A LEVY ON WEALTH

SOMETHING like an economic rumpus has been produced by some words which Mr. Bonar Law addressed to a Labour deputation at the end of last year, in which, as he explained in the House of Commons since, he declared that he had an open mind as to the expediency of a levy on capital. Not only have important Press organs opened their columns to indignant protests against such a policy of robbery, but the capitalists have shaken their heads and talked about removing their savings to some safer place than England. It is worth while looking into the matter and ascertaining, if possible, whether such a levy would be wise or unwise.

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It seems at least to have been unfortunate that the Chancellor of the Exchequer should have admitted that he had what is called an open mind" on the subject at the time he did, and to the audience to whom he addressed these flabby opinions. In the first place, he was speaking to a Labour deputation, and he must have known that Labour had made up its mind that the capitalist system must be put an end to, or as Mr. Arthur Henderson, until recently his Cabinet colleague, says in the Contemporary Review--No re-establishment of the system of private ownership and competitive administration of land and capital" is to be thought of. He must have known, as Mr. Harold Spender put it, that There are those who want to tax capital. There are thoselet us face it bravely—who want to repudiate." Now the Labour deputation which listened to his unconvinced references to a levy on capital must have left his nebulous presence with a conviction that he was lending himself to their campaign, and was even openminded as to repudiation.

The fact, too, that when he made his statement in the House of Commons he said the words were spoken on " a private occasion,' and that behind such closed doors a Minister ought to be allowed to talk with greater freedom and less responsibility, without the risk of publication, makes the indiscretion, if it was one, more heinous. Indeed, it gives the whole interview the look of a secret conspiracy against wealth in which Labour and a Chancellor of the Exchequer were laying their heads together to develop a policy of loot.

But not only was the occasion inopportune, the time was exceedingly ill-chosen. The Chancellor of the Exchequer is an exigeant borrower. Of course it is necessary to get money to carry on the war, but with a view to secure these "sinews sinews" the Government has had to adopt expedients which would, at other times, have been thought beneath the dignity of a State which was offering its lenders "the best security in the world." It has had to urge people to lend them money by somewhat blatant advertisements-by travelling Tanks-by pitting one town against another in the race to lend. It is quite possible that all these expedients were necessary, and that even with them all, and the urgent advice we get on the front of every letter, we may not get enough to meet the increasing expenditure of this mighty adventure. But, if so, could any time for declaring that a levy on wealth-a conscription of capital-a partial repudiation of the debts the country was contracting-have been more inopportune? Could any time have been chosen which was worse for a Chancellor of the Exchequer, although not "committed," to declare that he had an open mind to a deputation which was in full sympathy with the Labour programme as to reorganization, war aims, and the reconstruction of society?

No wonder that Capital quaked and that some persons began to write to the Times while others began to " button up" obdurate pockets. But although the "when" and the "where" of Mr. Bonar Law's declaration were ill-chosen, that does not prove that there is nothing to be said for an open mind on the question of the conscription of wealth. Indeed, the doctrine against which some ardent economists are orthodoxically protesting is in full swing. All taxation is conscription of wealth. Sometimes it is indirect conscription, as in the case of a tax on expenditure, like customs and excise duties or the entertainment tax. Sometimes it is direct, as in the case of the income tax and the death duties. Indeed, the Socialists and the land-taxers who desire to put an end to private property are quite content to allow capital to remain in private hands if they can have the whole return on the capital, and the whole of the rent of the hereditaments for the service of the State. If an income tax amounted to 20s. in £, the capital would be worthless to the owner while such a tax continued. If the whole of the rents of land were, as Henry George suggested, to be appropriated by the State, the possession of the land would be worthless to the owner. Socialism can have its way and abolish private ownership either by taking the capital or appropriating permanently the income. There is nothing new, therefore, about a levy on wealth, although in some of its aspects it is economically unsound.

Mr. Asquith, who followed Mr. Bonar Law in the debate in the

House of Commons on January 29, said "he did not desire to rule out in some contingencies a tax on capital, though the difficulties in it were to his mind at present insurmountable," and I take it that Mr. J. A. R. Marriot's argument in the Nineteenth Century, where he points out, what we have all known for some time, that wealth and capital are not necessarily money, goes towards the same point. But although everything that is desired by or useful to mankind which has an exchangeable value is wealth, wealth can always be stated in the terms of money. It is quite true that it would be difficult to conscript 10 per cent. or 50 per cent. of a workman's tools-or of a great lady's diamonds. But there is no insuperable difficulty in making an estimate of the value of these-or of the intricate machinery in a manufactory, and that must be done in the case of death duties, and a tax can be levied on the value thus ascertained by estimate. It is difficult to see why, if that can be done for the purposes of the death duties, it could not be done or why difficulties are "insurmountable"in the event of a levy on capital being required during a man's life. Not that the levy on capital in the case of the death duties is a wise economic tax. Any tax which kills thrift is in the nature of national suicide.

But, further, the individual would be told by every economist that he ought to live within his income, and that if he spends his capital he is on the "easy descent" to bankruptcy. Indeed, the borrowing Government is never tired of telling us to practise thrift and asking us to throw our savings into the leaking lap of the wasteful Exchequer. But at the same time the State on the opportunity of every death steps in and takes a large percentage of a man's savings-his capital-and treats that as income, which seems an economic folly when the owner was told to conserve his capital. But here we are face to face with the real question, which is whether a levy on capital should be made, or, in other words, whether such a policy would be wise or unwise.

