BOOKS.

REFLECTIONS OF A FINANCIER.*

" Votes avez pour principe d'admini.stration que l'argent n'est rien, tand.s qu'au contraire dans lea circonstatices ole nous sommes l'argent est tout."—NAPOLEON, 1815.

Ma. OTTO KAHN, one of the greatest financiers and men of busi- ness now living, has written a book of real importance—a book which should have the attention of every student of the world's disease. As a rule, multi-millionaires (Mr. Otto Kahn is one of the most multitudinous of them) fail utterly in communicating Vs mankind the principles of action which have enabled them to do great things, or even to help Governments by criticism and advice in the management of public finance. It is a common- place that the great business men in our House of Commons have seldom been able to throw any useful light on Treasury matters. Mr. Otto Kahn's book is an exception. Besides being endowed with the business faculty, he has a singular power of exposition. One feels that he might have been a great journalist if he had not been one of the magnates of Wall Street.

Mr. Otto Kahn's book consists of a series of essays, speeches and " papers read before," but all the same it is a book, not a mere fortuitous concourse of public addresses. A strong, bright thread runs through it and binds it together. That thread is the plea for sane reconstruction, or let us say, rather, for sane re-establishment, for the world does not want so much to be remade as to be reinstated on its former foundations. The train is off the line and lying on its side, but, happily, there is only one car that has been burnt and totally destroyed— that marked Russia. The rest are variously injured—some are standing and arc, in fact, perfectly sound, and only want to be got on the rails again. Even the worst damaged are quite reparable. The book contains valuable plans and suggestions for accomplishing this task, and, what is even better, warnings against doing the right thing in the wrong way, conveyed, not in a shrill tone, but in quietness and confidence. Mr. Otto Kahn makes no concealment of the fact that he is what we may call a Whig in economic matters. He is all for moderate reforms and middle courses, and opposed utterly to root and branch destructive methods of reconstruction, or, again, to anything in the nature of quack and " get well quick" remedies.

He fully understands what Socialism is, but he does not reject it because of its glaring label or because he thinks it will injure his class—a class " generally necessary to salvation" in the economic sense. He rejects it because he is convinced that Socialism would not do what it sets out to do—that is, put the world right—but would put it very much more wrong. Though he uses, as he is compelled to do, old arguments to maintain his premises, he uses them so cleverly and presents them with such skill and ingenuity that they often seem new. That is all to the good, for in its present mood the world is inclined to condemn anything that is old and to accept anything that is new without further discussion. Mr. Otto Kahn has essentially the economic mind. One feels that he really under- stands the one or two simple and essential secrets of Political Economy. To begin with, though he does not say so in so many words, it is quite obvious that he realizes that the wealth of a nation consists, not in the abundance of its natural resources, its minerals, its productive soil, or its splendid climate, but in the energy and industry of its inhabitants. There is the • lteflections of a Financier. By Otto H. Kahn. London : Hodder and iitoughton. (10o. ed. net.]

essential. There is the thing always to be considered. There is the spirit to be fostered. On that simple aphorism rests all the political economy that is required to be known by our statesmen, administrators, and legislators. We have got to foster energy and industry. But we cannot obtain them unless we have free constituents, governed with sympathy and enlightenment.

Therefore we must preserve freedom and its fruits. We must give also what may be shortly called plenty of " carrots "- something to encourage men and women not only to work, but to put their backs into their work. If we enslave men either directly or indirectly we weaken their energy. The power to do what you like with your own is one of the most enticing of " carrots." It is the primal source of energy. But there are all sorts of minor " carrots " which must be cultivated. They are, most of them, comprised in the desire to make money. A man wants to make money because gold gives him the greatest possible choice—is, in fact, the super " carrot." Therefore, to get people to work and to generate energy you must, as the old economists say, raise their standard of desire.

You must inculcate an appetite for " carrots," and a pro- gressive appetite. This means that you must educate. Edu- cation, remember, is at once a stimulant and an anodyne. It makes men dream of new things and want new things, and in learning to fulfil their wants they help, not only themselves, but all others, because they increase the productivity of the world. And now, across the work of raising the steam of energy in the human engine, comes the other great economic secret. Wealth is the child of exchange. Without exchange, or rather with a restricted exchange (for an absolute absence of exchange is unthinkable), man's economic life would indeed be nasty, brutish and short. Exchange is the union of forces by which men have conquered the material world. It is called by many names and concealed under many aliases, but always in the last resort it is the principle of exchange through which we economically move, live, and have our being.

But we may go a little deeper than exchange. Value in exchange, or more shortly and truly exchangeability, is the product of one thing—Demand. " No demand no• value in exchange" is the fundamental law of economics. Countless degrees and shades of value, i.e., price, are attached to objects and services by the ratio between supply and demand, but demand is always the cause cantons, the essential, not a mere contributing cause. Therefore besides encouraging energy, which will give us the product, we must encourage exchanges also, not merely between the individuals of one community, but between the communities of the world. Only by so doing can we obtain the full product and the full use of our product. But Socialism kills energy and forbids exchange.

