The highest figure which I have heard mentioned by a reliable authority is L100,000,000. Personally, I think even this much too high. It could only be realised if subscriptions from special quarters, as, for example, German hoards abroad, and German-Americans, were to provide the greater part of it, which would only be the case if it were part of a settlement which was of great and obvious advantage to Germany. A loan to Germany, on Germany's own credit, yielding, say, 8 to 10 per cent., would not in my opinion be an investor's proposition in any part of the world, except on a most trifling scale. I do not mean that a larger anticipatory loan of a different character—issued, for example, in Allied countries with the guarantees of the Allied Government, the proceeds in each such country being handed over to the guaranteeing Government, so that no new money would pass—might not be possible. But a loan of this kind is not at present in question.

Yet a loan of from L50,000,000 to L100,000,000—and I repeat that even this figure is very optimistic except as the result of a settlement of a kind which engaged the active goodwill of individual Germans with foreign resources and of foreigners of German origin and sympathies—would only cover Germany's liabilities under the London Schedule for four to six months, and the temporarily reduced payments of last March for little more than a year. And from such a loan, after meeting Belgian priorities and Army of Occupation costs, there would not be left any important sum for France.

I see no possibility, therefore, of any final settlement with M. Poincare in the immediate future. He has now reached the point of saying that he is prepared to talk sense in return for an enormous bribe, and that is some progress. But as no one is in a position to offer him the bribe, it is not much progress, and as the force of events will compel him to talk sense sooner or later, even without a bribe, his bargaining position is not strong. In the meantime he may make trouble. If so, it can't be helped. But it will do him no good, and may even help to bring nearer the inevitable day of disillusion. I may add that for France to agree to a short moratorium is not a great sacrifice since, on account of the Belgian priority and other items, the amount of cash to which France will be entitled in the near future, even if the payments fixed last March were to be paid in full, is quite trifling.

A POLICY FOR THE LIBERAL PARTY

So much for the immediate situation and the politics of the case. If we look forward a little, I venture to think that there is a clear, simple, and practical policy for the Liberal Party to adopt and to persist in. Both M. Poincare and Mr. Lloyd George have their hands tied by their past utterances. Mr. Lloyd George's part in the matter of Reparations is the most discreditable episode in his career. It is not easy for him, whose hands are not clean in the matter, to give us a clean settlement. I say this although his present intentions appear to be reasonable. All the more reason why others should pronounce and persist in a clear and decided policy. I was disappointed, if I may say so, in what Lord Grey had to say about this at Newcastle last week. He said many wise things, but not a word of constructive policy which could get any one an inch further forward. He seemed to think that all that was necessary was to talk to the French sympathetically and to put our trust in international bankers. He puts a faith in an international loan as the means of solution which I am sure is not justified. We must be much more concrete than that, and we must be prepared to say unpleasant things as well as pleasant ones.

The right solution, the solution that we are bound to come to in the end, is not complicated. We must abandon the claim for pensions and bring to an end the occupation of the Rhinelands. The Reparation Commission must be asked to divide their assessment into two parts—the part that represents pensions and separation allowances and the rest. And with the abandonment of the former the proportion due to France would be correspondingly raised. If France would agree to this—which is in her interest, anyhow—and would terminate the occupation it would be right for us to forgive her (and our other Allies) all they owe us, and to accord a priority on all receipts in favour of the devastated areas. If we could secure a real settlement by these sacrifices, I think we should make them completely regardless of what the United States may say or do.

In declaring for this policy in the House of Commons yesterday, Mr. Asquith has given the Liberal Party a clear lead. I hope that they will make it a principal plank in their platform. This is a just and honourable settlement, satisfactory to sentiment and to expediency. Those who adopt it unequivocally will find that they have with them the tide and a favouring wind. But no one must suppose that, even with such a settlement, any important part of Germany's payments can be anticipated by a loan. Any small loan that can be raised will be required for Germany herself, to put her on her legs again, and enable her to make the necessary annual payments.



THE OUTLOOK FOR NATIONAL FINANCE

BY SIR JOSIAH STAMP, K.B.E., D.SC.

Assistant Secretary Board of Inland Revenue, 1916-19. Member of Royal Commission on Income Tax, 1919.

Sir Josiah Stamp said:—In discussing the problem of National Finance we have to decide which problem we mean, viz., the "short period" or the "long period," for there are distinctly two issues. I can, perhaps, illustrate it best by the analogy of the household in which the chief earner or the head of the family has been stricken down by illness. It may be that a heavy doctor's bill or surgeon's fee has to be met, and that this represents a serious burden and involves the strictest economy for a year or two; that all members of the household forgo some luxuries, and that there is a cessation of saving and perhaps a "cut" into some past accumulations. But once these heroic measures have been taken and the burden lifted, and the chief earner resumes his occupation, things proceed on the same scale and plan as before. It may be, however, that the illness or operation permanently impairs his earning power, and that the changes which have to be made must be more drastic and permanent. Then perhaps would come an alteration of the whole ground plan of the life of that family, the removal to a smaller house with lower standing charges and a changed standard of living. What I call the "short period" problem involves a view only of the current year and the immediate future for the purpose of ascertaining whether we can make ends meet by temporary self-denial. What I term the "long distance" problem involves an examination of the whole scale upon which our future outlay is conditioned for us.

The limit of further economies on the lines of the "Geddes' cut" that can become effective in 1923, would seem to be some 50 or 60 millions, because every 10 per cent. in economy represents a much more drastic and difficult task than the preceding, and it cuts more deeply into your essential national services. On the other side of the account one sees the probable revenue diminish to an almost similar extent, having regard to the effect of reductions in the rate of tax and the depression in trade, with a lower scale of profits, brought about by a lower price level, entering into the income-tax average. It looks as though 1923 may just pay its way, but if so, then, like the current year, it will make no contribution towards the reduction of the debt. So much for the "short period." Our worst difficulties are really going to be deep-seated ones.

THE TWO PARTS OF A BUDGET

Now a national budget may consist of two parts, one of which I will call the "responsive" and the other the "non-responsive" portion. The responsive portion is the part that may be expected to answer sooner or later—later perhaps rather than sooner—to alterations in general conditions, and particularly to price alterations. If there is a very marked difference in general price level, the salaries—both by the addition or remission of bonuses and the general alteration in scales for new entrants—may be expected to alter, at any rate, in the same direction, and that part of the expense which consists of the purchase of materials will also be responsive. The second, or non-responsive part, is the part that has a fixed expression in currency, and does not alter with changed conditions. This, for the most part, is the capital and interest for the public debt.

Now the nature and gravity of the "long distance" problem is almost entirely a question of the proportions which these two sections bear to each other. If the non-responsive portion is a small percentage of the total the problem will not be important, but if it is larger, then the question must be faced seriously. Suppose, for example, that you have now a total budget of 900 million pounds, and that, in the course of time, all values are expressed at half the present currency figure. Imagine that the national income in this instance is 3600 million pounds. Then the burden, on a first approximation, is 25 per cent. Now, if the whole budget is responsive, we may find it ultimately at 450 million pounds out of a national income of 1800 million pounds, i.e. still 25 per cent. But let the non-responsive portion be 400 million pounds, then your total budget will be 650 million pounds out of a national income of about 2000 million pounds, or 33-1/3 per cent., and every alteration in prices—or what we call "improvement" in the cost of living—becomes an extraordinarily serious matter as a burden upon new enterprise in the future.

