority of cases non-existent. The revenue yield from these taxes does not represent the whole of the contribution from the taxpayers through their imposition. It is one of the evils of indirect taxation that it takes out of the pockets of the taxpayer more than it brings into the Exchequer. As the tax is paid when the goods leave bond, the tax thus becoming a part of the cost of the com- modity, traders' profits at all the stages until it reaches the consumer, are added to the tax, as well as to the prime cost of the commodity. If we take all the indirect taxes, which amount to £348,000,000 a year, we find that the amount of indirect taxation per family in the United Kingdom amounts to £35 a year or 13^. 6d. per week. It is, of course, true, that the bulk of indirect taxation is upon articles like tobacco and liquor, which are not necessaries. But it should be pointed out that taxes are levied on tobacco and liquor because these com- modities are consumed by the working classes, and those who defend indirect taxa- tion on the ground that it secures a con- tribution to the revenue from the poorer classes, would defend taxes on other articles in general use if liquor and tobacco were not available for that purpose. The liquor taxes, it is true, are in a different category from other indirect taxes. The AFTER THE CAPITAL LEVY 91 liquor trade is a State-conferred monopoly, and heavy taxation on liquor may be defended as a means by which the State can appropriate some part of the monopoly value of the trade, though there is not much support for this argument in practical experience, for the monopoly itself enables the trade to trans- fer practically the whole of the taxation to the consumer. The Government have fixed maximum prices for beer and spirits, but when the last increases of the liquor duties were imposed, provision was made by which the retail prices could be increased to compensate the trade for the increased duties. The Labour Party is not in favour of the abolition of the liquor duties. It adopts that position for two reasons : first, because a cheapening in the price of drink would encourage indulgence; and second, because the relief of taxation would be a monetary gift to the trade. It is a suicidal policy for the State to encourage expenditure upon liquor for the purpose of providing revenue. The taxes cannot justly be defended on the ground that the expenditure upon drink by the working classes is proof that they have a surplus income available for taxation. The expenditure of the working classes on drink comes in the main, not from a surplus income after all the needs of physical and intellectual life have been satisfied, but from the unwise 92 LABOUR AND NATIONAL FINANCE diversion of spending power to a wasteful and harmful indulgence which in effect reduces the physical efficiency of the worker and lowers his general standard of living. The case of tobacco is somewhat different. Without fully accepting the contention which is sometimes put forward that tobacco is a necessary, it may be granted that it is a harmless indulgence, and that those who use tobacco should not be specially selected for exceptional taxation, because their indul- gence in a moderate luxury takes a particular form. The present duty on tobacco is undoubtedly much higher than could be justified as a permanent imposition, and while not favouring the abolition of the tobacco duty, the Labour Part}^ would no doubt reduce the duty considerably when carrying through a scheme for the readjust- ment of the burden of taxation. The Labour Party, on principle, is opposed to indirect taxation, and would abolisli all the taxes on necessaries. The Labour Party has never advocated the exemption of the working classes from taxation. What it does maintain is, that the taxes on food encroach on the necessary subsistence of the poor. If the working classes have a surplus income after providing for a reasonable standard of life, then some part of that surplus may be regarded as available for taxation, though the amount of taxation levied upon it must AFTEll THE CAPITAL LEVY ua be small, so as not to prevent the satisfaction of the desire for intellectual advance. It is just as bad, from the social point of view, to impose taxation which hampers the intel- lectual progress of the workers as to impose taxation which hinders physical develop- ment. For that reason the entertainment tax is to be deprecated. I have set forth elsewhere at length the general objections to indirect taxation, but I may here briefly summarise them. Indirect taxation violates every principle of sound economy. Indirect taxes do not apportion the burden in accordance with ability to pay. The duties on articles in general use fall equally on the rich and poor without regard to their respective ability to pay. Indirect taxes are uncertain in their incidence and can be easily evaded. A grave objection to indirect taxation is that it does not encourage a critical supervision of taxes by those who are called upon to pay them. Mr. Pitt, in the course of a debate on a proposal to levy a direct income-tax upon all citizens, uttered these remarkable words — " There is a far better way than that, a way in which you can tax the last rag from the back, the last bite from the mouth, without ever hearing a murmur about heavy taxation. And it is by taxing a large number of articles 0-i LABOUR AND NATIONAL FINANCE in daily use. The tax will then be lost in the price of the article. The people will grumble about high prices and hard times, and they will never know that the hard times are caused by heavy taxation." All the general objections to indirect taxa- tion apply with great force to a Customs tariff. Tariffs are, of course, defended on other grounds than as revenue-producing instruments. A duty, however, imposed on imported articles which do not enter into competition with home products is less objectionable than tariffs imposed for the double purpose of raising revenue and pro- tecting home industries. The objection to indirect taxation — that it takes out of the pockets of the consumer more than it brings in to the Exchequer of the State — applies to an enormously greater extent to a Customs duty on imported articles which enter into competition with home products. Such a tari^ enables the home manufacturer to raise prices, and thus the tariff imposed on imported goods becomes a tariff upon home productions as well. The Labour Party has repeatedly and emphatically declarecf its opposition to protective duties, and no such proposals are ever likely to find a place in the Budget of a Labour Chancellor of the Exchequer. AFTER THE CAPITAL LEVY 95 The financial j^olicy of Labour as outlined in this chapter may be summarised as follows. There is no desire on the part of Labour to levy taxation except for the purpose of raising revenue which could be more advan- tageously spent than if the money is left at the disposal of individuals. The need for drastic national economy is recognised. National expenditure which is not remunera- tive in the sense of raising the standard of national efficiency and comfort, and of promoting trade and industrial development, should be ruthlessly eliminated. A high standard of efficiency must be exacted from all national administrative departments. By the elimination of unnecessary expenditure the tax revenue of £1,000,000,000 a year might be the limit within which for the next few years means could be provided for the rapid reduction of the National Debt, the abolition of the food taxes, meeting the pro- gressive increase of expenditure upon neces- sary public services and the demands of social reconstruction. That limit, however, by no means exhausts the taxable capacity of the country. The unappropriated surplus beyond this sum will be available for call should necessity arise, a contingency which is highly probable in the not distant future. CHAPTER VIII THE INCOME-TAX The proposals and suggestions set forth in preceding chapters are intended to restore the finances of the country to a sound condition. We will now proceed to apply the Labour principles of finance to a more settled and permanent state of affairs. National taxation can only be justly levied from the surplus income of individuals, surplus being defined as that part of the individual income which is left after a reasonable standard of life has been satisfied, and after adequate provision has been made for savings necessary in the case of individuals to safeguard them against misfortune and want, and in the case of business men, after making provision for new capital neces- sary for the legitimate expansion of trade. AH taxes are exactions from individual incomes. That obvious fact leads naturally to the conclusion that a just system of taxation will be in accordance with ability to pay of each individual income, and to such a method of assessing and collecting the tax as will, as far as it is humanly possible, tax each individual in proportion 90 THE INCOME-TAX 07 to his ability to pay. Of all taxes the income- tax best fulfils these conditions. The income- tax was first imposed in a time of national difficulty, and was then regarded as a tem- porary imposition to meet an exceptional emergency. The belief in its temporary character caused the injustices of its incidence to be tolerated, but as the belief grew that it was likely to remain a permanent part of our fiscal system, the demand for reforms became more insistent. The income-tax is now accepted, not merely as a permanent institution, but as a tax upon which the Chancellor must rely for a great part of his revenue. The ne- cessity, therefore, for levying the income-tax in such a way as will remove anomalies and spread the burden as justly as possible in proportion to ability to pay, is very urgent. When the income-tax was 6d. or Is. in the pound inequalities were quietly borne, which became intolerable when it was increased to 6s. in the pound. If the indirect taxes on the necessaries of life were abolished, then a strong case could be established for calling upon the working-classes who have a surplus income beyond sufficient to sustain a healthy existence and to provide for the conventional comforts and luxuries which have entered into the recognised standard of working- class life, to make some contribution to 98 LABOUR AND NATIONAL FINANCE national expenditure through an income-tax. In recent years considerable concessions have been made to the income-tax payers in the lower ranges which have, to a great extent, removed legitimate causes of complaint. The allowances for a wife and children follow sound and just principles of taxation, and recognise the principle of taxing only surplus incomes. The combined income of a married couple without children " if earned " is now exempt from taxation if below £250. A married couple with three children are exempt from jncome -tax if the earned income does not exceed £350 a year. It may be justly urged that these allowances are still inade- quate, and force is given to this contention by the fact that single persons are now exempt from income-tax up to £150 a year. It may, of course, be said that the necessary expenditure of a single person is propor- tionately higher than the expenditure per head of a family of five persons. But grant- ing the substance of this point, it is not the fact that the present allowances for wife and children place the married couple on a footing of equality with the single person. It is most important from the social point of view that there should be retained for the use of the family a sum sufficient to rear the children well and to give them a good education, and to prepare them for a trade or calling. THE INCOME-TAX 99 To overcome the injustice of assessing at the same rate individuals who have vary- ing responsibiUties, it has been proposed, notably by the Fabian Society,^ that the taxable receipts of all the members of a family living in the same household and sharing in its expense, should be aggregated for assessment as a family income. That is to say, that all the incomes of all the members of a family shall be added together, divided by the number of mem- bers, and each member shall be assessed upon the quotient. Let us take a concrete example of the working of this proposal. Suppose the family income be £900 a year, and the family consists of a husband, wife and four children. Under this plan the income of each member of the family will be regarded as £150, so that, with the exemption at the present figure of £150 no income-tax will be paid by this family. Reduced to terms of this concrete illustra- tion the impossibility of the proposal becomes manifest. It is preposterous to maintain that an income of £900 a year, even with the responsibility of maintaining a wife and four children, has no surplus available for taxation. The adoption of such a proposal as this would make an inroad uj^on the yield of the income-tax which would dislocate the whole financial system. The cost of * How to pail for the War. (Fabian Society.) 