from the year 1857 to its transference to the Government. It shows steady progress and financial prosperity, following the logarithmic curve. The Government made a good bargain in its purchase; it is the fashion to depreciate this purchase. Indeed it is the inalienable right of virtually half the British race to decry the action of the other half.. Facts have no effect on party bias. The £5,715,000 paid by the Government for the telegraphs are now worth £30,000,000, and no one believes it!

Fig. 6 shows the growth of this General Post Office business. It also obeys the logarithmic law. There is no capital. Everything is

Office, and the only possible solution of the present deadlock is for the Government to cut the Gordian knot and take over the business in 1911.

DEDUCTIONS.

In all well conducted businesses profit is usually distributed to meet :

1. Depreciation-which is a term applied to the diminution of the value of the plant as a whole, due to time and work acting upon it, and finally causing its complete decay.

2. Renewals which is a term applied to the periodical replacement with new materials of

charged to revenue. The working expenses are apparently very high, but if they were taken as they should be, at a fair commercial figure, say 57 per cent., the profit would be considerable.

(b) Telephones.-The telephone business of this country defies diagramatic analysis. It has had a curse upon it from its first introduction. It is now in a state of chaotic confusion. It has been the shuttlecock of politicians and the football of local authorities. The attempt to force it on the municipalities is likely to prove a failure. Tunbridge Wells has lamentably broken down. It is an imperial business, a part and parcel of the business of the Post

the parts of the plant that wear out most rapidly.

3. Reserve-which is a fund invested outside the business formed as a species of insurance to be prepared for emergencies, accidents, and fires, and to meet what we call in England antiquation of plant, or what they call in the United States betterment of plant.

4. Redemption-which is the formation of a sinking fund, in the course of time wiping out the capital raised by loan or subscription.

5. Dividends and bonuses which are the distribution to shareholders in cash of the surplus of the profit earned.

Sound finance means a proper appreciation

of all these points, and a due and proper allocation of a portion of the annual revenue to meet each requirement. Practice is very variable. Different businesses require different

treatment.

In electrical industries depreciation and renewals must be continuous, and must be the first charge against revenue. Electric plant must be maintained in absolute perfect order up to the hilt, otherwise it fails to be productive, and rapidly becomes very inefficient. Hence depreciation and renewals are provided for in the ordinary annual maintenance expenditure. Reserve fund is, however, essential in all growing businesses, and the soundness of the financial control is shown more by the condition of the reserve fund than by any other monetary sign.

Redemption of capital is a compulsory feature of municipal undertakings, erected with capital borrowed under the authority of the Local Government Board. The rate at which the loan is redeemed is determined by the nature of the work undertaken.

The present rule is for-Land, 60 years; Buildings, 30 years; Machinery, 15 years; Electric Mains, 30 years.

No dividends or bonuses are allowed in such municipal industries. The profits are devoted to the amelioration of the rates, but in all businesses established by private enterprise under the Limited Liability Act the surplus profits are distributed as dividends and bonuses. The formation of a good reserve fund is imperative in all undertakings dependent on moving machinery, for invention is so prolific and improvements so rapid that antiquation is soon reached and betterment needed. It is also necessary in the case of private undertakings established under the Tramways or under the Electric Lighting Acts, for in those cases at stated periods the municipality has the power to take possession of the business at its then value of the plant, and no allowance is made for goodwill or compulsory purchase. Sound finance seems to show by experience that 23 per cent. on the capital is about the average amount that should be allowed annually to form a substantial reserve.

There are risky adventures, like submarine cables, where larger amounts should be put aside.

The Eastern Telegraph Company is an admirable instance of sound finance. It has been in existence for thirty years. Its invested general reserve fund amounts to £1,164,673 2s. 2d. Its capital is £10,249,170. Its gross revenue is £1,200,000.

