CHAPTER XII.

THE ECONOMIC FACTOR.

After a three years' war, and at the cost of over 200 millions,

Britain has secured for her own children the indisputable possession

of the new colonies. In earlier chapters an attempt has been made to

sketch roughly the historical influences which may help to shape the

future and to describe the actual features of the land which charm and

perplex the beholder. We have now to face the direct problems into

which the situation can be resolved, and in particular that question

of material wellbeing which is the most insistent, because the most

easily realised, for both statesman and people. The economic factor in

the politics of a country is always a difficult matter to discuss, for

it is made up of infinite details, some of them purely speculative,

all of them hard to disentangle. If a business man were to do what he

never does, and sit down to analyse calmly his position, he would have

to go far beyond balance-sheets and statements of profit and loss. He

would be compelled to look into the social and economic conditions

under which he lived; he would have to estimate rival activities and

forecast their development; the money market, rates of exchange, the

nature of the labour supply, the effect of political and social

movements, even such matters as his own bodily and mental health, and

his standing among his fellows, would properly make part of the

inquiry. With the private individual the analysis would be ridiculous,

because the component parts are too minute to realise; but with a

nation, where the lines are broader, some stock-taking of this kind is

periodically desirable. But in spite of, or because of, the complexity

of the inquiry, the human mind is apt to complicate it needlessly by

running after side-issues and losing sight of the main features of the

problem. The economic position of a country embraces in a sense almost

every detail of human life; but there is no reason why the mass of

detail should be allowed to get out of focus and obscure the synthesis

of the survey. Provided we remember that the economic factor is not

correctly estimated by looking only at revenue and expenditure,

imports and exports, and fiscal provisions, we may safely devote our

energies to steering clear of the labyrinth of secondary detail in

which the ordinary statistician would seek to involve us.

In the following pages it is proposed to confine the survey to what

appear to be the main features of a complex question. It would be vain

to embark on speculations as to the payable ore in the ground, market

forecasts, suggestions for new industries, and the many hints towards

a reformed fiscal system with which local and European papers have

been crowded. It is sufficient to note the existence of such

questions; the materials for a true understanding of the South African

economy are not to be found in them. In particular it is proposed to

avoid needless statistics, which, apart from the fact that they are

often inaccurate and partisan, are the buttress of that particularist

logic which is the foe of true reason. Two questions may be taken as

the general heads of our inquiry: first, Wherein consists the wealth

of the land, actual and potential? and, secondly, How best may that

wealth be maintained and developed for the national good?

I.

The cardinal economic fact is the existence of gold--gold as it is

found in no other country, not in casual pockets and reefs, but in

quantities which can for the most part be accurately mapped out and

valued months and years before it is worked; gold which is mined not

as an adventure, but as an organised and stable industry. The Main

Reef formation extends for sixty-two miles, from Randfontein to

Holfontein,[15] but three-fourths of the gold mined has been produced

in the central section, which is only some twelve miles long. In 1886

the district was proclaimed a public gold-field, and since that day

ore worth nearly 100 millions sterling has been extracted. The

development took place in spite of difficulties which vastly increased

the working costs. The dynamite and railway monopolies, the heavy

expense of the transit of machinery from the coast, the absence of

subsidiary local industries to feed the gold industry, forced the work

into the hands of a small circle of rich firms who could provide the

large capital and face the heavy risks of a new enterprise. It is

clear, therefore, that mining on the Rand, while a notable enterprise,

has necessarily been a slow one, since the two natural factors, the

amount of gold in the soil and the labour of working it, have been

complicated by many artificial hindrances. The past is not the true

basis for estimating the future of the industry; the proper premises

for a forecast are the two natural factors--the quantity of gold in

the earth and the normal cost of winning it. It is the first that

concerns us at present.

All estimates must be merely conjectural, and can be used only with

the greatest caution. But in the multitude of conjectures there may be

such a consensus of opinion as to ensure us a fair certainty that this

or that is the view of those who are best fitted to judge. Mr Bleloch,

in a calculation based on the report of the most eminent engineers,

values the amount of gold still in the Rand at 2871 millions sterling,

showing a profit to the companies concerned of over 975 millions. If

we put the life of the Rand at one hundred years, which is a mean

between conflicting estimates, we shall have an average, allowing for

reserve funds, of 8 millions to be paid yearly in dividends to

shareholders. In 1898 twenty-six companies paid dividends amounting to

over 4 millions: therefore, on Mr Bleloch's figures, we can promise at

least one hundred years to the Rand of twice the prosperity of 1898.

These figures include the deep levels, but do not take into account

any of the Rand extensions, in which the Main Reef has been traced for

over 300 miles. It is certain that in the direction of Heidelberg and

Greylingstad gold in payable quantities exists for not less than

seventy miles, and it is at least probable that a similar extension

exists in the Potchefstroom and Klerksdorp districts in the west. So

much for the peculiar "banket" formation of the Rand, which must

remain the type of stable gold-mining,--stable, because the element of

uncertainty over any group of properties is reduced to a minimum, and

the high organisation necessary and the large initial outlay produce a

community less of rivals than of fellow-workers. Quartz reefs and

alluvial deposits are found in many parts of the country. In Lydenburg

and Barberton, where the earliest gold mines were sunk, several

producing companies are at work; and this type of mining will develop

equally with the Rand under a system which abolishes monopolies and

assists instead of discouraging enterprise. In the northern districts,

around the Wood Bush and the Zoutpansberg ranges, there are quartz and

alluvial mining, and indications of "banket" formation, and in the all

but unknown region adjoining Portuguese territory, if tales be true,

there may be gold in quantities still undreamed of.

