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with the old Liberalism, but its arrival was obscured and delayed, first by the bitter party fights over Home Rule for Ireland in the 80's and 90's, and secondly by the South African War, which loomed up in 1896, the year of the Jameson raid, broke out in 1899 and was concluded in 1902. Therefore the new Liberals did not get their chance till 1906. Some of the new taxation involved fierce controversy, in particular the increase in the death duties and the new land taxes, but it is symptomatic of the general change in social thought that the Opposition offered similar benefits by another route. The programme may be termed the endowment of citizenship. The first steps towards it were Old Age Pensions, 1908, Labour Exchanges, 1909, and National Insurance against Sickness and Unemployment, 1911. Though the last was on a contributory basis, all three required State funds.

The Great War roused the nation to the necessity and value of education, but at the same time sadly diminished the capacity to afford it. Since 1918 the country has been occupied with balancing the budget, remitting the most burdensome forms of war taxation and financing the social problems created or aggravated by the war. In round hundreds of million sterling the war raised the funded debt from 700 to 7,700 in 1922-3, of which 1000 is held in the U.S.A. Of the total net revenue of 762 million sterling (1922-3), 559 were applied to expenditure directly connected with the war (Debt Charge, 325; Army, Navy and Air Forces, IIO; War Pensions, 124 = 559). The balance, 203, was spent on the Civil Services, which included a heavy outlay for housing and unemployment. But this by itself was more than the whole expenditure of 1913-14, 173.

How then has the extra revenue been raised? The land taxes imposed in Mr. Lloyd George's budget of 1909 proved a failure and were abolished in 1919 with the exception of the tax on mining royalties. The Excess Profits Tax lasted only while Excess Profits were being made. The main increase has been derived from additions to existing taxes, especially the income tax, which rose from Is. 2d. (earned income 9d.) in 1913-14 to 6s. 1920-1. From this peak it has fallen by stages to 4s. In addition large incomes pay super-tax, which was introduced in 1909. One new tax, the Corporation Profits Tax, has been added to the tax system, and one very old tax, the Inhabited House Duty, was abolished in 1924. In 1923-4 the majority of revenue was raised from three groups of taxes: income tax and super-tax, 379; customs and excise, 275; estate (death) duties, 57; 711 out of 762 million sterling. This was eight times, four times, and twice the respective yields of 1913-14.


The expenditure on housing 1 was inherited from the war. For the war, while it lasted, stopped building; and after the war rent restriction under the Rent Restriction Acts of 1914 onwards checked speculative enterprise. The shortage was most severe in the munition centres, and especially in Glasgow, the storm centre of labour politics, where even before the war overcrowding was very bad. In 1911 621% of its population lived in one- or two-roomed houses as compared with 81% for the towns of England and Wales. The Government began in 1919 with a straight subsidy to builders, then it gave the subsidy to local authorities, turning it in 1923 into a subsidy over a period of years. In 1924 the Labour Government introduced legislation with a view to a more ambitious programme of building, in which the subsidy to the local authority was conditional upon the letting of the house at the pre-war rent for houses of its type. On the return of the Conservative Government to power at the end of 1924 the housing policy which it had formerly pursued was resumed under the wider powers given by the Labour Party's Act of 1924 (14 & 15 Geo. V, c. 35) and the Consolidating (Housing of Working Classes) Act of 1925 (15 & 16 Geo. V, c. 14). In 1925-7 Glasgow made up leeway remarkably.

Unemployment insurance is wrongly called a dole. It is a scheme to which employers, employees and the State have contributed in the proportions roughly of 40, 35 and 25. But after 1918 the Treasury, in addition to finding large sums for the re-establishment of soldiers and civilians, had to make a loan to the unemployment scheme over and above its statutory contribution. For unemployment refused to return to its pre-war dimensions. In the first half of 1924 the sky seemed to be clearing. The percentage of unemployment fell to 7%, which was better than the worst pre-war year of 1908-9. But the improvement was not maintained. In 1925 there were about 1 millions of unemployed or 11% of those insured under the Unemployment Insurance Act, the increase of unemployment in coal mining offsetting a small general improvement elsewhere. In 1926 the country was prostrated from May to the end of the year by a national coal strike, ushered in by a short-lived general strike.

1 Three agents have provided the nation's stock of houses: (1) the speculative builder, whose economic history is so badly wanted; (2) voluntary association— on the one hand the building societies of old standing, whose stronghold is Yorkshire, on the other the Tenants Copartnership Societies pioneered from London (the latter add the valuable element of community planning); (3) the State, in the persons of the Ministry of Health and the Local Authorities. For the present relation between Building Societies and the State, under the post-war Housing Acts, see 'Report of Chief Registrar of Friendly Societies, Part V. (1925). Voluntary association has provided the bridge from individualism to collectivism, and its rôle is still very fruitful here.

Under such abnormal conditions the scheme of unemployment insurance was incapable of operating according to its original purpose; and in 1921 covenanted benefit' was supplemented by uncovenanted benefit' given on stricter lines. No payments are made if the unemployment is caused by a trade dispute, though this only shifts the burden to the local authorities responsible for Poor Relief. Thus a measure planned for the high purpose of protecting the worker against risks over which he has no control became in the dislocated economic condition of postwar Britain a relief policy which, however necessary, is disturbing to the better feeling of the country. The Report of a recent independent inquiry into the operation of unemployment insurance in Great Britain (1925) merits serious study. It concludes inter alia that:

(1) The alleged evil effect of unemployment insurance benefit on the willingness of the worker to accept employment has been greatly exaggerated.