THE SCRAP HEAP,

The value of scrapping is not appreciated in England. In America, when a new process is introduced, which effects considerable economy in production, it can be shown by simple calculation that it is wise and commercial to sweep away the old plant and install the new; and this is done. English manufacturers are most tenacious of old machinery. I have seen old Boulton and Watt machinery at work that absorbed annually an excess of coal and oil costing sufficient money to have justified its removal a generation ago. But it is in the increased rate of production that justification for scrapping comes in. The American does not wait until a machine is worn out

before condemning it. As soon as he realises the fact that up-to-date machinery will save him in time and labour enough to justify new plant, away goes the old plant, and the value of the new is soon repaid by greater production. In the majority of cases the "betterment" of machinery is charged against revenue, but it is easy to justify its charge against capital if the value of the increased production exceeds the interest on the sum of the capital invested in the old and in the new plant. However, the judicious manufacturer should be fortified with a reserve fund to provide against antiquation and provide for betterment.

CO-OPERATION AND COMBINATION.

There seems something radically wrong, from a scientific point of view, in some of these gigantic gigantic combines" that have originated in the U.S.A. It is startling to find that each holder of £1,000 in the White Star Line will receive £14,265 for his share from the new Atlantic Shipping Combine. Upon what capital is profit to be distributed which will enable the new holder of £14,265 to be as happy as the late holder of £1,000? Whence are the new profits to come?

It is not even clear where the money is to come from (or the traffic to pay that money) to gain any profit whatever on the millions projected to permeate the soil of London with "tubes."

On the other hand combinations and cooperative societies, associated with a judicious system of management, must offer considerable economic advantages in encouraging production, maintaining fair prices, securing good markets, and adjusting a margin between expenditure and revenue which will satisfy buyer and seller. The co-operative

system which is such a feature of Scandinavian agriculture has been introduced into Ireland with marvellous financial success. This is due greatly to its nonpolitical and non-sectarian character. The nature of trade organisations and modern home industries is everywhere changing. The individual is merging into the organisation. Self-help is the key of the situation. It is very remarkable that we have been taught this new doctrine of economics in Ireland. There are 630 co-operative societies in that country, with 65,000 members (shareholders), all farmers and heads of families. The annual trade turnover is £1,250,000. The rate of growth of all branches is most satisfactory and encouraging. We, in my native country of Wales, are watching this improvement with great interest, and I hope soon to find that my countrymen have made up their somewhat conservative minds to follow Ireland's good example. Ireland acquired from Wales the light of learning and of religion. Let us hope that she will return the gift by giving Wales the light of co-operative commercial economic prosperity which has been accomplished there by "the familiar magic of common sense."

The key of commercial success is the discovery or construction of a new market aided by a cheap and reliable mode of distribution. The parcel post is the most efficient means at our disposal to distribute the products of home industries throughout the United Kingdom. Every town and every house thus becomes a new market. We have to educate heads of families in these facts. This can be done by societies and local industrial exhibitions. vertising is now a science.

COMMERCIAL SUPREMACY.

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The way in which other nations are assailing our commercial supremacy is well illustrated by the following extract from a technical paper :

"Messrs. Colbran and Bostwick are Western Americans. They were sub-contractors on the pioneer railway now running successfully under Japanese management between Seoul and Chemulpo, the bridges, permanent way, rolling stock and locomotives of which are all American.

They not only control the electric light and power in Seoul, the capital of Korea, but they hold the concession for long-distance and local telephony for the whole empire, and they have secured the contract for future extensions of the electrical tramway system, the first section of a fairly large system of waterworks for the capital. They are also, with some truth,

credited with the establishment of an AmericarKorean bank, the first attempt to initiate some reform into Korean finance, in which they are assisted by the establishment of a small steam coinage factory, which, it is hoped by the astute promoters, will some day develop strength enough to be a reliable foundation for a Korean Imperial mint and national banking system. It may be argued by those who' know Korea that such institutions are at present purely visionary, but there is no knowing when they may become positively practical, and in view of present relations between Great Britain, Japan and Korea, there can be no possible doubt of the important value of the wedge which will open up the country, the thin end of which is now being carefully inserted by our American cousins."