No figures are reliable, all estimates are disputed, but from the very

contradictions one fact emerges--that there is gold enough to give

employment to a greatly increased mining population for at least fifty

years, and to decentralise the industry and create large industrial

belts instead of one industrial city. Nor is gold the only mineral.

From Pretoria to Piet Retief run coal-beds, many of them of great

richness and good quality, covering an area of more than 10,000 square

miles. It has been calculated that 60,000 million tons are available.

The quality of the coal in the undeveloped beds lying to the south of

Middelburg is, in the opinion of experts, equal to the best British

product. Iron-ore is abundant in many parts, particularly in the

coal-bearing regions of the east. Lead has been worked near Zeerust,

and there are good grounds for believing that copper in large

quantities exists in Waterberg and in the tract between Pietersburg

and the Limpopo. Diamond pipes are found in several places in the

region due east of Pretoria, where the new Premier Mine seems to

promise a richness not equalled by Kimberley; and it is probable that

places like the Springbok Flats and the western parts of Christiana

are highly diamondiferous. Sapphires have been found in the west, and

diamonds and spinels are reported from the northern mountains. Few

countries have a soil more amply mineralised; but the sparse

population, mainly absorbed in the quest of one mineral, has done

little to exploit its wealth. Mining, save for gold and coal, is still

in the Transvaal a thing of the future. The agricultural and pastoral

wealth is dealt with in another chapter. But we may note an asset,

which is wholly undeveloped, in the cultivation and protection of the

natural wood of the north and east, and the planting of imported

trees. Timber in an inland mining country is a valuable product, and

on the soil of the high veld new plantations spring up like mushrooms.

Ten feet a-year is the common rate of growth for gums, and in the

warmer tracts it is nearer twenty. Many indigenous South African

trees, which a few years ago, under an unwise system of timber

concessions, were disappearing from most places save a few sequestered

glens in the north, might under proper care become a lucrative branch

of forestry. Current estimates, rough and inaccurate as they must be,

are the fruit of a very general conviction, which on the broadest

basis is amply supported by facts. There is sufficient natural

wealth--mineral, pastoral, and agricultural--to provide a sound

industrial foundation for the new States. It is only on the details of

its exploitation that experts differ.

* * * * *

In any calculation of natural wealth there is another factor to be

noted which controls production and dictates its method. Whatever the

natural riches of a country may be, climate and situation must be

weighed in their practical estimate. A diamond pipe at the South Pole

and acres of rich soil in Tibet are practically as valueless as a fine

anchorage on the Sahara coast or a bracing climate in Tierra del

Fuego. In the new colonies we have throughout three-fourths of their

area a climate where white men can labour out of doors all the year

round. The remaining fourth is less pestilential than many places in

Ceylon, Burma, and the Malay Peninsula, where Europeans live and work.

There are certain very real climatic disadvantages--frequent

thunderstorms, hailstorms in summer when fruits and crops are

ripening, rains concentrated over a few months, a long, dusty,

waterless winter. But these are difficulties which can be surmounted

for the most part by human ingenuity, and at the worst they place no

absolute bar on enterprise. From the standpoint of health the climate

is nearly perfect, inducing a vigour and alertness of body and mind

which in the more feverish life of cities may ruin the nerves and

prematurely age a man, but in all wholesome forms of labour enable

work to be done at a maximum pressure and with the minimum discomfort.

In valuing, therefore, the natural assets of the new colonies, we need

write off nothing for climatic hindrances. The situation is a more

doubtful matter. They pay for their freedom from the low heats of the

coast by the absence of private outlets for trade and the consequent

difficulties which all people must meet who have to hire others to do

their shipping and carrying. It is not the difficulty of Missouri or

Ohio or other inland states in one territory, but of separate peoples,

with interests often conflicting, who have to submit to weary customs

and railway arrangements before their outlet can exist. This is one,

perhaps the only, genuine natural limitation which all schemes of

economic development must take account of.

The country is not new, and therefore in sketching its natural wealth

we do not exhaust the preliminaries of the question. There are

ready-made industrial conditions to be considered which may modify our

estimate of the initial equipment. Such are the commercial structures

already built up in the great commercial centre, which for this

purpose represents the new colonies; the nature and future of the

labour supply; the existing markets; the already prepared means of

transit. The gold industry, as was to be expected from its nature,

has fallen into the hands of a few houses. Eight great financial

groups control the wealth of the Rand: the Eckstein group alone has

interests which might be capitalised at 70 millions; the Consolidated

Gold-fields at about 30 millions. The reason for this state of

affairs is obvious. Gold-mining in the Rand fashion is a costly

business, and altogether beyond the reach of the small man: claims

were bought up by the financiers who were first in possession, and,

since they were able to hold and develop, the entry of other

financial houses has been blocked. But the great mining firms do not

confine their activity to gold. They own millions of acres of land

throughout the country, and many valuable building sites in the

towns. Originally, doubtless, land was bought purely as a mining

speculation, but they are not slow, in the absence of minerals, to

make out of it what they can. These Rand houses are the bugbear of a

certain class of politician. The Rand is closed to the small man, so

runs the cry; a system of trusts is being created; in a little while

the country will be under the iron heel of a financial ring. It is

assumed that the mining firms will turn their attention to ordinary

commerce, and oust the independent trader and cultivator and the

small manufacturer. Certain trading experiments by some of the chief

houses, and an attempt to grow food-supplies for their own employees,

give a certain support to the forecast.

