EFFECTS OF THE WAR ON CREDIT, CURRENCY; AND FINANCE. 285 
out immediately after the War by such means I would have recommended some 
compensation to holders of stocks of commodities. 1 am doubtful whether such 
compensation should now be given, but in any case it should be confined to 
detlation specially brought about by Government action.’ 
Mr. Mason is opposed both to a capital levy and a forced loan at the present 
time; Mr. Hoare thinks that ‘a forced loan would be far preferable to a 
capital levy.’ 
Sir Drummond Fraser writes : ‘I am opposed to a capital levy or a forced 
loan, because both produce monetary inflation.’ 
Mr. Allen desires to point out that a levy on pre-War capital has, in effect, 
taken place. Each War loan acts as a levy on existing investment securities, 
just as an issue of bonus shares lowers the value of a company’s existing shares. 
This fact was recognised by Mr. McKenna and his successors at the Exchequer 
when they gave ‘ conversion rights’ to holders of earlier War loans. They may 
have foreseen, also, that people would not subscribe to such issues without 
some kind of guarantee against depreciation. If a holder of pre-War gilt-edged 
securities has been able to save enough money to buy War loans to the nominal 
value of his stocks in July, 1914, he is about where he was when war hroke 
out; otherwise he is poorer. The case of hospitals must be well known to 
everybody. ‘These institutions, like many educational, religious, and charitable 
bodies, are in serious financial difficulties because the value of their property 
has been cut down about 50 per cent., although they are supposed to be exempt 
from taxation; they escape income tax, it is true, but ordinary persons and 
business concerns have to pay tax on an income which in many cases has been 
cut down by one-half. Harned incomes, of course, pay income tax, but then 
they are elastic, and in most cases have been raised considerably from their 
pre-War rate. In some cases salaries are paid free of income. tax, which seems 
to me an undesirable practice. ‘To illustrate the change in the distribution 
of the national income produced by the War and the depreciation of the currency 
let me take a single familiar instance : Before the War railway shareholders and 
railway operatives drew about the same income from their undertaking—about 
47,000,000/. or 48,000,000/. a year. The shareholders are still drawing their 
47,000,000/., with perhaps another million for new capital; the railwaymen 
are drawing about 160,000,000/., though their wages are now falling with the 
decline of the ‘cost of living.’ 
No doubt some individuals have made large fortunes out of the War; perhaps 
wars would not last so long if no one made money out of them. A new 
propertied class appears to have come into existence through the War. There 
was a good case for the taxation for these special fortunes, but by this time 
the opportunity has been lost. In my opinion we ought to have had at an 
early period of the War an excess income tax to balance or supplement the 
excess profits duty. One result of the War may be welcomed: it has brought 
about a much more equal distribution of the national income. But that fact is 
an argument against a levy on capital. 
_ On grounds of equity the objection to a levy is that it throws a special 
burden on a particular class without any reference to the principle of ability 
to pay. It may be admitted that a person with 500/. a year from property 
has a greater taxable capacity than a similar person earning 500/. a year, but 
this difference is already recognised (a) by levying a higher rate of income 
tax on invested income, and (b) by imposing special and heavy taxation when 
property changes hands at death. To a much smaller extent there is a special 
kind of taxation in the form of stamp duties when property of most kinds 
_ passes from hand to hand. 
Dr. Dalton comments: ‘It is a question of verbal convenience whether 
you like to describe what has happened in the past as a ‘‘ levy on pre-War 
capital.”” I have no objection to so describing it, provided that you recognise 
that the fall in prices, which is now taking place, and the fall in rates of 
interest, which may soon be anticipated, will be a ‘‘ bounty to pre-war capital.’’’ 
Question 11.—Now that the Hxcess Profits Duty has been repealed, should 
some other form of special taxation of business profits be imposed? If so, 
what ? 
On the whole our opinions are against the imposition of a special tax on 
business profits. Prof. Cannan, Sir Drummond Fraser, Mr. Mason, Mr. P. 
Lawrence, and Mr. Sykes all answer ‘ No,’ and suggest as an alternative greater 