Let me give you a homely and familiar illustration. During the war the nation has borrowed something that is equivalent to a pair of boots. When the time comes for paying back the loan it repays something which is equivalent to two pairs or, possibly, even to three pairs. If the total number of boots produced has not altered, you will see what an increasing "pull" this is upon production. There are, of course, two ways in which this increasing pull—while a great boon to the person who is being repaid—must be an increased burden to the individual. Firstly, if the number of people making boots increases substantially, it may still be only one pair of boots for the same volume of production, if the burden is spread over that larger volume. Secondly, even supposing that the number of individuals is not increased, if the arts of production have so improved that two pairs can be produced with the same effort as was formerly necessary for one, then the debt may be repaid by them without the burden being actually heavier than before.

Now, coming back to the general problem. The two ways in which the alteration in price level can be prevented from resulting in a heavier individual burden than existed at the time when the transaction was begun, are a large increase in the population with no lower average wealth, or a large increase in wealth with the same population—which involves a greatly increased dividend from our complex modern social organism with all its mechanical, financial, and other differentiated functions. Of course, some of the debt burden is responsive, so far as the annual charge is concerned, on that part of the floating debt which is reborrowed continually at rates of interest which follow current money rates, but, even so, the burden of capital repayment remains. An opportunity occurs for putting sections of the debt upon a lower annual charge basis whenever particular loans come to maturity, and there may be some considerable relief in the annual charge in the course of time by this method.

What are the prospects of the two methods that I have mentioned coming to our rescue in this "long distance" problem? It is a problem to which our present "short distance" contribution is, you will admit, a very poor one, for we have not so far really made any substantial contribution from current revenue towards the repayment of the debt.

A CENTURY OF THE NATIONAL DEBT

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 century.

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.

THE CAPITAL LEVY

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."

DIFFICULTIES OF VALUATION

People often say that a Capital Levy merely imagines everybody dying at the same time. This parallel is wrong in degree when you are considering the ease of paying duty or of changing the market values by a glut of shares, and it is still more wrong when you are thinking of ease of valuation. When a man is dead, he is dead, and in estimating the death duty you have not to bother about how long he is going to live! But every time you value a life interest and take a big slice of it for tax you are probably doing a double injustice. The charge is incorrect for two taxpayers. On a flat rate of tax this difficulty might be made less, but the essence of any effective levy is a progressive scale. Moreover, whether you are right or wrong about Robinson's tax, he has nothing in hand with which to pay it. He has either to raise a mortgage on his expectation (on which he pays annual interest) or pay you by instalments. So far as his burden is concerned, therefore, there is no outright cut. You will be getting an annual figure over nearly the whole class of life interests and reversions. It is difficult to see how one can escape making adjustments year after year for some time in the light of the ascertained facts, until the expiry of, say, nine or ten years has reduced the disparities between the estimated valuations and the facts of life to smaller proportions.

Next come those valuations which depend for their accuracy upon being the true mid-point of probabilities. A given mine may last for five years in the view of some experts, or it may go on for fifteen in the view of others, and you may take a mid-point, say ten, and collect your tax, but, shortly after, this valuation turns out to be badly wrong, though all your valuations in the aggregate are correct. While the active procedure of collecting the levy is in progress for a number of years these assessments will simply shout at you for adjustment. There are other types of difficulty in assessment which involve annual adjustment, but you will appreciate most the necessity for care in the collection. Enthusiastic advocates for the levy meet every hard case put forward where it is difficult to raise money, such as a private ownership of an indivisible business, by saying: "But that will be made in instalments, or the man can raise a mortgage." But the extent to which this is done robs the levy of all the virtues attaching to outrightness, for each instalment becomes, as the years roll on, different in its real content upon a shifting price level, and every payment of interest on the mortgage—to say nothing of the ultimate repayment of that mortgage—falls to be met as if reckoned upon the original currency level. Then those classes of wealth which are not easily realisable without putting down the market price also require treatment by instalments, and those who wish to put forward a logical scheme also add a special charge upon salary-earners for some years—a pseudo-capitalisation of their earning power.

A really fair and practicable levy would certainly be honeycombed with annual adjustments and payments for some period of years, and one must consider how far this would invalidate the economic case of the "outright cut," and make it no better than a high income-tax; indeed far worse, for the high income-tax does at least follow closely upon the annual facts as they change, or is not stereotyped by a valuation made in obsolete conditions. Imagine three shipowners each with vessels valued at L200,000, and each called upon to pay 20 per cent., or L40,000. One owning five small ships might have sold one of them, and thus paid his bill; the second, with one large ship, might have agreed to pay L8000 annually (plus interest) for five years; while the third might have mortgaged his vessel for L40,000, having no other capital at disposal. At to-day's values each might have been worth, say, L50,000, but for the tax. The first would actually have ships worth L40,000, so he would have borne the correct duty of 20 per cent. The second would have L50,000, bringing in, say, L5000 annually, and would be attempting to pay L8000 out of it, while the third would be paying L2000 a year out of his income and still be faced with an 80 per cent. charge on his fortune! His assessment is computed at one point of time, and liquidated at another, when its incidence is totally different.

If one cannot have a levy complete at the time of imposition, it clearly ought not to be launched at a time of rapidly changing prices. But that is, perhaps, when the economic case for it is strongest.

A DESPERATE REMEDY

I do not rule the Capital Levy out as impracticable by any means, but as a taxation expedient I cannot be enthusiastic about it. It is a desperate remedy. But if our present temper for "annual" tax relief at all costs continues, we may need a desperate remedy. Without a levy what kind of position can you look forward to? Make some assumptions, not with any virtue in their details, but just in order to determine the possible prospect. If in fifteen to twenty years reparation payments have wiped out 1000 millions, debt repayments another 1000, and ordinary reductions by sinking funds another 1000 millions, you will have the debt down to 5000 millions, and possibly the lower interest then effective may bring the annual charge down to some 200 or 225 million pounds. If the population has reached sixty millions the nominal annual charge will be reduced from L7 16s. by one-half, but if prices have dropped further, say half-way, to the pre-war level, the comparable burden will still be L4 10s. per head.

It is no good talking about "holidays from taxation" and imagining you can get rid of this thing easily; you won't. We are still in the war financially. There is the same need of the true national spirit and heroism as there was then. Thus hard facts may ultimately force us to some such expedient as the levy, but we should not accept it light-heartedly, or regard it as an obvious panacea. Perhaps in two or three years we may tell whether economic conditions are stable enough to rob it of its worst evils. The question whether the burden of rapidly relieving debt by this means in an instalment levy over a decade is actually lighter than the sinking fund method, depends on the relation of the drop in prices over the short period to the drop over the ensuing period, with a proper allowance for discount—at the moment an insoluble problem. I cannot yet with confidence join those who, on purely economic and non-political grounds, commend the scheme and treat it as "good business for the income-tax payer."



FREE TRADE

BY RT. HON. J.M. ROBERTSON

P.C.; President of National Liberal Federation since 1920; M.P. (L.), Tyneside Division, Northumberland, 1906-18; Parliamentary Secretary to Board of Trade, 1911-15.

