is to exercise many supervisory functions over the Reserve Banks which are similar to those which have long been exercised by the Comptroller of the Currency over the national banks. Examination of the Reserve Banks is under its direction. There must be one examination each year, and additional examinations must be ordered upon the application of ten member banks.1 The Board is also to publish once each week, a statement showing the condition of each Reserve Bank, and a consolidated statement for all these institutions. It is also given a number of important powers to be exercised at its discretion. It may suspend reserve requirements for a period of thirty days, and renew such suspension for successive fifteen day periods. For violations of law, it may suspend the operation of a Reserve Bank, and administer or liquidate it. The Board may also reclassify cities as reserve or central reserve cities, or terminate their designation as such.

The method of banking reform which has now been adopted, necessarily involves placing somewhere enormous power to expand credit. This power cannot be surrounded by sufficient safeguards to prevent all possibility of its misuse, because in so doing, its wise use would be quite as seriously interfered with. Competent management is therefore absolutely essential if satisfactory results are to follow the passage of the Federal Reserve Act. In the operation of the new system, the boards of directors of the Reserve Banks may prove the most important part of the organization; or that place may be occupied by the Federal Reserve Board. The boards of directors will exercise all the ordinary powers of such boards, except in so far as

1 The law regarding the examination of national banks is recast. The only important changes are that hereafter all examiners are to be paid salaries, and that the Federal Reserve Banks are empowered to conduct special examinations of member banks.

they are subject to control by the Board. All the loans of the Reserve Banks are to be made by the boards of those banks. In this matter, the Board has no power whatever, except that it may require, on the affirmative vote of five members, one Reserve Bank to rediscount

paper for others. Here is a power that seems to be designed merely to prevent any working at cross purposes among the Reserve Banks. Few or no occasions for its use will present themselves if all the Reserve Banks are well managed by their own boards. All rates of discount are to be fixed in the first instance by the boards, subject to review and determination by the Federal Board. Here again the decision of the Reserve Bank boards is altogether unlikely to be overruled if these banks are skilfully managed.

The power of the Federal Reserve Board to restrain the Reserve Banks is vastly greater than its power to force them to take positive action which might lead to the inflation of credit. This was clearly the purpose in view in giving the Board the more important of its many powers. It may, for example, reject applications of Reserve Banks for notes, but this will not endanger assets, it will simply lessen power to expand operations. Its power over the discount rates of Reserve Banks will obviously be more effective when used to advance rates which it deems too low than it will be if used to enforce a rate lower than the management approves. The directors of the Reserve Bank would still determine the amount of accommodation which it might safely grant to member banks at the enforced low rate. Officers and directors of Reserve Banks may be removed at any time by the Federal Board, which is merely required to communicate its reasons for removal in writing; but the right of member banks to choose successors will still remain.

While it is impossible to make any prediction as to the relative place which the Reserve Bank directors and the Federal Board will hold, it is evident that, in the absence of harmonious coöperation, the system will not work smoothly, even if it can be made to work at all. If all the Reserve Banks and the Federal Board adopt a wise and conservative policy, the system will surely work well. If the Reserve Banks alone are conservative, the system may work well but with much friction. If the Federal Board alone is conservative, it may force good results from the system. On the other hand, if some of the Reserve Banks and the Federal Board are reckless, the system will probably break down; and if all the Reserve Banks and the Federal Board adopt a reckless policy, the results will be disastrous.

Both the directors of Reserve Banks, and the Federal Board will be confronted with numerous problems, many novel and some intricate. The possibilities of the new system cannot be foreseen, and the extent and nature of the responsibilities resting upon the Reserve Banks cannot be determined beforehand. At the most, only some of the broader lines of policy and some of the more obvious danger signals can be indicated in advance of experience. This is a task which will be attempted in a subsequent paper.

O. M. W. SPRAGUE.

HARVARD UNIVERSITY.

THE BRITISH SUPER-TAX AND THE

DISTRIBUTION OF INCOME

SUMMARY

Earlier estimates of income-distribution, based on imperfect statistics, 256. Additional information since 1907-09, 257.- Comparison of new data with Pareto's law, 258. Considerable discontinuity; possible explanation, 260.- Notes: I, Abatements on moderate incomes (up to £700), 262; II, Super-tax yield, 263; III, Pareto's law, 264; IV, Death duty statistics, 266; V, Statistics of earned income, 267.

IN 1906 a Committee of the House of Commons examined the method of collection and the statistics of the Income Tax with a view to the possibility of differentiation between earned and unearned income and to the yield of a super-tax on high incomes. In 1909 a super-tax was imposed of 6d. per £ on the excess over £3000 of personal incomes exceeding £5000; in 1907 the rate on earned incomes, where total personal income was less than £2000, was reduced to 9d., the ordinary rate being then 1 shilling. In 1909, when the rate on unearned income was raised to 1s. 2d., that on the earned incomes of those whose total income was over £2000 and not over £3000 was fixed at 1 shilling.

The evidence given to the Committee1 proved that the statistics were inadequate for showing what was the total number of income-tax payers, what were the numbers in any grades of income, and what part of income resulted from ownership, what from earnings. It will be interesting to examine after the lapse of seven years, whether any important new light has been thrown on these questions.

1 House of Commons Paper. No. 365 of 1906.

The reasons for the imperfection of the statistics were as follows. A very great part of the Income Tax is collected" at the source, from interests, dividends, and profits before they are distributed and in a large group of cases from salaries before they are paid. In addition to the income so dealt with, assessments are made on individuals in respect of any other income they are known to receive, and returns are demanded from persons and firms for a statement of any income not already taxed that accrues to them. In general, the Tax Commissioners know only aggregate incomes and numbers of assessments, and not the income of individuals who may each be the subject of several assessments. The Commissioners have never published (it is believed from reasons of expense and administrative difficulty) any special information as to those persons, who for one reason or another fill in returns of total income. Tho incomes are tabulated according to their sources in the Commissioners' reports, it is not possible to distinguish earned from unearned income, since an enormous total is composed of profits from firms where the receipts from use of capital cannot be distinguished from those resulting from personal activities. Further, income from a man's own capital in his own business is regarded as earned. The only definite numbers of persons known were of those who had successfully claimed abatements of tax on the ground that their income was not more than £700; in Note I below these numbers are discussed and it is shown that they were considerably below the numbers who had such incomes.

The statistics of total income and of such fragmentary totals as were available were examined, by various witnesses before the committee, in the light of two other groups of information. The Inhabited House duty