head was 17. 9s., but this was the average amount per exclusive of the Poor Rate. In view of all the circumstances, it may perhaps be said that, having regard to our greater national wealth, this country does not bear a heavier burden of Imperial taxation than either France or Germany. It is, however, impossible to view the recent extension of direct taxation, particularly in the matter of income-tax, without misgiving. Prior to the advent of the present Administration, the income-tax was regarded largely as a reservetax to be used for war purposes. It was first imposed by Pitt in 1798 to meet the cost of the French war; and it was re-imposed in one form or another until 1816, when it was permitted to lapse. In 1842 the tax was re-established by Sir Robert Peel, when the rate was fixed at 7d. in the pound on all incomes exceeding 1507. It remained at this level until 1854, when, owing to the Crimean war, it was raised to 1s. 2d. and even 1s. 4d. in the pound. The tax was reduced to 7d. in 1857, and during the ensuing thirty-nine years it averaged 6·3d. in the pound. During the South African war it rose to 1s. 3d., but was reduced in 1904 to 11d. For the following five years it stood at 1s. It now stands at 18. 2d., with a super-tax of 6d. in the pound on incomes over 5000l. We are thus paying in times of peace a higher average income-tax than that imposed during either the Crimean or the South African war; we have, in fact, laid ourselves open to the charge of using, in time of peace, reserves of taxation which it has always been one of the principles of sound finance to regard as part of our war-reserve fund. A logical sequence of this policy would appear to be an understanding that in future wars the cost should be defrayed almost entirely by means of loans, instead of, as in the South African war, providing 33 per cent. of the total expenditure by the imposition of additional taxes. If some such principle as this be not adopted, an income-tax of 2s. 6d. or even 3s. 6d. in the pound appears to be not altogether improbable during the next great war. The abnormal growth of local expenditure is another unsatisfactory feature of national finance, which is bound to exercise an unfavourable influence upon our finances in time of war. Imperial taxation has risen largely within the past twenty years, but local expenditure has increased even more rapidly. In 1890 the total amount of rates raised was 27,713,000l., the average amount per head of the population being 19s. 6d. For the year 1906 the amount had increased to 58,256,000Z. or 17. 148. 1d. per head. It is instructive to note, moreover, that local expenditure is now running at the rate of 160,000,000l. per annum, an amount which is nearly equivalent to the total Imperial expenditure. Happily there is a growing disposition to impose some restraint upon the tendency which Parliament has shown in recent years to place onerous duties upon the Local Authorities without making any financial provision therefor from Imperial taxation. It is a profoundly important question whether the London money-market is organised upon such a sound basis as would enable it to meet in a satisfactory manner the great strain that would be imposed upon it by a war of unlimited liability. London is the centre of the world's monetary system; and she conducts her vast credit transactions with an almost incredibly small reserve of gold. This is rendered possible by the universal credit which London enjoys. Ever since the resumption of specie payments in 1819, we have been the only free market for gold; and every buyer of a draft on London knows that, if he wishes it, he can always obtain payment in gold. It is important to note the influences which have contributed to the establishment of London as the centre of the international financial system. They include, inter alia, the magnitude of our shipping industry, the economy and soundness of our banking methods, the stability of our political institutions, and our reputation for fair dealing. But, above all, our credit has been established by, and is dependent upon, the unchallengeable supremacy of the British navy. For nearly a century this country has had no experience of a war in which its commerce was endangered; and for several generations Great Britain has been in a sense the safe-deposit of the world. We have, of course, been involved in some costly wars during the past century; but the theatre of operations has in every case been remote, and most of the wars have been of the limited liability type. But, with the development of the German navy, we are face to face with a new conjuncture which may have a farreaching influence upon our credit system; and it will be desirable to review the position of our gold-reserves in the light of this development. The internal and external liabilities of the banks of this country have grown enormously in recent years, but our gold-reserves have not been increased proportionately. The deposit and current accounts of the banks of the United Kingdom amount to about 913,000,000l., or, including the savings banks, to 1,123,000,000l., while the average stock of gold held by all these institutions cannot. well exceed 60,000,000l. The average stock of bullion and specie retained by the Bank of England during 1909 was 37,300,000l.; and on this comparatively trifling stock of gold we should have to depend in time of war, apart, of course, from the supplies which would in the ordinary course of events reach us from the Colonies and from foreign countries. The principal function of a gold-reserve is to meet any demand which may arise from a sudden apprehension or panic. As an illustration of the extent