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causes acting simultaneously, the first sudden drop would be much greater than need be and the subsequent panic intensified accordingly.

In order to compare the two policies, let us assume that a certain period of time has elapsed sufficient to accomplish the objects of the scheme here detailed; that is to say, that we have arrived at a point where the Government holdings constitute a considerable proportion of the railway stocks, consols are at or about par, and transactions are taking place in a normal fashion. This is the stage at which the question of credit would be most thoroughly tested and the faults or merits of the policy be most easily demonstrable. And at this stage let us further assume that war, the sole eventuality for which a high governmental credit is requisite, breaks out. Since, instead of paying off debt on exorbitant terms, the money which would otherwise have been devoted to that purpose has been invested at its full market value, it follows that the net liabilities of the nation must have become considerably less than they would under the present policy. This result is independent of the assumption that the scheme would permit of a continued, although slower reduction of debt on better terms. So far as net indebtedness is concerned then, we are in a better position to incur further burdens and will consequently obtain a correspondingly greater loan on given terms. Let us now deduct the net liabilities from both systems. We have then to consider the effect on national credit of the retention of a portion of debt, combined with the possession of as much railway stock as the money necessary to accomplish the redemption of this debt has been able to purchase. Apart from the minor fluctuations of the market, which are as likely to be favourable as unfavourable, the force which has been applied to purchases of railway stocks can still be translated by their sale into a power of raising a war fund, just as though it had been used in redemption of debt. The fall that must ensue in the price of railway stocks, offered by the Government for sale or as collateral security, would be produced by the same causes, neither stronger nor weaker, as would, under the alternative policy of a lower debt and no assets, make the terms of a loan onerous. The extent and urgency of the Government wants and the caution engendered in the minds of the lending class by the prospective financial dangers of the war would be the factors at work in either case; and on their strength the issue would depend, whether the force upon which they operated were exhibited in an absence of debt or the possession of tangible assets. So much of the force of debt redemption, which is implied in a surplus revenue, as has not been actually wasted will give a power of borrowing that remains unchanged in strength in whatever form it is embodied. Criticism of methods of dealing with such surpluses in relation to the question of national credit, to be valid, must, accordingly, confine itself to an examination into their efficacy in preventing leakage—an examination which must result in the condemnation of the system at present pursued.

A leading feature of our times is the great struggle that is being carried on amongst the nations for commercial supremacy. Now, although we do not in this contest depend like our chief rivals on a system of customs charges and subsidies, it is a very narrow view that shuts out the important part political action has taken in the advancement of our foreign trade. It would, indeed, be difficult to point out a beneficial Act of Parliament, of any great importance, in which the tendency to promote commercial efficiency could not be traced; and this is true in an especial degree in regard to enactments concerning money matters. The excellence of our financial system, by economising the national wealth producing power, leaves a greater proportion of energy free for purposes of foreign trade than is the case with any of our competitors. To maintain this high standard, however, we must be prepared to make amendments whenever they are called for by altered circumstances. Under such conditions an obstinate clinging to use and wont is not conservatism, it is simply drifting; and in the present case means a considerable lessening of the advantage we now hold. For the injurious effects on our finances are not to be judged solely by considering how much of the money devoted to the reduction of debt is spent unnecessarily. The whole system is liable to be affected, as the following considerations will show.

Increased expenditure which entails the levying of fresh taxes has always to reckon on a formidable opposition and criticism ; but, when the revenue is in excess, it is comparatively easy to resist the clamour for remission of taxes. Moreover, if a useful purpose can be found for the surplus, to remit a tax is to throw away a provision against the future and to narrow the basis of revenue. Formerly such a surplus could always be profitably employed in reducing debt; but now, in the minds of both those who have the spending of the money and those whose function it is to criticise expenditure, there is the ever-present idea that this outlet is wasteful. The consequences are that there is less reluctance to engage in new projects of expenditure and that the voice of criticism falters because it has no alternative advice to utter. Extravagance under such circumstances must of necessity follow; making itself felt, not only in the amount of money spent, but likewise in a less careful scrutiny of the return value.

