MR. GIFFEN'S ESSAYS IN FINANCE.*
THERE is no need to commend this book to those who are in- terested in the practical application of economic principles. Not only is Mr Giften's reputation as a scientific statistician too well established to require the friendly offices of the reviewer, but these very essays have done as much as anything to obtain for him the position of authority, hi s title to which is universally acknowledged. The greater number of them have appeared from time to time during the last twelve years in various periodicals. The volume, from beginning to end, is a model of patient inquiry, lucid reasoning, and sober conjecture ; and though the limits of our space compel us to confine our remarks to one or two of the essays only, we have found throughout the book that the same high standard of excellence is uniformly, maintained. The first essay, which was written so long ago as 1872, but is now for the first time given to the public, deals with the "Cost of the Franco-German War." The total cost of the war to each of the combatants is considered under two heads, viz., first, the direct cost, which includes the money actually spent for the purposes of the war, and the destruction of property which took place in consequence of its prosecution ; and second, the indirect expenses, so far as they can be estimated, resulting from falling-off of income, disturbance of business, and per- manent loss of ca,pital. The direct expenditure on the war of the two countries taken together, was at the rate of thirty millions sterling a month, which, as Mr. Gare11 observes, when compared with their aggregate incomes, is not a very large sum. But when the indirect losses come to be added, the total per month is raised to seventy millions, four-fifths of which, or some four hundred millions in all, if Mr. Giffen's estimate is correct, must be considered a capital charge upon the resources of the communities concerned. In other words, the loss of capital was "probably equal to about five years' savings of France and Germany combined." This is how the matter would stand if there had been no indemnity and no cession of territory. The indemnity paid by France to her conqueror amounted, as we know, to five milliards, or two hundred millions sterling, and the cession of Alsace and Lorraine is reckoned by Mr. GifE'en, capitalising their revenue at twenty years' purchase, to represent a further loss of sixty-four millions. After deducting from these two sums the ninety millions of capital which Germany anent during the war, we find the net result, so far as she is concerned, to be that she began life at the end of it with about £170,000,000 to the good. Mr. Gillen, writing in 1872, could not, of course, foresee the uses to which this gigantic "windfall" would be put. He discerned, however, the real danger of the situation, when he pointed out that the German Government, having large surplus funds in hand, had become a lender on a great scale, and was supplying German speculators and traders with stores of cheap money. Subse- quent events have amply justified his doubt as to whether Germany would gain much by the indemnity in a material point of view. If we turn to France, the picture is a very different one, whether we look to immediate or to more remote results. The amount of capital spent by France during the war is estimated by Mr. Giffen at about 2340,000,000, and if to this is added the indemnity and the value of the ceded pro- vinces, the permanent loss to her is made up to 2600,000,000.
This is equivalent to a capital charge of £16 10s, per head of the population, or an annual charge upon the revenue of the nation of twenty-two millions. In other words, the French, by a war which lasted less than a year, and which destroyed their prestige and dismembered their country, have burdened them- selves and their posterity with a liability which is only leas by a sixth than the whole debt which the building up, the defence, and the extension of the British Empire during more than a hundred years have imposed upon ourselves. The last point to which Mr. Giffen directs attention is the effect of the war upon the Money Market. War is usually supposed to diminish the supply and raise the value of money in two
• Essays in Finance. By Robert Giffen. London: George Bell and Sons. 1880.
ways,—first, by the spasmodic and temporary disturbance of credit, which always follows upon its outbreak, and which is re- newed, with more or less intensity, at every crisis in its progress ; and secondly, by the permanent absorption and destruction of capital, without which it cannot be carried on. The former of these phenomena was witnessed once or twice during the course of the Franco-German war. But, contrary to the expectation of many financial prophets, there was no sustained or lasting rise in the value of money. The normal tendency of war, to contract the supply of loanable capital, was counteracted by the combined operation of several causes, some of which may always he counted upon, while others were exceptional and accidental. The "diffused apprehensiveness," as Mr. Giffen calls it, to which war generally gives rise, leads naturally to a general limitation of enterprise, and checks the demand for money. Thus in a sense—regard being had to the Money Market alone —war may be said "to provide the capital for its own susten.
ance." Moreover, the effect of invasion is to deal a specially heavy blow for the moment at the industry of the invaded country, and hence, when the French Government came to borrowing, it had fewer competitors in its own market. These are consequences which may always be looked for among the effects of such a war as that of 1870, as may also, perhaps, the issue of inconvertible paper by the defeated combatant. But in the case of the Franco-German war, there were peculiar circumstances which further lessened the financial strain. The war broke out at a time of great general pros- perity, when the "Money Markets of Europe were well prepared to meet the unusual demand." And, at its close, the German Government, for a time, at any rate, used the vast sum of money which they received, as the instalments of the indemnity were successively paid, in a manner which tended to ease the market. Instead of absorbing it as it came in for their own purposes, they lent it out in large quantities, and so prevented any sudden or artificial limitation of the supply of capital. There is another fact to which Mr. Giffen has not alluded, but which in our judgment helped to counteract the monetary con- fusion which the rapid payment of the indemnity would otherwise have produced. It must be remembered that the huge loans which were so successfully raised by the Government of M. Thiers, were mainly subscribed by the French themselves, and to a large exthut, by the petty bourgeois and the small rural pro- prietors. Frenchmen belonging to these classes, as a rule hoard their savings, and keep them in their own custody, instead of depositing them at a bank, as is the custom hero. Patriotia feelings and a sense of the security of the investment led them in 1871 to disgorge these hidden stores, and entrust them to the Government. In this way, the supply of money was artifici- ally increased, and the strain of the exceptional demand upon the resources of the market was perceptibly relaxed. The result, in so far as it was due to this cause, must, of course, be traced to the peculiar habits and traditions of French social life, and cannot be expected to recur, should a similar exaction be levied at sonic future time upon any other nation.