of the internal demand for money which might arise at a time of war, it is instructive to note that the cash in hand at the Bank of France on June 9, 1870, was 60,480,000l.; and by September 8, 1870, the amount had fallen to 28,160,0007. Thus in three months the Bank of France had to part with 32,000,000l. in cash. Two years ago the late Sir Robert Giffen expressed the opinion that, in the event of war with a great European Power, the internal demand for gold would absorb the entire stock at present held in reserve. But the greatest danger lies in the possibility of a sudden large foreign demand for gold. It is well known that foreign banks and finance houses employ large credits in the London money-market, credits which might be withdrawn very suddenly; and if, at a time of war-panic, an attempt were made to withdraw these credits in the form of gold, it is difficult to see how the Bank could avoid the suspension of specie payments. In 1870 the Bank of France was compelled to suspend specie payments and also to enact a moratorium for bills. In the consideration of this aspect of the question it must also be borne in mind that it would be the obvious policy of the enemy to damage our credit system as much as possible; and it may be taken for granted that a determined effort would be made to achieve this object by means of the sudden withdrawal of gold from London. It has been urged by certain financial authorities and others that it would be to the interest of all the neutral Powers to maintain the credit of London, and that they would, with this object in view, send gold to London instead of withdrawing it. It is true that this has been the course of events in the more important commercial crises which have recently occurred. Thus in 1890 the Bank of France lent 4,500,000l. to the London moneymarket; and, no doubt, on a similar emergency it would do so again. But is it reasonable to expect that the Bank of France or any of the other great European banks would be in a position, at a moment of acute international crisis, to send from 10,000,000l. to 20,000,000l. in gold to London to avert a great monetary panic? The answer must obviously be in the negative; the institutions referred to would inevitably find themselves at such a time confronted by an internal demand for gold which would strain their resources to the uttermost limit. It must be admitted, therefore, that, if we wish to secure ourselves against any such disaster as the suspension of specie payments at a time of war, we must in time of peace take measures materially to strengthen our gold-reserves. war. The practical value of a large gold-reserve in time of war was strikingly illustrated during the Russo-Japanese At the beginning of the war the Bank of Russia and the Imperial Treasury held 106,300,000l. in gold. The possession of this huge stock of gold enabled Russia to raise money in Paris and Berlin as cheaply as her victorious adversary was able to raise money in London: and, had the war been greatly prolonged, it is not improbable that the great specie reserve of Russia would have played a still more important part in the conflict. Apart from its importance in maintaining credit, a large stock of gold is necessary for the conduct of a great war. Prussia recognised this long ago, and she entered upon the Austrian campaign of 1866 with a reserve-fund of 21,000,000 thalers. Again, in 1870, at the commence ment of the war with France, Prussia possessed a wartreasure of 4,500,000l.; and at the present time she holds a war-chest of 6,000,000l., which was set aside out of the indemnity received from France, and is retained at the Juliusthurm at Spandau for the purpose of defraying the expense of mobilisation. The Great Powers of Europe have long appreciated the necessity of retaining large gold-reserves for credit and war purposes; and attention may be directed to the fact that the average stock of gold retained by the Bank of England is considerably lower than that of either Russia, France, Austria, Italy, or Germany. On June 30, 1910, the stock of gold held by each of the great European Banks of issue was as follows:-Bank of England, 42,400,000l.; Bank of France, 136,157,0007.; Imperial Bank of Germany, 51,340,000l. (including silver); Imperial Bank of Russia, 150,098,000l. (including silver); Italy (three issue banks), 48,240,000l.; Bank of AustriaHungary, 55,459,000l. Having regard to the enormous extent of our internal and external obligations, it cannot be said that we have any reason to feel satisfied with our comparative position in the matter of gold reserves. A further significant illustration of the value which the great European States attach to the possession of a large stock of gold in time of war, or of threatened war, was afforded during the recent Balkan crisis. It will be remembered that on October 3, 1908, the Austrian Ambassador in Paris laid before the French President an autograph letter from the Emperor Francis Joseph, announcing the intention of the Austrian Cabinet to annex Bosnia and Herzegovina as integral parts of the Empire. The matter then entered upon an acute stage, with the result that the international money-markets were seriously disturbed and all the Bourses were depressed. The period of tension lasted until March 26, 1909, when the crisis was terminated by Russia's formal recognition of the annexation of the two provinces. The money-markets then became less strained, and there was an immediate outburst of speculative activity on all the Bourses. During the period of tension all the banks of the Great Powers were accumulating stocks of gold; and the extent of their activity (in this direction may be |