Mr. Robertson said:—At an early stage of the war Mr. H.G. Wells published a newspaper article to the effect that while we remained Free Traders we were determined in future to accord free entry only to the goods of those States which allowed it to us. The mere state of war, no doubt, predisposed many to assent to such theses who a few years before would have remembered that this was but the nominal position of the average protectionist of the three preceding generations. War being in itself the negation of Free Trade, the inevitable restrictions and the war temper alike prepared many to find reasons for continuing a restrictive policy when the war was over. When, therefore, the Committee of Lord Balfour of Burleigh published its report, suggesting a variety of reasons for setting up compromises in a tariffist direction, there were not wanting professed Free Traders who agreed that the small tariffs proposed would not do any harm, while others were even anxious to think that they might do good.

Yet the policy proposed by Lord Balfour's Committee has not been adopted by the Coalition Government in anything like its entirety. Apart from the Dyestuffs Act, and such devices as the freeing of home-made sugar from excise, we have only had the Safeguarding of Industries Bill, a meticulously conditional measure, providing for the setting up of particular tariffs in respect of particular industries which may at a given moment be adjudged by special committees ad hoc to need special protection from what is loosely called "dumping." And even the findings of these committees so far have testified above all things to the lack of any accepted set of principles of a protectionist character. Six thousand five hundred articles have been catalogued as theoretically liable to protective treatment, and some dozen have been actually protected. They have given protection to certain products and refused it to others; according it to fabric gloves and glass and aluminium goods and refusing it to dolls' eyes and gold leaf.

Finally, the decision in favour of a tariff on fabric gloves has evoked such a storm of protest from the textile manufacturers who export the yarns with which foreign fabric gloves are made, that even the Coalitionist press has avowed its nervousness. When a professed protectionist like Lord Derby, actually committed to this protectionist Act, declares that it will never do to protect one industry at the cost of injuring a much greater one, those of his party who have any foresight must begin to be apprehensive even when a House of Commons majority backs the Government, which, hard driven by its tariffists, decided to back its Tariff Committee against Lancashire. Protectionists are not much given to the searching study of statistics, but many of them have mastered the comparatively simple statistical process of counting votes.

THE "NEW CIRCUMSTANCES" CRY

In a sense, there are new fiscal "circumstances." But I can assure my young friends that they are just the kind of circumstances which were foreseen by their seniors in pre-war days as sure to arise when any attempt was made to apply tariffist principles to British industry. As a German professor of economics once remarked at a Free Trade Conference, it is not industries that are protected by tariffs: it is firms. When a multitude of firms in various industries subscribed to a large Tariff Reform fund for election-campaign purposes, they commanded a large Conservative vote; but when for platform tariff propaganda, dealing in imaginative generalities and eclectic statistics, there are substituted definite proposals to meddle with specified interests, the real troubles of the tariffist begin. You might say that they began as soon as he met the Free Trader in argument; but that difficulty did not arise with his usual audiences. It is when he undertakes to protect hides and hits leather, or to protect leather and hits boot-making, or to help shipping and hits shipbuilding that he becomes acutely conscious of difficulties. Now he is in the midst of them. The threat of setting up a general tariff which will hit everybody alike seems so far to create no alarm, because few traders now believe in it. Still, it would be very unwise to infer that the project will not be proceeded with. It served as a party war-cry in Opposition for ten years, and nearly every pre-war Conservative statesman was committed to it—Earl Balfour and Lord Lansdowne included. Even misgivings about Lancashire may fail to deter the tariffist rump.

Some of the people who even yet understand nothing of Free Trade economics are still found to argue that, if only the duty on imported gloves is put high enough, sufficient gloves will be made at home to absorb all the yarns now exported to German glove-makers. They are still blind, that is to say, to the elementary fact that since Germany manufactures for a much larger glove-market than the English, the exclusion of the German gloves means the probable loss to the yarn-makers of a much larger market than England can possibly offer, even if we make all our own gloves. In a word, instead of having to furnish new Free Trade arguments to meet a new situation, we find ourselves called upon to propound once more the fundamental truths of Free Trade, which are still so imperfectly assimilated by the nation.

So far as I can gather, the circumstances alleged to constitute a new problem are these; the need to protect special industries for war purposes; and the need to make temporary fiscal provision against industrial fluctuation set up by variations in the international money exchanges. Obviously, the first of these pleas has already gone by the board, as regards any comprehensive fiscal action. One of the greatest of all war industries is the production of food; and during the war some supposed that after it was over, there could be secured a general agreement to protect British agriculture to the point at which it could be relied on to produce at least a war ration on which the nation could subsist without imports. That dream has already been abandoned by practical politicians, if any of them ever entertained it. The effective protection of agriculture on that scale has been dismissed as impossible; and we rely on foreign imports as before. Whatever may be said as to the need of subsidising special industries for the production of certain war material is nothing further to the fiscal purpose, whether the alleged need be real or not. The production of war material is a matter of military policy on all fours with the maintenance of Government dockyards, and does not enter into the fiscal problem properly so called. But to the special case of dyes, considered as a "key" or "pivotal" industry, I will return later.

How then stands the argument from the fluctuations of the exchanges? If that argument be valid further than to prove that all monetary fluctuations are apt to embarrass industry, why is it not founded on for the protection of all industries affected by German competition? The Prime Minister in his highly characteristic speech to the Lancashire deputation, admitted that the fall of the mark had not had "the effect which we all anticipated"—that is, which he and his advisers anticipated—and this in the very act of pretending that the further fall of the mark is a reason for adhering to the course of taxing fabric gloves. All this is the temporising of men who at last realise that the case they have been putting forward will bear no further scrutiny. The idea of systematically regulating an occasional tariff in terms of the day-to-day fluctuations of the exchanges is wholly chimerical. A tariff that is on even for one year and may be off the next is itself as disturbing a factor in industry as any exchange fluctuations can be.

Nor is there, in the nature of things, any possibility of continuous advantage in trade to any country through the low valuation of its currency. The Prime Minister confesses that Germany is not obtaining any export trade as the result of the fall. Then the whole argument has been and is a false pretence. The plea that the German manufacturer is advantaged because his wages bill does not rise as fast as the mark falls in purchasing power is even in theory but a statement of one side of a fluctuating case, seeing that when the mark rises in value his wages bill will not fall as fast as the mark rises, and he is then, in the terms of the case, at a competitive disadvantage.

But the worst absurdity of all in the tariffist reasoning on this topic is the assumption that in no other respect than wage-rates is German industry affected by the fall of the mark. The wiseacres who point warningly to the exchanges as a reason for firm action on fabric gloves never ask how a falling currency relates to the process of purchasing raw materials from abroad. So plainly is the falling mark a bar to such purchase that there is prima facie no cause to doubt the German official statement made in June, that foreign goods are actually underbidding German goods in the German markets, and that the falling exchange makes it harder and harder for Germany to compete abroad. We are dealing with a four-square fallacy, the logical implication of which is that a bankrupt country is the best advantaged for trade, that Austria is even better placed for competition than Germany, and that Russia is to-day the best placed of all.

