tin opponents, on the other hand, insist that such a measure would not bring in more than 400 or 500 millions.

The truth is that no safe estimate can be formed of the amount of this evasion. But the correspondent of the Economist' remarks in this connexion (Dec. 19, g: 1925):

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'Examination of the facts leads to the conclusion that complaints in regard to evasion of income tax in this country are greatly exaggerated. Official statistics show that given issues of bearer bonds are so widely distributed among per investors that the holders of the enormous majority of them could never be held liable to income tax. M. Louis Daussat, for instance, showed two years ago that the s 12,216,712 obligations issued by the Ville de Paris are held by no fewer than 4 million persons. The late M. Alfred Neymarck, in 1912, showed that the 1,876,760 registered shares of the French railway companies were held by 151,986 persons, giving an average of about nine shares per holder. Figures furnished by the Finance Ministry show that the number of small holders of French Rentes, whose holdings do not represent more than 350 francs of interest per annum, amount to over two millions. The foregoing will perhaps suggest that the widespread belief that the Frenchman as a rule evades payment of income tax is not so well founded as it appears to be; and that, like another popular theory as to the excessive proportion of indirect taxation levied in this country, it should be received with a good deal of caution.'

Mr Peel supplies us with the fullest material for a judgment on this latter point, to which some reference is necessary because the changes which have been effected in the system of French taxation since the War are hardly even now appreciated in this country. Nothing would be more interesting, if space allowed, than to trace the course of the struggle by which direct taxation, championed with good reason by economists and financiers in search of revenue and sometimes with excess of zeal by radical doctrinaires, has gradually won its way in two countries so differently situated as France and England; or to follow Mr Peel in his admirably clear historical summary of direct and indirect taxation in France since the Revolution. We can only note the rather unexpected conclusion at which, following some French authorities, he arrives, that, in the year or so

preceding the late War, the proportion in which taxation whose primary incidence was on property (perhaps only by some stretch of language to be described as direct) stood to indirect taxation was as 46 per cent. to 54 per cent. We are not sure that the distinguished grandson of Sir Robert Peel gives quite sufficient weight to the historical considerations which, as we have seen, largely account for the instinctive revolt in the French mind against any form of taxation implying inquisition into private affairs. No one, however, was a severer critic of the system which had grown up, of the almost exclusive place which indirect taxation had assumed in it, of the extreme variety, multiplicity, and complication of the taxes and their unfair incidence on the poorer classes, and of the budgetary difficulties incidental to such revenue methods, than M. Caillaux in the early years of the present century. His enlightened efforts, as Minister, to introduce a corrective in the shape of a modern income tax were consistently thwarted by interested opposition, and it was only the imperative need to tap new sources of revenue after the War which brought about the ultimate triumph of his ideas. In contradistinction, therefore, to England, whose revenue system, modernised, flexible, and expansible in the highest degree and in all its parts, was equal to all the demands made upon it, France was already in 1914, in M. Caillaux's words, the most heavily burdened of all the countries in the world,' with an antiquated and quite inelastic fiscal system and a debt, about double that of her ally, which absorbed 20 per cent. of her total State expenditure. was no wonder then when the War began something like a debâcle in the administration should have occurred, that with the growing calls on the man-power of the country, the invasion of great industrial areas, and the supposed necessity of making the War 'popular,' the collection of taxes fell to a minimum; with the result that the average revenue for the first five years to the end of 1918 was only a trifle higher than the revenue of 1913, that practically the whole cost of the War was defrayed by borrowings at home and abroad, and that the debt which had stood at 35 milliard francs at the beginning of the War increased by 145 milliards at the end. By 1924, the year of M. Clémentel's famous 'Inventaire

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de la situation financière de la France,' the locus classicus of the whole subject, the War and post-War debt had risen to nearly 300 milliards under the mirage of reparations to be obtained from Germany.

