Art. 5.-AN ECONOMIC STOCKTAKING.

THE beginning of a New Year is an opportune time for taking stock of our financial and economic position. It is much too soon to put all the debit and credit items of the account against each other, nor can we think about striking a final balance; the most that can be usefully attempted is a collection of the materials which enable us to see where the nation stands after seventeen months of the costliest war ever known. In order to get a true perspective, it is necessary to marshal in due relation to each other facts and figures that are already more or less familiar. These are, however, of such great importance to every individual in the kingdom that a restatement of them for the purpose of estimating their combined effect on the national life may justify what might otherwise be considered needless repetition.

The most arresting-and in some respects the most disturbing-fact is, not the extent of the burdens that have to be borne, but the way in which the people are bearing them. We are committed to a gigantic and increasing expenditure. We have already virtually doubled our tax revenue. We have raised nearly a thousand millions by loans and are looking forward to further borrowing. We are importing munitions, foodstuffs and other produce from foreign countries at the rate of about a million sterling a day in excess of our exports. We are compelled to pay a higher price for nearly every item in the cost of living. We accept as inevitable the fact that the country will be called upon to make still heavier sacrifices, and that the iron grip of taxation will be more relentlessly tightened. Yet one looks in vain for signs of national distress. On nearly every hand there are indications that our burdens are being borne, not only without serious privation or suffering, but almost with an air of jaunty indifference. These conditions are, however, to some extent superficial, and are far from justifying an optimistic state of mind. The prosperity of which they seem to be evidence is, more or less, a fictitious prosperity.

Mainly as a result of the great flocking of artisans to the army, and of the extraordinary demand of munition factories for labour, there is very little unemployment;

skilled workmen as a body are earning more than they ever earned; and, although people with small fixed incomes and those dependent upon casual brain work are obliged to be thriftier, there are very few symptoms of economic pressure. Every one tells every one else that retrenchment has become imperative, but the serious rise in the cost of food has not, so far, greatly interfered with the people's power to purchase a good deal more than necessaries. We are, indeed, confronted with the astonishing anomaly that, although economy is publicly urged on a scale which, a couple of years ago, would have been received with a cry of dismay—a scale involving for many of us a denial of agreeable and accustomed superfluities-and although the nation is supposed to be going through an austere discipline, yet there is less poverty than there was in peace time, and the cheerfulness and comfort of the people verge on the ostentatious. In many provincial districts, where Government work is plentiful and wages are high, there is a regular demand for the best qualities of food, irrespective of price; workmen are furnishing their homes anew, and the musichalls and moving-picture shows are crowded several times a week. That so many workpeople are, for the time being, living in a Canaan of abundance, is due to a considerable part of the money voted for the war being paid in wages within the country. The distribution of 1,200,000l. a week to the wives and dependants of soldiers and sailors, making many of them much better off than they ever were before, is another contributory to this high tide of pecuniary welfare. Whether such conditions of unusual industrial plenty are conducive to thrift, may be doubted. We have yet to ascertain the full effect of bringing the worker who earns over 50s. a week within the operation of the Income Tax. In view of the certainty of new War Loans and yet heavier taxation one would like to see more self-denial among those who, when the war is over, and perhaps before, may be faced with economic difficulties in an acute form.

Our national resources are great, but a strain at least equally great is being put upon them. People have become so habituated to reading about thousands of millions that the figures roll glibly off the tongue without any adequate idea of what they signify. Nor

is it easy to make our enormous expenditure intelligible except as it is brought home to the individual by the pressure of his personal share. It has been officially stated that the adjusted expenditure between April 1 and Nov. 6-about seven months of the current financial year -amounted to 743,100,000l., which was thus apportioned: £

Army, Navy, and Munitions
Repayments to Bank of England
Loans to Allies.

Loans to Dominions

Food supplies

517,300,000

104,000,000

58,900,000).