TARIFFS AND WAGES

The argument from the exchanges, which is now admitted to be wholly false in practice, really brings us back to the old tariffist argument that tariffs are required to protect us against the imports of countries whose general rate of wages is lower than ours. On the one hand, they assured us that a tariff was the one means of securing good wages for the workers in general. On the other, they declared that foreign goods entered our country to the extent they did because foreign employers in general sweated their employees. That is to say—seeing that nearly all our competitors had tariffs—the tariffed countries pay the worst wages; and we were to raise ours by having tariffs also. But even that pleasing paralogism did not suffice for the appetite of tariffism in the way of fallacy. The same propaganda which affirmed the lowness of the rate of wages paid in tariffist countries affirmed also the superiority of the rate of wages paid in the United States, whence came much of our imported goods which the tariffists wished to keep out. In this case, the evidence for the statement lay in the high wage-rate figures for three employments in particular—those of engine-drivers, compositors, and builders' labourers: three industries incapable of protection by tariffs.

Thus even the percentage of truth was turned to the account of delusion; for the wages in the protected industries of the States were so far from being on the scale of the others just mentioned, that they were reported at times to be absolutely below those paid in the same industries in Britain. For the rest, costs of living were shown by all the official statistics to be lower with us than in any of the competing tariffed countries; and in particular much lower than in the United States. There were thus established the three facts that wages were higher in the Free Trade country than in the European tariffed countries; that real wages here were higher than those of the protected industries in the United States, and that Protection was thus so far from being a condition of good wages as to be ostensibly a certain condition of bad. All the same, high wages in America and low wages on the Continent were alike given as reasons why we should have a protective tariff.

There stands out, then, the fact that the payment of lower wages by the protected foreign manufacturer was one of the tariffist arguments of the pre-war period, when there was no question of unequal currency exchanges. To-day, the argument from unequal currency exchanges is that in the country where the currency value is sinking in terms of other currencies the manufacturer is getting his labour cheaper, seeing that wages are slow to follow increase in cost of living. Both pleas alike evade the primary truth that if country A trades with country B at all, it must receive some goods in payment for its exports, save in a case in which, for a temporary purpose, it may elect to import gold. But that fact is vital and must be faced if the issue is to be argued at all. Unless, then, the defender of the occasional tariff system contends that that system will rectify trade conditions by keeping out goods which are made at an artificial advantage, amounting to what is called "unfair competition," and letting in only the goods not so produced, he is not facing the true fiscal problem at all. Either he admits that exports and freight charges and other credit claims must be balanced by imports or he denies it. If he denies it, the discussion ceases: there is no use in arguing further. If he admits it, and argues that by his tariff he can more or less determine what shall be imported, the debate soon narrows itself to one issue.

The pre-war tariffist argued, when he dealt with the problem, that tariffs would suffice at will to keep out manufactured goods and let in only raw material. To that the answer was simple. An unbroken conversion of the whole yield of exports and freight returns and interest on foreign investments into imported raw material to be wholly converted into new products, mainly for export, was something utterly beyond the possibilities. It would mean a rate of expansion of exports never attained and not only not attainable but not desirable. On such a footing, the producing and exporting country would never concretely taste of its profit, which is to be realised, if at all, only in consumption of imported goods and foods. It is no less plainly impossible to discriminate by classes between kinds of manufactured imports on the plea that inequality in the exchanges gives the foreign competitor an advantage in terms of the relatively lower wage-rate paid by him while his currency value is falling. Any such advantage, in the terms of the case, must be held to accrue to all forms of production alike, and cannot possibly be claimed to accrue in the manufacture of one thing as compared with another, as fabric gloves in comparison with gold leaf. In a word, the refusal of protection to gold leaf is an admission that the argument from inequality of currency exchanges counts for nothing in the operation of the Safeguarding of Industries Bill. In the case of any other import, then, the argument falls.

MEMBERS ONE OF ANOTHER

But that is not all. The case of Russia alone has brought home to all capable of realising an economic truth the fact that the economic collapse of any large mass of population which had in the past entered into the totality of international trade is a condition of proportional impoverishment to all the others concerned. He who sees this as to Russia cannot conceivably miss seeing it as to Germany; even tariffist hallucinations about a "losing trade" under German tariffs cannot shut out the fact that our trade with Russia and the United States was carried on under still higher hostile tariffs. The unalterable fact remains that industrial prosperity rises and falls in the measure of the total mass of goods handled; and men who realise the responsibility of all Governments for the material wellbeing of their populations can come to only one conclusion. Trade must be facilitated all round for our own sake.

Once more we come in sight of the truth that the industrial health of every trading country depends on the industrial health of the rest—a Free Trade truth that is perceptibly of more vital importance now than ever before. It is in the exchange of commodities, and the extension of consumption where that is required on a large scale, that the prosperity of the industrial nations consists. And to say that, is to say that until the trade exchanges of the world in general return to something like the old footing, there cannot be a return of the old degree of industrial wellbeing. Not that industrial wellbeing is to be secured by the sole means of industrial re-expansion: the question of the need of restriction of rate of increase of population is now being more and more widely recognised as vital. But the present argument is limited to the fiscal issue; and it must suffice merely to indicate the other as being of the highest concurrent importance.

Adhering, then, to the fiscal issue, we reach the position that, just as foreign trade has been a main source of British wealth in the past, and particularly in the Free Trade era, the wealth consumed in the war is recoverable only on the same lines. It is not merely that British shipping—at present so lamentably paralysed and denuded of earning power—cannot be restored to prosperity without a large resumption of international exchanges: a large proportion of industrial employment unalterably depends upon that resumption. And it is wholly impossible to return to pre-war levels of employment by any plan of penalising imports.

THE DYESTUFFS ACT

How then does the persistent Free Trader relate to the special case of the "key industry," of which we heard so much during the war, and hear so little to-day? I have said that the question of maintaining any given industry on the score that it is essential for the production of war material is a matter of military administration, and not properly a matter of fiscal policy at all. But the plea, we know, has been made the ground of a fiscal proceeding by the present Government, inasmuch as the special measure known as the Dyestuffs (Import Regulation) Act of 1920 forbids for ten years the importation of dyestuffs into this country except under licence of the Board of Trade. Dyestuffs include, by definition, all the coal-tar dyes, colours, and colouring matter, and all organic intermediate products used in the manufacture of these—the last category including a large number of chemicals such as formaldehyde, formic acid, acetic acid, and methyl alcohol. The argument is, in sum, that all this protective control is necessary to keep on foot, on a large scale, an industry which in time of war has been proved essential for the production of highly important munitions.

What has actually happened under this Act I confess I am unable to tell. Weeks ago I wrote to the President of the Board of Trade asking if, without inconvenience, he could favour me with a general account of what had been done in the matter of issuing licences, and my letter was promised attention, but up to the moment of delivering this address I have had no further reply. I can only, then, discuss the proposed policy on its theoretic merits.[1] The theoretic issues are fairly clear. Either the licensing power of the Board of Trade has been used to exclude competitive imports or it has not. If it has been so used, it is obvious that we have no security whatever for the maintenance of the industry in question in a state of efficiency. In the terms of the case, it is enabled to persist in the use of plant and of methods which may be inferior to those used in the countries whose competition has been excluded. Then the very object posited as the justification for the Act, the securing of a thoroughly efficient key industry necessary to the production of munitions, is not attained by the fiscal device under notice. If, on the other hand, there has been no barring of imports under the licence system, the abstention from use of it is an admission that it was either unnecessary or injurious or was felt to be useless for its purpose.

