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'On our Naval Estimates is a charge of 1,300,000l. for interest on loans. In Germany, where a precisely similar system has been adopted of borrowing for expenditure on large works, the charge for interest on loans is not put on the Naval Estimates, but is borne by the Minister of the Interior; and I should be very happy to dump 1,300,000l. on the Home Office Estimates. If I am going to compare my total with the German total, that 1,300,000l. must be struck off. Then I have to include in my Estimates votes for pensions, retired pay, and other charges. In Germany these are not charged to the Naval Estimates, but are borne by the Civil Estimates. Under similar circumstances the President of the Local Government Board would have to bear between two and three millions. Then, again, it is our national policy not to have conscription—a policy which I strongly support. I think we pay very little for the maintenance of the voluntary system; but, still, we have to pay for it. It is not fair that that factor should be left out of account. If I were to charge in my estimates only on the same scale as the German scale, I should reduce my vote for pay, victualling, clothing, medical charges, etc., by three millions.
Taking all these items together, when comparing our Estimates with the German Estimates, you have to make a total deduction from my Estimates (44 millions) of no less than 8 millions, so that the true comparison is 36 millions to 22 millions. That is not all. Of these 36 millions at least 2 millions are spent in the maintenance of fleets that were kept entirely on foreign stations, on the grounds of Empire and tradefleets in the Pacific, Indian and Atlantic Oceans; I am not including the Mediterranean-which would not be available for service in the first line of battle in home waters in the event of war. That is an item which is a charge of Empire; and that ought not to be reckoned when we are making comparisons with other fleets which have no such charge. That would further reduce the 36 millions to 33 millions. And that is the total it is proper to compare with the German 22 millions.' (Times' report.)
Nor must the fact be overlooked that practically all the other Powers are about to increase their expenditure upon armaments. Austria has accepted a naval programme which will necessitate an expenditure of 12,000,000l. within the next five years. Italy proposes to increase her naval expenditure to the extent of 2,000,000l.; and France to the extent of 6,000,000Z. Russia, Japan and the United States are all committed
to vast schemes of expansion in the matter of military and naval armaments. Germany has undertaken to spend an additional sum of 7,000,000l., spread over a period of years, upon her army; and Europe is now anxiously awaiting an official declaration as to her future policy in the matter of naval armaments. Moreover, our naval position must be regarded not only in connexion with that of the next great naval Power but in relation to the whole of the naval forces of the world; and, when this is done, it will be perceived that our position is a declining one. Great Britain owns practically one-half of the mercantile marine of the world; but it would be difficult at the present time to establish our claim to the possession of one-third of the world's naval power; and, when the existing naval programmes of the Great Powers have been completed, our position can hardly fail to be still less favourable.
If Great Britain's naval expenditure be measured in relation to her foreign trade and shipping, it will be found that her present rate of expenditure is by no means excessive, as will be seen from the following table, which contains a statement of the ratio which the naval expenditure of the Great Powers bears to their mercantile marine and their foreign trade:
Naval expenditure of United Kingdom.
+ Including inter-Imperial trade. Exclusive of steamships on Northern Lakes.
It will be observed from the foregoing figures that Great Britain's naval expenditure works out at an average of 21. 7s. per ton on the gross tonnage of the mercantile marine of the British Empire. This is less than half the
amount per ton expended by Germany, which has the next lowest average, namely 5l. 18. per ton. Italy, Austria and Japan spend from two-and-a-half to nearly three times as much per ton, while France expends more than three-and-a-half times as much, the United States nearly four-and-a-half times, and Russia six times as much per ton as Great Britain. It will also be observed that the ratio which the naval expenditure of Great Britain bears to the overseas trade of the Empire is 2.81 per cent., which is the lowest ratio of any of the Great Powers, with the exception of Austria. Germany follows more closely than in the tonnage averages; but it must be borne in mind that a great part of the external trade of all the European Powers is not carried by sea, while practically the whole of the trade of the Empire is seaborne. The ratios of France and Italy are nearly 50 per cent. higher, and the ratio of the United States is about one hundred per cent. higher, than that of the British Empire. The Russian ratio is nearly two-and-a-half times as great; while that of Japan is nearly four times as large. Moreover, if the military expenditure of the other Great Powers be taken into account, it will be found that the relative position of Great Britain is still more favourable. On either of the above bases of comparison, therefore, it may be fairly claimed that the naval expenditure of Great Britain is not by any means excessive.