100 LABOUR AND NATIONAL FINANCE maintaining a family does not pro rata increase with an increase in tlie number of the members of the family. The larger the family tlie smaller is the cost per head of maintenance. But though we may reject such an extreme proposal as this for doing justice to the man with family obligations, there is un- doubtedly a case still to be considered for relief beyond what is at present given by the exemptions allowed for wife and children. Under the scales at present in operation the joint earned income of a married couple without children is exempt from taxation up to £250, and the allowances for children are £40 for the first child and £30 for each subsequent child. A moderate increase in the amount of these allowances would remove what injustice married persons may suffer at present. There is a demand from certain quarters that the joint assessment of husband and wife for income-tax purposes should be discontinued, and that they should be assessed as separate taxable units. This demand is urged upon two grounds : first, that the merging of the wife's citizenship in this matter of taxation in that of her husband's is derogatory to the woman, and is a sur- vival from the time when marriage took away from the woman all rights to the separate enjoyment of her property. The demand is also made on the practical ground THE INCOME-TAX 101 that by lumping the two incomes together the income of the wife is taxed at a higher rate than would otherwise be the case. Recent concessions to married couples have, however, considerably destroyed the force of this argument. In the lower ranges of incomes the griev- ance hardly exists. It is true that where the merging of the incomes of two persons who marry brings the taxable capacity within the range of the super-tax, the penalty on marriage is heavy, and it is from those who are affected in this way that the demand mainly comes. ^ There has been an agitation among the Trade Unions to raise the exemption from income-tax to £250 a year. This demand was incorporated in a financial resolution passed at the Labour Party Annual Con- ference in 1919. It has now been conceded in the case of married couples, and by the Finance Bill of 1920 the exemption for single persons is raised from £130 to £150. It is urged that the increase in the cost of living has brought the value of a present income of £250 to the equivalent of a pre- war income of £130, which was formerly exempt from income-tax. But the con- tention that an income of the same real value should be exempt from taxation as * For a full examination of this question, see the Report of the Royal Commission on the Income- Tax. 102 LABOUR AND NATIONAL FINANCE before the war, assumes that persons about this range of income should make no con- tribution to the cost of the war; for be it remembered that those who make this de- mand for the raising of the income-tax exemption hmit put forward at the same time the demand for the abohtion of indirect taxation. The demand, therefore, amounts to a claim for the total exemption of the working-classes from taxation. Such a claim is indefensible, and finds no support among the responsible leaders of Labour, nor would any Labour Chancellor of the Exchequer be justified in making such a proposal. The working-classes, like every other class of the community, must bear taxation upon any surplus of income where it exists, but the amount of their contributions will neces- sarily be very small. As this chapter is being written the announcement appears in the Press that a Conference of the South Wales miners has passed a resolution demand- ing the exemption from income-tax of all incomes below £400 a year, exclusive of allowances. Whatever may be said in sup- port of raising the exemption of single persons somewhat beyond £150 a year, nothing can be urged in support of the exemption from taxation of a bachelor en- joying an income of £400 a year, and such demands, emanating from a well-paid body THE INCOME-TAX 103 of workmen, bring ridicule upon the Labour Movement. There are three arguments advanced in support of raising the income-tax Umit beyond £150 a year, in addition to the one ah'eady mentioned, namely, the depreciated value of money. These three arguments are : first, that a single man often has the responsibility of supporting parents or rela- tives; second, that it is important from the social point of view to leave a single man with a surplus of income that he may save in preparation for marriage; and third, that the trouble and expense of assessing and collecting the income-tax from the very large number of persons with small incomes is not worth the effort. In regard to the first of these arguments it may be pointed out that the case could be met by the extension of the system of abatements to cover cases where relatives or other dependents were partially supported out of bachelors' incomes. There is considerable force in the second argument for raising the limit of exemption, and if there were an assurance that the concession would be used for that purpose it would be socially advan- tageous to give it. When the limit of exemption is low a vast amount of work is entailed upon the income-tax authorities which is not remunerative. For example, in 1918-19 there were 5,346,000 separate 104 LABOUR AND NATIONAL FINANCE incomes brought under the review of the Surveyors of Taxes. Of this number 1,940,000 were entirely reheved from tax by the operation of abatements and allow- ances. Of 2,490,000 persons whose incomes fell between £130 and £160 no less than 1,590,000 were entirely exempted. The total taxable income of persons with incomes between these amounts was £339,500,000, and after making abatements and allow- ances, the comparatively insignificant income of £14,720,000 was left for assessment to income-tax. The net yield of this taxation was only £1,682,000. It is well worth con- sidering whether such an insignificant yield as this is compensation for all the trouble involved in dealing with two and a half million returns. This practical aspect of the question is a strong argument in favour of raising the limit of exemption, though there must be set against this those reasons for maintaining the limit in the case of single persons with £150 which have been previously stated. The system of taxation of income at source, though it has much to recommend it, is an obstacle in the way of a proper graduation of the tax according to ability to pay. The income-tax is essentially a tax on individuals, and it should be graduated in accordance with each individual's ability to pay. Under a proper system of graduation THE INCOME-TAX 105 there would be no base rate, but each individual would be taxed at a rate applic- able to the class in which he fell, according to his ascertained ability to pay. Such a system of assessment would involve the abolition of the system of collection at source. The individuals who are share- holders in companies are taxed uniformly and collectively, though they have varying incomes. Some rough-and-ready attempt is made to adjust the tax to the ability of the individual recipients of the dividends by abatements, allowances and exemptions. These efforts at readjustments are irritating and inconvenient and not altogether effec- tive. It is undoubtedly true that a good deal of the tax collected at source from the dividends of poor shareholders is never reclaimed. No efficient system of tax col- lecting would permit the poor to be unjustly taxed so that the richer might escape. The savings of the working-classes are being increasingly invested in municipalities and public companies, and, therefore, this injustice is a growing one. The irritation caused by the claiming of small amounts of income- tax which have been deducted is consider- able. It is necessary to maintain a large staff to deal with such claims. The number of claims in the last year (1910) for which the figures were available was 566,356. The number must now be vastly larger owing to 106 LABOUR AND NATIONAL FINANCE the increase in the number of taxpayers Hable to the lower rate. The plan of collecting income-tax at the source is not followed largely in foreign countries. In the United Kingdom it is a survival from the days before the institution of differentiation and graduation and super- tax. If the system of collection at source were abolished, it would be easy to so reform the income-tax that a graduated scale of poundage could be adopted which would apportion the tax to ability to pay. Such a reform would probably abolish the present differentiation between earned and unearned incomes on the higher incomes. There is much to be said for this differentiation where the unearned income is the result of saving. But large incomes, such as those of professional men, directors and managers of public companies, cannot be regarded as wholly earned. There is an element of monopoly value in all such incomes. More- over, as ability to pay is the principle of the income-tax, it can be maintained that a large income, whether earned or unearned, possesses the same ability to pay because a considerable part of that income is surplus to the reasonable needs of the possessor. The differentiation between earned and un- earned income has already largely disap- peared by recent changes, and has practically ceased to exist when the income exceeds £2000. For example, the total income-tax THE INCOME-TAX 107 and sujDcr-tax upon an income of £2000 a year enjoyed by a married couple is £439 if their income be all " earned," and is £499 if the income is wholly from invest- ment. In the case of an income of £150,000 enjoyed by a married couple which is wholly earned the total tax is £87,551, whereas if the income be all from investment the tax is £87,611, a difference of £60 only. The rate being practically the same, namely, lis. 8d. in the pound. Two other reforms of the income-tax may be noted. It is a growing practice of limited liability companies to place large sums to reserves, and a portion of these sums are afterwards distributed in the form of bonus shares. The undivided profits of a company pay the ordinary rate of income- tax, but when they are allowed to accumu- late or when they are distributed as bonus shares, individual shareholders liable to super- tax, evade the payment of the super-tax. The Royal Commission on the Income-Tax recom- mended that when the assessing authorities are satisfied that the profits of a company or a portion of them are retained undistributed, or are distributed as bonus shares for the purpose of evading or diminishing the liability of its shareholders to super-tax, the income of those shareholders may be treated as if the profits or a portion of them had actually been distribvited as ordinary dividend. Profits which arise from transactions which 108 LABOUR AND NATIONAL FINANCE do not form part of the ordinary business of tlie person who makes them are not held to come within the scope of the income- tax, and consequently escape taxation. A person may make large profits from success- ful transactions in shares, but if this is not his ordinary business his profits are not liable to income-tax. A man who buys and sells land or other forms of property and makes profits on the transactions is also exempt from income-tax unless this is his recognised business. The Royal Com- mission on Income-Tax expressed the opinion that " any profit made on a transaction recognisable as a business transaction, that is, a transaction in which the subject matter was acquired with a view to profit-making, should be brought within the scope of the income-tax, and should not be treated as an accretion of capital simply because the transaction lies outside the range of the taxpayer's ordinary business, or because the opportunities of making such profit are not likely in the nature of things to occur regularly or at short intervals." This opinion will be generally shared, and if the profits of such transactions could be brought within the net of the income-tax, a very considerable addition to the revenue would result. We may now proceed to consider what is the possible further yield of the income- THE INCOME-TAX 109 tax by the appropriation of surplus income still untaxed. In Budget debates I have often laid down the dictum that in levying taxes we should look not at the amount we take, but at the sum which is left after the tax has been levied. Under the rates of income-tax and super-tax at present in operation a single person with an in- come of £150,000 a year pays in income- tax £44,866 and in super-tax £42,772, a total of £87,638. This is admittedly an enormous proportion of the income taken in taxation, but it must be remembered that after the tax has been paid there remains for the use of this single person a sum of £62,422. Can it be seriously main- tained that a single person with such an income has not a further ability to pay ? Let us take a much more moderate income, say £10,000 a year. The total amount of income-tax and super-tax paid on such an income by a single person is £4328, leaving £5672 in the possession of this individual. Again I ask, can it be seriously maintained that a surplus of untaxed income of £5672 for the use of one individual has no further ability to pay ? There can be but one answer to this question. Mr. McKcnna's statement that we are over-taxed certainly does not apply to indi- viduals with incomes exceeding, say, £3000 a year. The possession of a large untaxed 110 LABOUR AND NATIONAL FINANCE income is a social disadvantage and danger. But a comparatively small part of such an income can be spent in ways which are really a benefit to the individual or to the community. The number of persons in pos- session of incomes exceeding £3000 a year, according to the Report of the Commissioners of Inland Revenue for the year ending March 31, 1919, was 32,972. The total incomes assessed amounted to £285,300,859. Apart from the undoubted right of the State to impose further taxation upon the recipients of these incomes for necessary public expenditure, it is desirable from the point of view of social welfare to take away from individuals the power which the com- mand of such an income gives them, to employ labour uselessly, to support luxury and to indulge in vice. The further taxation of such incomes can have no results other than beneficial. Not one of the objections to a capital levy can apply to the further taxation of these surplus incomes. Even the old argument that it was undesirable to unduly tax individuals because it would lessen the money available for necessary investment has lost much of its force, owing to the fact that commercial saving is now largely done by the limited liability companies themselves by placing profits to reserve funds for the renewal and increase of capital before the dividends are paid. Some part THE INCOME-TAX 111 of the untaxed income of wealthy people, no doubt, is still saved and reinvested, but if taxation upon them were considerably increased, it would not be Hkely to result in less saving, but more likely to attain the desirable result of lessening expenditure upon the maintenance of large establishments and upon luxury. The case of the land-owning class is somewhat different from that of the class whose incomes are derived in the main from commercial enterprises. But as the income upon which a landowner is assessed is net, after generous allowances have been made for the repair of property and the development of the estate, the argument that an increase of taxation upon the land- owning class would have ill results on agri- cult m-e, has not much force. The possibilities of the income-tax are shown by the above figures to be by no means exhausted, and a Labour Chancellor of the Exchequer would have at call in case of need at least another £100,000,000 a year from income-tax and super-tax. CHAPTER IX LIMITATION OF INHERITANCE It is remarkable that during the last few years, when the need for obtaining additional revenue has been so urgent, that practically no attention has been paid to the possibility of exacting a considerably greater yield from the Estate and Death Duties. The present rates of duty have remained untouched since 1914, when in that year some relief from Estate Duty was given in respect of quick successions. The yield of the Estate and Death Duties (including legacy, suc- cession and corporation duties) for 1920-21 is estimated at £45,000,000, an automatic increase on the yield of the previous year of £4,096,000. The yield in the year before the war was £37,359,000. The increased yield may be explained by the war-time increases of wealth. The latest details of the number and value of estates liable to Estate Duty are contained in the Report of the Commissioners of Inland Revenue for the year ending March 31, 1919. In that year 91,499 estates came under review, ranging in value from less than £100 to over £3,000,000. The number of estates where 112 LIMITATION OF INIIEIUTANCE 113 the net value did not exceed £1000 was 21,222. The number of estates exceeding £100,000 in value was 328. The estates of nine millionaires were assessed to Death Duties in that year, one of these estates being declared to be of over £3,000,000 net value. The average duty is 10 per cent, on the net capital value, so that it appears the Board of Inland Revenue estimate that estates of the net value of about £450,000,000 will pay Death Duties in 1920-21. This leaves a sum of £400,000,000 a year, which is inherited after the State has appropriated what at present it considers to be its reason- able share. Here is a " hen-roost " which an impecunious Chancellor of the Exchequer might raid. It cannot be maintained that a contribution of £45,000,000 made by persons who inherit a windfall is at all an adequate payment to the State for the enjoyment of their good fortune. This question of inheritance duties is much more than an economic problem. The abolition or drastic limitation of the right of inheritance would have social con- sequences of a revolutionary character. The personal right to dispose of property is the right of the dead to impose an intolerable burden on posterity. The only just claim which a democratic State can recognise to the possession of Wealthis that the wealth has been created by the self -effort of the possessor. 