It is customary to blame a ministry for all the financial aberrations originating during its term of office. This condemnation is seldom just. A democratic nation, having imperfectly ascertained and agreed to the line along which its leaders desire to advance, possesses the power, and invariably avails itself thereof, to drive them further than they would willingly have led. It then censures them for bad leadership, and, having chosen fresh guides, attempts once more to strike the proper route. Thus, instead of moving along a straight line, we have a zigzag motion intersecting the straight from the right and from the left alternately; and the most that statesmanship can do is to maintain the general direction and reduce as much as possible the limits of deviation. Let us take as an example the revolution in public finance accomplished mainly by the great statesman who has lately passed from us. A long series of reforms was carried out and an improved revenue system firmly established, admirable alike for its simplicity, its justness, and its efficacy in extracting the greatest possible sum at the least injury to the taxpayer. Averse as the general mind is to the study of such subjects, it is highly improbable that the enthusiasm requisite to carry out these projects would have been evoked by the consideration of their permanent results solely. But a subsidiary effect of these reforms, proper only to the transitional period, captivated the public imagination. This was the astonishing succession of surpluses that arose from the impossibility of accurately forecasting the immediate effect of the changes. A cult of surplus-worship took possession of the people; and the parsimonius policy which ensued, by refusing to pay a fair price for national defence, eventually led the country into grave danger. It is obvious that, once the people had become imbued with this fallacy of surpluses, it was quite beyond the power of the Government to restrain them ; and the point to be noted is this powerlessness of even the greatest genius to avert the evil consequences of a departure in either way from that first maxim of finance-To give value for value and nothing for nothing.

On the other hand, we are now experiencing the natural revulsion from extreme retrenchment, and the equally dangerous fallacy, that economy must be thrown aside in order to secure efficiency, is rapidly becoming too strong to be checked. There is a general call upon the nation's purse, and hence it is particularly necessary that the above maxim should be kept in view. In order to avoid any question of the desirability of the object of expenditure let us select by way of illustration one of the most reasonable of these demands, viz: the cry for a stronger Navy. Its realisation is not made a whit more easily attainable by thrusting economy aside. Recent events have conclusively shown that the naval power of a nation is not to be reckoned according to the amount of money spent upon it,—not even in the number and quality of its ships. The factor, whose absence renders such calculations nugatory, is one which cannot be stated in precise numerical terms; it is the degree in which the country approaches a sound economy in its general expenditure. It is impossible to isolate the various branches of a nation's expense, so that extravagant methods may be pursued in some whilst a correct system is maintained in the rest. Lavishness may, and generally does, prevail in some departments whilst others are starved; but healthy conditions must exist universally or not at all. If this be so, a question which will be dealt with presently, a state which does not adhere closely to the strict principle of value for value will devote too great or too small a sum to a given object. In the detailed application of the money the saine laxity will be exhibited. It will be apportioned unequally; and, as there will always be an effort to provide fully whatever is easily visible, all that is wasted must be balanced by the omission or incompleteness of hidden but equally essential items. The final results are altogether untrustworthy.

There is an erroneous idea current that such consequences must be due to an under-estimate in the first place of the money required, and can be averted by an increased expenditure. In reality, they follow as certainly however much the money supplied is in excess of the requirements. The starvation of individual items would still be possible and would only cease if the entire personnel concerned were imbued with the above stated maxima condition, however, which is in direct contradiction to the supposition of a faulty estimate of either description. The mischief already accomplished is not in its nature remediable by subsequent additional outlay; nor is it mitigated, but exaggerated, when this supplementary charge is anticipated and included in the original estimate.

To show that the assumption on which the above argument is based is justifiable, it becomes necessary to inquire into the effects of Government finance on the character of the people generally, observing that whatever conclusions we may arrive at apply in a stronger measure to State employees.

As the Government is naturally expected to be an example of wisdom and probity in all its actions, every payment it makes has an influence, great or small, on the financial spirit of the times. It is not necessary that this influence should be exerted directly on every individual in order to produce its full effects. It is sufficient if it modifies, consciously or unconsciously, the manner of thinking of that section who understand and note its action. They will in turn affect those with whom they come in contact ; and, in this way, no part of the commercial community is untouched.

Nor can the line be drawn at commerce, for every department of social ethics is susceptible to a like modification. That the social mind is eminently sensible to financial influences can be clearly seen if we regard the interchange of duties between social units as receipts and expenditure on the part of each. In so doing, we are not merely drawing an analogy, for, whilst the subject is the same, the objects differ only in that, whereas in one case we have to deal with things capable of accurate measurement, in the other exactitude is unattainable. But the ethical process is identical, and the mind follows the same reasoning bias in the one as in the other; just or unjust, careful or careless, in both cases alike. With healthy surroundings the healthy mind will be prompted to give a liberal return, whether in actual exchange of industry and wealth or in social and public activities, for benefits received, and will be content if the other side of the account is fairly just.

If this same mind is thrown into the midst of a corrupt society, the result is not necessarily to share in the corruption, but to give a greater and greater proportion of energy to the income to the neglect of the expenditure side of the account. Hence, without going so far as to hold that man for man the citizens of such a state are not morally inferior to the inhabitants of our own islands, it may be pointed out that the existence of extensive corruption in certain countries does not warrant the common opinion that the inhabitants are radically incapable of reaching to our standard of public morality. Nor is there any sound basis for the equally popular notion that we must undergo a long course of racial degeneration before corruption can obtain a firm foothold in our midst.

These ideas are formed by looking solely at the grosser

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