39,400,000

23,500,000

On the basis of the proceeds of the new taxation and the estimated expenditure for the remaining five months, a deficit of 1,285,000,000l. is looked for on account of the current year. Although these calculations may have been upset by the inclusion of new areas of struggle, it is so far assumed that the deficits to be met by loans and taxation will by March 31, 1917, have reached a total of 3,056,000,000l., thus made up:

Realised deficit to May 31, 1915

£ 333,000,000

Estimated deficit for current financial year. 1,285,000,000 Estimated deficit for 1916-17

1,438,000,000

£3,056,000,000

Votes of credit amounting to 1,662,000,000l. have been passed by Parliament, of which 1,300,000,000l. is on account of the current financial year. The latest vote, one of 400,000,000l., sanctioned in November, will carry the country up to the middle of February, provided that the expenditure does not exceed 5,000,000l. a day. It is evident that, since the combined deficits for last year and this amount to 1,618,000,000l., of which only 950,000,000l. approximately has been raised by loan, another big loan, of not less than 500,000,000l., will have to be issued at an early date. This accumulation of National Debt is a disagreeable necessity which cannot be avoided, There are limits to the capacity of the taxpayer; and, however right in theory it is to pay one's

For the whole of the current financial year the loans to foreign countries are estimated to reach the amount of 423,000,0007.

liabilities out of income, such heroic rectitude is impossible with an expenditure of nearly 2,000,000,000l. a year. The bulk of this must be met by loans; and loans involve interest and provision for repayment. Our existing War Loans, including our proportion of the AngloFrench External loan, are costing us nearly 43,000,000l. a year in interest alone, without counting the extra interest to be paid on converted stocks. When the war is over, we shall be lucky if this new burden and its consequent pressure of taxation do not become a serious handicap to the economic reconstruction that will require all our energies and resources.

In connexion with the question of expenditure, it is perhaps necessary to refer very briefly to the way in which it has been swollen by extravagant administration. This is admitted by leading members of the Government; and the only excuse put forward amounts to this-that in the rush and confusion of creating, training and equipping the new army, too much was left in the hands of military officers who lacked business experience, and that there was a complete absence of Treasury control. The loss to the nation can be faintly guessed at from the experience of one command alone, where (Mr H. W. Forster is the authority) reductions of rations after the public outcry resulted in the following savings in a single month: 800,000 lbs. of meat, one ton of mustard, one ton of pepper, 10 tons of salt, 10 tons of bread, and one ton of bacon, and so forth.' Nothing is to be gained now by harping upon these unfortunate mistakes. They have cost the country dear, but this may be said, that, if in the critical first months of the war things had had to stand still while an effective system of check and control was organised and put into working order, the chances are that we should never have got our army at all. The War Office is now relieved of much of the early pressure; it has had brought home to it the importance of thrift in administration; the Treasury is exercising a larger measure of control; and practical economies-though very late in the day-have been effected in several directions. This is a beginning, but only a beginning. There must be no repetition of wasted food scandals and spendthrift contracts. Lord St Aldwyn, who has been a Chancellor of the Exchequer himself, says:

Unless there are drastic economies in the Civil Service, and the expenditure of the Army is dealt with in a way never yet attempted, I do not think the issue of this war will be as successful as we all hope and intend it shall be.'

But no economies effected now can materially lessen the obligation of raising funds by loan. One consequence must be noticed, namely, that borrowing at increasing rates of interest will bring about a general lowering of investment values. Before the war, Colonial and British Government and municipal bonds, high-class debentures, and other so-called gilt-edged securities, bearing fixed rates of interest, were more or less valued in relation to the market price of Consols. The premier security,' as it was then, was the standard of valuation; and a simple rule-of-three sum, subject to modifications to meet exceptional circumstances, made calculation of the value almost automatic. The second War Loan, with its 4 per cent. interest, altered all this, and a 5 per cent. Loan will alter it still more. The higher the interest offered by Government on the security of the national credit, the lower must be the market value of securities formerly measured by Consols. This does not lessen their intrinsic investment worth, but it lowers their realisable value. Moreover, the shepherding of vast sums into a National Debt of unusual attractions will tend to higher rates of interest generally. A recent illustration of the new values is furnished in the South Australian Loan, which had to be offered at 99 with a 5 per cent. interest. But perhaps the most striking example is that of Consols, which, directly the minimum prohibition was removed, fell from 65 to 57 and have only recovered a couple of points or so since.

There are still many securities protected by a minimum price; and not until this protection can be fully removed without risk to the interests of the banking world, and the conditions of dealing once more become normal, will it be possible to judge accurately of the permanent effects of the War Loans on all kinds of marketable property. For the present, it is certain that the expansive quality of the national wealth, measured by the return on capital, has undergone an important restriction, independently of that produced by the war itself.