114 LABOUR AND NATIONAL FINANCE The principle of equality of opportunity is violated by the law of inheritance. In a democratic State every child should start with the same chance to make the best of its opportunities. It may be difficult in practice to secure absolute equality of oppor- tunity, but it is at least the duty of the State not to give its sanction to laws by which handicaps are deliberately placed upon cer- tain individuals, and unmerited advantages given to others. Inheritance creates an idle class who are able to live not upon the accumulations of their ancestors, but by the exercise of a power, or legal right, which has been conferred upon them to levy tribute upon their own generation, and upon the wealth produced by contemporary labour. The dead person has no rights. Whatever just rights he might have been entitled to during his life- time expire with his death. The dead ought not to rule the living, but the law of inherit- ance enables them to do this. The dead person leaves instructions which millions of unborn persons must obey, and he imposes conditions under which they must live. The land of the United Kingdom is paying an enormous exaction every year to the descendants of men who often obtained their title by very questionable means. Every shipload of goods which comes into the port of Liverpool pays tribute to the Earl of LIMITATION OF INHERITANCE 115 Derby, because an ancestor of his bought the sandhills of Bootle a few generations ago, and because the law permitted him to trans- fer to his successors the perpetual owner- ship of this land and the increment value created by the industry of the community. A poor German immigrant, possessed of keen foresight, about a hundred years ago bought the island upon which the city of New York now stands, with the result that his descendants appropriate millions a year from cm-rent wealth production. A former Duke of Norfolk received from the Crown the grant of estates situated in and around Sheffield. Included in this gift were the market rights of the place. The rents from these estates were enjoyed through many generations by successive Dukes of Norfolk, who reaped the advantage of an annual increment of their toll through the industrial expansion of this district. Between 1815 and 1840 the rent roll doubled. Some years ago the Corpora- tion, finding it necessary to extend the markets, entered into negotiation with the Duke of Norfolk and eventually paid him a sum of £526,000 for his manorial market rights. The influence of the dead upon the present generation is not only that of the lords, who Hved in the feudal days. As pre- viously mentioned, in 1918 nine millionaires died in this country. Their estates were left mainly intact, and the heirs are now, through 116 LABOUR AND NATIONAL FINANCE no virtues or eflorts of their own, enjoying incomes from these estates. These mil- honaires were in the main men who had amassed their fortunes by modern commercial methods . It is not the descendants of men whose names are immortal because of the services they rendered, not only to their day, but to posterity, as statesmen, poets, scientists, artists and inventors, who are living by the enjoyment of rights bequeathed to them by their ancestors. In fact, the sons of social benefactors are often neglected by posterity just as great writers, artists and musicians have been neglected by their contemporaries. The copyright laws do not recognise any permanent property in the works of a man of genius. The inheritance laws in the United King- dom give a person the right to dispose of his property entirely as he may will. He may leave his nearest of kin entirely penniless and bequeath his property to strangers or to a society for the propagation of celibacy among the natives of Central Africa. That fact disposes of the claim that even in law the right of a wife to inherit the property of her husband, or of children to inherit the property of their father, is recognised. In law the nearest relatives have no right to succession except in the case of intestacy. The right of a possessor of property to LIMITATION OF INHERITANCE 117 decide what form the burden he bequeathes to posterity shall take is absolute. No stronger condemnation of the law of inheritance can be made than this statement of the fact. A man may in these modern times amass great wealth, and in doing so may to some extent confer benefits upon his contem- poraries. He has reaped the reward during his own lifetime in the satisfaction which comes from successful effort, in the admira- tion of his fellows and in the enjoyment of his wealth. To give to him in addition to these things the right through his heirs to continue to exploit the community when he can no longer render any service in return is utterly indefensible. The evils of inheritance are obvious. It creates an idle class who have no claim to wealth through their own labour. The in- heritors of wealth obtain immunity from labour cither because their benefactors en- joyed such immunity through the favour of the law or because their benefactors had been successful in amassing wealth. Inheri- tance is destructive of the only sound prin- ciple upon which a democratic State can exist, namely, that duties come before rights, and the duty of every able-bodied adult member of the community is surely to main- tain himself by his own labour. If it be maintained that inheritance is right because the property was honestly earned, then that 118 LABOUR AND NATIONAL FINANCE is a very strong reason why the law of in- heritance should be abolished or limited, because property should only be enjoyed by those who have honestly earned it. The inheritance of property is not only an injus- tice to the community, but it is often an evil to those who inherit it. There is a North of England saying which runs : "It takes three generations to get from clogs to clogs." This means that fortunes accumu- lated by self-made men are dissipated by their heirs in one or two generations. In- heritance of wealth has a demoralising effect upon the recipients of it. Money lightly come by is lightly valued. These evil efiects on those who inherit wealth are not, however, by any means universal. Many heirs to property simply continue from generation to generation to live idle lives without squan- dering their inheritance which they eventually leave to successors who carry on in the same way. The social and political consequences of the limitation of inheritance would be far- reaching. The possession of wealth is de- sired because of the power that it gives to the possessors to control the lives of their fellows. It gives them a social position which is not due to their own merits but to their wealth. It enables the inheritors to dissipate great volumes of pui'chasing power in useless things. It throws additional laboui' LIMITATION OF INHERITANCE 119 upon the rest of tlic community. It enables men to live idle lives who, if compelled to work, might show the possession of ability which would be a great social utility. The Duke of Marlborough, who is a personal illustration of the results of the law of in- heritance, writing some time ago upon the question of the Death Duties, asked if the great country houses which are the fortresses of territorial influence are to be razed in the name of social equality. " Are these great historic houses," he asked, " the abiding memorials of events which live in the hearts of Englishmen, to be converted into museums to bear relics of a dead past ? Is the social life of which they are the centre to be main- tained and directed by officials appointed for the purpose by a benevolent Board of Works ? " The Duke of Marlborough natui'- ally looks at one side of the picture only. The existence of these " fortresses of terri- torial influence " is paid for at the expense of the tens of thousands of agricultural labourers who live in hovels in which a duke would not house his horses. The social life of which they are the centre is maintained by the condemnation of tens of thousands of workers to lives into which no comfort, enjoyment, recreation, or refinement enter. The limitation of inheritance would enable these historic houses to become indeed centres of social life, which would not be enjoyed 120 LABOUR AND NATIONAL FINANCE by a few idle persons, but by the whole community. It is contended that inequalities of wealth are due to natural differences of character and ability, that fortunes are accumulated by superior merit and greater industry. That, as a matter of fact, is not true, but even if it were^ it is an argument against rather than in favour of inheritance. Wliat does it matter, it is sometimes argued, that the few are rich ? They have paid for the work which has been done for them. But this ignores the fact that a large fortune can only be accumulated by the appropriation of community values, and pending State action which will prevent individuals during their lifetime from appropriating these com- munity values, the limitation of inheritance offers an easy way of securing the reversion of them to the community at the death of the individual who has appropriated them. The defenders of inheritance will ask : Has not a man the right to make provision for his wife and family? There are many answers to that question. First of all I may repeat that the law of inheritance leaves a man free to deprive his family of the enjoy- ment of his fortune after his death. The second answer is one which has already been given, that no man has a right to impose upon successive generations the burden of maintaining people in idleness. The third LIMITATION OF INHERITANCE 121 answer is that when a man bequeathes a large fortune to his family, it enables them to live without working, which is at the same time robbing other parents of the opportunity to provide for the adequate maintenance of their own famihes. A fourth answer may be put in the form of an inquiry : Do most men who work hard to accumulate wealth do so in order to leave their descen- dants in a position to live without working ? The answer to that question is in the nega- tive. The largest fortune ever left by an Englishman amounted to £14,000,000, and this had been accumulated by a bachelor who bequeathed it to relatives who were already milhonaires. Men who accumulate fortunes by successful business enterprise are men who work rather for the sake of work than for the accumulation of money. They are the men who, knowing something of the satisfaction which comes from work and adventure, have no desire to see their descendants leading the Hves of drones in the community. The testimony of a multi-milHonaire like the late Andrew Carnegie upon this point is interesting and ought to be conclusive. In his book. The Gospel of Wealth, he says : " The Almighty Dollar bequeathed to children is an Almighty Curse. No man has a right to handicap his son with such a burden of great wealth." In the North American Review 122 LABOUR AND NATIONAL FINANCE " — — ■ — ■ ... ■ ■ ^ he wrote : " By taxing estates heavily at death the State marks its condemnation of the selfish milHonaire's unworthy life. It is desirable that nations should go much farther in this direction." He also wrote in the New Nation on March 4, 1893, that " drastic application of the inheritance-tax is eventually to be one of the most efficacious instruments in preparing the way for eco- nomic equality." There is, however, something in the argu- ment that men do work and accumulate wealth to make provision for their families. It is not proposed that the right of inherit- ance should be wholly abolished. Until the time when the community makes adequate provision for the maintenance of all who are not able to maintain themselves by work, and until provision is made for the education and start off upon a career of all children, it is desirable that a man should be allowed to make suitable provision for his wife and children. But it is not right that he should leave his descendants, or it may be, persons who are not relatives, in a position to live on the community without work. In advo- cating the limitation of inheritance we do not suggest its total abolition. The amount of inherited wealth any person can receive should not be so much as to allow him, if of the age and having the capacity to work, to live in idleness. LIMITATION OF INHERITANCE 123 The limitation of inheritance is, therefore, as I said at the beginning, not merely a matter of raising revenue, but a question of great social importance . Of the £450,000,000 which is now annually left at death in the United Kingdom the State at present appro- priates but one-tenth upon the average. A 20 per cent, duty upon an estate of a million leaves a vast sum, which ought to be appropriated by the Chancellor of the Exchequer for the service of the State. The limitation of inheritance to the right to make provision for dependants and to pro- tect them against poverty, but not to relieve