The essay on "Recent Accumulations of Capital in the United Kingdom," which was read by Mr. Giffen before the Statistical Society at the beginning of last year, is an admirable example of the application of scientific method to economic facts. The object of the writer is to estimate the amount of the total capital of the United Kingdom, and to ascertain the rate at which it is growing from year to year. With this view, be takes the Income-Tax returns for 1875, and after deducting (where necessary) from the sums assessed that portion which cannot be regarded as interest upon capital, he capitalise& the remainder at such a number of years' purchase as the nature of the several items requires. The total so obtained is. about £6,600,000,000, but to this must be added the capitalised value of Government and local property which is not taxed, of movable property not yielding income, of income which ought to be but is not returned, and of income exempted from the tax, so far as it is derived from capital. The grand total of the "capitalised value of the income derived from capital," or in other words, of the "national estate," is thus found to amount, at the lowest possible estimate, to £8,500,000,000. If from this be subtracted the value of movables (such as furniture, works of art, &c.), and of Govern- ment and local property, neither of which are direct sources of revenue to individuals, we have left a sum of nearly £7,500,000,000 of capital actually yielding income. Dividing the former and larger total by the number of the population. we find that it brings out a sum of £260 per head. The result is made more striking by a comparison with the past. Between 1865 and 1875 the annual increase in the accumulation of capital was about 2240,000,000. After full allowance has been made for the growth of population, it appears that during that period the people could have paid off out of their savings two and a half times the National Debt, and still have left themselves in- (iividually as rich at the end as they were at the beginning. If we look further back, to the end of the great war in 1815, we find the capital of the nation was then about £170 per head, and the National Debt about £70 per head. In 1875, the capital, as we have seen, was £260, and the Debt was about 225. "Hod we a National Debt corresponding to what existed fifty years ago, it would be over £3,000,000,000, and not [as it is] under £800,000,000; and the interest charge would be above £100,000,000, instead of [as it is] £21,000,000." The question naturally arises whether the accumulation of capital is still going on at the same rapid rate, or whether, as has been often suggested of late, we have begun daring the last two or three years to cease saving, and to trench on capital. Mr. Gliffen is of opinion that the excess of imports over exports is not large enough to show that we are calling in capital from abroad; and that, even if we are, there is no proof that more capital is being so called in than is being simultaneously invested at home. But has the process of saving at home been stopped or re- tarded I) The data as to this point are few and unsatisfactory, the Income-tax Returns being based on an average of years. Mr. Giffen, however, inclines to believe that except in the c aim of mines and ironworks, the depression of trade has not seriously checked accumulation. The extension of railways, the reclamation of land, the building of houses, and even the erection of factories and machinery seem to have gone on at -very nearly the same rate as before. Nor is there any ground for serious alarm as to the future. The possession of such a gigantic accumulation of capital as that which is stored up in the United Kingdom ensures our being able to take immediate advantage of all progress in invention and every improvement in the arts and processes of production.
Of the other essays, we may call special attention to that which deals with "Taxes on Land." It contains a conclusive refutation of the claims which the landowners are constantly putting forward to relief from what they allege to be the unjust and excessive burdens of the existing system. Mr. Giffen points -out that the business of landowning is a monopoly, and that, therefore, no benefit to the community as a whole can be ex- pected from a remission of any impost which ultimately falls upon those engaged in it. He shows that the rate at which capital continues to be laid out in land, in spite of the rates, is a proof that they do not encroach so far upon profits as to cheek investment. He traces the enormous increase in the value of land, and especially of house-property, which has gone -on daring the last fifty years,—an increase which has been out of all proportion both to the growth of population and to the rise in the rates. He reminds us that by far the larger part of this added value has been entirely unearned, and is due to causes to which the landowner has contributed nothing. He discards, however, Mr. Mill's proposal to make periodical valuations of the land, and to appropriate to the State some definite portion of the "unearned increment," on the ground that Continental experience shows the impractica- bility of any such scheme, and because, if carried out, it would give rise to unnecessary apprehensions, and an undesirable sense of insecurity. Mr. Giffen's own suggestion is that the present system of rates should be preserved in an amended form, and that the Succession Duty should be considerably in- creased, as it well might be without injustice, and without interfering with the investment of capital in laud.
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