If the Trust system in its American form were ever to become a reality

in South Africa, the obvious and infallible checks against too wide an

expansion would arise there as elsewhere. A trust can only exist in

full strength under its originators. There can be no apostolic

succession in trust management; the second or the third generation

must be on a lower scale, and the great fabric will crumble. A huge

combination can only be maintained by perpetual energy and ceaseless

labour, and, like the empire of Charlemagne, it will dwindle under a

successor. A trust can be created but not perpetuated. No group of

directors, no paid manager, can maintain the nicety of judgment and

the sleepless care which alone can preserve from decay an artificial

structure imposed upon an unwilling society. But in the case of the

new colonies there are special reasons which make this development

highly improbable. A trust flourishes only on highly protected soil,

and Free Trade must long be predominant in the Transvaal. Again, while

there can never be a trust in gold, the market being unlimited and

beyond any possibility of control, gold-mining must remain the chief

interest for any group of firms who desired to establish a trust in

other commodities. Now gold-mining is one-third an industry and

two-thirds a scientific inquiry. An ordinary trust is concerned less

with production than with the control of the markets and the methods

of distribution. But all progress in Rand mining depends on nice and

speculative scientific calculation. To reduce the working costs by

improved appliances, so that ore of a low grade may become payable, is

so vital a matter with every great firm which is concerned in

gold-mining, that the commercial or trust side, which must be

concerned not with gold but with other forms of production, is not

likely to be given undue prominence. Human capacity is limited, and no

man or body of men can meet these two very different classes of

problems at the same time. The experiments of mining firms in other

trades have been due far more to the immense cost of imports and the

absence of subsidiary industries than to a Napoleonic desire for

consolidation. There is room, abundant room, in the Transvaal for

ironworks and factories, for the private trader and the independent

farmer; and the bogey of the great houses resolves itself in practice

into little more than a stimulating example in progressive business

methods.

The foregoing remarks do not, however, touch the question whether or

not the gold industry is to remain a preserve of a few groups. If it

is, there can be little real objection. The market for gold can never

be controlled like the diamond-market, and there is small fear of a

gold-mining De Beers dictating to the world. Moreover, the great

groups are not static but mobile, constantly dividing and subdividing,

throwing off subsidiary companies and adding new ones, no more

monopolists than the cotton-spinners of Manchester or the shipbuilders

of Glasgow. The fact remains that they own most of the mining rights

in the country, and all development must lie very much in their hands.

The owner of the minerals on a farm in Potchefstroom is at liberty to

form a company and work them himself. But the case will be uncommon,

since the bulk of the mineral rights are already absorbed, and, on

the Rand system of mining, an unknown adventurer would have difficulty

in raising the large initial capital. It is only in this sense that

there is any meaning in the charge of monopoly. A more real grievance

is that a great house will often buy up claims throughout the country

and leave them unworked till it suits its pleasure, thereby hindering

industrial development. This, in a sense, is true, but the reason is to

be found mainly in the difficulty of development under recent

conditions,--conditions which, for the matter of that, would have

pressed far more hardly on the small man than on the rich firms. So far

as the gold industry is concerned, the plaint of the humble citizen on

this score is a little ridiculous. He asks an impossibility, and in his

heart admits the folly of the request.

It is time that the anti-capitalist parrot-cry were recognised in its

true meaning. On the Rand it is not the wail of a downtrodden

proletariat or of the industrious small merchant whose occupation is

gone. It is the dishonest agitation of a speculating class who find

their activity limited by the strenuous and rational policy of the

great houses. I would suggest as a fair parallel the outcry of small

and disreputable publicans in a rising town where it has been found

profitable to open good restaurants and decent hotels. Without capital

the Transvaal is a piece of bare veld; with capital wrongly applied it

is a hunting-ground for the adventurer and the bogus-promoter. The

gold industry depends on capital, because only capital combined with

intelligence and patience could have raised it from a speculation to

an industry. But facts are the most eloquent form of apologetics. At

the moment over 30 millions have been spent on development by

producing companies, leaving out of account the large administrative

and office expenses. How much has been spent in the same way on mines

which have not reached the producing stage it is impossible to say,

but the figure must be very large. To start an ordinary deep-level

mine costs nearly a million before any profits are made. Surely it is

right to see in an organisation which is prepared to face such an

outlay some qualities of courage and patience. It is possible that the

great houses may find themselves in conflict with the best public

opinion on certain matters before the day is done; but it is well to

recognise that the very existence of an industrial population is due

to capital wisely and patiently used by the strong men who were the

makers of the country.

* * * * *

Last in our calculation of assets comes the existing or accessible

machinery of exploitation and production--the labour supply, the means

of transit, the available markets. The first is a complicated matter

on which it is hard to dogmatise. For some months it has been the most

strenuously canvassed of South African problems. On its solution

depends without doubt not only the future prosperity but the immediate

insolvency of the country. And at the same time, being bound up more

than other economic questions with far-reaching political interests,

its solution has become less a commercial adjustment than a piece of

national policy. As was to be expected in this kind of discussion, the

true issues have been habitually obscured. The antithesis is not

between labour and no labour, but in one aspect between the cheap,

unskilled native and the dear, more highly skilled white; and in

another between a limited supply, which means the curtailment of

enterprise, and an unlimited supply, even of a lower quality, which

would allow full development. Again, the antithesis is not absolute,

as has been often assumed: the true solution may lie in a compromise,

a delicate cutting of the coat to suit the particular cloths employed

in its making.