[Footnote 1: The promised statistics were soon afterwards sent to Mr. Robertson by the Board of Trade. They will be found in the Liberal Magazine for September, 1922, p. 348.—ED.]

And the common-sense verdict on the whole matter is that if continuous and vigilant research and experiment in the chemistry of dye-making is held to be essential to the national safety, the proper course is for the Government to establish and maintain a department or arsenal for such research and experiment, unhampered by commercial exigencies. Such an institution may or may not be well managed. But a dividend-earning company, necessarily concerned first and last with dividend earning, and at the same time protected against foreign competition in the sale of its products, cannot be for the purpose in question well managed, being expressly enabled and encouraged to persist in out-of-date practices.

This being so, the whole argument for protection of key industries goes by the board. It has been abandoned as to agriculture, surely the most typical key industry of all; and it has never even been put forward in regard to shipbuilding, the next in order of importance. For the building of ships of war the Government has its own dockyards: let it have its own chemical works, if that be proved to be necessary. Protection cannot avail. If the Dyestuffs Act is put in operation so as to exclude the competition of foreign chemicals, it not only keeps our chemists in ignorance of the developments of the industry abroad: it raises the prices of dyestuffs against the dye-using industries at home, and thereby handicaps them dangerously in their never-ending competition with the foreign industries, German and other, which offer the same goods in foreign markets.

The really fatal competition is never that of goods produced at low wages-cost. It is that of superior goods; and if foreign textiles have the aid of better dyes than are available to our manufacturers our industry will be wounded incurably. It appears in fact to be the superior quality of German fabric gloves, and not their cheapness, that has hitherto defeated the competition of the native product. To protect inferior production is simply the road to ruin for a British industry. Delicacy in dyes, in the pre-war days, gave certain French woollen goods an advantage over ours in our own markets; yet we maintained our vast superiority in exports by the free use of all the dyes available. Let protection operate all round, and our foreign markets will be closed to us by our own political folly. Textiles which are neither well-dyed nor cheap will be unsaleable against better goods.

THE PARIS RESOLUTIONS

It is of a piece with that prodigy of self-contradiction that, when the Liberal leaders in the House of Commons expose the absurdity of professing to rectify the German exchanges by keeping out German fabric gloves, a tariffist leader replies by arguing that the Paris Resolutions of the first Coalition Government, under Mr. Asquith, conceded the necessity of protecting home industries against unfair competition. Men who are normally good debaters seem, when they are fighting for a tariff, to lose all sense of the nature of argument. As has been repeatedly and unanswerably shown by my right hon. friend the Chairman, the Paris Resolutions were expressly framed to guard against a state of things which has never supervened—a state of things then conceived as possible after a war without a victory, but wholly excluded by the actual course of the war. And those Resolutions, all the same, expressly provided that each consenting State should remain free to act on them upon the lines of its established fiscal system, Britain being thus left untrammelled as to its Free Trade policy.

Having regard to the whole history, Free Traders are entitled to say that the attempt of tariffists to cite the Paris Resolutions in support of the pitiful policy of taxing imports of German fabric gloves, or the rest of the ridiculous "litter of mice" that has thus far been yielded by the Safeguarding of Industries Act, is the crowning proof at once of the insincerity and ineptitude of tariffism where it has a free hand, and of the adamantine strength of the Free Trade case. If any further illustration were needed, it is supplied by the other tariffist procedure in regard to the promise made five years ago to Canada that she, with the other Dominions, should have a relative preference in our markets for her products. In so far as that plan involved an advantage to our own Dominions over the Allies who, equally with them, bore with us the heat and burden of the war, it was as impolitic as it was unjust, and as unflattering as it was impolitic, inasmuch as it assumed that the Dominions wanted a "tip" as a reward for their splendid comradeship.

As it turns out, the one concession that Canada really wanted was the removal of the invidious embargo on Canadian store cattle in our ports. And whereas a promise to that effect was actually given by the tariffist Coalition during the war, it is only after five years that the promise is about to be reluctantly fulfilled. It was a promise, be it observed, of free importation, and it is fulfilled only out of very shame. It may be surmised, indeed, that the point of the possible lifting of the Canadian embargo was used during the negotiations with Ireland to bring the Sister State to terms; and that its removal may lead to new trouble in that direction. But that is another story, with which Free Traders are not concerned. Their withers are unwrung.

SCIENCE AND EXPERIENCE

On the total survey, then, the case for Free Trade is not only unshaken, it is stronger than ever before, were it only because many of the enemy have visibly lost faith in their own cause. The Coalition, in which professed Liberals were prepared to sacrifice something of Free Trade to colleagues who were pledged in the past to destroy it, has quailed before the insuperable practical difficulties which arise the moment the scheme of destruction is sought to be framed.

All that has resulted, after four and a half years, is a puerile tinkering with three or four small industries—a tinkering that is on the face of it open to suspicion of political corruption. To intelligent Free Traders there is nothing in it all that can give the faintest surprise. They knew their ground. The doctrine of Free Trade is science, or it is nothing. It is not a passing cry of faction, or a survival of prejudice, but the unshakable inference of a hundred years of economic experience verifying the economic science on which the great experiment was founded.

On the other hand, let me say, the tactic of tinkering with Free Trade under a system of special committees who make decisions that only the House of Commons should ever be able to make, is a "felon blow" at self-government. It puts national affairs under the control of cliques, amenable to the pressures of private interests. Millions of men and women are thus taxable in respect of their living-costs at the caprice of handfuls of men appointed to do for a shifty Government what it is afraid to do for itself. It is a vain thing to have secured by statute that the House of Commons shall be the sole authority in matters of taxation, if the House of Commons basely delegates its powers to unrepresentative men. Here, as so often in the past, the Free Trade issue lies at the heart of sound democratic politics; and if the nation does not save its liberties in the next election it will pay the price in corrupted politics no less than in ruined trade.



INDIA

BY SIR HAMILTON GRANT

K.C.S.I., K.C.I.E.; Chief Commissioner, North-West Frontier Province, India; Deputy Commissioner of various Frontier districts; Secretary to Frontier Administration; Foreign Secretary, 1914-19; negotiated Peace Treaty with Afghanistan, 1919.

Sir Hamilton Grant said:—I have been asked to address you on the subject of India, that vast, heterogeneous continent, with its varied races, its Babel of languages, its contending creeds. There are many directions in which one might approach so immense a topic, presenting, as it does, all manner of problems, historical, ethnological, linguistic, scientific, political, economic, and strategic. I do not propose, however, to attempt to give you any general survey of those questions, or to offer you in tabloid form a resume of the matters that concern the government of India. I propose to confine my remarks to two main questions which appear to be of paramount importance at the present time, and which, I believe, will be of interest to those here present to-day, namely, the problems of the North-West Frontier, and the question of internal political unrest.