It is fair to the Chancellor of the Exchequer to say that even with his open mind he had no sympathy-however he may have been misunderstood-with the idea that the tax should be used as a means of socializing the whole of industrial life, but while he claimed that there was nothing confiscatory about such a levy, he said the question was whether" the thing was good or otherwise."

In our view the thing is bad, but like most dark things it is not nearly so black as it is painted. We have protested against the State making the wicked mistake of punishing thrift as if it were a crime, of taking away the capital a man has stored during his life. when his back is turned in death, and also against the State treating that capital which the man would have been a spendthrift to spend during his life as income to be spent in the year after his

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death. But we would point out that the State can punish thrift as drastically by taking income as by appropriating capital. If, indeed, you increase your income tax you diminish the value of a man's capital, and most people who have investments, and who attempt at the present time to realize them while the income tax is 5s. in the £1, know that there has already been a deplorable conscription of wealth, or that the State has brought about a woeful sacrifice of capital. There is much to be said in favour of taxing expenditure instead of income. The levy on the former will encourage thrift, the levy on the latter taps the accumulating source of all enterprise. The one encourages prudence while the other makes prudence the basis of penal exaction. But the reason for taxing income is that the income recurs; the reason for not taxing capital is that capital will not under these circumstances recur, for no man will hoard what is going to be taken away from him, and if you tax capital directly you beggar industry and commerce.

We have also considered the difficulty of taxing capital or levying upon wealth, for although it is always possible to state values in the terms of money-to arrive at the values you have to trust to the very fallacious method of estimate or valuation, which is often made by very incompetent persons. How would you value a collection of pictures which contained the seriously depreciated works of Landseer and the greatly enhanced works of Hobbema? I remember a case where a gentleman who lived near a provincial town had a very valuable library containing many rare books, which would at a sale in London have made bibliophiles' mouths water, and would in eager competition have brought very high prices. Well, he died, and his assets came to be valued by a country upholsterer and auctioneer, and with the confidence which results from profound ignorance he valued "the whole lot at 3d. a volume." But, again, the valuation of any capital which is being used (and all capital should be busy) is a matter of great difficulty. The machinery in a mill may be to a great extent obsolete, and the estimate of the value of obsolescent machinery, while it is still doing its work, is a very difficult matter. But if the manufacturer did his best he would, no doubt, in such a case, take out the old machinery and put new machinery in its place, but in that case he would be punished for this attempt towards efficiency by the capital tax, which would be placed on the new value or cost price of the new machinery. In this way, beyond the difficulty of estimating the money value of plant and other valuables-a difficulty which does not arise in relation to income-there is a distinct inducement in a capital tax to scamp repairs and renewals, even if these are necessary to complete efficiency. But such a deterrent would be an injury to the trade, and if you said a manufacturer was to pay a 20 per cent. tax on the value of his

manufactory, he would, if all his capital was in the mill, have to borrow money to pay the tax, and would have to "go short " for a considerable number of years. But these, although valid objections, are not the only ones to a levy on wealth. One of the strongest objections is that capital has been accumulated by individuals on the strength of a national guarantee of security. We have in these years of war been urged to save for the purposes of war, but it is obvious that thrift is just as necessary for the constructive enterprises of peace as for the destructive enterprises of war. Rightly looked at, not only now while the State is insisting upon our putting all our savings into national war bonds and war savings certificates, etc., is there an implied contract that the money will be repaid by the State, but also before the war the security of all legitimate investments was in the truest sense guaranteed by the State. It is to that end that we have courts of law to enforce contracts and to punish fraud. But for that security there would have been no reservoirs of capital to draw upon in the time of our war needs. Now security in a stable country is the first condition of prosperity. Without it men would "eat and drink, for to-morrow they die," and would leave nothing for death duties to appropriate. Now it is what we don't "eat and drink" that sets the poor to work, that builds the ships, the mills, and railways and docks, on which the prosperity of the country has depended. And if the State now stepped in and said "Give me the half of your savings," it would be, however much "necessity" might be urged for it--as it was urged by Germany for the invasion of Belgium-in direct breach of that national obligation to guarantee security. There can be no foundation for sound policy in relation to taxations except honesty. And the repudiation of a State guarantee, either express or implied, is only fraud! It is quite true, as both Mr. Bonar Law and Mr. Asquith said, "anything in the nature of repudiation of our national obligations direct or indirect was a thing that the country would never contemplate," and Mr. Bonar Law on another occasion said, "there would be no discrimination in favour of those who withheld their money from the State at the time when its needs were greatest.

Now these declarations are essential to those who are in the market, and are begging borrowers. But even here there is a dubious economic doctrine. Does Mr. Bonar Law mean that in his "levy" on capital he would punish those (" discriminate," he calls it) who did not lend their capital to the State when it needed it. Is he going to draw a distinction between a man who has put £100,000 into the War Loan, because he had mobile capital, and a man who had £100,000 in a manufactory, who could not mobolize his capital and lend to the State. Was, in a