612 TRANSACTIONS OF SECTION F. 



writes ' of one-half of the cost having been met by taxation, the fact seems 

 to be that little more than one-fourth of the war expenditure was so provided. 

 If the total cost of the war be taken as 83O,O0O,O0OL, the contribution from 

 loans was 600,000,000/., and that from taxation 230,000,000?. It must, how- 

 ever, be said that the Isorrowing took place chiefly in the period from 1793 to 

 1800, and that much greater efforts were made to secure an adequate tax revenue 

 in the later years of the war. There can be no doubt that Pitt's policy in 

 respect to war finance was affected by two influences, viz. (1) the fear of 

 popular hostility to heavy taxation, and (2) the belief in the magical operation 

 of the sinking-fund scheme. We have to recognise that earlier use of the 

 income tax would have greatly lightened the financial strain and the accumu- 

 lation of debt. The financial management of the Crimean War (which was more 

 in the hands of Cornewall Lewis than in those of Gladstone) was more satis- 

 factory. More than half of the cost was met out of tax revenue (3S,00O,000Z. 

 out of the total of 70,000,000/.), which showed a marked contrast with the 

 French policy in the same war.' 



The consideration of the above facts has more than a mere historical 

 interest, and we wish to call special attention to the grave warning of Professor 

 Bastable in the following paragraphs. It is obvious, as he justly says, that 

 ' the great lesson to be derived from them is the need of immediate adjustment 

 of the -financial system on the outbreak of war. The easy course of borrowing 

 is open to the conclusive objection that it mortgages resources that will soon 

 be needed, while it induces the ordinary citizen to think that he is not called 

 on for any additional effort. But in no previous case has the necessity for this 

 adjustment been so great as in the present war. Though Pitt bequeathed a 

 heavy burden to the British taxpayer of the nineteenth century, the immense 

 development of British industry as the result of the manufacturing system and 

 colonial expansion furnished a counterbalancing force. It is not within the 

 range of reasonable probability to hope for anything similar in the twentieth 

 century. Moreover, the call on the "national dividend" is proportionally 

 greater. At no time in the course of the Napoleonic War did the borrowings 

 of the State absorb the whole savings of the country. The present rate of war 

 expenditure exceeds threefold the annual savings of the United Kingdom 

 in peace time. The necessary consequence is that there must be either a great 

 growth of "net," as distinguished from " gross " income or that assistance must 

 be obtained from the disposable funds of other countries. To secure the former 

 there will have to be effective inducements to saving in the form of high 

 interest, or compulsory additions to the net revenue forced by the pressure 

 (what INIill somewhere calls " the whip and spur ") of taxation. 



' On these plain and simple grounds rests the general rule that a great war 

 calls for (1) a large development of existing forms of taxation and (2) the 

 adoption of any new and feasible forms. Whatever may be said in respect 

 to times of peace, it is certain that productiveness is the one great criterion 

 of war taxes. The nice distinctions of charges on income, on property, 

 on commodities, or on expenditure in general, as well as the problems of just 

 distribution, have to yield to the fundamental consideration of the best way 

 to obtain the maximum return. The only other element of importance is the 

 effect of the tax methods on the productive power of the country, which is itself 

 a branch of future fiscal productiveness. Controversy as to the respective 

 merits of different forms of taxation is really excluded by the urgent necessity 

 of employing every effective method. It "follows, therefore, "that heavily 

 increased taxation of income, especially unearned income (for this is in fact a 

 property tax), much higher rates of duties on fiscallv productive commodities, 

 and the increase of any minor duties that are likely to prove fruitful should be 

 speedily brought into operation. Nothing but actual trial can show the limit 

 to this use of taxation. We may, however, get some clue by considering the 

 amount of the national income and the proportion that can be appropnated 

 by the State in case of urgent need. 



' If 2 000,000.000/. be taken as an under-estimate of the national income and 

 If we take the view of those financial writers who hold that under emergency 

 jDressure 25 per cent, of this income could be secured for the State, it follows 

 that for a limited period of strain 500,000,000/. would be the available tax 

 revenue. Bearing in mind tJie possibility of very large economies on the normal 



