the university to commissions; it might well be extended, if not made general. The military undergraduate at Oxford or Cambridge, or one of the younger universities, would have his military lectures and military practice apart, in the same way as the legal, classical, or history students; but he would have some lectures in common with them, and in his games, in his clubs, and in those endless discussions which are the best part of the university training, he would learn to see the relation between his own studies and mode of life and those of his contemporaries, gain an increased respect for learning, and be far more in touch with the civilian, with whom he has always in the last resort to reckon, than is possible for him in the semi-cloistered life of the public school and the military college.

The Army Education scheme has come to stay. It has already proved that it has in it the germs of life. But in the future it has problems before it no less hard than those that have already been successfully handled. Their solution depends chiefly on one condition-that the scheme continues to be directed, as it has been in the past, by men of open minds and sympathetic knowledge of educational needs and methods. If it is overwhelmed in stereotyped regulations and rigid instructions and administered by red-tape officials, it will share the fate of many excellent schemes which have been inaugurated by genius and killed by official mediocrities.

BASIL WILLIAMS, Major.

Art. 3.-THE EFFECT OF A CAPITAL LEVY ON TRADE AND INDUSTRY.

WITH the end of the war comes our financial reckoning. We have to take stock of the wealth that is left us, put against it our thousands of millions of debt, and then consider carefully how, during our long and tedious journey towards financial recovery, the interest due to our creditors may best be met, and how, gradually, the debt may be contracted within reasonable dimensions, Probably the greater part of what we have lent to other nations should be written off; and we shall be fortunate indeed if we commence our next financial year with a gross debt of less than eight thousand millions. Certain theorists in the ranks of the Liberal party frankly declare the position impossible, and see no remedy but a graduated levy on the wealth of the country in order once and for all to extinguish a large slice of our debt with its dependent heavy annual charges, The Labour extremists advocate a similar drastic seizure of wealth, not only on the ground that the debt charges are too high and cannot be met, but to provide in addition, out of the nation's capital, large sums of money for what they vaguely term social betterment, These two schools differ in one particular only: the former plead 'just for this time and all will be well,' while the latter frankly say they want all they can get, and, if they find the method of extraction successful, will go on with it until their subversive programme is completed. With this Labour view there can be no question of argument; it must be fought and beaten, otherwise the existing basis of society, not only in this country but everywhere else, runs a serious risk of dissolution.

On this question of capital levy, those who claim to speak for the Liberal party, or a section of it which rather lies under the suspicion of stealing Labour thunder, have recently outlined their proposals both in

See the Prime Minister's statement in the House of Commons on Aug. 25, 1919. We have borrowed 1,200,000,000l. from the United States and Canada, and we have lent 1,800,000,000l. to our allies, the dominions and India. The National Debt is 7,800,000,000l. . . .' For the current financial year it is estimated that we shall spend over 200,000,000l. more than taxation will yield. That our lendings may never be repaid does not discharge our debt to America.

and outside the House of Commons. The basis of the levy is, following the super-tax, to be personal, and applicable only to individuals 'found to possess wealth exceeding ten thousand pounds in value.'* The levy will be graduated, and the rate will be proportionately higher the larger the fortune. This bitter pill is sugared by the promise that, with so substantial a reduction of debt charges, the income tax will fall automatically, and that by some financial magic the possessors of leviable wealth will for ever have redeemed a proportion of their income-tax liability. The individual thus to be dealt with may reasonably remark: You tell me this, but security have I none, and I cannot forget that before many years are over there may be a Labour Government in power which will repeat the levy.' That is the political side of the question. The object of this article is rather to accept the Liberal thesis in theory, to trace the incidence of the levy in practice, and to work out possible reactive effects on trade and industry.