them from the necessity to work, would give the Chancellor of the Exchequer an additional revenue of at least £300,000,000 a year, which might be devoted to the reduction of the National Debt. The State needs money, and the money is there, and as the present Chancellor of the Exchequer appears to have exhausted his ingenuity in devising new taxation, I would recommend this sug- gestion to him, and would accompany the suggestion with the words of Mr. Bonar Law spoken to a Trade Union deputation on November 14, 1917. " If we cannot get the money one way," he said, " as long as it is there we will get it and will not allow what the nation believes to be a vital neces- sity to be sacrificed by want of money as long as the money is there." CHAPTER X THE ABOLITION OF INTEREST In a pamphlet published in March 1919, Mr. Sidney Webb wrote : "Let it first be noted, for the comfort of those who are apprehensive of all sorts of unsound finance that the Labour Party is exceptionally free from delusions in money matters. . . . There is at present scarcely a trace in the British Labour Movement of wild-cat ideas for solving all our financial difficulties by print- ing more and more paper money. . . . These projects come from perplexed country squires and from lonely members of the Indian Civil Service. ... It is a comforting fact that on all this range of questions the British Labour Movement is, as Lombard Street would say, as sound as a bell. We shall probably have in this country a recrudescence of the currency crazes of past generations. I see no sign 'that the Labour Movement will be infected by them." The ink upon this pamphlet was hardly dry before Mr. Sidney Webb was proved to have been a false prophet. There was an outbreak in the Labour Movement of the agitation for solving all financial diffi- 124 THE ABOLITION OF INTEREST 125 culties by the printing of paper notes. The Labour members of two important Town Councils, Wigan and Sheffield, brought forward resolutions on these bodies asking for Parliamentary powers to build houses and to carry out other municipal work by means of Treasury notes. These proposals have been supported at local conferences of Labour, and a resolution to the same effect was moved at the Annual Labour Party Conference in June 1920. It was referred to the executive for consideration. Li considering this craze we will take the Wigan Scheme, which has attained con- siderable notoriety and which is more definite than the proposal brought forward by the Labour members of the Sheffield City Council. The Wigan Scheme is (1) the Government should provide to the Corporation the neces- sary number of virginal national currency notes at the cost of printing ; (2) The Corporation shall be held respon- sible for each currency note issued at its full twenty shillings value ; (3) The Corporation shall redeem the whole of the notes of each issue by general instal- ments within a prescribed number of years ; (4) The Government shall withdraw from circulation each annual contribution of the notes. These notes, it is intended, shall be used for the payment of material for house building 126 LABOUR AND NATIONAL FINANCE and the payment of wages. The advo- cates of this scheme claim that by this method the Wigan Corporation can provide houses without incvuring the burden of interest upon borrowed money. It is pointed out that the interest upon the capital is a burden which prevents houses from being built at a reasonable cost. The capital borrowed for housing purposes, when the repayment is spread over a period of sixty years, is repaid four times over in interest. The interest and sinking fund upon a house costing £1000 will amount to about £70 a year. This is an enormous burden, and any plan by which it can be reduced which will not cause greater hardship in other directions, is deserving of support. If the Wigan Cor- poration can prevail upon the Treasury to issue to them Treasury notes for nothing, then the Wigan Corporation will set to work, will buy materials from private firms, and will employ labour to build houses. The simplicity of the plan is alluring, and it is little wonder that it has gained support among people who are ignorant of the effect of increased currency upon prices. The scheme has been defended with great plausi- bihty by some of its supporters. Their argument runs as follows : The Wigan Corporation would give the actual value of the public works by issuing Treasmy notes for the amount to the builders. THE ABOLITION OF INTEREST 127 The Corporation will feed and clothe the people who are building the houses while they are engaged upon the work. When the houses are completed the Corporation will have money from the rents to pay for the houses. The notes would be issued, the argument runs, only as houses were produced. The notes would be orders to supply house- builders with necessaries and to pay the wages to the workmen employed. It is claimed that this exchange is barter. The security behind these notes would be the credit and the municipal property of the Wigan Corporation. The fallacies underlying this argument are apparent to those who have even an elemen- tary knowledge of the nature of financial and trading operations. The transaction would not be of the nature described by its advocates. To pay for goods with Treasury notes which have no assets behind them is not barter. Barter is the exchange of com- modities, though for the purpose of facilitat- ing trade, notes and cheques representing real wealth are widely employed. Whenever the amount of currency circulating is increased without a corresponding increase in the volume of marketable commodities there must be an increase of prices, because the increase of currency increases the amount of demand in the market. If the Wigan Scheme were, as its advocates claim, a proposal to 128 LABOUR AND NATIONAL FINANCE issue currency notes against new marketable commodities as these commodities were pro- duced, then there would be no effect on prices unless the labour employed in the production of the new commodities had been diverted from other work producing marketable com- modities. But under this scheme the issue of Treasury notes would always be in advance of the production it was intended to promote. The Wigan Corporation could not begin to build houses without first obtaining the Treasury notes. These would be put into circulation to pay for material and to pay wages. Notes to the value of the cost of each house would be in circulation before the houses were completed. In addition to this fatal flaw in the scheme there is the fmthcr fallacy that houses are marketable commodities, and that when the houses are completed and rents are received for them, there would have been goods produced in proportion to currency issued. But the houses built by the Wigan Corporation would not be marketable com- modities. The currency notes in circulation could not be used for the purchase of these houses. They would have been used for the purpose of marketable commodities like food, clothing and raw materials. The certain effect, therefore, of the Wigan Scheme would be to increase the amount of currency cir- culating locally without a corresponding THE ABOLITION OF INTEREST 129 increase of marketable commodities. The effect of that in raising prices is not disput- able. Just to the extent to which its opera- tion was carried out, so would prices be affected. If it were carried out on a very small scale probably no serious effect on prices would be produced, but if the scheme is to be of any use in relieving municipalities from the burden of interest, it must be capable of unlimited extension without disastrous results. Another argument put forward by those who support this paper money method of relief from the payment of interest runs as follows : " The municipal authorities, when they require to borrow for municipal enter- prise, go to the banker pledging as security for the money they need — '' (a) The assets of the borough; " (b) The power of levying rates and receiv- ing rents. The money they borrow is really nothing but notes issued on the security of their own assets or credit. Why cannot the city issue its own notes or cmTcncy without paying interest at all?" This argument makes assumptions which are quite without foundation. When a municipality borrows from a private bank it is quite true that the loan is secured on the assets of the muni- cipality, but it is not true to say that the 130 LABOUR AND NATIONAL FINANCE money borrowed is really nothing but notes issued by the bank on the security of the municipal assets. If a bank financed muni- cipal borrowing by the creation of credit and the issue of notes it would be simple inflation, and the same effect would be pro- duced as has resulted from the issue of un- secured paper money by tlie British Govern- ment, and to a larger extent by other Govern- ments during the last few years. When a bank lends to a municipality on the security of the municipal assets, it lends bank deposits which represent real savings and real wealth. The argument that currency will not be depreciated by the issue of these paper notes because the credit of Wigan is good, is equally fallacious. The credit of Wigan may be good because the Corporation is able to meet the interest upon its borrowed money from the rates. Those who have lent money to the Wigan Corporation for its schools, parks, gasworks, electricity stations and the like, have done so because their interest is guaranteed by the ratepayers of Wigan and their capital by these tangible assets. The case, however, is different under the scheme now suggested. The value of a municipal bond is based upon the fact that it can be sold in the market, deposited in the bank as security for a loan, or at any time exchanged for another form of wealth. It is not so with the Treasury notes which the Wigan THE ABOLITION OF INTEREST 131 Corporation proposes to use to pay for labour and materials. There would be no assets behind these Treasury notes until the houses had been built, and in the meantime the mischief will have been done, and the com- munity would be paying in increased prices probably far more than the interest upon a loan obtained for the purpose in the ordinary way. The reply which has been given by the advocates of the scheme to the point that the notes had no backing of assets during their currency, is met by the retort that the country has issued £350,000,000 of paper money during the war, unsecured by anything except taxation, and when the rejoinder to this is made that this increase of paper money is responsible for the increase of prices, the only answer which is forthcoming is that this is a fallacy and that the advance of prices is due to profiteering. It is estimated by the Ministry of Health that not less than 800,000 houses are now needed. The cost of these would not be less than £600,000,000. The idea of those who support the Wigan Scheme is that all these houses may be built on this plan. But municipalities are not only worried with the housing difficulty at present but are desirous of carrying out other schemes, involving an enormous outlay of money. This Wigan Scheme therefore would, if generally adopted, 132 LABOUR AND NATIONAL FINANCE necessitate the issue of some hundreds of millions of Treasury notes. The effect of this on prices can be readily imagined. At the end of five years, during which we will assume these houses were built and these other works carried out, the Treasury notes in circulation for the payment of the materials and labour would amount to fivefold the amount at present in circulation. The cur- rency notes, according to the advocates of the scheme, are to be gradually redeemed as the rents from the houses come in. That is a confession that the notes would continue in circulation until the rents received were sufficient to pay off the capital cost . It would take about forty years to redeem all these notes from the rents. During all this period the community would be paying in the form of increased prices a sum at least equal to that which would have been paid had the capital cost been borrowed. The Wigan Scheme is intended to achieve the impossible, namely, to get something for nothing. The cost of the materials and of labour will not, in effect, have been paid until the whole of the notes have been redeemed from the rents. The value of the houses was consumed by the builders in the course of erection, and the community would be left with the bmxlen of repaying this cost by annual instalments. It has been argued that it would not be THE ABOLITION OF INTEREST 133 necessary to issue Treasury notes beyond a sum sufficient to meet the weekly wages and payments for materials bought within the short period, that the notes received by those who supplied the materials and by the workmen would be passed into the bank and would be repassed into currency. But that, surely, is a fallacy. When the notes came into the bank they would be credited to the depositor's account and that amount of new credit would be created against which cheques or Treasury notes could be drawn. It is essential, too, that the notes must be kept in circulation if the use of money is to be obtained without interest. For when a note is passed into the bank it becomes a unit on which interest must be paid. If the notes were destroyed when they were returned to the bank, then the expectations of those who advocate the plan might, to some extent, be realised. But this is obviously impossible, among other reasons, because the notes would be the ordinary Treasury notes and there would be no means of distinguishing them from those issued for general circulation. The aim of those who support this scheme is admirable, but their plan is impossible. The abolition of the payment of interest on the cost of public works is desirable, but it can only be done in two ways, either by financing public works out of revenue or by the public acquisition of the sources of supply 134 LABOUR AND NATIONAL FINANCE of materials or by a combination of both. If the State or municipahty owned quarries, brickworks, timber forests, slate quarries, ironworks, it could then build houses and schools without having to borrow to pay for these materials. The wages would be paid out of current revenue. This is the practical alternative to such schemes as have recently found favour among Labour councillors at Wigan, Sheffield, and elsewhere. CHAPTER XI REVENUE FROM PUBLIC SERVICES Many countries before the war, notably Germany, derived considerable revenue from the State-ownership and working of public services. In the United Kingdom the Post Office yielded a net revenue to the State, after providing services at a ridiculously cheap rate, of about £6,000,000 a year. In those normal times