Let me deal first with the North-West Frontier. As very few schoolboys know, we have here a dual boundary—an inner and an outer line. The inner line is the boundary of the settled districts of the North-West Frontier Province, the boundary, in fact, of British India proper, and is known as the Administrative border. The outer line is the boundary between the Indian Empire and Afghanistan, and is commonly known as the Durand line, because it was settled by Sir Mortimer Durand and his mission in 1895 with the old Amir Abdur Rahman. These two lines give us three tracts to be dealt with—first, the tract inside the inner line, the settled districts of the North-West Frontier Province, inhabited for the most part by sturdy and somewhat turbulent Pathans; second, the tract between the two lines, that welter of mountains where dwell the hardy brigand hillmen: the tribes of the Black Mountain, of Swat and Bajur, the Mohmands, the Afridis, the Orakzais, the Wazirs, the Mahsuds, and a host of others, whose names from time to time become familiar according as the outrageousness of their misconduct necessitates military operations; third, the country beyond the outer line, "the God-granted kingdom of Afghanistan and its dependencies."

Now each of these tracts presents its own peculiar problems, though all are intimately inter-connected and react one on the other. In the settled districts we are confronted with the task of maintaining law and order among a backward but very virile people, prone to violence and impregnated with strange but binding ideas of honour, for the most part at variance with the dictates of the Indian Penal Code. For this reason there exists a special law called the Frontier Crimes Regulation, a most valuable enactment enabling us to deal with cases through local Councils of Elders, with the task of providing them with education, medical relief etc., in accordance with their peculiar needs, and above all with the task of affording them protection from the raids and forays of their neighbours from the tribal hills. In the tribal area we are faced with the task of controlling the wild tribesmen. This control varies from practically direct administration as in the Lower Swat and Kurram valleys to the most shadowy political influence, as in the remote highlands of Upper Swat and the Dir Kohistan, where the foot of white man has seldom trod. Our general policy, however, with the tribes is to leave them independent in their internal affairs, so long as they respect British territory and certain sacrosanct tracts beyond the border, such as the Khyber road, the Kurram, and the Tochi. The problem is difficult, because when hardy and well-armed hereditary robbers live in inaccessible mountains which cannot support the inhabitants, overlooking fat plains, the temptation to raid is obviously considerable: and when this inclination to raid is reinforced by fanatical religion, there must be an ever-present likelihood of trouble.

FRONTIER RAIDS

Few people here in England reading of raids on the North-West Frontier in India realise the full horror of these outrages. What generally happens is that in the small hours of the morning, a wretched village is suddenly assailed by a gang of perhaps 50, perhaps 200, well-armed raiders, who put out sentries, picket the approaches, and conduct the operation on the most skilful lines. The houses of the wealthiest men are attacked and looted; probably several villagers are brutally murdered—and probably one or two unhappy youths or women are carried off to be held up to ransom. Sometimes the raid is on a larger scale, sometimes it is little more than an armed dacoity. But there is nearly always a tale of death and damage. Not infrequently, however, our troops, our militia, our frontier constabulary, our armed police, or the village chigha or hue-and-cry party are successful in repelling and destroying the raiders. Our officers are untiring in their vigilance, and not infrequently the district officers and the officers of their civil forces are out three or four nights a week after raiding gangs. Statistics in such matters are often misleading and generally dull, but it may be of interest to state that from the 1st April, 1920, to the 31st March, 1921, when the tribal ebullition consequent on the third Afghan war had begun to die down, there were in the settled districts of the North-West Frontier Province 391 raids in which 153 British subjects were killed and 157 wounded, in which 310 British subjects were kidnapped and some L20,000 of property looted. These raids are often led by outlaws from British territory; but each tribe is responsible for what emanates from or passes through its limits—and when the bill against a tribe has mounted up beyond the possibility of settlement, there is nothing for it but punitive military operations. Hence the large number of military expeditions that have taken place on this border within the last half century.

Now this brings us to the question so often asked by the advocates of what is called the Forward policy: "If the tribes give so much trouble, why not go in and conquer them once and for all and occupy the country up to the Durand line?" It sounds an attractive solution, and it has frequently been urged on paper by expert soldiers. But the truth is that to advance our frontier only means advancing the seat of trouble, and that the occupation of tribal territory by force is a much more formidable undertaking than it sounds. We have at this moment before us a striking proof of the immense difficulty and expense of attempting to tame and occupy even a comparatively small tract of tribal territory in the Waziristan operations. Those operations have been going on for two and a half years. At the start there were ample troops, ample equipment, and no financial stringency. The operations were conducted, if a layman may say so, with skill and determination, and our troops fought gallantly. But what is the upshot? We managed to advance into the heart of the Mahsud country on a single line, subjected and still subject to incessant attacks by the enemy; but we are very little nearer effective occupation than when we started; and now financial stringency has necessitated a material alteration in the whole programme, and we are reverting more or less to the methods whereby we have always controlled the tribes, namely, tribal levies or khassadars belonging to the tribe itself, frontier militia or other armed civil force, backed by troops behind.

FRONTIER POLICY

And for my own part I believe this is the best solution. We must not expect a millennium on the North-West Frontier. The tribal lion will not lie down beside the district lamb in our time, and we must deal with the problem as best we can in accordance with our means, and to this end my views are briefly as follows:—

(1) We should do everything possible to provide the younger trans-border tribesmen with all honourable employment for which they are suited: service in the army, in the frontier civil forces, and in the Indian police or similar forces overseas, and we should give labour and contracts as far as possible to tribesmen for public works in their vicinity. For the problem is largely economic. Unless the lion gets other food he is bound to cast hungry eyes on the lamb.

(2) We should do all that is possible to establish friendly relations with the tribal elders through selected and sympathetic political officers, to give them, by means of subsidies for service, an interest in controlling the hot-bloods of their tribe, and, where possible, to give them assistance in education and enlightenment. We must remember that we have duties to the tribes as well as rights against them.

(3) We should extend the khassadar or levy system; that is, we should pay for tribal corps to police their own borders, arming themselves and providing their own ammunition and equipment. In this way we give honourable employment and secure an effective safeguard against raiders without pouring more arms into tribal territory.

(4) We must have efficient irregular civil forces, militia, frontier constabulary, and police, well paid and contented.

(5) We should revert to the old system of a separate frontier force in the army, specially trained in the work of guarding the marches. Those who remember the magnificent old Punjab frontier force will agree with me in deploring its abolition in pursuance of a scheme of army reorganisation.

(6) We should improve communications, telephones, telegraphs, and lateral M.T. roads.

(7) We should give liberal rewards for the interception and destruction of raiding gangs, and the rounding up of villages from which raids emanate.

(8) We should admit that the Amir of Afghanistani for religious reasons exercises a paramount influence over our tribes, and we should get him to use that influence for the maintenance of peace on our common border. It has been the practise of our statesmen to adopt the attitude that because the Amir was by treaty precluded from interfering with our tribes, therefore he must have nothing to do with them. This is a short-sighted view. We found during the Great War the late Amir's influence, particularly over the Mahsuds, of the greatest value, when he agreed to use it on our behalf.

(9) Finally, there is a suggestion afoot that the settled districts of the North-West Frontier Province should be re-amalgamated with the Punjab. I have shown, I think, clearly, how inseparable are the problems of the districts, the tribal area, and of Afghanistan; and any attempt to place the districts under a separate control could only mean friction, inefficiency, and disaster. The proposal is, indeed, little short of administrative lunacy. There is, however, an underlying method in the madness that has formulated it, namely, the self-interest of a clever minority, which I need not now dissect. I trust that if this proposal should go further it will be stoutly resisted.