It is almost entirely a mining question. In most other industries the

work can be done by white men with the assistance of a few natives. In

agriculture, as things stand at present, sufficient native labour can

be procured, and under an improved system of taxation the supply might

be largely increased, within limits. The demand in agriculture should

diminish rather than increase, save in the tropical and sub-tropical

regions, where native labour is always plentiful. On the high veld a

single farmer, if he ploughs with oxen, wants a boy as a voorlooper

and another to use the whip; but this and similar work may well be

performed in time by his own sons or by white servants. Railway

construction will draw heavily on the supply, but its requirements

are, after all, limited and small in comparison with the immense needs

of the mines. For in the latter a very large number of employees is

necessary, the bulk of the work is unskilled, and the conditions under

which it must be performed are frequently such as to deter the

ordinary European. The case is not quite that of labour in the West

Indian plantations with which it has been compared, but there are

many points of resemblance. The labour, on the current view, must be

cheap; it must exist in large quantities; and the work is bound in

certain respects to be hard and unpleasant--not perhaps harder than

coal-mining in England, but, taking into account the superior average

of comfort in the new colonies, indubitably more unattractive to the

local workman.

Before the war some 90,000 natives were employed in the Witwatersrand

mines. The average cost was from 1s. 6d. to 2s. a-day, food and

lodging being provided; but the expense of acquiring the labour

considerably raised the actual price per man. The old method was by a

system of touts, who were paid as much as L5 a-head for their

importation. The system led to great abuses, chicanery, needless

competition false promises, which often cut off the supply in a whole

territory. To meet the difficulty the Witwatersrand Native Labour

Association was formed, whose duties were to recruit native labour and

distribute it equitably to the mines within the association. Its

agents were paid by salaries instead of by results, and the various

native locations in the Transvaal, Swaziland, and Portuguese territory

were exploited by them. But with all its efforts the mines were

inadequately supplied. The 90,000 natives barely sufficed to maintain

the _status quo_, and there was no margin for new development. The war

scattered the accumulated supply. The local natives grew rich in

military service, and declined to leave their kraals. Those imported

from a distance returned to their homes, and the whole work of

collection had to begin again. In October 1902, which may be taken as

a fair date to estimate the condition of things after the war, only

31,000 natives were at work, one-third of the former staff. By May

1903, after herculean efforts, the supply had increased to a little

over 41,000.

The problem is, therefore, a very serious one. To return to the old

state of things the present supply must be doubled; to provide for any

adequate progress it must at the lowest estimate be multiplied by ten.

Any wholesale increase to the mining wealth of the country must come

from the exploital of the deep level and the low-grade properties. The

working costs per ton of ore run from 17s. 6d. to 30s.; on the Rand

the average is about 27s.[16] But the ordinary low-grade mines produce

ore worth little more than 18s. to 20s. a-ton. To make their

development possible the working cost must be reduced to 15s.-17s.

Improved machinery may do something, but the first necessity is cheap

labour. But where are the natives to come from? The efforts of the

Native Labour Associations have not succeeded in showing that the need

can be met from any of the old supply grounds. New taxation and the

spending of their war savings may drive some of the Transvaal natives

to the mines; but as the total native population of the colony is only

about three quarters of a million, the whole working male force, which

may be taken at one in ten, would not meet the demand. In addition to

this we have the fact that no taxation would reach more than one-half

of the population, and that of this half three-quarters is probably

unfit for mining work. The total native population south of the

Zambesi is at the present moment a little over 6 millions. Supposing

this field were worked to the uttermost, we should still scarcely meet

the demands likely to arise within the next five years for the gold

industry alone; and such exhaustive exploitation is beyond the wildest

dream of any Chamber of Mines.

The case may be stated thus. With all assistance from local taxation

and from the amended organisation of the Native Labour Association,

Africa, south of the Zambesi, will be unable to afford the unlimited

supply of native labour which is the _sine qua non_ of mining progress.

It would therefore appear that a new ground of supply must be sought.

By those who admit this (and as will appear later, there are some who

do not) three solutions have been advocated, none of which is

unattended with difficulties. The first is to find a recruiting-ground

in the vast district between the Zambesi and the White Nile, a region

more densely populated by the aborigines than any other part of Africa.

This scheme has been urged by Sir Harry Johnston with all the weight of

his unrivalled experience. The advantages of the solution are numerous.

Those natives live directly or indirectly under British sway. They are

unsophisticated, and the old rate of wages would mean undreamed-of

wealth to them. Moreover, the experiment would be of a certain

assistance to Central Africa, for on their return home with their wages

money would be put into circulation, the standard of living would rise,

taxes would be easier to collect, and Government and governed would

mutually profit. On the other hand, there are very many reasons against

the proposal. Uganda and Nyassaland, to take the two chief instances,

are in need of labour for their own development, and will strenuously

resist its exportation. Their nascent civilisation will be dislocated

if they are made the hunting-ground of labour agents. Nor is it clear

that the Central African native is suited for mining purposes, since

both in constitution and the food he lives on he differs from his

southern kinsman, and, in the opinion of many good authorities, his

transplantation to the high veld would mean a swollen death-rate.