And now we come to another truth. Exchange requires a clearing-house, and a clearing-house, automatic and universal, is provided for us by gold. Some day we may get a better, self-acting clearing-house, but gold, in which, of course, we include its handmaid silver, provides a marvellous piece of mechanism, We must take off our hats in admiration to the primitive men who found out that wonderful accelerator to barter and made it at once the standard of value and the medium of exchange. We have found improved substitutes for the medium of exchange function, i.e., currency, but we have never found any substitute for the universal standard of value provided by gold. Energy, Demand, Exchange and the standard of value, these are the bases of the economic science. All this we feel Mr. Otto Kahn consciously or subconsciously truly and rightly understands. Never in his varied comments and long excursions in the economic field does he do violence to any one of them.

So much for general principles. For the purposes of practical politics, the important things in Mr. Otto Kahn's book are the passages which deal with taxation. Here, again, wo les' that he understands first principles. Though ho does not touch the point, he evidently is quite free from the usual and dangerous delusion that " things " pay taxes. A moment's reflection shows that it takes a man to pay a tax—a person with a purse or a cheque book. You may measure how much a man has to pay by the number and nature of the things he owns, the hairs on his head, the horses in his stable, the motors in his garage, the bricks in his house, the tons of soil in his garden, or the pictures on his walls, but it is always a living, breathing, hungering, thirsting man who pays. Bub though this is so obvious, how completely the statesmen forget it when they say that they will put a tax upon land, or corn, or houses, or what not ! What they are taxing is men and women, and nothing else. Even when they tax that artificial man—a corporation or a company, they are really only taxing the beneficiaries of the company, its shareholders, or, in the last resort, its officials and its workmen ; all the people, that is, who share in the product. No one can shake his head and say, " They may tax the old company as much as ever they like so long as they don't tax me."

Mr. Otto Kahn also sees quite clearly how soon and how easily you may destroy through taxation the energy and enter- prise of your population. With all duo deference to the American people, it is not their climate, or their soil, or their natural virtue, or their New-England consciences that has made them the richest and hitherto the most industrious nation in the world. It is because under their system of government their energies were in the past left free, and so fostered and developed, because they were not over-taxed or over-regulated, that they are what they are. When the hand of the tax- collector is perpetually in men's pockets how can they get on with the work of hewing down forests, building railroads, or digging canals ? The American system of government has never been a jealous system. There has never been that energy-slaying thing which has crept in here—the dread of a profit. The mood in which a man feels that if he cannot make a profit for himself it is his duty to stop someone else making it is the greatest of deterrents to production. Hitherto this mood has been banished from America. The ordinary American is not driven into fury by the sight of other men's profits. Rather he• is stimulated to follow their example. More important still, the governing people in America, when they hear of private profits, do not feel that somehow or other these profits ought to be absorbed by the State. The true attitude, of course, is that the State must not grab private profits, or frown on private profits, or prevent private profits, but must do everything in its power ID foster them—the best form of fostering being non-inter- ference. Any profit, high or low, which is made by the private individual will soon come back to the State, directly or indirectly.

There is yet another truth which is implicit in Mr. Otto Kahn's book. The reason why Governments cannot trade is because they cannot tell how to fix a price. What makes the ordinary man know the price to sell at, what inspires him to get down to bedrock prices, what makes him force sales through the cheap- ness and goodness of his product is the exact knowledge of his profits or losses. A Government has not that knowledge. It does not work to a profit. It simply commands, and when it loses, takes money out of the pockets of private individuals to make up its losses. It is not, and cannot be, a true trader.

We have written what may be thought an indirect review of Mr. Otto Kahn's fascinating and useful book. Yet, on the whole, it is a better way of treating such a book than merely giving more or less random extracts. What we want to do is to send people to the book, and especially our statesmen. If we can induce them to read it and get thereby suggestions as to what to do, and, still more, what not to do, in the essential matters of finance and taxation, we shall have done, we feel, a public service. And in this matter of taxation the great thing to remember is the aphorism addressed to his War Office by Napoleon I. in 1815, which we have placed at the head of this review.

Before we leave Mr. Kahn's book we will remind him of a saying with which we are sure he will agree. Though we do not want Socialism, we want, as he does, something of tho spirit that inspires Socialism—somothing to temper our frigid econo- mics of self-help and self-determination. No doubt exchange is always demanding a union of forces, but this union of forces, to make it sound, demands humanity, mercy and kindness. We want something even more than that—something of the zeal of Christian Communism. But though we admit that the world wants an admixture of Socialism, it cannot be an equal mixture. You must have a basis for your economic policy, and that basis must be those principles with which we have been dealing. If not, you will make the world a Kaffir kraal.

The need for this basis may be expounded in the words which Burke, quoting Bolingbroke, once used in the House of Com- mons : " I prefer a monarch to a republic because it is easier to engraft the advantages of a republic on to a monarchy than it is to engraft the virtues of a monarchy on to a republic."

We of the modern world must prefer the system of Free Exchange, or Individualism, to Socialism because it is easier to engraft the advantages of Socialism on to Individualism than it is to engraft the advantages of Individualism on to Socialism. Indeed, in this case it is not a question of ease but of impossibility. The true formula will run : " You may engraft some of the virtues of Socialism on to Individualism, but it is impossible to engraft any of the advantages of Individualism on to Socialism."