Socialists looked forward to the great extension of revenue -yielding State enterprise. The enormous increase in the cost of the working of business concerns has compelled Socialists to abandon the idea until more normal conditions are re- stored, of providing at the same time a cheap public service by the nationalisation of monopolies, and the securing of revenue from profits for the development of the public services. The scheme which was submitted to Parlia- ment at the beginning of June 1920 by the Ministry of Transport for the amalgamation of the British railways illustrates the im- possibility of keeping down railway charges, and at the same time providing a pre-war 135 136 LABOUR AND NATIONAL FINANCE return upon railway capital. The Post Office, too, has ceased to be a revenue-producing service, notwithstanding the increase of 100 per cent, upon postal rates. If there should be . a stabilisation of values at a higher level than pre-war values, accompanied by a universal and corresponding increase of wages and incomes, which is very unlikely, it might be possible for the State-owned services, and public services like the railways still in private hands, to become once more profit-yielding enterprises. There is much to be said against profits for revenue on State-owned undertakings. Profits from pubhc services like the Post Office and municipally-owned concerns like tramways, gasworks, electricity-works, are a form of indirect taxation. This form of indirect taxation has all the evils and in- justices of national taxation on commodities like tea and sugar. The purpose of a State - owned and St ate -managed service should be to provide the public with a cheap and efficient service. The motive of State man- agement of public services should be to aid the commercial development of the country and to improve social amenities. By adopt- ing this policy the State will derive an addi- tional revenue in the increased prosperity of the general trade of the country. But though it is inadvisable for the State to make a net profit on its trading enter- REVENUE FROM PUBLIC SERVICES 137 prises for the relief of general taxation, it is perfectly legitimate, and indeed necessary, that State business enterprises should pro- vide from revenue the necessary redemption funds and reserves for the extension and development of the business. But there are many forms of property and business concerns now owned and con- trolled by individuals which contain more or less a monopoly value, and such forms of property and business concerns are eminently suitable either for direct ownership or for special taxation of the monopoly value. Outstanding instances of this form of pro- perty and private enterprise are the land, banking, Hfe, fire and other forms of insur- ance, and the liquor trade. The economic rent of land is a social product. Apart from that proportion of economic rent which is due to the natural advantage of particular sites, the expenditure of public money by the municipalities and the State results, without any effort on the part of the landowner, in increasing the economic rent. The operation of this law of unearned increment is too well known to need elaboration. It has long been ad- mitted to be a grave scandal and injustice that these socially created values should be appropriated by private landowners. The value of urban land, due, not to the enter- prise of the landowner, but to the increase 138 LABOUR AND NATIONAL FINANCE of population, the increase of the general wealth of the community and the expendi- ture of the public money, doubles about every generation. It is monstrous that this incre- ment should be allowed to go into the possession of those who neither toil nor spin. There is here an enormous potential revenue which might be made available for national and municipal purposes. Even if we admit that centuries of private ownership of land have established a claim on the part of the possessors not to be expropriated without compensation (a claim which might have some justification in ex- pediency, but hardly in morality), there is no justice in tolerating a land system which will permit the private appropriation of future unearned increment. But short of appropriating the whole of the present economic rent of land there is an unanswer- able case in support of the heavy taxation of the present economic rent of land. If the landowners were expropriated by the payment of such compensation as might be considered reasonable, it would be a remu- nerative operation for the State. The State would assume the ownership of the land, and all future increment of value would accrue to the community, and the income from the land bonds would be subject to the prevailing rates of income-tax and death duties. There are no absolutely reliable REVENUE FROM PUBLIC SERVICES 139 figures of the present capital value of the land of the United Kingdom. The Financial Secretary to the Treasury stated in the House of Commons on July 12, 1920, that he was unable to supply these figures. In- dependent estimates have fixed the capital value at about £3,000,000,000. The burden laid upon the community by the private banking monopoly is not less onerous than that imposed by private land- lordism. So long as financial operations are controlled by private profit-making institu- tions, the State and the trading community will be hampered in all their enterprises and will have to pay a heavy toll to the banking interests. The increase in the rate of interest on public borrowings from about 3 per cent, to 7 per cent, during the last six years is an illustration of the stranglehold which the private banks have upon the Govern- ment, as well as upon the private trader. The nationalisation of great industries and services, like the mines and railways, can never bring satisfactory results so long as the State is dependent for its financial operations upon the private banker. Banking is rapidly becoming a gi-eat private Trust in the United Kingdom. The Report of the Treasury Committee on Bank Amalga- mations (May 1918) states that the nvimber of private banks had fallen from thirty-seven in 1891 to six in 1918. The number of 140 LABOUR AND NATIONAL FINANCE English joint-stock banks during the same period had fallen from one hundred and six to thirty-four. Since the Report of this Treasury Committee was issued bank amal- gamations have proceeded at a rapid rate. Since July 1918 the " Big Five " have absorbed twenty more smaller joint-stock and private banks. The private bank has now disappeared, and the number of joint- stock banks outside the Big Five is only about a dozen. Within the next few months it is very probable that the whole of the banking business of England and Wales will be controlled by five great joint-stock banks. This development has resulted in the creation of a Money Trust. When the few small outstanding banks have been absorbed we may expect to see amalgamations of the Big Five, and it is by no means impro- bable that in a short time the whole of the banking business of England and Wales will be in the hands of a single trust. These banks arc already extending their operations to Scotland and Ireland. The deposits in the five great banks amount to £1,500,000,000. This money is lent cither to the Treasury or to individuals at present at 7 per cent. Between October 3 and November 7, 1919, the rate of discount for Treasury Bills progi'cssively advanced from 3 J per cent, to 5 A per cent, and is now REVENUE FROM PUBLIC SERVICES lil about 7 per cent. An increase of one per cent, in the rate on Treasury Bills means an addition of about £12,000,000 a year to the taxation of the country. The advance in the rate on Treasury Bills which took place in the autumn of 1919 was not due to any falling off of the purchase of Treasury Bills. Neither was the increased bank-rate due to the difficulty of getting money from depositors. The increase in the bank-rate was not accompanied by an increase in the rate of interest upon deposits, and the wider difference between the interest paid by the banks on deposits and the interest they received on loans, represented so much additional profit to the Money Trust. The nationalisation of banks is a matter of the utmost urgency. The Bank of Eng- land holds at present an anomalous position. It is at the same time a private concern and a semi-public institution. It should become the property of the Government, and its powers for fixing the bank-rate should be in the hands of the Government. The amalgamation of the joint -stock banks has made it an easy matter for them to be merged into a State Bank of England. Nationalisation of banking is necessary to safeguard public interest against the power of private monopoly. Nationalisation would effect economies of administration ; it would give better secm^ty to depositors and easier 142 LABOUR AND NATIONAL FINANCE terms to borrowers. Without the control of banks it is impossible for the State to effec- tively regulate the level of prices. The national banking system would give the Government the power to rearrange the conditions of the National Debt, and a considerable saving in interest could be effected thereby. Closely allied to the banking monopoly, and exercising tremendous influence upon finance, are the great insurance corporations. We see the same movement towards amal- gamation and monopoly in the insurance world which we have noted in connection with banking. Insurance, both fire, life, accident and general, is a business eminently suitable for State management. The profits of the insurance companies are colossal. The assets standing in the balance sheets of the life assurance companies amount to about £700,000,000. The exposures made by a Committee which recently investigated the subject of industrial insurance have revealed a very grave public scandal. For the pro- tection of the thrifty, apart from financial considerations, the State acquisition of life assurance is urgently needed. The certainty of an enormous yield of revenue from the State control of all forms of insurance is not a matter of controversy. Even if the existing life assurance, fire and general in- surance companies were purchased by the REVENUE FROM PUBLIC SERVICES 143 State on equitable terms, the economies which could be effected would enable the State to considerably reduce the premiums, in addition to providing a vast revenue for public purposes. The State at present derives a revenue of over £200,000,000 a year from the liquor traffic. The private profits of the trade are enormous, and have risen considerably during the last six years. There is in the Labour Movement a section who desire to see the liquor trade nationalised for three reasons. First, they maintain that under State-owner- ship and control the worst evils of the traffic could be removed ; second, that profiteering would be eliminated ; and third, that a con- siderable addition of revenue from the trade would accrue to the State. The two last- mentioned reasons are mutually destructive, and no further comment upon them is necessary. This question of the nationalisa- tion of the liquor traffic is more a social than an economic matter. The Annual Conference of the Labour Party which assembled at Scarborough in June 1920 rejected a resolu- tion in favour of State -ownership and approved one declaring local option to be the policy of the Labour Party on the drink question. There is no doubt that the liquor traffic in the hands of the State could be an exceedingly remunerative business. But the drink traffic is one which no 144 LABOUR AND NATIONAL FINANCE community can afford to encom-age. Profits from such a traffic are made at too heavy a cost in the physical and moral degradation of the community. The world-wide move- ment for prohibition, which has already made such progress that nearly two-thirds of the English-speaking people are living where no brewery, distillery, or saloon exists, must make its influence felt in Great Britain, and no Labour Chancellor of the Exchequer would be likely to look to the liquor trade as a means by which additional revenue could be obtained. There is one other proposal for relieving the financial embarrassments of this country upon which a few words must be said. It is a proposal advocated by commercial and financial groups interested in the develop- ment of tropical and sub-tropical territories of the British Empire. Fascinating pictures are painted of the vast undeveloped wealth of these regions which could be exploited by the use of British capital and native labour. The selfishness and immorality of such a proposal as this are too glaringly manifest to need exposure. If such a policy as this were adopted it would be a reversal of what has always been professed to be British colonial policy. The justification for British appropriation and government of the territories of the black races has been that we were there as much for the benefit of the REVENUE FROM PUBLIC SERVICES 145 natives as for our own advantage. Whether in practice Great Britain has always ful- filled this mission of civilisation is a question we need not enter upon, but this may be said, that the moral sense of what is best in the British race revolts against the deli- berate adoption of the policy of exploiting om' colonial possessions solely for the econo- mic profit of British capitalism, and for the relief of the embarrassments of the British taxpayers. K CHAPTER XII LOCAL FINANCE AND TAXATION Local finance and national taxation are closely related. The taxpayer and the ratepayer are not different persons. Na- tional taxation and local rates fall largely on the same shoulders. I^ocal rates and national taxation must be drawn from the same sources of wealth. Like our system of national taxation, local rating has developed on no very definite lines of policy. The system of local rating in England and Wales is very much the same which has prevailed from the da3^s of Queen EHzabeth. During the last hundred years there has been a wonderful advance in municipal govern- ment. Every year the local bodies make larger demands on the pockets of the rate- payers to meet the needs of a rising standard of public health and public comfort. Neces- sary services, which the individual was for- merly left to provide by his own efforts and by his own direct expenditure, are increas- ingly supplied through communal services. The ordinary ratepayer little realises the immense benefit he gains from this com- munal form of supplying his needs. If we 146 LOCAL FINANCE AND TAXATION 147 take the average rateable value of a work- man's house at £8 and the average local rate at 125. in the pound, the workman's family pays in local rates the sum of £4 IQs. a year, or less than 2s. sl week. Wliat will 2s. a Week give a workman's family if privately expended ? It will provide them with two ounces of tobacco or three pints of bad beer. It will give three members of the family a seat at a pictm^e-show once a week. It will give them three quarts of milk a week. It is the price of one suit of clothes a year. It will not provide for a week's holiday for the husband and wife. This is the purchasing value of 2^. a week in the hands of a private individual. What will 25. a week give when expended through the rates ? It gives a free education to all the children of the family; it provides a police force without which life and property would be unsafe; it gives a public health service which provides for the inspection of food, milk and sanitation; it gives a sys- tematic street drainage and disposes of household refuse ; it provides hospitals ; it provides for the poor in times of need ; it gives free libraries, parks and picture gal- leries; it places an adequate water supply within the home; services which could not be obtained at anything approaching the cost if individuals were left to make their own provision. 