AFGHANISTAN

Let me now turn to Afghanistan. Generally speaking, the story of our dealings with that country has been a record of stupid, arrogant muddle. From the days of the first Afghan war, when an ill-fated army was despatched on its crazy mission to place a puppet king, Shah Shuja, on the throne of Afghanistan, our statesmen have, with some notable exceptions, mishandled the Afghan problem. And yet it is simple enough in itself. For we want very little of Afghanistan, and she does not really want much of us. All we want from the Amir is good-neighbourliness; that he should not allow his country to become the focus of intrigue or aggression against us by Powers hostile to us, and that he should co-operate with us for the maintenance of peace on our common border. All he wants of us is some assistance in money and munitions for the internal and external safeguarding of his realm, commercial and other facilities, and honourable recognition, for the Afghan, like the Indian, has a craving for self-respect and the respect of others.

Now, where our statesmen have failed is in regarding Afghanistan as a petty little State to be browbeaten and ordered about at our pleasure, without recognising the very valuable cards that the Amir holds against us. He sees his hand and appraises it at its value. He knows, in the first place, that nothing can be more embarrassing to us than the necessity for another Afghan war, and the despatch of a large force to the highlands of Kabul, to sit there possibly for years as an army of occupation, in a desolate country, incapable of affording supplies for the troops, at enormous cost which could never be recovered, and at the expense of much health and life, with no clear-cut policy beyond. He knows, in the second place, that such a war would be the signal for the rising of practically every tribe along our frontier. The cry of Jehad would go forth, as in the third Afghan war, and we should be confronted sooner or later with an outburst from the Black Mountain to Baluchistan—a formidable proposition in these days. He knows, in the third place, that with Moslem feeling strained as it is to-day on the subject of Turkey, there would be sympathy for him in India, and among the Moslem troops of the Indian army. Now these are serious considerations, but I do not suggest that they are so serious as to make us tolerate for a moment an offensive or unreasonable attitude on the part of the Amir. If the necessity should be forced on us, which God forbid, we should face the position with promptitude and firmness and hit at once; and apart from an advance into Afghanistan we have a valuable card in the closing of the passes and the blockade of that country.

All I suggest is that in negotiating with Afghanistan, we should remember these things and should not attempt to browbeat a proud and sensitive ruler, who, however inferior in the ordinary equipment for regular war, holds such valuable assets on his side. And my own experience is that the Afghans are not unreasonable. Like every one else, they will "try it on," but if handled courteously, kindly, with geniality, and, above all, with complete candour, they will generally see reason. And remember one thing. In spite of all that has happened, our mistakes, our bluster, our occasional lapses from complete disingenuousness, the Afghans still like us. Moreover, their hereditary mistrust of Russia still inclines them to lean on us. We have lately concluded a treaty with Afghanistan—not by any means a perfect treaty, but the best certainly that could be secured in the circumstances, and we have sent a Minister to Kabul, Lt.-Colonel Humphrys, who was one of my officers on the frontier. A better man for the post could not, I believe, be found in the Empire. Unless unduly hampered by a hectoring diplomacy from Whitehall, he will succeed in establishing that goodwill and mutual confidence which between Governments is of more value than all the paper engagements ever signed. One word more of the Afghans. There is an idea that they are a treacherous and perfidious people. This, I believe, is wicked slander, so far as the rulers are concerned. In 1857, during the Indian Mutiny, the Amir Dost Muhammed was true to his bond, when he might have been a thorn in our side; and during the Great War the late Amir Halilullah, in the face of appalling difficulties, maintained the neutrality of his country, as he promised, and was eventually murdered, a martyr to his own good faith to us.

INTERNAL UNREST

Let me now turn to our second question: internal political unrest. In clubs and other places where wise men in arm-chairs lay down the law about affairs of state, one constantly hears expressions of surprise and indignation that there should be any unrest in India at all. "We have," say the die-hard wiseacres, "governed India jolly well and jolly honestly, and the Indians ought to be jolly grateful instead of kicking up all this fuss. If that meddlesome Montagu had not put these wicked democratic ideas into their heads, and stirred up all this mud, we should have gone on quite comfortable as before." But if we face the facts squarely, we shall see that the wonder is not that there has been so much, but that there has been so comparatively little unrest, and that India should, on the whole, have waited so patiently for a definite advance towards self-government.

What are the facts? They are these. Partly by commercial enterprise, partly by adroit diplomacy, partly by accident, largely by the valour of our arms, we have obtained dominion over the great continent of India. We have ruled it for more than a century through the agency of a handful of Englishmen, alien in creed, colour, and custom from the people whom they rule—men who do not even make their permanent homes in the land they administer. Now, however efficient, however honest, however impartial, however disinterested such a rule may be, it cannot obviously be really agreeable to the peoples ruled. This is the fundamental weakness of our position. That our rule on these lines has lasted so long and has been so successful is due not to the fact alone that it has been backed by British bayonets, but rather to the fact that it has been remarkably efficient, honest, just, and disinterested—and, above all, that we have in the past given and secured goodwill.

Superimposed on this underlying irritant, there have been of late years a number of other more direct causes of unrest. Education, which we gave to India and were bound to give, had inevitably bred political aspiration, and an intelligensia had grown up hungry for political rights and powers. Simultaneously the voracious demands of a centralised bureaucracy for reports and returns had left the district officer little leisure for that close touch with the people which in the past meant confidence and goodwill. Political restlessness had already for some years begun to manifest itself in anarchical conspiracies and crimes of violence, when the Great War began. In India, as elsewhere, the reflex action of the war was a disturbing element. High prices, stifled trade, high taxation, nationalist longings and ideas of self-determination and self-government served to reinforce subterranean agitation.

But throughout the war India not only remained calm and restrained, but her actual contribution to the war, in men and material, was colossal and was ungrudgingly given. She had a right to expect in return generous treatment; but what did she get? She got the Rowlatt Bill. Now, of course, there was a great deal of wicked, lying nonsense talked by agitators about the provisions of the Rowlatt Bill, and the people were grossly misled. But the plain fact remains that when India had emerged from the trying ordeal of the war, not only with honour untarnished, but having placed us under a great obligation, our first practical return was to pass a repressive measure, for fear, forsooth, that if it was not passed then it might be pigeon-holed and forgotten. India asked for bread and we gave her a stone—a stupid, blundering act, openly deprecated at the time by all moderate unofficial opinion in India. What was the result? The Punjab disturbances and the preventive massacre of the Jallianwala Bagh. I do not propose to dwell on this deplorable and sadly mishandled matter, save to say that so far from cowing agitation, it has left a legacy of hate that it will take years to wipe out; and that the subsequent action of a number of ill-informed persons in raising a very large sum of money for the officer responsible for that massacre has further estranged Indians and emphasised in their eyes the brand of their subjection.

THE RISE OF GHANDI

To India, thus seething with bitterness over the Punjab disturbances, there was added the Moslem resentment over the fate of Turkey. I was myself in London and Paris in a humble capacity at the Peace Conference, and I know that our leading statesmen were fully informed of the Moslem attitude and the dangers of unsympathetic and dilatory action in this matter. But an arrogant diplomacy swept all warnings aside and scorned the Moslem menace as a bogey. What was the result? Troubles in Egypt, in Mesopotamia, Kurdistan, Afghanistan, and the Khilifat movement in India. Hindu agitators were not slow to exploit Moslem bitterness, and for the first time there was a genuine, if very ephemeral, entente between the two great rival creeds.

