TRANSACTIONS OF SECTION P. 611 



creating for the time being apparently great prosperity with comparatively 

 small hardship. This is brought about by the expenditure of the proceeds of 

 the loans without corresponding high taxation. Another great evil resulting 

 from large loan expenditure is that the added stimulus due to the expenditure 

 creates an abnomial demand for labour. After the war there is a great innux 

 of labour seeking employment and a diminished supply of capital. The 

 result is a great deal of unemployment and misery for the working classes. 

 While loans are, no doubt, necessary for the carrying on of a great war, 

 regard should be given to the .state of the money market at home and abroad 

 both before and during the continuance of the War. It is also imperative in time 

 of peace, particularly if there is any probability of war, to practise economy 

 and keep down taxation with a view to a financial reserve for war when it 

 comes. ' 



Mr. Gibson agrees with Mr. Kitchin's view that the best time for materially 

 increased taxation is in the few years immediately after the declaration of 

 peace, but not with the view that a period of depression is a bad time for it. 

 'Trade depression,' Mr. Gibson continues, 'is just the time when people have 

 large liquid resources, savings are high owing to' the reduced cost of living, and 

 investment prices rise through the increased demand for investment. Manu- 

 facturers require their liquid capital in times of trade booms, but not so much 

 in times of depression. Increased taxation from a national standpoint- can be 

 better borne in a time of trade depression than in a time of activity and rising 

 prices.' From the banker's point of view this is so, for depression always 

 liberates a part of the working capital of many firms which goes temporarily to 

 swell bankers' balances. But such moneys are not easily reached by taxation, 

 and, if they were, the burden would be felt when trade revived through an 

 added scarcity of capital. 



Profes.sor Dicksee agrees with other correspondents in holding that ' public 

 economy in time of peace is the best possible way of providing a financial reserve 

 against time of war.' He continues : ' At the risk of embarking upon political 

 rather than economic issues, I should like to put forward the view that we are 

 now being called upon to pay for the experiments of politicians in social reform 

 during the past ten years. The need for both public and private economy is 

 fairly obvious; but public economy has been rendered difficult by the enormous 

 increase in the number of officials employed by Government Departments and 

 local authorities, while private economy is rendered difficult by the heavy 

 taxation — even on a peace footing — of the well-to-do classes, and by the general 

 trend of legislation which seems to have been specially designed to discourage 

 thrift.' Referring to Mr. EUinger's suggestion. Prof essor Dicksee continues : ' I 

 agree that, whatever opinions may be held on the subject of so-called tariff reform, 

 the taxatio.i of imports seems desirable imder present conditions, and that, 

 while it may be impossible to foretell whether the effect would be to discourage 

 imports or to produce a revenue, the consequences would be equally desir- 

 able in cither event. There seems, however, some confusion of thought about 

 the .suggestion that an excessive income-tax would be undesirable as reducing the 

 amount available for subscription to Government Loans. From the Government 

 point of view, the revenue derived from taxation (of whatsoever kind) is clear 

 gain ; whereas Loans call for ultimate repayment, and in the meantime have to 

 carry interest. Accordingly, even supposing the effect anticipated by Mr. 

 Ellinger were in fact produced, the result would not be disadvantageous to thi 

 Government, however inconvenient it might be to individuals.' 



Here we cannot agree entirely with Professor Dicksee's views. If income- 

 tax or estate duties — or indeed direct taxation generally — is made too heavy, 

 the yield declines proportionately and might even decline"^ absolutely. It cannot 

 be said in advance when an increase in direct taxation would cease to be pro- 

 ductive beyond the general cavmt that there is such a point. Allowance must 

 be made for psychological conditions. At the moment patriotism would make 

 that limit recede, but as the dangers of war become more remote this influence 

 grows less effective; thus fhe psychological influence is an argument for early 

 taxation. 



Professor Bastable, who has composed his memorandum after reading those 

 written by the other contributors, thinks that the proportion of the tax con- 

 tribution to the wars of 1793-1815 has been over-estimated. 'Instead,' he 



R B 2 