The following table contains a statement of the total sum expended by each of the Great Powers upon their army and navy for the latest year for which details are available, namely 1909-10, and the amount of such expenditure per head of their population.
The total expenditure of Great Britain thus amounts to 17.7 per cent. of the whole, or little more than about one-half of the ratio which the naval expenditure of Great Britain bears to the aggregate naval expenditure of the same Powers. Our army and navy expenditure works out at an average of 1l. 7s. 9d. per head of the population of the United Kingdom, the highest average in the table; but, in view of our greater national wealth per head and the fact that our fleet and army are manned by voluntary service, this is not excessive.
It may be doubted whether many of those who grumble at this expenditure understand the extent to which the economic position of Great Britain as the centre of the world's monetary system is bound up with her naval supremacy. The capital value of British investments abroad now exceeds 3,700,000,0007.* The annual income earned by these investments may be estimated at 185,000,000l. per annum. The earnings of our shipping industry, as carriers for the world, exceed 100,000,000l. per annum; and a further sum exceeding 50,000,000l. per annum is earned by our Banking, Mercantile and Insurance houses in respect of their services in the conduct of international trade. If Great Britain lost the hegemony of the seas, this vast fabric of credit would be brought into jeopardy. There would be grave danger of wholesale repudiations of indebtedness; and, in any case, the position of London as the citadel of the international financial system would be seriously threatened. During the past decade our income from investments abroad has increased by 40,000,000l., and the earnings of our Banking and other houses by at least 20,000,000l. per annum, while our naval expenditure has advanced only to the extent of 10,000,000l. per annum.
It would be difficult to emphasise the gravity of the influence which the growth of expenditure upon armaments appears to be destined to exercise upon the economic future of Great Britain. We must maintain our position; and, in order to do so, a further large increase of expenditure would appear to be inevitable. The position of our national finances is one which calls
* See article on 'British Investments Abroad,' in 'Q. R.' July 1911.
for careful reconsideration. The Income Tax, always regarded, prior to the advent of the present Administration, as a reserve to be used for war purposes, has been forced up to a higher average level than was attained during either the Crimean or South African wars. The death duties have been advanced to a point which excites grave misgivings. The representations of the commercial community as to the necessity of a gold reserve have been completely ignored; and at the present time one of the weakest parts of the scheme of national defence is the exposure of the London money market to a war panic. The State, undeterred by its unfortunate experiences as a banker, has undertaken a still more costly and difficult business, namely that of insurer. In short, during the past twenty years the national finances have been administered in a spirit of extravagance and irresponsibility, and with an amazing disregard of economic laws. Economy is the last consideration that appears to weigh with Parliament and the responsible members of the Government. The example of extravagance set by the Imperial Parliament has naturally influenced all the other public spending authorities; and the cost of Local Government has attained a level which may involve before long the reconstruction of the whole fabric of national finance.
But our financial difficulties have their counterpart in the Budgets of practically all the other Powers. Britain is the only nation of the first rank that has reduced the amount of its national debt to any material extent in recent years. It would be easy to find grounds for the creation of a Naval Loan to meet any further great increase of naval expenditure that may prove necessary; and, if that policy should fail to commend itself, there is the alternative of a tariff for revenue purposes. The other seven Powers have only been able to expend these vast sums by the imposition of heavy tariffs; and it might be difficult to resist a measure of Tariff Reform for this country if it were designed purely for the purpose of providing revenue to meet expenditure on national defence. Moreover, it is not unreasonable to hope that within the next decade the self-governing Dominions will contribute 5,000,000l. per annum towards the cost of the naval defence of the Empire, and that if necessity should