It must not, however, be imagined that no effort had meanwhile been made to increase the yield of taxation. Just before his fall in 1914 M. Caillaux had succeeded in carrying some reforms in the assessment of the tax on agricultural land and on valeurs mobilières, and in July of that year his detested income tax (impôt global sur le revenu) was passed in a very attenuated form, though the outbreak of the War postponed its operation until 1917, when it was reformed on the lines of his original proposals of 1914. The old so-called direct taxes, except the land tax, were abolished, and, in addition to the general income tax, somewhat of the nature of our super tax though much wider in scope beginning, as it does, with an income of 7000 francs, income began to be taxed under schedules (impôts cédulaires) in classes of income, house property, agricultural land, profits from agriculture, profits of industry and commerce, profite from the non-commercial or liberal professions, and emoluments, salaries, and pensions. To this should be added, though not technically belonging to the administration of the income tax, the revenue from securities (valeurs mobilières). It was not, however, till 1920 that a really serious effort was successfully made to increase the taxation of the country. The Finance Act of that year, as Mr Peel observes, aimed at producing several additional milliards by increasing the income-tax rates both on the total income and its component parts; by extending up to date the liability of the War-profits tax of 1916; by increasing the inheritance tax; by establishing the productive tax on business transactions; and by largely intensifying the customs duties. The effect of all this was to raise the total revenue from taxation from about 4.1 milliards in 1913 to about 21.9 milliards in 1923, including the War-profits tax, but excluding all local taxes; and to alter the proportions of tax revenue to 51 per cent. on property, and 49 on consumption. [It may be noted that 1000 million francs, or one milliard, is equal, at a rate of exchange of 100, to 10,000,000l.]

Not only, as Mr Peel points out, have the French

financiers in their organisation of the new direct taxation

'redressed the inequality incidental to the taxation of articles of consumption by the agency of the direct taxes, but they have established a humane and wise system in accordance with modern conceptions of exonerations at the base, of progressive rates of levy, and of allowances in respect of family obligations. And these methods were sought to be applied not only to the direct taxes on revenue but also to the indirect taxes on consumption'

by the institution of sumptuary taxes such as the taxe de luxe, the taxes on motor-cars and theatrical performances. All this, it may be noted, was accomplished before the 'Cartel des Gauches' came into existence with the election of May 1924, since when the rates of the direct taxes and the principle of progression in the income tax have been carried to an impracticable extreme culminating in the increases rushed through by M. Loucheur on Dec. 4 last. M. Doumer, on Jan. 31 last, estimated that the taxation of 'wealth' amounted to 70 per cent. of the total revenue, including in this the sumptuary taxation indirect in character, while the taxes on necessary articles of consumption amounted to only 30 per cent. And the total revenue was estimated by M. Caillaux for 1926, without the new taxation since proposed, at over 32 milliards.

It would be useless to deny that this great effort came too late, and that the neglect to obtain a greater yield from taxation on the opening of hostilities was not largely responsible for the actual difficulties of the situation, for this very admission is made in M. Clémentel's inventaire of 1924. But the fact that a great effort, even if it was inadequate to the gravity of the situation, was at last made is in itself a refutation of the belief, still too prevalent in this country, that France is unwilling and unable to face taxation. The criticisms which may fairly be made are of a different order.

It would be impossible in these pages to follow step by step the development of the financial situation till it has reached its present pass, or do more than draw attention to one or two main points in the policy of the

various ministries which have been brought into power since the General Election of May 1924 by the dominance of the combination of Radical and Socialist groups known as the 'Cartel des Gauches.' That election, which was the result of a popular reaction against the 'imperialist policy of M. Poincaré and the Bloc National' as exemplified in the occupation of the Ruhr, incidentally brought into untimely prominence the fiscal and economic theories of the Socialist party, and has ended by greatly compromising the progress towards saner financial methods which might have been hoped for after the danger signal given to the country by the catastrophic fall of the franc in March 1924. The alarm had been sounded, the people had begun to take fright after nearly a decade of lavish lending to their own Government, the flight from the franc, though temporarily checked by the Morgan credit, had set in; and what was needed was a steady, united, administrative effort. What happened instead was a sensational speech in July 1924 by M. Herriot, the new Prime Minister, declaring that the financial issue had now become the master question, that he was there to save the country from financial anarchy and tell the truth however painful it might prove to be, and that, in spite of the drastic provisions of the budget of the previous March, with its 20 per cent. increase in direct taxes, those provisions were again insufficient, and there still remained a deficit of 4 milliards to be made up in the current year. As it turned out, although the revenue had been increased by 27 per cent.-from 21 to 27 milliard francs-the deficit actually amounted to 16 milliards.

Over and over again had M. Herriot and his friends vehemently asserted that there should be no more inflation; but if budgets could not be balanced there was no alternative way of meeting these gigantic recurring deficits except by borrowing, and borrowing in the circumstances inevitably meant further inflation, a further decline in the franc with increasing difficulty in balancing the budget, and a further rise in the level of prices. So flagrant a contradiction between precept and practice, so patent a combination of alarmist talk with inaction or action which merely intensified alarm, was an all-sufficient explanation of the crise de confiance