148 LABOUR AND NATIONAL FINANCE Though municipal enterprise gives such an economical and efficient service, and may be defended as the most economical form of individual expenditure, it still re- mains true that the burden of rapidly in- creasing local rates is becoming very serious, and reforms are urgently needed for lightening that burden by spreading it more evenly over the whole body of ratepayers and tax-payers. Many of the services, the main part of the cost of which is now borne by the local rates, are of a national or semi-national character, and ought to be paid for in the main from national taxation. This par- ticularly applies to the Education Rate, to the Poor Rate and to certain public health services. Children are not educated for the parish, but for the nation, and the burden of placing so large a part of the cost of educa- tion on the local rates is especially onerous in the case of comparatively poor localities. The same observation applies to the main- tenance of the poor in sickness and old age. The Old Age Pensions Act, the funds for which are provided from national taxation, recognises that the provision for old age and poverty is a national and not a local obligation. National legislation during the last twenty years has been constantly adding to the burdens of local rates without making a corresponding addition to grants from national revenue. LOCAL FINANCE AND TAXATION 149 Before the war the financial difficulties of the local bodies had become so serious that Mr. Lloyd George on May 4, 1914, devoted a considerable part of his Budget statement to a review of the relations between the local and imperial finance. He said — " There is one undertaking which certainly cannot be postponed without injury to the interests of the nation, and that is the readjustment of the relations of local and imperial finance. The condition of local finance has long been a crying evil, an evil which has been admitted by all parties in this House, and which imposes grave injustice upon individuals and inflicts serious injury on the highest interests of the community." He referred to the innumerable and emphatic pledges which had been given by the leaders of both parties to deal with it, and to deal with it immediately. He pointed to the increase of rates which was taking place in most districts and mentioned that the rates in some places had doubled in the course of the last twenty or thirty years. The financial difficulties of local authorities had resulted in the neglect to properly enforce the public health acts, in the tolera- tion of slum areas which in the interests of public health ought to be removed, and the inadequate staffing and equipment of the 150 LABOUR AND NATIONAL FINANCE elementary schools. A system of local finance which is so unadaptable as this to meet growing needs stands condemned, and m'gently requires to be reformed. Committees and Royal Commissions on Taxation have mireservedly condemned the present system of local rating. The system of basing a ratepayer's contribution to local expenditure upon the value of the premises he occupies results in grave inequalities and injustices. It is, as the Chancellor of the Exchequer said on the occasion mentioned, objectionable from every point of view. It works unequally, unfairly, partially. Some properties are valued to the full and other properties are valued at a nominal figure. Valuable land escapes contribution alto- gether because it is not put to the best use. You get a house which may have cost scores or hundreds of thousands of pounds valued at a few hundreds a year, and you get a tradesman's premises which only cost a few thousands valued at the same figure. He pointed out that the present system of local rating did not exact contributions in pro- portion to means. A workman in the town contributes about 5 per cent, of his income to the rates, and a man within the range of super-tax pays but 1 per cent. The pro- vincial tradesman contributes 9 per cent, of his income to the rates and the London tradesman contributes 13 per cent. LOCAL FINANCE AND TAXATION 151 It appears to liavc been the intention of the Government in 1914, if war had not in- tervened, to deal with local finance by a reform of the rating system and by further substantial aid from the Exchequer. It was hinted that a system of national assessment would be adopted so as to get a uniform assessment over the wliole country. The present system of leaving the assessment of property to local valuation results in extra- ordinary anomalies as between district and district ; and as certain of the national con- tributions are based upon local valuation, injustices are done to districts which put the local valuation upon a higher scale. The problem of local finance has been greatly aggravated by the effects of the war. Local rates are rising everywhere. In some districts they have already reached over twenty shillings in the pound, and it is no fantastic forecast to say that unless local rating be reformed we shall in the near future see some local authorities levying a rate of forty shillings in the pound. Necessary local improvements are being held back because of the difficulty of ob- taining money. In 1913 a local authority could borrow at 3 J per cent., but in the last few weeks gi-eat authorities like the London County Council and the Bradford City Coun- cil have failed to place their loans on the market at rates approaching 6J per cent. 152 LABOUR AND NATIONAL FINANCE The burden of borrowing at such a rate of interest imposes a crushing weight upon local authorities. Unless something can be done to lighten this burden, municipal enter- prise will be starved, with disastrous con- sequences on public health. The most promising methods of dealing with the financial embarrassments of local authorities are, first larger assistance from the State for municipal activities which are semi-national in their character; second, a drastic reform in the method of assessment and rating; and third, the tapping of new resources of revenue for municipal purposes. In Mr. Austen Chamberlain's Memoran- dum, outlining a normal Budget, published on June 30, 1920, he assigns a sum of £117,800,000 as grants in aid from the National Exchequer for services which are administered by the local authorities. The particulars are as follows — Education ..... £ 70,000,000 Agriculture ..... 1,500,000 Unemployment and Health Insurance and other Health grants 17,500,000 Police ...... 10,800,000 Irish land purchase .... 1,000,000 Housing subsidies .... 15,000,000 Mental deficiency and reformatories . 1,000,000 Transport development . 1,000,000 117,800,000 LOCAL FINANCE AND TAXATION 153 Many of these grants will undoubtedly in the near future have to be considerably augmented, particularly the grants to educa- tion, housing, unemployment insurance, and public health. The Medical Consultative Council of the Ministry of Health has issued a report advising certain reforms in public health administration which it was stated at a meeting of the Medical Association at Cambridge on June 28, 1920, would, in the next ten years cost £150,000,000 a year. The municipalities cannot bear a heavier burden than they carry at present for ser- vices of a semi-national character. The increasing calls upon them for expenditure upon mere local services will absorb all the increased revenue they may be able to get from an increase of the rates and from new sources of revenue. The National Exchequer will have in the future to provide the money for duties imposed on the local authorities. The immediate problem of municipal finance is not to make provision for additional burdens, but to lighten those already on their shoulders and to meet the natural increase of expen- diture for services of a local character. Though in the abstract it may be main- tained that such services as education, local medical centres and housing, are national in their character, it would be difficult to support the demand that the cost of these services should be placed wholly on the National 154 LABOUR AND NATIONAL FINANCE Exchequer, while leaving more or less of the management and power of expenditure in the hands of the local authorities. The solution of this problem is to be found in joint control by the municipalities and the State, each bearing a share of responsibility for the expenditure. This system is illus- trated in the joint administration of the Education Acts by the local authorities and the State, though the proportion of the cost borne by the local authorities is much too high, and if a larger share were borne by the State, it is not likely that the efficiency of local administration would suffer. A reform of the system of local rating would not only spread the burden of the rates more equitably but would bring in a larger revenue to the local exchequer. The idea of rating occupied premises for local purposes may be to secure a contribution in accordance with the ability of the occupier to pay, but it is a very rough and unsatis- factory method of achieving that purpose. In the case of house property there may be some fairly exact relation between the rate- able value of the house and the occupier's ability to pay, but this is not invariably so. In the case of working-class property this system of assessing rates on the basis of rent acts as a deterrent to a better standard of housing. It is in effect a penalty upon a working man who desires to provide decent LOCAL FINANCE AND TAXATION 155 and healthy accommodation for himself and family. This system of rating is particu- larly unfair on a large class of business men. A lawyer, architect, or other professional business man will occupy offices at a com- paratively low rental, and though he makes a very large income will be assessed at a very low rate. A business man requires more expensive premises, and is consequently liighly assessed, though his income may be very considerably lower than that of the professional man. A municipal income-tax has been suggested as the best method by which municipal revenue may be raised. On the face of it this looks a just method of assessment, but on examination certain difficulties are dis- covered, some of which might be insuperable. It has been urged in opposition to the municipal income-tax that if it were confined to persons residing in the local area, rich persons who made their money in the area could escape by residing outside. There does not appear to be much substance in this objection, for it ought not to be difficult to assess them upon the profits of their busi- ness. A greater difficulty would be in de- ciding what proportion of the profits of businesses with branch works or offices in the area, ought to contribute in local income- tax, as, for instance, railways, canals, banks, insurance companies, and branch offices of 156 LABOUR AND NATIONAL FINANCE business firms. There is the further diffi- culty whieh would be experienced of deter- mining whether the profits made by an individual or firm with premises within the municipal area were made out of business conducted solely within that area. No municipal area is wholly self-contained. It derives much of its prosperity from business done outside its boundaries. On the whole the practical difficulties of a local income-tax would probably outweigh the abstract jus- tice of such a method of contributing to the cost of local services. Municipalities must look for increased revenue to new sources of taxation, and the taxation of land values is one of the most promising of such untapped sources. The benefit of local expenditure on streets, roads, parks, tramways, and other municipal enter- prise is in a large measure appropriated by the owners of land who directly contribute nothing of the improved value to the local rates . Instances of the enrichment of ground landlords by the growth of towns and the expenditure of public money upon their development are too well known to need reciting here. Recently innumerable cases have happened where local authorities have been asked to pay for land for housing pur- poses ten times the value at which the site was assessed for local rating purposes. Powers ought to be conferred upon the LOCAL FINANCE AND TAXATION 157 local authorities to appropriate the whole of the increment of value which has arisen from social causes. In addition to this, powers should be given to municipalities to acquire and to hold undeveloped land for future use. The relations between local and na- tional finance are urgently in need of read- justment, and the necessary reforms will involve larger contributions from the Na- tional Exchequer for semi-national services now maintained wholly or in a large measure by contributions from local rates. The sur- plus of income still enjoyed by the national taxpayer is well able to bear this additional impost. APPENDIX I Nineteenth Annual Conference of the Labour Party, Southport, 1919 Mr. Philip Snowden (I.L.P.) moved the following resolution, which was passed unanimously. " The war having left the nation burdened with an enormous debt, which necessitates the raising of a huge annual revenue for the payment of interest and sinking fund, and as the existence of this financial burden is a serious hindrance to industrial and social reconstruction, it is essential that there should be a thorough over- hauling of national finance and a drastic reform in methods of taxation ; and, further, in \dew of the fact that during the war private profiteering has been ram- pant and huge private fortunes have been made by jjrivate exploitation of the national situation, this Conference declares — " (a) That the methods adopted by successive Governments to finance the war