finance to allocate a large proportion of the war expenditure to revenue. In the South African war, we charged 28 per cent. of the cost to revenue and 72 per cent. to capital. There are many reasons why we should not attempt to frame our war finance on these lines in the present conflict. It is already evident that, if the war is unduly prolonged, it will strain to the uttermost the financial resources of this country. It is further evident that finance is destined to play a vital part in the war. We must therefore make the burden upon the financial and trading portion of the community as light as possible, This is no time for recrimination, but it must be a matter of universal regret that Income Tax, which in the past has been our real war reserve, should in time of peace have been used up to such an extreme point as to leave practically no margin for the present emergency. An enormous shrinkage of revenue is a practical certainty; but, on the other hand, we have a war reserve in the shape of the Sinking Fund. The Budget for the present year contained a provision of 6,759,000l. for repayment of capital. The Sinking Fund should be at once suspended, and the unexpended portion of it applied to revenue purposes. It must be remembered that within the past ten years Great Britain has reduced the deadweight amount of her National Debt by the sum of 111,000,000l.; and the amount outstanding on April 1 last was 651,000,000Z., a comparatively small amount for a rich and populous country like Great Britain. The present Budget provided 3,000,000l. in relief of local taxation, and it was framed on lines which would have provided 11,000,000l. for the same purpose in future years. It is to be feared that these arrangements must be suspended for the time being, and the money allocated to meet Imperial expenditure. We dare not take on any fresh expenditure of a purely social character while we are fighting for our existence.

We stand to lose and lose very heavily in the course of this vast war, but there is no occasion for despair. On the eve of the outbreak of war I estimated our national wealth at 16,000,000,000l. and our national income at 2,000,000,000l. Taking the most unfavourable

* Cf. Paper on the Economic Relations of the British and German Empires, in the Journal of the Royal Statistical Society, July 1914.

view possible, namely, that at the end of the war we find we have lost in direct and indirect expenditure, say, half a year's income and, say, one-sixteenth part of our capital, we shall still be a very rich nation. Relatively we shall be far richer than we were at the beginning of the war; and we may rest under the absolute certainty that, provided we keep the sea, we shall at the conclusion of the war be in a better position than any other Power-not excepting the United States-to take full advantage of the vast expansion of trade which the experience of all previous wars justifies us in believing will then take place throughout the world. We must, of course, bear in mind the fact that in 1870 London was not directly involved in the war; and the marvellous recovery which France made was largely rendered possible by that fact. We must also remember that none of the conflicts since 1870 have directly involved one of the great European monetary centres. London was to a certain extent directly concerned in the South African war, but the area of conflict was so remote that it only exercised a secondary influence upon our economic life. Russia and Japan both made a very rapid recovery from the war of 1904-5, but the rest of the world to a certain extent bore the burden of their expenditure and their losses. We are confronted with a very different position to-day, when six out of the seven great monetary centres of the world are directly involved; and it is possible that the recovery from the tremendous financial exhaustion that must occur will be very slow. Six months of universal war will involve an expenditure of well over 2,000,000,000l., apart from the many thousands of millions of capital destroyed. It is already clear that the war will revolutionise the method of conducting many businesses in this country. It will also have far-reaching effects upon the method of financing international trade and the adjustment of international trade balances.

EDGAR CRAMMOND.

Art. 13.-THE FIRST TWO MONTHS OF WAR.

I.-ON LAND.

WHEN Prussia, reduced to vassalage after the battle of Jena, adopted the principle of national service, a step was taken fraught with consequences which have exerted a profound influence upon the world. The evolution then begun has changed national characteristics, dominated policy, and led gradually but inexorably to the present war. Vast military possibilities were opened out, and the fate of nations depended upon the extent to which they were utilised and upon the policy which inspired the action of the huge forces which could be brought into play. The short campaign of 1866 startled Europe. That of 1870-71 led to the almost universal acceptance of the system devised by Scharnhorst and Stein in the days of Prussia's humiliation, with the results that Europe was turned into a vast camp, that militarism became rampant, and that political and even moral forces underwent change. A new direction was given to national aims; new military standards were set up; new ambitions cherished.