I read in Frazer's "The Real Siberia": "The building of the mighty Trans-Siberian Railway has attracted the attention of traders. Americans and Germans are already in the country opening up commerce. The British, however, lag behind."

The crying demand of our countrymen' abroad is for representatives who will make the interests of the British merchant their own. What the merchant wants, to secure him an equal chance for business with the rest of the world, is broad-minded and energetic Consuls, and from the facts I have detailed above, it would seem as if there existed sound cause for recommending a great deal of the American method in the constitution and working of a new commercial Consular service, whose motto should be, "English Trade and Commerce, First, Last, and all the Time."

The Germans have an admirable Intelligence Department all over the world. If any electric development is foreshadowed or suggested in any one of our colonies, especially those in which my firm acts as consulting engineer, we at once receive intimation of the fact from Germany and often from America. We never once have received similar information from any British source!

COMMERCIAL EDUCATION.

I have endeavoured, to the best of my ability, on every occasion to point out that the retardation in commercial progress in the United Kingdom is not due so much to want of scientific education in the men as in the masters. It is the masters who have allowed the Americans and the Germans to oust them out of their own markets, not by any superiority in the quality of their goods, but by lower prices, by superior knowledge of the de

mands of the markets, by the establishment of new markets, by better direct communication with foreign countries, by superior methods of business ways, by establishing regular intelligence departments, and, above all, by possessing and exercising superior commercial technical knowledge.

There is a science in business as in manufacture. We want our business men to be technically educated. Their brains must be trained as the Germans have been trained,— to guide their business habits by language, observation, generalization, and common sense. They must lay aside the habits of their fathers. It is very satisfactory to find our new universities establishing commercial faculties.

The University of Birmingham has created a Faculty of Commerce, the first in the United Kingdom, and it began its work on October 1st, 1902. Its object is to educate in the scientific bases of commerce, not the rank and file, bnt the officers of our industrial army. Industries, trade, and manufactures are the dominant interests of the present day. They are managed by all classes of society. The peer rubs noses with some village Hampden over the office desk. It is surprising that the principles and development of commerce have been so long neglected in our schools. A knowledge of the science of business must assist the early experience of the man of business in learning practically the best modes of transacting his business. It is technical education of the highest type. The establishment of a Faculty of Commerce will revolutionise college life. Every seat of learning must copy Birmingham. It will make college life essential for the man of business-the reverse of the popular notions of the past, which regard a college career as unfitting for a future business calling. College training must give an intellectual and lively interest in a student's future calling, whether it be a learned profession, a political life, a military occupation, or a business vocation.

The Society of Arts has long held the position of pioneer in the matter of Commercial Education. It is now nearly fifty years since (in 1853) the Council of the Society first took up the question of examinations, and considered a proposal submitted to them by Mr. Chester for the establishment of a general examination system. It was not, however, until 1856 that the proposal bore fruit, for in that year 52 candidates were examined in London. The subjects of examination included not only Book-keeping, Arithmetic, and Drawing, but

also Elementary Science, Geography, History, and Literature. The only two foreign languages were French and German.

In the next year a provincial examination was held at Huddersfield, but it was not until 1858 that the system was inaugurated which has since developed to such an important extent, and simultaneous examinations at a number of different centres under the supervision of local committees were established. As regards the invention of this system, the Society must share the credit with the College of Preceptors. That Institution in 1853 tried the experiment of collecting pupils at local centres, and of examining them by means of papers sent down from London. It was at one time thought that the two systems would clash, but it was soon found that the College and the Society occupied entirely different ground, and the two systems have never interfered in any way with one another.

In 1858, 58 institutions sent up 288 candidates. The numbers increased steadily till 1865, when there were 2,160; and they have grown with an almost continuous increase until last year we examined 15,578.

