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Historical surveys and parallels are notoriously risky, particularly where the conditions have no precedent.

They ought, however, to be made, provided that we keep our generalisations from them under careful control.

Now, after the Napoleonic wars we had a national debt somewhat comparable in magnitude in its relation to

the national wealth and income with the present debt. What happened to that as a burden during the 100 years

just gone by? If it was alleviated, to what was the alleviation due? I would not burden you with a mass of

figures, but I would just give you one or two selected periods. You can find more details in my recent book on

Wealth and Taxable Capacity. We had a total debt of−−

850 million pounds in 1817 841 " " " 1842 836 " " " 1857 659 " " " 1895 800 " " " 1903

and before this last war it had been reduced to 707 million pounds. In 1920, of course, it was over 8000

million pounds. Such incidents as the Crimean and the Boer wars added materially to the debt, but apart

therefrom you will see that there is no tremendous relief by way of capital repayment to the original debt.

Similarly, in a hundred years, even if we have no big wars, it is quite possible we may have additions to the

national debt from smaller causes. Yet the volume of the debt per head fell from L50 to L15.7, so you will see

that the increasing population made an enormous difference. The real burden of the debt is of course felt

mainly in its annual charge. I will take this, therefore, rather than the capital:−−

In 1817 the charge was 32 million pounds " 1842 " " " 28 " " " 1857 " " " 28.8 " " In 1895 the charge was 25

million pounds " 1903 " " " 27 " " " 1914 " " " 24 " "

Here you will see that the reduction from 32 to 24 was 25 per cent. or a much greater reduction than the

reduction of the total capital debt, and this, of course, was contributed to by the lower rates of interest which

had been brought about from time to time. When we take the annual charge per head the fall is much more

striking. In the hundred years it decreased from 37s. to 10s. This, however, was a money reduction, and the

real burden per head can only be judged after we have considered what the purchasing power of that money

was. Now, the charge per head, reduced to a common basis of purchasing power, fell as follows:−−

Index figure 1817 260 1842 242 1857 191 1895 210 1914 118

In the year 1920 the charge per head was L7.16 and my purchasing power index figure 629. You will see that

the real burden in commodities moved down much less violently than the money burden, and the relief was

not actually so great as it looks, because prices were far lower in 1914 than they were early in the nineteenth


In view of the fact that our debt is approximately ten times that of the last century, let us ask ourselves the

broad question: "Can we look forward to nothing better than the reduction of our debt by 450 millions in

thirty−seven years?"

The nineteenth century was one long contest between two opposing forces. The increase in the population,

together with the power to make wealth, were together enormously effective in decreasing the burden. Against

them was the ultimate tendency to lower prices, and the former of these two forces slowly won the day.

I hesitate to say that we can expect anything at all comparable with the wonderful leap forward in productive

power during the early Victorian era. I hope that in this I may prove to be wrong. Anyway I do not think that

in our lifetime we can expect these islands to double their population.


If we cannot look forward to any great measure of relief through these channels, to what then must we look?

By far the most important alternative remedy which has been put to us is that of a Capital Levy; it has the

enormous virtue that it would repay on one level of prices the debts incurred at that level; in short, it would

give back one pair of boots at once for every pair it has borrowed, instead of waiting and stretching out over

future generations the burden of two pairs. It is so attractive that one cannot wonder there is a tendency to slur

over its less obvious difficulties.

Advocates of this scheme fall into two camps, whom I would distinguish broadly as the economist group and

the Labour Party, and if you will examine their advocacy carefully, you will see that they support it by two

different sets of contentions, which are not easily reconciled. The economists lay stress upon the fact that you

not only pay off at a less onerous cost in real goods, but that it may, considered arithmetically or actuarially,

be "good business" for a payer of high income−tax to make an outright payment now and have a lighter

income−tax in future. Very much of the economists' case rests indeed upon the argument drawn from the

outright cut and the arithmetical relief. It will be seen that this case depends upon two assumptions. The first

is that the levy in practice as well as in theory is an outright cut, and the second, that it is not repeated, or

rather that the income−tax is really effectively reduced. But if you look at the programme of the other

supporters of the Capital Levy you will not find any convincing guarantees of its non−repetition. I have not

seen anywhere any scheme by which we can feel politically insured against its repetition. You will find plenty

of indication that some intend to have both the levy and a high tax as well, the new money to be employed for

other social purposes. The arguments based upon arithmetical or actuarial superiority of the levy for your

pocket and for mine may therefore rather go by the board. But I am not going to discuss either the question of

political guarantees or the possible future socio−financial policy of the Labour Party. I will merely ask you to

consider whether the levy is likely to be in practice the outright cut that is the basis of the chief and most valid

contention for it. Please understand that I am not attempting to sum up all the many reasons for and against

this proposal, but only to deal with the particular virtue claimed for it, bearing upon the increasing burden of

the debt as prices decline.

Any taxation scheme dependent upon general capital valuation, where the amount to be paid is large−−say

larger than a year's revenue−−falls, in my judgment, into the second or third rate category of taxation

expedients. Whenever we are living in uncertain times, with no steadiness of outlook, valuation of many

classes of wealth is then a tremendous lottery, and collection−−which takes time−−may be no less so.

The fair face of the outright and graduated levy would be marred in many ways. First, there are cases affected

by valuation. The valuation of a fixed rate of interest on good security is easy enough. The valuation of a field

or a house in these days presents more difficulty, but is, of course, practicable. In practice, however, people do

not own these things outright. They have only an interest in them. This is where the rub comes. A very large

part of the property in this country is held in life interests, and on reversions or contingencies. It is not a

question of saying that a given property is worth L10,000 and that it forms part of the fortune of Jones, who

pays 40 per cent. duty. The point is that the L10,000 is split between Jones and Robinson. Jones maybe has a

life interest in it, and Robinson a reversionary interest. You value Jones's wealth by his prospect of life on a

life table, and Robinson has the balance. But the life table does not indicate the actual likelihood of Jones's life being fifteen years. It only represents the actuarial average expectation of all the lives. This may be useful

enough for insurance dependent on the total experience, but it may be a shocking injustice to the individual in

taxation. Only some 10 per cent. of the Joneses will live for the allotted time, and for the rest your valuation

and your tax will be dead wrong, either too much or too little. Jones will be coming to you two years after he

has paid, or rather his executors will come to you and say: "We paid a tax based on Jones living 15 years, and

he has died; this ought, therefore, to be shifted to Robinson."