Overtures have also been made to Northern and Southern Nigeria, but the

answer from those territories is still more hopeless. It is too early

to pronounce on the future of the Central African scheme. A fair _prima

facie_ case can be made out for its success, and the result of the

first experiments has not been wholly discouraging. But in any case it

is certain that from this source no unlimited or permanent supply can

come. A modicum, perhaps gradually increasing, may be secured, and in

this day of small things we can be thankful for any increase in native

African labour. But great care is necessary in its working. There must

be no hint of coercion; the native must be vigilantly looked after from

the day he leaves his kraal to the day he returns at the end of his

twelvemonth's service,--for the districts must be nursed, and it is on

the report of the first batches that the success of the enterprise

depends. The transport will cost money, but it is doubtful if it will

work out at more per head than the old premium for importation.

The second solution has roused a storm of opposition, and its adoption

would mean the overthrow of the old economics of the mining industry.

It is proposed to use Kaffirs only in the deepest levels and in work

unsuited for white men (for which the present supply will suffice),

and in all other tasks to employ white labour. The white workman on

the Rand under present conditions will be more than four times as dear

as the native, costing 8s. 6d. as against the Kaffir's 2s. a-day. Many

arguments to justify the expense have been brought forward, of which

the weakest is that the white man can do four times the Kaffir's work.

In many branches of unskilled labour he can barely compete with him.

The real argument is concerned with the more general aspects of the

problem. In a highly organised industry there is bound to be a higher

maximum efficiency and regularity from a staff of white employees, who

are working intelligently to better themselves and have certain

political and social interests at stake in their labour. On political

grounds, again, it is most desirable, for apart from relieving the

strain on congested home districts, it would provide a feeding-ground

for South African development, a material wherewith to colonise the

wilds of the north. The sons of the white men would go out to farm and

mine for themselves; and in two generations, when the Rand has become

a normal industrial centre, we should have that interchange of

population between town and country which is one of the buttresses of

civilisation.

The white labour movement has roused bitter opposition, partly from

the mining houses, and to some extent from white workmen on the Rand,

who wish to make a monopoly of their position. Many of the arguments

against the scheme need not detain us. There is no objection to white

and black labour working side by side, any more than there is an

objection on a tropical fruit-farm to a white man digging an orchard

and a Kaffir carting manure for it, or on board ship to a white mate

and a black cook being part of the same crew. The white man will have

the presence of his fellows, the chance of advancement, and a higher

wage to support his self-respect, which must be a brittle article

indeed if it requires further strengthening. Nor is there much

justification for the fears of those who see in white labour the

beginning of endless labour troubles, culminating in the tyranny of

the working man. The situation would be the same as in any other

industrial city--as in Manchester, Sheffield, or Glasgow, where the

bulk of the population are industrial employees. Strikes and lock-outs

will come, but it is better to have in an English city a free and

vigorous English population, than to bolster up the chief industry by

an exotic labour system. Besides, there is always the Kaffir as a

counterfoil, a very strong argument to inspire moderation in the

labourer's demands. White labour remains the ideal, the proper aim of

all right-thinking men; but for the present it is more or less an

impossibility. It simply does not meet the economic difficulty. Unless

the Mines are content to make the _gran rifiuto_, curtail production,

and play a waiting game,--a decision, as we shall see, quite as

ruinous to the country as to the shareholder,--cheap labour under

present conditions is a sheer necessity. One argument on economic

grounds has been brought forward for white labour, which runs somewhat

as follows: Expansion and development depend upon an unlimited

labour-supply; white labour gives such an unlimited supply,--therefore

it would pay to give four times the present wage and secure expansion

rather than keep to the old scale and stagnate. Supposing a mining

group to have a capital of ten millions, of which four are sunk in

working mines, three held in reserve, and three invested in good but

undeveloped claims. The present state of things allows of a dividend

of 40 per cent on the first four millions; white labour would reduce

the dividend to 20 per cent. But if white labour allowed the exploital

of the unworked claims, so that a dividend of 20 to 25 per cent could

be paid on the other six millions, it would be good business for the

firm. It would, but it is not the problem before us. The argument

assumes that the new properties are of the same class as those at

present paying dividends, whereas they are in the main of so low a

grade or demand such an immense initial outlay that, so far from

showing a profit with dear labour, they would be the ruin of their

promoters.

The third proposal is to introduce Chinese[17] labour under short-time

contracts and a rigorous supervision. Its supporters argue with much

reason that the Chinaman has been found useful as a deep-level miner;

that he is thrifty, intelligent, law-abiding, and tolerably clean;