'The best military organisation,' wrote General von der Goltz, is that which renders available all the intellectual and material resources of the country in the event of war.' In other words, the ideal of national policy set before Germany as an armed nation was that every effort must be concentrated upon preparation for war, and that no military organisation could be regarded as satisfactory and sufficient which did not realise this ideal. In the complete domination of the military spirit and of military aims thus implied, must be sought the direct and the indirect causes of the greatest war which Europe has ever been forced to endure.

The seed of universal militarism was sown on rich soil. In little more than 250 years after the union of the electorate of Brandenburg with the little province of Prussia, a German Empire stretched across the map of Europe from Jutland to Lake Constance, from the eastern border of Holland to the Russian frontieran Empire destined quickly to become imbued with the

*The Conduct of War,' transl. by Laverson; p. 3.

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Prussian spirit by which the characteristics of the South German States were submerged or at least obscured. Throughout this long period, the rulers of Prussia, alike in victory and in defeat, in honour and in dishonour, maintained a single stedfast aim; and there is no State which is so distinctly a dynastic creation as the German Empire. My ancestors,' once declared the present Emperor, with their fingers on the pulse of time, have ever looked out for what might come to pass, and have thus remained at the head of the movement which they determined to direct.' It would be easy to show that there were lapses, and that the ancestors of the Kaiser did not all show either the prescience or the powers of leadership claimed for them; but what has been well described as the persistent family purpose handed down from father to son in a reigning house can plainly be traced in the history of the successive aggrandisements of Prussia and in the later ambitions of the German Empire.

The national demoralisation, which showed itself after the disasters of 1806, was redeemed by a military revival, carried out with steady determination, which eight years later enabled the Prussian army to reach Paris. After 1815 the 'family purpose' was quiescent for a time, to be revived with the added political forces which the new military system was destined to develop. Some years before the Danish war of 1864, that purpose began to be directed to the hegemony of Germany, which was attained with surprising celerity in the war of 1866. Five years later the seed sown in Prussian soil had grown into a mighty tree with branches stretching across central Europe. Prussian policy could henceforth be directed to world-wide objects upon which Pan-German energies could gradually be concentrated until the time was considered to be ripe for crowning the vaulting ambitions of the Prussian dynasty in a vast European conflagration.

It is no part of the writer's task to trace the evolution of Prussian militarism since 1871, or to attempt to unravel the tangled skein of German diplomacy which culminated in proposals so dishonourable and dishonouring as to force from a most reluctant British Government a declaration of war. Since the humiliation of France,

armaments have steadily increased under the general application of the Prussian system, proved to be a most formidable engine of war. At the same time a marvellous expansion of German commerce and industry has been achieved, which on the one hand seemed to provide security for peace, and on the other hand might be used to whet nascent ambitions for world-wide dominion. For a time, it suited the purpose of the German Emperor to assume the rôle of keeper of the European peace. Germany was increasing in wealth; the German army was developing in strength; and the utmost care was bestowed upon its efficiency and upon certain railway preparations.

Reviewing broadly the evolution of German policy since the accession of the present Emperor in 1888, we can see clearly the growth of overwhelming ambitions, crystallising at length into obsessions of the most dangerous character-obsessions which darkened counsel, blinded military judgment, and ignored alike the lessons of history and the fundamental conditions of international morality. The pleasing part of European peaceholder, varied at intervals by arresting pronouncements calculated to direct attention to the Kaiser as a commanding personality, was exchanged for a menacing pose, backed by ever-increasing naval and military power. The Algeciras Conference, the incident created by the appearance of the 'Panther' at Agadir in 1911, and the too frequent rattling of the German sword in its scabbard in face of Russia, France, and Great Britain, accompanied by arrogant utterances indicative of coming peril, gave rise to widespread misgivings as to German intentions. Before the catastrophe, the nations were beginning to understand that the family purpose' of the Hohenzollern dynasty was at length directed to the dominion of the world. It was becoming clear that Germany was the enemy, and that another Napoleon had arisen in Europe cherishing ambition which equalled that of his predecessor, and possessing a vast military machine in readiness for instant war.

The European kaleidoscope has shown many different combinations of colour since 1870-71; and British policy has been forced to adapt itself to changing conditions. The hopes and the fears, the speculations of ardent strategists and the vacillations of popular opinion as