The war has created a great new source of expenditure in the shape of the Air Force. Here we have no prewar experience to guide us in framing an estimate as to the amount we should expend on this branch of Imperial Defence. In August 1914 the British Air Service possessed a total of 272 machines, whereas in October 1918 the Royal Air Force possessed over 22,000 effective machines. So far as aero-engines are concerned, our position in 1914 was by no means satisfactory. We depended for a large proportion of our supply on other countries. By the end of the war British aero-engines had gained the foremost place in design and manufacture and were well up to requirement as regards supply. As a provisional decision for us to work on until the whole question of our defence can be considered in relation to our financial position, Mr Churchill stated on Aug. 12, that he had instructed Sir Hugh Trenchard that he must provisionally frame his scheme within the limits of 25,000,000l. a year. Surely without unduly 'starving' this important branch of Imperial Defence we can hold our own on an expenditure of 15 to 20,000,000.

The question of expenditure upon Imperial Defence should, however, not be considered merely from the point of view of what we can afford. It must be approached rather in the light of the new position and the new responsibilities of the Empire which have been created by the war. It may be confidently asserted that the British Empire can afford better than any other worldpower (not excepting the United States) to maintain an Army, Navy and Air Force adequate for the protection of its interests and the fulfilment of its engagements.

One of the largest items of national expenditure for many years to come will be the war pensions. The Minister of Pensions stated on Aug. 1, that the Budget estimate of nearly 73,000,000l. was already out of date. Additional expenditure had been authorised; and the decisions of the Government on the recommendation of the Select Committee would call for an extra expenditure for the remainder of this year of about 11,000,000l.; so that the estimates should be treated as 84,000,000l., and

The Hon. C. A. Parsons, Presidential Address, British Association, Sept. 9, 1919.

not (as presented) as just under 73,000,000l. For a full year, so long as the number of pensioners remained at or near the maximum, the cost would be about 96,000,000. The number of pensions, gratuities and final allowances in actual payment on June 30, 1919, was as follows:

It would not be wise to look for any substantial reduction in the cost of pensions for some years, but after 1930 they should begin to decline rapidly.

Economies.-If the British public were fully informed on economic questions, it would not tolerate any policy which tended to restrict production, and it would bring the vicious system of subsidies to an end as quickly as possible. At the present time, the Railways are being subsidised at the rate of 60,000,000l. per annum, and Bread at the rate of 50,000,000l. per annum. Substantial subsidies will be required for Housing, and the Unemployment Dole is still very heavy. The bread subsidy, the unemployment dole and the housing subsidy can be partly justified upon the ground that they were rendered necessary by the conditions created by the war, but there is no justification for the railway subsidy.

Uneconomic methods bring their own nemesis; and we have a striking example of this in the case of the railways, on which goods have been carried at uneconomic rates during the war. The results of the railways

carrying under cost price are (1) the congestion of railway termini, docks, quays, warehouses, etc.; (2) loss of facilities to the public; (3) delays in transit; (4) increase in economic cost by handling; (5) lack of regular employment; (6) extra burden on taxpayer. According to official figures, there has been a falling off in coastwise traffic from 71,381,720 tons in 1914 to 35,470,377 tons in 1918. Among reasons assigned for this decline are dearth of railway trucks, unnecessary delay in ships, congestion of ports, and loss of shipping tonnage. Moreover, merchants are sending large quantities of goods by rail in preference to sea, as they find it cheaper to do so on account of pre-war rates of carriage being in existence, while the cost of sea-transport has increased considerably during the past few years.

The Civil Service estimates, therefore, offer a most promising field for the exercise of a policy of ruthless economy. The uneconomic subsidies must go, and the bureaucrats created during the war must go with them. An analysis of the returns prepared by the Treasury, showing the staffs employed in Government Departments at the time of the Armistice, on March 31, and July 1 of this year, shows that, eliminating the Post Office and allowing for the inclusion in the earlier figures of certain new Revenue staff, omitted from the first white paper, the comparative strengths of the staffs in Government Departments were as follows:

The process of demobilisation is, therefore, painfully slow. The nation has not only to bear the cost of salaries and establishment charges for this vast army of new officials, but it has to suffer a much greater loss on account of the obstruction which these people have created to the resumption of the normal trading conditions of the country. I would suggest that we should aim at a policy which would enable us to fix the cost of Government, including Imperial Defence, on a basis which should not exceed 20 per cent. of the National

Income, say 750,000,000l. to 800,000,000l. for the next five years, on some such lines as the following:—

Within ten years it should fall to 15 per cent. of the national income, say to 550,000,000l. per annum.

We

The Overseas Dominions did not hesitate to contribute generously in man power and treasure to the Motherland during the war; and, since their new status has been recognised by the Treaty of Versailles, it would not be unreasonable to anticipate that they will desire to take up some share of the burden of Imperial Defence. should be able to bear a charge for National Government at the rate of 20 per cent. upon the National Income during the next five years with comparative ease. So far as our external position is concerned, we have still a surplus of investments abroad to the value of 2,800,000,000. Then, with regard to the internal position, the National Debt is about 7,500,000,000l. as compared with 645,000,000l. before the war. In 1913-4 the national income was about 2,400,000,000l.; and the cost of the Imperial Government was 198,000,000l. Our Peace Budget will be approximately 800,000,000l., or four times the amount of our pre-war Budget. If the national wealth and national income had remained at the level of 1913-4, our economic position would indeed be serious, because the National Debt would be 36 per cent. of the national wealth, and the Budget would be 33 per cent. of the national income; but such is not the case. Our assets must be measured in the same monetary values as our liabilities, that is to say, in 1919 money values, not in 1914 money values. In 1914 I submitted to the Royal Statistical Society an estimate of the national wealth for 1912 at 16,472,000,000%. and the national income at 2,140,000,000l. At the present time the national wealth of the United Kingdom may be

safely computed at 24,000,000,000l., and the national income at 3,600,000,000l.

I wish to make it perfectly clear that I do not maintain that in terms of commodities and services we are 50 per cent. better off than we were in 1912, but I do contend that, if the United Kingdom was then worth 16,400,000,0007. with the menace of German militarism confronting it, and the average price of commodities standing at 85, our national wealth to-day, with German militarism overcome, with our increased power of production, and with the average price of commodities in the neighbourhood of 200, may be fairly estimated at the figure I have stated, namely, 24,000,000,000l., and the national income at 3,600,000,000l. In other words, if we accept and stabilise the new valuation of money, our post-war National Debt will be only equivalent to a sum representing 23 or 24 per cent. of the national wealth, and our post-war Budget will not amount to much more than 20 per cent. of income.

The economic problems which confront the peoples of this country and of the world may be solved by adopting one of two alternatives. We may (1) attempt to reduce drastically the amount of paper money in circulation, repudiate a part of the National Debt by means of levies on capital or otherwise, attempt to force commodity prices down to the pre-war level, and, with infinite suffering and strife, endeavour to get back to the pre-war economic standard of wages, prices, production and consumption. Or (2) we may recognise and stabilise the new valuation of money in relation to commodities and services, maintain wages and commodity prices at a high level, and increase the national production up to a point which will justify the raising of the standard of living to a much higher level.

A large number of people are naturally anxious to see commodity prices at a considerably lower level as soon as possible; and during the next decade a substantial fall appears to be inevitable. But I doubt if, in seeking to overcome their present troubles, the public have taken into account the full consequences of the great economic disturbance which would result if all commodity prices fell too rapidly and too heavily. The first effect would be to reduce materially the national