that, supposing 200,000 Chinamen were employed in the mines, it would

still mean not less than 40,000 white workers, so that white labour

would increase in a liberal ratio; that a proper compound system and a

strict limit to the term of engagement would secure the country

against the economic dangers which threaten Australia and the United

States. It is not yet certain that this ample supply of Chinese labour

can be obtained, the matter being in process of investigation; but

there is this to be said for the proposal, that it is the only one

which touches directly the needs of the situation. The others are

counsels of perfection, ends of policy on which all are agreed; this

alone offers an immediate satisfaction to a very pressing want. The

only argument which can be brought against it is not economic[18] but

political,--that its use would endanger the success of those very

aims on which all are agreed. The Chinese are the born interlopers of

the world. Whatever care we take there will be a leakage: a Chinese

population, more feared, apparently, for its virtues than its vices,

will grow up in the cities, the small trades will be shut to

Europeans, the whole standard of life for the masses will be lowered,

and the moral and social currency of the nation debased. The real

case, therefore, of the opponent of Chinese labour, is that it is not

possible to carry out the proposed plan; that we cannot import men on

a fixed contract and deport them at the end of it; that we cannot

build our compound walls so high as to prevent a leakage into the

outer world; that, in short, the law is too weak to do its duty. There

is no difference between any of the disputants on the danger of

letting the labour loose in the country; but the one side maintains

that with proper precaution this peril can be averted, the other that

it is like the sea when it has found an entrance into a sea-wall, a

little trickle which inevitably becomes a deluge. It is not a very

convincing contention, though we can respect the honest political

instincts which support it; indeed, there is a touch of that familiar

fallacy, the "thin-end-of-the-wedge" argument, which opposes an

undoubtedly beneficent reform because of its possible maleficent

extension. The conflict is between an instant economic need and a

potential political danger, and, with all desire to move cautiously,

the wisest course would seem to be to meet the one, and trust to the

good sense and courage of the people to avert the other. The problem

of alien labour is indeed becoming a familiar one to many Crown

Colonies. The Colonial Office has been asked to sanction the

importation of Chinamen to Ashanti, and the Rhodesian Immigration

Ordinance of 1901 made the enterprise legal for Southern Rhodesia.[19]

In the Transvaal there is a unique field for an experiment on sane and

politic lines, and for the creation of a sound administrative

precedent for other colonies to follow. There is a result, too, which

may reasonably be hoped for from the provision of cheap labour which

would be of direct political value. It would enable some of the

smaller properties throughout the country to be worked at a profit,

and so might in time redeem the gold industry from the capitalist

monopoly, which it must remain under present conditions, and create a

class of small mine-owners, on the analogy of the small coal-owners in

England.

There is one final argument against imported labour which demands a

short notice, for it has been used by many serious men who are not

given to captious objections. If we take the original capital of most

mines we shall find that it has been extensively watered, and that

even on the nominal capital there is a huge appreciation. A mine, to

take an extreme instance, begins with a capital of L50,000 in L1

shares; subsequently the shareholders receive eleven L5 shares for

every L1 share, making the present nominal capital L2,750,000. The

quotation of those L5 shares is, say, L10-7/8, making the total

capital value L5,981,250. A gold output which, under present

conditions, is not sufficient to pay a fair dividend upon this

capitalisation, would be amply sufficient to pay a dividend on the

nominal capital, and more than sufficient to pay 500 per cent on the

original capital. The question, therefore, of dividend-paying is out

of all relation to the actual margin of profit on the working of a

mine. The deduction is that the companies have themselves to blame,

and must face a depreciation in their shares; and the unfortunate

investor who has bought L5 shares at L10, believing a return of 4 per

cent on his capital certain, must console himself with the reflection

that every man must pay for his folly. This argument is final against

any _ad misericordiam_ plea of the companies, but it does not touch

the heart of the question. The working of the large over-capitalised

properties is one thing, and the development of low-grade properties,

on which large sums have been spent and for which no profits have yet

been earned, is quite another. The old well-established mines can

afford to fight their own battles, and for the matter of that, in

spite of their heavy expenditure out of capital during the war, are

mostly paying dividends even under present conditions: the new

properties, on which the future of the country depends, are not, as a

rule, over-capitalised, and, as we have seen, the margin of profit is

so small on each ton of ore, that the question is reduced to its bare

essentials--Is it possible to mine ore worth twenty shillings at a

cost under a pound? But even as concerns the richer companies the

argument is scarcely valid, for it leaves out of account that not

inconsiderable factor, the credit of the country. It is so essential

that new capital should be attracted for the twenty different needs of

development, to which any Government loan can only be a trifling

contribution, that anything which tends to shake the confidence of the

world in the commercial structure of South Africa is the gravest

danger. Is it certain, too, that that much-abused epithet of "_bona

fide_ investor" is not applicable to the men who bought high-priced

securities, not as a speculation, but as a modest investment?

It is often said by opponents of imported labour that its introduction

will scarcely have taken place before an agitation will be begun for

its withdrawal. So far from being an argument against the experiment,

this is precisely the strongest which could be urged in its favour. If

the desire of the country is for white labour, then the Chinaman can

be tried with little danger. The mine-owners will find in time that

work on a time contract by alien labourers is far from satisfactory,

and when other circumstances permit they will no doubt readily adopt

that system of free competitive labour which only a white industrial

class can create. Had there been any chance of the experiment being

tried with complete popular approval, then the danger would have been

considerable, for the Chinaman might easily have spread from mining to

all industries and trades; but since it will be made in spite of an

influential opposition, and will be jealously watched by unfriendly

eyes, it seems inevitable that when it has played its part it will be

willingly dispensed with. By refusing to accept the experiment we are

doing our best to frustrate all hopes of a white population by

cramping the development of the country at its most critical time and

making a livelihood impossible for many of the existing white working

men. When mines are shut down because of a lack of underground

labourers, what becomes of the Englishmen who work above ground? It is

a significant fact that many white miners, who were formerly the most

bitter opponents of imported labour, are now its strenuous advocates,

since they and their class are beginning to feel the pinch.

But if the importation of Asiatics is undertaken, it should be on a

very clear understanding and with a very distinct object in view.