(2) The administration of the scheme is efficient enough to check any possibility of substantial or widespread abuse.

(3) The application of the word' dole' to 'standard' benefit is wholly misleading, and even extended' benefit is very different from Poor Law relief.

And it recommends, inter alia, that the respective functions of unemployment insurance and the Poor Law should be more clearly distinguished and more wisely co-ordinated.1

Section 4. The Lessons of War Control

The great struggle with Napoleon cut so little into the life of the nation that during it the numbers of the University of Cambridge increased. Matriculations rose as follows: 1800, 130; 1805, 170; 1810, 200; 1815, 300. In the late war the 4000 of 1914 were reduced to a few score by the end of 1917, apart from cadets training in the college precincts. In the academic year 1925-6 the number of full-time students was 5203, of whom 4728 were men and 475 women. In the Napoleonic war merchants traded not only as usual but at super-usual. With the authority of the government they turned privateers and, like Peter Stubs, the Warrington file-maker, made fortunes at a single stroke.2 In the late war 'business as usual' was the cry for a while, but it was soon seen that even that part of the export trade which was

1 Unemployment Insurance in Great Britain: A Critical Examination by the authors of The Third Winter of Unemployment,' pp. 67-8.

2 Cf. Economic Journal, December 1923, G. W. Daniels, The Trade Accounts of a London Merchant in 1794.'

desirable, namely to North and South America, was at the expense of essential effort in the production of war material or in the fighting line. Before the end of the war every new requirement of the Allies was obtained definitely at the cost of curtailing other production which was hardly less necessary. It has often been remarked of the British that they have a genius for adaptation and reach reform piecemeal. In this way too they approached the war, and although it was not as impressive as the mass unanimity with which the U.S.A. planned its war effort, it reached results more quickly, and mistakes were remedied as they arose. The reluctance of industry to be conscripted was not altogether selfish. For although the war did in fact last four years it might have lasted less in which event a smaller disturbance to the economic structure would have produced less trouble at its close.

Three stages may be traced in the growth of control. At the outbreak the Treasury through the Bank of England assumed the outstanding liabilities of the Money Market; and for the first year of the war the Services contracted for supplies by the customary method of placing competitive contracts. But this policy forced up prices, and the War Office found it necessary to ask the wholesale clothiers to organise production, distribute orders among themselves and charge only reasonable prices. This meant a price less than that which competition under the abnormal war conditions would have brought. For supply was limited and demand unlimited. In 1915, when the fighting settled down to trench warfare, there was a sudden and enormous demand for sandbags. Acting under the Defence of the Realm Act the Government commandeered merchants' stocks and requisitioned the future supply of jute manufacturers. This brought war control to its second stage. For requisitioning of the future supply involved price control and thus the determination of reasonable profit and thus the investigation of manufacturers' books. It was found that the best method was for the Government to purchase supplies at the point of origin and hand them over to the manufacturers, who became what the baker had been under the Assize of Bread, a commission agent working on a regulated margin. In the third stage more and more of the nation's activities were brought under strict control in order to check all production and consumption not absolutely essential to the war. The heavy losses of tonnage from submarine attacks dominated the situation.

In the course of these unprecedented events long-established practices trade connections and trade union customs alikewere overthrown. Competitors acted together: prominent mem

bers in each trade gave their services often for nothing. Organised labour consented to dilution. When the war came to an end, there was much talk of reconstruction: could not the lessons of war be switched to the service of peace? Were there not features of State control worth retaining? However, very shortly after the Armistice there was a general and violent recoil from State control and the post-war boom of 1919-20 seemed to justify this temper. It was only when the boom broke that the victorious Allies realised how difficult the return to normalcy was. Just as the peril of inflation is the agony of deflation, so the peril of control is the disillusionment and painfulness of decontrol. But the Government had no alternative, for the simple reason that it could not afford the cost of further control. The success of it during the war was due to the fact that the Government had unlimited spending power and also from patriotic reasons the support of those to whom control brought irritation and restriction. The foreign trade of pre-war Britain was a miscellaneous volume of individual trading chaotic in detail but orderly in the mass. Her manufactures too were distinguished by economies of propinquity and informal association. And it was to these things that her merchants and manufacturers tried to get back, when the war came to an end.



Section 1. The Gold Standard. Section 2. The Bank of England. Section 3. The London Bankers and the Country Bankers. Section 4. Joint-Stock Banking. Section 5. The Merchant Bankers. Section 6. Summary of Changes in Banking Function. Section 7. Comparison with Canada.

Section I. The Gold Standard

THE history of banking is intimately bound up with that of the currency. Considered theoretically, coin, bullion, bank notes and cheques constitute a single fund of purchasing power in the form of money. Similarly in an historical view the development of banking is bound up with the efforts of the Government to furnish the country with a sound currency. In early times rulers made desperate attempts to secure and retain a sufficient stock of precious metals. They imposed heavy penalties on those who were so unpatriotic as to take them out of the realm, but with a view to the encouragement of foreign trade the Restoration Government in 1663 (15 Chas. II, c. 7, s. 12) allowed

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