It was in this electric atmosphere that Ghandi, emerging from his ascetic retirement, found himself an unchallenged leader. Short of stature, frail, with large ears, and a gap in his front teeth, he had none of the outward appearance of dominance. His appeal lay in the simplicity of his life and character, for asceticism is still revered in the East. But his intellectual equipment was mediocre, his political ideas nebulous and impracticable to a degree, his programme archaic and visionary; and from the start he was doomed to fail. The Hijrat movement which he advocated brought ruin to thousands of Moslem homes; his attack on Government educational establishments brought disaster to many youthful careers; non-co-operation fizzled out. Government servants would not resign their appointments, lawyers would not cease to practise, and title-holders, with a few insignificant exceptions, would not surrender their titles; the "back to the spinning-wheel" call did not attract, and the continual failure of Ghandi's predictions of the immediate attainment of complete Swaraj or self-government, which he was careful never to define, like hope deferred turned the heart sick.

From being a demi-god Ghandi gradually became a bore, and when he was at last arrested, tragic to relate, there was hardly a tremor of resentment through the tired political nerves of India. The arrest was indeed a triumph of wise timing that does credit to the sagacity of the Government of India. Had the arrest been effected when the name of Ghandi was at its zenith, there would have been widespread trouble and bloodshed. As it was, people were only too glad to be rid of a gadfly that merely goaded them into infructuous bogs.

I apologise for this long excursus on the somewhat threadbare subject of the causes of unrest in India. But I want those here present to realise what potent forces have been at work and to believe that the Indian generally is not the ungrateful, black-hearted seditionist he is painted by the reactionary press. India is going through an inevitable stage of political transition, and we must not hastily judge her peoples—for the most part so gallant, so kindly, so law-abiding, so lovable—by the passing tantrums of political puberty.

THE PRESENT SITUATION

As things stand at present, there is a remarkable lull. It would be futile to predict whether it will last. It is due in part, as I have suggested, to general political weariness, in part to the drastic action taken against the smaller agitating fry, in part to the depletion of the coffers of the extremists, in part to the fact that the extremists are quarrelling amongst themselves as to their future programme. Some are for continuing a boycott of the Councils; others are for capturing all the seats and dominating the legislature; others are for re-beating the dead horse of non-co-operation. Meanwhile, with disunion in the extremist camp, the Councils conduct their business on moderate lines, and, so far as one can judge, with marked temperance and sanity.

The work of the first Councils has indeed been surprisingly good, and augurs well for the future. India has not yet, of course, by any means grasped the full significance of representative government. The party system is still in embryo, although two somewhat vague and nebulous parties calling themselves the "Nationalists" and the "Democrats" do exist. But these parties have no clear-cut programme, and they do not follow the lead of the Ministers, who are regarded, not as representing the elected members of the Council, but as newly-appointed additional members of the official bureaucracy. There will doubtless in time be gradual sorting of politicians into definite groups, but there are two unbridgeable gulfs in the Indian social system which must always militate against the building up of a solid political party system: first, the gulf between Hindu and Moslem, which still yawns as wide as ever, and second, the gulf between the Brahman and the "untouchables" who, by the way, have found their fears that they would be downtrodden under the new Councils completely baseless.

There are and must be breakers ahead. Some we can see, and there are doubtless others still bigger which we cannot yet glimpse over the welter of troubled waters. What we can see is this: first, there is a danger that unless Government and the Councils together can before the next elections in 1923-24 take definite steps towards the industrial development and the self-defence of India, the extremist party are likely to come in in full force and to create a deadlock in the administration; second, unless the Councils continue to accept a fiscal policy in accordance with the general interests of Great Britain and the Empire, there will be trouble. The fiscal position is obscure, but it is the crux, for the Councils can indirectly stultify any policy distasteful to them, and this too may mean a deadlock; third, there is a danger that the Indianisation of the Services will advance much more rapidly than was ever contemplated, or than is desirable in the interests of India for many years to come, for the simple reason that capable young Englishmen of the right stamp will not, without adequate guarantees for their future, accept employment in India. Those guarantees can be given satisfactorily by one authority alone, and that is by the Indian Legislatures voicing popular opinion. For a complex administration bristling with technical questions, administrative, political, and economic, it is essential that India should have for many years to come the assistance of highly-educated Britons with the tradition of administration in their blood. The Councils will be wise to recognise this and make conditions which will secure for them in the future as in the past the best stamp of adventurous Briton.

Finally, the Montagu-Chelmsford scheme, though a capable and conscientious endeavour to give gradual effect to a wise and generous policy, has of necessity its weak points. The system of diarchy—of allotting certain matters to the bureaucratic authority of the Viceroy and of the Provincial Governors and other matters to the representatives of the people—is obviously a stop-gap, which is already moribund. The attempt to fix definite periods at which further advances towards self-government can be considered is bound to fail: you cannot give political concessions by a stop-watch; the advance will either be much more rapid or much slower than the scheme anticipates. Again, the present basis of election is absurdly small, but any attempt to broaden it must tend towards adult suffrage, which in itself would appear impracticable with a population of over 200 millions.

OUR DUTY TO INDIA

It is a mistake, however, in politics to look too far ahead. Sufficient unto the day. For the time being we may be certain of one thing, and that is that we cannot break the Indian connection and leave India. Both our interests and our obligations demand that we should remain at the helm of Indian affairs for many years to come. That being so, let us accept our part cheerfully and with goodwill as in the past. Let us try to give India of our best, as we have done heretofore. Let us regive and regain, above all things, goodwill. Let us not resent the loss of past privilege, the changes in our individual status, and let us face the position in a practical and good-humoured spirit. Let us abandon all talk of holding India by the sword, as we won it by the sword—because both propositions are fundamentally false. Let us realise that we have held India by integrity, justice, disinterested efficiency—and, above all, by goodwill—and let us continue to co-operate with India in India for India on these same lines.



EGYPT

BY J.A. SPENDER

Editor of the Westminster Gazette, 1896 to 1922; Member of the Special Mission to Egypt, 1919-1920.

Mr. Spender said:—The Egyptian problem resembles the Indian and all other Eastern problems in that there is no simple explanation or solution of it. Among the many disagreeable surprises which awaited us after the war, none was more disagreeable than the discovery in March, 1919, that Egypt was in a state of rebellion. For years previously we had considered Egypt a model of imperial administration. We had pulled her out of bankruptcy and given her prosperity. We had provided her with great public works which had enriched both pasha and fellah. We had scrupulously refrained from exploiting her in our own interests. No man ever worked so disinterestedly for a country not his own as Lord Cromer for Egypt, and if ever a Nationalist movement could have been killed by kindness, it should have been the Egyptian. Nor were the Egyptian people ungrateful. I have talked to Egyptian Nationalists of all shades, and seldom found any who did not handsomely acknowledge what Great Britain had done for Egypt, but they asked for one thing more, which was that she should restore them their independence. "We won it from the Turks," they said, "and we cannot allow you to take it from us."