The thing is far too dangerous at the best to be made the domain of

unconsidered experiments. The ideal of white labour in the long-run

must be preserved; and we must take jealous care that by the

creation of a foreign labouring class the way is not barred to that

industrialisation of the native races on which the future of South

Africa so largely depends. A maximum might be fixed by law--say

300,000 unskilled labourers, which could be increased if necessary

by later enactments; and in so far as the maximum could not be

attained by white and black labour, Chinese might be imported as a

complement. The complement would, let us hope, rapidly decrease as

new machinery lessened the amount of labour required, and the native

districts of Africa were more fully exploited. All imported labour

would be subject to rigorous conditions as to compounds, length of

contract, and ultimate repatriation--conditions which any ordinary

police could enforce without difficulty. At the same time, the Native

Labour Association should be made a Government department. As a

private organisation it is not more efficient, and it is certainly

less respected, than a Government department would be. What is wanted

in all proper recruiting is the prestige of the Crown. Natives, who

have been often deceived by touts, and regard the offers of the Labour

Association agents as so many idle words, would be ready enough to

listen to proposals made under the guarantee of the paramount chief.

It is a risky game for a Government to embark in private business; but

the Native Labour Association is not a business, but a department,

conducted on the lines of a Government department, but without its

prestige. Under the Crown its organisation would remain intact, but

its status would be raised and its efficiency centupled.

* * * * *

The railway system, immature as it is, has worked wonders for the

country. With few lines, and those single and narrow gauge, with

exorbitant rates of transit and a frequently ineffective organisation,

it has still above all other factors made development possible. In

former days, when heavy mining machinery had to be brought by waggons

from Kimberley or Natal or Delagoa Bay, a mine required to be rich

indeed before it could be worked at a profit, enterprise was costly

and perilous, and the result was the stagnation of all activities save

that one where enterprise was a primal necessity. Under the late

Governments one line ran through the two States, from Norval's Pont to

Pietersburg, with small branch lines in the Orange Free State to

Winburg and Heilbron, and in the Transvaal to Springs and Klerksdorp.

The Natal line was continued from Charlestown to join the trunk line

at Elandsfontein, and the Delagoa Bay line from Komati Poort to

Pretoria, with a little branch to Barberton and the beginnings of a

branch to the Selati gold-fields. The Transvaal had thus three direct

outlets to the coast; the Orange Free State two, for a branch ran from

the Natal line at Ladysmith to the little eastern town of Harrismith.

Two broad necessities of railway policy therefore awaited the new

Government. The existing system must be perfected and interconnected,

new routes to the coast created to relieve the present strain, the

railways of adjoining colonies brought into touch with each other, so

as to make one general and consistent South African system. But more

important than the perfecting of existing arrangements must be the

tapping of the rich and remote districts. Occasionally both needs may

be exemplified in one line, but, roughly speaking, they are separate

branches of railway policy, undertaken on different grounds and in

many cases organised and financed on different methods. The experience

of the United States, where railways were regarded as the cause and

not the consequence of development, and pushed boldly into desert

places which in a few years, through their agency, became centres of

industry and population, is a safe guide, within limits, for South

Africa, provided that the wealth to be exploited is really there, and

railway extension does not cripple other works of equal necessity.

Of the first class we have three chief examples. One--from Machadodorp

to Ermelo--is already partially constructed. The second will run

from Springs east to some point on this line, and so provide a

direct route for the Johannesburg traffic from Delagoa Bay and avoid

the awkward circuit by Pretoria. A further extension is projected by

which the Springs-Ermelo line will be continued through Swaziland to

Delagoa Bay and a complete alternative through route created. The

third is the extension of the present Klerksdorp branch to Fourteen

Streams, which would provide a shorter route from the Transvaal to

the Cape, an infinitely shorter route from the Transvaal to Rhodesia,

and would at the same time bring the coal districts of the country

within reach of the diamond industry of Kimberley. In the second

class there is no limit to the number of possible and desirable

railways. The most important is, perhaps, the grain line, from

Bloemfontein to Johannesburg by Ficksburg, Bethlehem, and Wilge

River, which would bring the great wheat-producing tracts of the

Conquered Territory within easy reach of the chief market. Next comes

the now completed Rand coal line from Vereeniging to Johannesburg.

Another coal line is projected from Witbank on the Delagoa Bay line

to Springs, which would bring the produce of the chief Transvaal

collieries directly to the Rand and relieve the congested line

between Elandsfontein and Pretoria. Of equal importance in the

long-run is a line from Krugersdorp by Rustenburg to some point, such

as Lobatsi, on the Rhodesian railway, which would open up a district

famous for its fruits and tobacco, and give the pastoralists of

Bechuanaland, as well as of the more distant Rhodesia, a straight

line to Johannesburg. Other lines of the same class are those from

Belfast or Machadodorp to Lydenburg, from Nelspruit to Pilgrims'

Rest, and from Basutoland to Bloemfontein. Lastly, and lastly only

because of its greater difficulty, the line should be continued north

from Pietersburg along the Sand River, brought east between the

Spelonken and the Magatoland mountains, past the little township of

Louis Trichard, and then turned south across the basin of the Klein

and the Groot Letaba to Leydsdorp, where it could join the completed

Selati railway from Komati Poort.