During the long period over which the examinations have now extended there have been considerable and great alterations. It was at first intended that the examinations should include all the elements of a general education. The establishment of the University Local Examinations in 1858, and of the Science examinations of the Science and Art Department (now the Board of Education), led to the abandonment of many of the original subjects. On two occasions, in 1871 and in 1879, it was considered that the ground was adequately occupied by other institutions; but the decision of the Council to abandon the Society's examinations was on both occasions rescinded in consequence of the urgent representations from the local institutions through whose agency the examinations were carried out. In 1876 the Programme was revised, and a more purely commercial character was given to the examinations. It was also proposed to award, in addition to the certificates always granted for single subjects, a commercial certificate to be given to all candidates who had passed in a certain number of subjects. This proposal was not successful at the time, nor does it appear to be much more popular at the present date, for though it was renewed two years ago there have not as yet been any applications for such a certificate.

very

On the other hand, in Cardiff University they have abandoned the granting of certificates for simple subjects and give them only for groups.

Up to 1880 the examinations had been free. In 1881 the examinations were actually dropped, but they were renewed in 1882, and a fee of 2s. 6d. was charged to each candidate. This fee has since been continued, and for the last few years the examinations have been selfsupporting, and the Society has thus been relieved of the very heavy drain on its resources which the examinations previously caused.

Up to the year 1901 only one grade of examnations was held, certificates of three classes being awarded, although for many years there existed a system of elementary examination for which the Society supplied identical examinations, the results being examined and the certificates awarded by examiners appointed by the local boards. This system, which was never very successful, was abandoned in 1895. In 1901 the experiment was tried of establishing a second or lower grade, and it has proved extremely successful, for in the first year 4,458 papers were worked, and in the present year there was a slight increase, the number being 4.803.

I may add that this year the Society has successfully introduced a system of vivá voce examinations in foreign languages. It is obvious that these cannot be carried out on the same system as examination by written papers, and therefore arrangements have been made for the Society's examiners to visit the local centres at convenient dates, and examine such candidates as may be entered for the purpose. The first of these examinations was held in May last. Since that date examinations have been held in French, German, and Spanish, at five centres in London and the provinces, to which 280 candidates were sent up, of which 202 passed and 78 failed. It is worthy of note that in the Birmingham University no student will receive the degree of Bachelor of Commerce who does not pass in two modern foreign languages, German, French, Spanish,

or Italian.

OUR FISCAL SYSTEM.

The supremacy of the commercial and industrial position of the United Kingdom has practically ceased. Can it be recovered?

I have endeavoured to show that this is greatly due to our want of commercial education and to our obsolete business habits.

There are, however, two other causes that require our most serious consideration. The one is want of commercial patriotism; the other is the Free Trade fallacy.

No one can have travelled in the United States or met Americans in Europe without being struck by their intense patriotism. They often carry the stars and stripes with them, and decorate even their rooms in French and English hotels with their flag. "America for the Americans," is their motto, and they exclude every other industry but their own by great protective tariffs. They have thus a great home market-virtually a monopolybehind them, which is a grand guarantee for the capital required to maintain their active competition in other countries.

There is no such motto as "Great Britain for the Britons." Here we are loyal to everybody but a Briton. Our industries not only receive no protection, but they are retarded by internal restrictions of the worst character, and our manufacturers are handicapped in every direction. Railway companies favour foreign productions by giving preferential rates, and freights are excessive. A case came within my own experience where a contract went to America because the freight from one of our Lancashire towns was 25s. per ton, while from Philadelphia it was only 16s. 6d. !

The average man who is not wedded to party politics feels strongly that there is something wrong in the doctrine of Free Trade. Nations which have not adopted it have flourished, more than the solitary nation that has. Our working man does not earn as much money as the American working man, nor does he live so well, nor bear so high a character. The burden of taxation falls on our industries, and reacts on our working classes. We admit, free of duty, those articles. which compete with our own industries, and tax those which do not. We remit the tax which would be paid by the foreign producer, while we exact that which falls upon our own subjects. Tariffs in all countries are excluding We are being beaten not only in neutral markets, but even in our own. We have spent £300,000,000 in making South Africa an integral part of the British Empire, and at once it is made an open market to our competitors who have paid nothing towards the formation of the market, but have reviled us in ways that will not easily be forgotten.

our commerce.

The great prosperity which followed the introduction of Free Trade was due to the