EFFECTS OF THE WAR ON CREDIT, CURRENCY, AND FINANCE. 283 
the proposed levy. When an allowance is made for the depreciation of the 
currency, it is clear enough that these figures indicate a decline rather than 
an increase in the amount of real wealth in private hands.’ 
The Memoranda contained a warning that ‘the increase in the exchange 
| value of certain forms of wealth is merely the result of the general rise of 
prices’; but this qualification, which was not very lucidly expressed, has been 
overlooked. Part of the unrest among wage-earners is due to the belief, fostered 
by a misunderstanding of these Memoranda, that the War had enriched the 
propertied classes. We thought it necessary (at Cardiff) to declare our opinion 
that the reverse is the case; that the recent War, like othe: wars, has caused 
the destruction, not the creation, of wealth. But the working-classes are quite 
right in believing that some sections of the propertied classes have been greatly 
enriched by the War. 
Had the demand for the conscription of wealth taken the form of demanding 
increased direct taxation of all non-combatants, it would have been better 
justified. As a matter of fact, it is almost impossible to postpone the financial 
sacrifices involved in a big war by postponing taxation. Unless the Govern- 
ment’s expenditure can be defrayed by loans subscribed out of the genuine 
savings of its subjects, the alternative is a policy of credit and currency inflation, 
which acts as a concealed levy on many forms of pre-War capital and as a 
concealed income tax on all kinds of income. But whereas the ordinary income 
tax can be adjusted to the ability of the taxpayer, the concealed income tax 
falls mainly upon people with ‘ fixed incomes.’ It was assumed by the Income 
Tax Committee of 1906 that the words ‘ permanent’ and ‘ precarious’ in their 
terms of reference might be translated by ‘unearned’ and ‘earned.’ Experi- 
ence has shown that most ‘earned’ incomes may be raised as the purchasing 
power of money is lowered, either automatically, as in the case of Government 
employees and railwaymen, whose pay rises or falls with the changes in the 
Ministry of Labour’s index number, or (with more friction) through strikes 
and lock-outs or amicable arrangements. There are other cases, such as those 
of clergymen and some schoolmasters, though not the teachers in State-supported 
schools, whose money incomes are not elastic. 
On the other hand, the so-called ‘ unearned,’ or ‘ permanent,’ or ‘ fixed’ 
incomes cannot, as a rule, be adjusted to alterations in the purchasing power 
of money. This applies to ‘ gilt-edged’ or trustee securities, and explains 
very largely the present financial straits of our voluntary hospitals, which have 
found their income from property cut down by about a half. It applies to all 
debenture and preference stocks, and to certain classes of ordinary shares— 
e.g. those of gas, water, tramway, and railway companies—and at present to 
bank shares. Consequently, if the pound sterling loses half its purchasing power 
the receivers of fixed money incomes, whether from earnings or from invest- 
ments, suffer the equivalent of a 10s. income tax, from which large sections of 
the wage-earning and salaried classes, whose incomes are adjusted to the 
Ministry of Labour’s index number, escape. In some instances, especially 
those of industrial companies which can make and divide profits without 
statutory restrictions, the depreciation of the currency has transferred part of 
the debenture-holders’ and preference-holders’ property to the ordinary share- 
holders. Sometimes this fact has been recognised by the distribution of bonus 
shares to the ordinary shareholders. 
On the whole, therefore, it appears that while certain favoured persons and 
small classes of capitalists acquired new wealth as a result of the War, the 
vast majority of the propertied classes are very much poorer. Moreover, a 
good deal of the profits which might have been assessed to a levy on War 
Wealth a year ago has vanished in the recent industrial depression. 
Our members and correspondents differ irreconcilably in their answers to 
Question 10. 
_ Mr. Ellinger and Mr. Gibson do not think that this country is in ary 
danger of national insolvency. Mr. Ellinger says : ‘ National insolvency might 
take two forms: (1) That we could not pay our debt to America; (2) that we 
could not raise sufficient taxation to pay the interest on 6étir internal debt. 
As regards (1), a capital levy or forced loan would hot help: As regards (2), 
& capital levy would help. I think that it is very doubtful; if we had had a 
capital levy 4 year ago, whethet the sheck to private éredit Which would have 
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