should be emphatically condemned; that instead of creating fictitious credits by borrowing thousands of millions at unnecessarily high rates of interest, thereby creating a large class deriving permanent income from national taxation, the Government should have resorted to a far greater extent to the sound plan of imposing much heavier taxation, particularly upon wealth accunmlated during the war. " (b) That with the object of reducing the National Debt, and thereby relie\ing national revenue as quickly as possible, an equitable system of Conscription of Wealth should be put into operation at once, such a system to exempt property below one thousand pounds, 158 APPENDIX I 159 and to impose a graduated scale on estates above that sum. " (c) That national revenue should be derived in the main from the taxation of land and accumulated wealth and on incomes and profits, and in order that such taxation may be as equitable as possible, the incidence of the income-tax should be reformed, death duties drastically increased, and heavier rates imposed on large incomes. " ((^) That taxation should not be imposed in such a way as to encroach upon the necessaries of life or to reduce the standard of li\'ing of the masses of the people, all taxation upon articles of food should be repealed, and to raise the minimum upon which income-tax is imposed to £250. " (e) That national taxation should not be used for protective trade purposes, as protective tariffs inevitably enhance the cost of living, benefit the profiteers, and cause international ill-will. " (/) That the iniquitous policy of the Board of Trade of arbitrarily restricting imports for the benefit of British profiteers, whereby home prices are arti- ficially raised, should be immediately discontinued. " (g) That the whole system of land taxation should be revised so that the whole of the unearned increment of values should accrue to the State. " (h) That in order to relieve the community from the exploitation of the private banking institutions, the Government shall establish a National Bank for national service with branches in all centres. " (i) That simultaneously with the carrying out of these financial reforms the State should energetically pursue the policy of acquiring the ownership of the means of production, transport and distribution, thereby eliminating the profiteers and benefiting the community." APPENDIX II Conscription of Wealth — Trade Union CoxN- GREss Resolution, Birmingham, 1916 " That, as the manhood of the nation has been conscriiDted to resist foreign aggression, the main- tenance of freedom, and the protection of capital, this Congress demands that such a proportion of the accu- mulated wealth of the country shall be immediately conscripted as is necessary to defray the financial liability incurred by the prosecution of the war, and thus avoid borrowing huge loans upon which enormous sums will have to be paid in interest by future genera- tions, which will handicap the industries of the country in national and international competition, diminish trade and impoverish the people. " And, further, that this Congress instructs the Parliamentary Committee to initiate a huge campaign for the purpose of accomplishing the foregoing object, and, further, instructs the Parliamentary Committee to immediately demand from the Government a census of wealth — " (a) Banking accounts and balances. " (b) Currency. " (c) The cajDital estimate of the whole material : (1) productive, (2) transport and distributive wealth, and the whole of the profits appertaining thereto. " (d) An estimate of the value of property and rea) estate and other forms representing rents, interests, and profit." PiiiNTED IN Great Britain iiy Richard Clay & Sons. Limited, BnUNSWICt ST., STAilFOKU ST., S.E. 1, AKD BUHQAV, SUFFOLIi. LISl' OF NEW & FORTHCOMING PUBLICAIIONS AU'l'UMN 1920 LEONARD PORTUGAL STREET M PARSONS, LTD. KINGSWAY, LONDON fc INDEX TO BOOKS Page - 3 - 15 - 16 13 After the Peace Bishop's Masquerade, The - Buried Torch, The - Children's Tales Corporation Profits Tax, The - m - - Direct Action - Greater Dawn, The - Great Re-building, The - Guild Socialism (Re-Stated) Invisible Sun, The Labour & National Finance Lady Doctor in Bakhtiari- LAND, A - - - Land Nationalisation — A Practical Scheme - March of Socialism, The - Miriam and the Philistines 16 My Years of Exile - - 10 Nationalisation of the Mines - - - - 6 NevVj.Aristocracy of Com- radeship, A - - - 7 13 6 16 1 1 9 15 4 13 5 10 Page New Labour Outlook, The 5 New Liberalism, The - 9 Policy for the Labour Party, A - - - 3 Public Ownership of the Liquor Trade - - 4 Sex Education and National Health - - - 1 1 Side Issues - - - 16 Socialism and Individual Liberty - - - 7 Some Contemporary Drama- tists - - - - 8 Some Contemporary Novel- ists (Men) - - - 8 Some Contemporary Novel- ists (Women) - - 8 Some Contemporary Poets - 8 West Country Pilgrimage, A 12 What I Saw in Russia - 7 Wheels — 1920 (5th Cycle) 13 Widow's Cruse, The- - 14 Women and Children - 14 INDEX TO AUTHORS Page Bernstein, Eduard - - 10 Brailsford, H. N. - 3 Cole, G. D. H. - 9 Davies, Emil - - 5 Dell, Robert - - 7 Evans, Dorothy - 5 Funnell, H. Denston - 1 1 Fyfe, Hamilton - 14 Greene, Alice Clayton - 16 Greenwood, Arthur- - 4 Hartley, C. Gasquoine - 1 1 Hodges, Frank- - 6 HosKEN, Heath - 16 Jeffery, Jeffery E. - - 16 Johnson, R. Brimley- - 8 Kent, Nora - 16 Lansbury, George - 7 MacDonald, J. Ramsay - 3 Page Masterman, Rt. Hon C.F.G. 9 Mellor, William - - 6 Miall, Bernard - - 10 Milhaud, Edgard - - 10 Monro, Harold - - 8 Munn, Bertram - - 15 Needham, Raymond - - 13 Paine, William - - 7 Phillpotts, Eden - - 12 Ross, Janet MacBean - 13 Selincourt, Hugh de- - 14 Sitwell, Edith - - 13 Snowden, Philip - - 4 Stage, H. W. - - - 8 Stanton, Coralie - - 16 Stenning, H. J. - - 10 Thomson, W. Harold - 15 Williams, Robert - - 5 THE ''NEW ERA'' SERIES 3 Quarter Cloth, Crown 8vo, 4/6 net AFTER THE PEACE, by H. N. Brailsford, The author attempts to survey the condition of Europe as the war, the blockade, and the Peace Treaties have left it. He discusses the various ways in which a sick continent may attempt to find an escape from the doom that threatens it — by social revolution, by militarist reaction, by the voluntary revision of the Treaties. He emphasises the clash of interest between country and town, which is the chief barrier against revolution, and studies the new conditions, especially the coal shortage, which make it unlikely that Europe can ever again feed its former population in conditions compatible with a civilized standard of life. The sabotage by the Allies of the League of Nations is discussed, and a policy considered by which a Labour Government, if it can control foreign policy, might repair the ruin accomplished at Versailles. A POLICY FOR THE LABOUR PARTY, by /. Ramsay MacDonald. This Ibook explains to the general reader the origin, com- position and objects of the Labour Party, which is shown to be not merely the organization of a class to secure political power, but an inevitable result of the political evolution of the country. Further, its programme is proved to be not a class programme but a national one in the fullest sense of the term, and its claim to represent workers by brain as well as those by hand, is justified. Its aspect as an intellectual movement is also deak with. The book is an authoritative pronouncement on the policy of the Labour Party in the future, written by one who was responsible for the party in its early years^ who won for it its first successes, and who has been a member of its Executive from the beginning. LEONARD PARSONS LIMITED 4 THE ''NEW ERA'' SERIES Quarter Cloth, Crown 8vo, 4/6 net LABOUR AND NATIONAL FINANCE, by Fhilip Snow den. Of all the serious problems which have been left by the war, none is more grave and urgent than the economic and financial position of Great Britain and other European countries. The writer of this volume is an acknowledged expert on Finance, and in this book he deals with national expenditure, the public debt, direct and indirect taxation, the national wealth, its distri- bution, and the possibilities and methods of further taxation for the reduction of the debt and the financing of social recon- struction. Proposals are discussed for the reduction of the burden of interest upon public loans, the nationalisation of banking, and the imposition of a levy on capital. PUBLIC OWNERSHIP OF THE LIQUOR TRADE, by Arthur Greenwood (Vice-President of the Workers' Educational Association). This book is a statement of the case for the public ownership and control of the liquor traffic. It deals first with the develop- ment of the drink industry and the efforts which have been made to regulate it, and then with the measures adopted during the war period, including the Carlisle experiment in public owner- ship. Upon the history of the past and the experience of the present, the author builds up the economic and moral arguments in favour of State purchase and public control. The question of the price to be paid is fully discussed, and a scheme of public ownership is outlined. The book contains a large amount of information regarding the present position of the drink trade, and presents a weighty case for the comprehensive handling of the liquor traffic in the national interest. LEONARD PARSONS LIMITED THE ''NEW ERA'' SERIES 5 Quarter Cloth, Crown 8vo, 4/6 net LAND NATIONALISATION, by A. Emil Davies^ L.C.C., and Dorothy Evans (formerly Organizer, Land Nationalisation Society). In the past the importance of the land problem has been neglected, but now the changed conditions brought about by the war call for increased production at home. This book shows that the present system of land ownership impedes production on every hand and stands in the way of almost every vital reform. The authors contend that no solution of the serious problems that confront the community can be found until the nation itself becomes the ground landlord of the country in which it lives. They put forward a scheme for nationalisation complete in financial and administrative details, providing for the partici- pation of various sections of the community in the management of the land. THE NEW LABOUR OUTLOOK, by Robert Williams (Secretary of the Transport Workers' Federation). The theme of this book is the new orientation of the aims of international Labour. The author deals with the acute world- need for increased output, and maintains that the workers will consent to produce more only if and when they have assured themselves that by so doing they will immediately improve their economic status and ultimately establish a new social order. A separate chapter dealing with the collapse of the Second and the development of the Third or Moscow International indicates the connection between the present political crises in many coun- tries and the economic class-struggle which is now proceeding. The author has a wide and varied experience of proletarian conditions, and has drawn largely upon facts within his own personal knowledge for the material of the book. LEONARD PARSONS LIMITED 6 THE ''NEW ERA'' SERIES Quarter Cloth, Crown 8vo, 4/6 net DIRECT ACTION, by Wi//iam Mellor (In- dustrial Editor to The Daily Herald). In this book the author gives the philosophic reasons which justify the use of " Direct Action." He argues that the order of society prevalent in every country where the capitalist method of production obtains, is one that excludes the great mass of the inhabitants from any effective share in the control of their own lives. The salient fact of civilization to-day is the Class Struggle. The book is a challenge to the ordinarily accepted views on Democracy, and forms a general indictment, not only of the present system of production, but also of the methods adopted by con- stitutional Labour Movements to inaugurate " The New Era." The author faces and considers dispassionately all the applications of the theory of the Class Struggle — the strike, whether general or partial, the boycott, sympathetic action, sabotage, and, above all, the urgent question of the relation of industrial to political action. NATIONALISATION OF THE MINES, by Frank Hodges^ J. P. (Secretary of the Miners' Federation) . [Second Impression The Times. — " His argument is ingenious and ably expressed." T)aUy Chronicle. — " Mr. Hodges . . . marshals his arguments with skill and lucidity." The Evening Standard. — " His book is clear and concise." Westminster Gazette. — " Mr. Hodges makes out quite a strong case." The New Statesman. — " We commend . . . this little book ot Frank Hodges." Ltnden Mercury. — " Mr. Hodges makes a direct and ably reasoned appeal for the Nationalisation of the Mines." Socialist Review. — " The best statement of the case yet published." LEONARD PARSONS LIMITED THE ''NEW ERA'' SERIES 7 Quarter Cloth Crown 8vo, 4/6 net WHAT I SAW IN RUSSIA, by George Laf7sbury. Mr. H. W. Massingham in The Dally Herald. — "|Mr. Lansbury's book has a special importance for a great public." Times. — " Mr. Lansbury's well instructed pages." The Daily O^evjs. — " . . Extraordinarily interesting." Manchester Guardian. — " . , . the opinions of an honest observer in Russia " Daily Graphic. — " To many the most interesting part of it will be the biographical chapter dealing with Lenin." SOCIALISM AND INDIVIDUAL LIBERTY, by Robert DelL A NEW ARISTOCRACY OF COM- RADESHIP, by William Paine. Times. — " ... a vivid and amusing style." The Daily IX^ezvs. — "The book is a poignant human document . . . there is a light of practical idealism shining through the book." The Bookman. — " . . . has a special timeliness and significance. . . . Emphatically a book to read." Everyman. — " The author gives us many interesting pages." liorth Mail. — " A little book full of human ideas." LEONARD PARSONS LIMITED 8 THE CONTEMPORART SERIES Cloth, Crown 8vo, 7/6 net SOME CONTEMPORARY POETS, by Harold Monro. This book contains critical studies of contemporary poets together with an opening chapter on the poetry of our time, its scope, tendencies, and apparent value, and a closing chapter referring more briefly to some of those other poets to whom it has not been possible to devote special essays. The author does not belong to any clique of professional critics, nor does he share the prejudices of any particular school of poetry. The book should be of service to students, to foreigners who are in need of an introduction to the branch of modern English literature with which it deals, and should also serve as a technical guide to the general reading public. SOME CONTEMPORARY NOVELISTS (Women), by R. Brimley Johnson. SOME CONTEMPORARY NOVELISTS (Men), by R. Brimley Johnson. These are two books concerned with Youth : they deal, not with the " big guns" booming, but with a few