First, in the minds of those who advocate a capital levy, What is capital? In equity it must be assumed to be every species of wealth, tangible and intangible, that is capable of producing something which can be exchanged for commodities, or, in the terminology of the ordinary man, something which normally produces, or can be made by sale or exchange to produce, an income. Now the object of all tax-gatherers is to extract from their victims as much as possible, speedily, with as little trouble as possible, without undue risk of evasion, and equitably. With these maxims in mind, what basis of collection is to be adopted? The existing law in relation to excess profits? Super-tax liability capitalised on a basis of averaged income? Or an out-and-out new valuation of all assessable wealth? Clogged with difficulties though the last suggestion may be, it is probably the only possible and certainly the only equitable basis. If this basis be accepted, the next question is, What forms of wealth will become liable to the levy? Are we to adopt only a material basis and thereby shut out, on

The Labour party advocate a levy on all capital over 1000l. at graduated rates, rising in the case of large fortunes to amounts practically equal to existing death duties. They do not promise to ear-mark the proceeds for the reduction of debt.

the lines of the excess profits duty, the incomes derived from personal effort, although many such incomes are protected by circumstances which create a virtual monopoly of considerable value?

Before drawing any general conclusions it is advisable to attempt a rough classification of the forms of capital which probably all are agreed should be leviable, and then to deal with classes of wealth which some hold should escape the tax.

(1) British Government Securities.-Under this heading are included all denominations of War Loans and War Bonds, Exchequer Bonds, Consols, India Government Loans and certain loans guaranteed by the British Government. To-day the great bulk of this class is War Loan of various types and is held in quantity by limited companies, trustees, banks, insurance companies, building societies and other institutions. From the banking point of view these securities are unexceptionable, and therefore many business men make a point of holding them to offer as cover in times of temporary stringency. Very many individuals of course hold War Loan, but as a rule in moderate quantity; and certainly few taxpayers have holdings sufficiently large to meet all the demands of a capital levy. Nor is it to be expected that banks and other holders of War Loan as security would, for the convenience of the Treasury, be willing to exchange it for other and less desirable cover, even if such could be offered by the borrower in properly liquid condition. The recent issue of Victory Bonds is a strong case in point; these have been taken up largely because they carry valuable rights for death-duty purposes, and in addition stand a chance of being drawn at a substantial premium. People would not be inclined to write off their levy with these securities.

Individuals who hold War Loan free of all encumbrance in sufficient quantities to meet their levy cannot be numerous, and therefore the simple expedient of writing off loan against levy will apply in but few cases. Similarly with other securities of the class, except that they are not now held to the same extent by individuals.*

In relation to this, as indeed to every other class of security, the position of a life-tenant receiving an annual income under a trust, whether

(2) British Local Government and prior-charge Transport Stocks.-Of this class are Corporation, County and District Council loans, Docks and Harbour obligations, and certain Railway and Canal prior-charge stocks well enough secured to earn a place among legalised trustee stocks. The bulk is in the same hands that hold British Government securities, but a larger proportion is held by persons of moderate means, who probably would be leviable only in a few instances. Much of the stock, especially of the Local Government type, consists of fixedterm loans and, being seldom transferred, has no free market. Of late years the market in transferable Local Government stocks has not been very active-a change probably due to heavy Government borrowing, and for the present likely to persist. Very little selling depresses this market; and stock forced out from holders to meet taxation would tend to bring down prices rapidly, even if in fact purchasers were forthcoming.

Before the war, railway trustee stocks rose and fell in sympathy with other trustee stocks, but latterly the spectre of nationalisation and the uncertainty as to the price at which the Government is prepared to take over the railway system have caused a fall quite apart from the influence of a rise in the rate of interest. Transactions in harbour, dock and canal stocks, with the exception of two or three of the larger undertakings, are not numerous, the stock being as a rule well held. If the market failed to absorb securities of this class at a reasonable price, the Government presumably would become the holders at a valuation based on the rate of interest payable.

(3) Colonial and Foreign Government and Municipal Securities. In this class the war has caused many changes of sentiment as well as of value. Our own colonial securities have followed in the wake of our home loans, allowing rather more favour for South African and some Canadian issues, while United States and Japanese loans have appreciated with the transference of wealth to these countries. We hold as a

by will or otherwise, would be most difficult. The corpus from which he draws his income belongs intact to other vested interests and must not be diminished. His levy could be payable in no other way than by fixing an annual charge for a term of years calculated on his expectation of life.