free spirits, alert and vital, offering their vision of a " New World " ; endlessly curious, quick to see and to speak, fearless and independent. ;.3Among the women are included Sheila Kaye-Smith, Clemence Dane, Dorothy Richardson, and Amber Reeves. And of the men we may mention amongst others, Hugh Walpole, Compton Mackenzie, and Frank Swinnerton. Mr. Brimley Johnson reveals the fine art of their craftsmanship and the bright glow of their message in two companion volumes, the aim of which is to indicate the tendencies of modern fiction. SPME CONTEMPORARY DRAMA- TISTS, by H. IV. Stace. LEONARD PARSONS LIMITED MISCELLANEOUS THE NEW LIBERALISM, by The Right Hon. C. F. G. Masierman. Cloth, crown 8vo, - net. 6/ "In The New Liberalism," Mr. Masterman examines the application of Liberal principles to the problems which have arisen in the world after the war, especially in connection with reforms demanded by the changes in social conditions at home. He shows how the two guiding principles of Liberalism in prac- tical affairs, the warfare for liberty and the warfare against poverty, are finding their expression in an actual programme, necessarily in some respects different from, but developed out of the Liberal programme that was being preached in pre-war days. He deals also with some of the practical questions of political parties, in- cluding the relations between the Liberal and Labour parties, and the possible changes that can be foreseen in the immediate future, in a world still disturbed by the great catastrophe. GUILD SOCIALISM (RE-STATED), by G. D. H. Cole, M.A. Cloth, crown 8vo, 6/- net Guild Socialism has been the subject of a number of books during the last few years, and already the earlier of these books are to some extent out of date. The Guild idea has been expanding and developing rapidly during the last few years under the impetus of the Russian Revolution and of the new industrial and social situation everywhere created by the war. In this book Mr. Cole attempts to re-state the fundamental principles and the practical principles of the Guild Socialists in the light of these developments. He deals with the social and economic theories on which Guild Socialism is based, with the structure and working of a Guild Society and with the next steps towards Guild Socialism, both in industry and in society as a whole. The book does not claim to be definitive ; but it will certainly provoke discussion. LEONARD PARSONS LIMITED lo MISCELLANEOUS THE MARCH OF SOCIALISM, by Edgard Milhaud. Translated by H. J. Stenning. Crown 8vo, cloth, 8/6 net. This is a translation, by Mr. H. J. Stenning, of an important book upon Public Enterprise and Collectivism. The author is well known in Europe as a clear-headed advocate of Socialism, and he has collated a mass of relevant evidence bearing upon the social problems which are uppermost in the public mind to-day. Tlie evils of the Capitalistic system are exhibited with great ability, and a close investigation is pursued into the results of the public control of essential services during the War, which throws a powerful light upon the present crisis of dear living. In the concluding chapters, the author discusses the problem of the con- trol of industry, and describes the methods adopted in various countries. A most readable and convincing volume, full of interest to the general reader, and of special value to the social student. MY YEARS OF EXILE, by Eduard Bernstein, the well-known German Socialist. Translated by Bernard Miall. Cloth, demy 8vo, 1 5/- net This is a translation by Mr. Bernard Miall of Eduard Bern- stein's '■'■Jus den Jahren Meines Exi/s." In this volume the veteran socialist gives a spirited account of his travels and his years of exile in Italy, Switzerland, Denmark and England. As a prominent socialist and Editor of 'Die Zu\unft he was outlawed by Bismarck's Government. For a great part of his lifetime he made his home in London, where to many Londoners still in their prime he was a familiar friend. During his long residence in London he was intimately acquainted with all the leading personalities of the time, and the reader will meet in these pages with many famous and familiar LEONARD PARSONS LIMITED MISCELLANE OUS ii figures : Marx and his ill-fated daughter, Bebel, the elder Lieb- knecht, Engels, Stepniak, William Morris, H. M. Hyndman, "G.B.S.," John Burns, Mr. and Mrs. Hubert Bland, Mr. and Mrs. Sidney Webb, J. R. MacDonald, etc. Particularly interesting is his account of Engels' famous Sunday evenings. In addition to presenting an interesting picture of Socialist circles in London, this volume throws many sidelights on the development of the movement in Germany and on the Continent in general. No one interested in Socialism or the Fabian Society should miss this unique book. THE GREAT RE-BUILDING, by H. Denstoti Funnel!, F.S.I. Cloth, demy 8vo, 15/- net. This book considers with remarkable freshness, the present-day national and international problems ; and, unlike many other so-called books on reconstruction, which deal merely in vague generalities, it presents a logical and well thought out scheme of reorganization which should go a long way towards solving the problem of industrial unrest and stabilising our institutions on new and original lines. Trade Unionists, members of local authorities, politicians and public men of all kinds, who desire to keep abreast of the age, will find much food for thought and many suggestive ideas in this book. SEX EDUCATION AND NATIONAL HEALTH, by C. Gasquoine Hartley (author of " The Truth about Woman," etc.) Cloth, crown 8vo, 6/- net. The question of the instruction of youth in the problems of sex has gained a new urgency. The conditions left by the War have increased these problems to an alarm.ing extent, and, indeed, it is no exaggeration to say that so great and pressing are the evils LEONARD PARSONS LIMITED 12 MISCELLANEOUS threatening our National Health that we can no longer afford to neglect this question of sexual enlightenment. For the first time the Medical Officer of the Board of Education in his report has called attention to the need for some form of sexual instruction. The question is one of grave difficulty, for it is now recognised that the influence of sex starts from the earliest years of life. How is this force to be directed and trained ? The author is specially fitted to give the help that is required. Her sympathy with the difficulties which face both the child and the parent, the pupils and the teachers, enable her to reveal in a remarkable way the effect of adult instruction. She deals very frankly, but always reverently, with the facts of sex. She is outspoken and fearless, but her work is totally free from offence. The book is not merely a manual of sex instruction : wider ground is covered, and there is an honest facing of the many problems in the difficult question of sexual instruction. It is this fact that marks the importance of this book. In a word, it tells the truth. A WEST COUNTRY PILGRIMAGE, by Edefi Phillpotts^ with i6 three-colour illustra- tions by A. T. ^enthall^ tipped on mounts, buckram, crown 4to, 21/- net. Times. — " An attractive book." Pall Mall Gazette. — "A beautiful guide book. We warmly commend the book to the attention of our readers." Saturday Westminster Gazette. — " A delightful book." Evening Standard. — " A beautiful book. It is at once a delight and a torment to the town bound ... a book to lighten the grey months that must pass before we can set out again, a happy pilgrim to the West." "John 0' London^ s IVeekly. — " ... a book to be enthusiastically recommended. A series of beautifully coloured drawings add to the delight of the text." LEONARD PARSONS LIMITED MISCELLANE OUS 13 CHILDREN'S TALES (from the Russian Ballet), by Ec/it/i Sitwell. With 8 four-colour reproductions of scenes from the Ballet, by 7. de B. Lockyer. Buckram, crown 4to, i 5/- net. This is Miss Sitwell's first published essay in prose, and has many of the characteristics that distinguished her poetry. It deals with the ballet " Children's Tales," and has a long foreword about the Russian ballet in general. The artist, Miss I. de B. Lockyer, who has collaborated with Miss Sitwell in the compilation of this charming book, has worked into her pictures the spirit and colour which appeal so much to the many patrons of the Russian ballet. These should make a point of securing a copy of the work, of which a limited edition only is being printed. WHEELS, 1920 (Fifth Cycle), edited by Edith Sitwell. Quarter cloth, crown 8vo (with cover design by Gino Severi/n), 6/- net. This is the fifth volume of this annual anthology of ultra- modern poetry, which has been described by Tie Saiurr/ay Rcfiezv as "The vanguard of British poetry." " Wheels — 1920," is of the same fearless character as its predecessors, and contains the work of such well-known writers as Aldous Huxley, Wyndham Lewis, Sherard Vines, Geoffrey Cookson, Alan Porter, William Kean Seymour, and Edith, Osbert, and Sacheverell Sitwell. The cover design is by Gino Severini. A LADY DOCTOR IN BAKHTIARI- LAND, by Dr. Janet Mac Bean Ross. Cloth, crown 8vo, 7/6 net. THE CORPORATION PROFITS TAX, by Raymond W. Needham. Cloth, crown 8vo, 6/- net. LEONARD PARSONS LIMITED 14 FICTION Cloth, Crown 8vo, 7/6 net THE WIDOW'S CRUSE, by Hamilton Fyfe. A. comedy of character, full of delightful humour and satire, showing how a widow who had never understood or cared for her husband while he was alive, fell in love with his memory. She persuades herself when she becomes rich and famous — through the masterpiece published after liis death — that it was she who had been his "soul companion" and "inspirator," But another woman claims to have inspired the work. The struggle between them is fierce and full of unexpected devices. The controversy is .settled at last at a spiritualist seatice, which provides material for realism and amusement. The author's description of the inner workings of a publisher's ofhce will delight many readers. Mr. Hamilton Fyfe's literary work needs no introduction, and in this new novel he portrays his characters with a masterly skill. WOMEN AND CHILDREN, by Hugh de Selincourt. This is a novel which, while primarily a work of art, should be of absorbing interest to all who realise the inestimable importance of sexual psychology, and the value of a proper and enlightened education in sexual matters. The chief characters in " Women and Children" have not had the privilege of such education, and the lack comes near to wrecking their lives. In the heroine, a distinguished pessimist and a " welfare " inspector during the war, the lack is overcome by courage, humour, and the maternal instinct. In the Dwarf, her friend, it has meant a solitary life, and for a time threatens to wreck his friendship for her ; but she is able to restore his sanity by a gesture beautiful in its courageous generosity. In her lover, Hubert Bonner, cast up by the war, a "shell-shock" sufferer at a loose end, it means clumsiness in approaching women, diffidence, shame and irritability. The rehabilitated Dwarf, however, brings the lovers together after a misunderstanding that is nearly final, and so leaves the three of them planning a school on new lines. As a foil to these three LEONARD PARSONS LIMITEB FICTION 15 victims of Victorian prudery we have a family of " simple lifers." Mr. de Selincourt thinks courageously and writes with distinction and an unusual sensitiveness to obscure but significant moods. The book contains some notable scenes and should not be missed by any amateur of modern fiction. THE INVISIBLE SUN, by Bertram ^Munn. The theme of this novel is based on a three-hundred year old reflection of Sir Thomas Browne's " Life is a pure flame and we live by an invisible sun within us." The growth of this llame — from its initial " Kindling " until its ultimate " Conflagration " — typifies the spirit of the modern girl, fighting against conventions and seeking fulfilment in self-expression. In the form of what gradually becomes a powerful love-story, the author deals with the influences at work in the building up of human personality and traces the mental development of the heroine through the most important years of her life. In rapid survey, she is shown as a small child, as a " flapper," and as a girl of twenty-one. Thereafter, the unfolding is depicted in greater detail. Although it is primarily a character study, the book is filled with exciting incidents and humorous interludes. At the same time, the story is kept free from the morbidly introspective and melancholic atmosphere which is found in so many of the modern psychological novels. THE BISHOP'S MASQUERADE, by W. Harold Thomson. Glasgoiv Herald. — " Can be recommended to while away happily a long evening." Scotsman. — " . . . Mr. W. Harold Thomson's enteitaining . . . novel." Bookman. — " The characters are well drawn." Aberdeen Journal. — "An interesting and entertaining novel," L't'verpool Post. — " The style is fresh and vivacious." The Field.— ''WeW and skilfully related/' Scots Pictorial. — "The whole story is told with much zest . . . it is assured of wide success." LEONARD PARSONS LIMITED 1 6 FICTION THE BURIED TORCH, by Cora/ie Stanton and Heath Hasten. Dally Mali — '* It is a capital example of story-telling in which sensation is blended with the study of a soul." Liverpool Post. — « . . . should certainly please a wide public.'^ The Gentleivoman. — " . . . skilfully prepared." Irish Life. — " ... A real, gripping, live story." THE GREATER DAWN, by Nora Kent. Land and Water. — "The publishers state that they feel it *will bring the author into the front rank of popular novelists.' I am bound to say it probably will . . . Mrs. Florence L. Barclay ana Miss Ethel M. Dell have cause to tremble.''* Glasgow Evening Neivs. — " Miss Nora Kent promisingly enters the ranks of novelists ..." MIRIAM AND THE PHILISTINES, by Alice Clayton Greene. Westminster Gazette. — ''Cleverly drawn." Pall Mall Gazette. — " Excellently drawn." Daily Chronicle. — "Those of my readers who like a thoroughly good story of stage life will enjoy following Miriam's adventures," SIDE ISSUES, by leffery E. Jeffery (author of " Servants of the Guns "), 6/- net. Times. — " The opinions of the book are well thought out and expressed very clearly." The Evening Standard. — " Mr. Jeffery's very notable book." The Star. — " The stories . . . arc very good indeed." The British Weekly . — " A book well worth reading," LEONARD ^B@ PARSONS, LTD. PORTUGAL STREET BrirM K.INGSWAY, LONDON This book is DUE on the last date stamped below DEC 7^^3b 5 -.< 1937 jMiS t96^ Form L-9-35m-8,'28 /^ no 1023 Snowden - national finance. UC SOUTHFRN RFGinwAi HQDArn-r . - mr AA 000 553 297 ijjilVEKSii'^ of CALiiJUtUiJ AT LOS ANGELES LIBRARY