The Railway Extension Conference held at Johannesburg in March 1903

sanctioned the immediate construction of most of the lines mentioned

above, and recommended the others as objects to aim at when sufficient

funds were at the disposal of the Government. As the share of the

Guaranteed Loan allocated for railway extension is only some five

millions, and as the proportion of any railway surplus which can be

devoted to the purpose is, as we shall see later, strictly limited, it

is highly desirable to make use of private enterprise so far as

possible in new constructions, providing always for an efficient State

oversight and an ultimate expropriation. The Klerksdorp-Fourteen

Streams and the Krugersdorp-Lobatsi railways have already been

arranged for on this principle, and it is probable that the experiment

will be adopted in many of the smaller development lines. It is

reasonable that a rich company, owning lands or mines, or requiring

for its own purposes some special railway connection, should, if it

desires a new line, undertake the financing of it. But at the same

time the principle of the ultimate State ownership of all railways

should be strictly adhered to, for the very good reason that in the

railways we have the chief security for development loans, and the

most productive of all the State assets. In few countries in the world

is the expenditure on construction and maintenance so small, so that

under present conditions they yield a handsome return on capital

outlay. The Netherlands and the Pretoria-Pietersburg railways have

been acquired from their former owners, and the incomplete Selati and

Machadodorp-Ermelo lines will shortly follow. If we take the price

paid, with the addition in the latter case of the outlay necessary for

completion, as the capital value, we shall find that the net receipts,

even after the large reductions in rates which have been made and must

be maintained, show a generous percentage of profit.[20] It will be

explained later what part this important asset is called upon to play

in the finance of the new colonies. So much for the main lines; but a

system of light railways, constructed at small expense, is vital to

the mineral and agricultural exploitation of such districts as Bethel,

Lichtenburg, Wolmaranstad, and Waterberg, in the Transvaal and the

southern part of the Orange River Colony. In a flat upland country,

where animal transport for some years to come will be precarious and

expensive, where the roads are still unsuitable for steam haulage, and

where coal is cheap, perfect conditions exist for an extensive

light-railway development.

Railway extension, then, is one of the first demands of the country:

it is comparatively easy to achieve, and most of the necessary capital

has already been found for it. But the omnipresent labour difficulty

appears here as elsewhere, not indeed with the magnitude of the mining

problem, but with an equal insistence. To carry out the programme

sketched above in any reasonable time, say three years, some 40,000

natives will be required. At the present moment the number employed is

scarcely 5000, and 10,000 is the limit which the railways may recruit

in South Africa by an agreement with the Chamber of Mines. Many

natives, such as the Basutos, will work on railways when they will not

go underground; and the agreed limit is fair enough to both parties.

But the balance cannot be secured without seriously trespassing upon

the supply grounds of the mines. The Uganda railway was built with

imported labour, and it seems inevitable that the Central South

African railways must follow suit. The limited funds at their

disposal, and the difficulties in the way of the country's absorbing

at the moment large numbers of unskilled workmen, make the employment

of white navvies alone impossible. The railways, indeed, furnish a

fine experimenting-ground for the importation of indentured foreign

labour under a short-time contract and a condition of repatriation.

The number they require is small: 10,000 will tide them over all

immediate needs; the nature of the work enables a complete supervision

to be exercised; and while it is still doubtful whether alien labour

can be secured for the mines, experience has shown that for surface

railway work the supply is certain. In the congested districts of

India and China the small cultivator, to whom land is the object of

his life, will gladly leave his home for one or two years if he can

return with the money to buy a plot of ground; and when the return

home is the cause of the setting out there will be no trouble in

repatriation.

* * * * *

The premier market, now and for many years, must be the Rand. Its

great industrial population and the higher scale of living make it the

natural market for all native agricultural and pastoral products. So

much so that the farmers in the eastern province of Cape Colony, in

spite of heavy railway rates, found it profitable to send the bulk of

their produce thither. This is at once the advantage and misfortune of

the country: advantage, in having an accessible market which it will

take years to glut; misfortune, in that the merits of the market to

the country producer mean costly living to the industrial inhabitants.

The difficulty will no doubt adjust itself; for if, as all believe,

the new colonies take many steps towards feeding themselves, and in

consequence the prices of necessaries fall, new and nearer markets

will arise in different parts of the country, and a genuinely

self-supporting provincial society will be organised. New mining

centres in the north and east, possibly, too, in the west, may bring

new townships into being; old and semi-decayed dorps will revive; and

that novelty in the new colonies, towns like Brighton or Cheltenham,

which exist purely for residence, may yet be found at Warm Baths for

winter, or on the shores of Lake Chrissie for the summer heats. The

Rand, again, will be the chief market for the subsidiary industries

which must arise,--for coal and iron, for manufactured articles and

dressed produce. It is too early in the day to talk in any serious

sense of exports. The Transvaal, at any rate, will be for long a

consumer rather than a producer among the nations of the world.

The tremendous cost of living is the subject of the chief complaints

among new-comers to South Africa. Before the discovery of gold the

Transvaal was a cheap country to dwell in. A bullock which now costs

L20 could be bought for L5; and a native, who now draws L3 or L4 per

month in wages, was then very well content with 5s. Now there is

hardly anything which is not scarcer and dearer in South Africa than

in almost any other part of the globe. The causes of this high cost

are partly natural and partly artificial; but all, I think, are

terminable. The demands of the gold industry, the long distance from

ports, the sparse rural population, are obvious natural causes, all of

which tend to modification and mutual adjustment. The artificial

causes are three: the cost of ocean freightage, the high railway

rates, and the monopoly in the hands of a small mercantile class. The

first can never be reduced below a fairly high figure, and in the loud

complaint of "shipping rings," which is in the mouth of most traders,

there is a little unfairness. It is too often the cloak which they

use to cover their own extortions. But reductions will certainly be

made, and in any case the chief force of the grievance, so far as

necessaries are concerned, will decline with the growth of local

production. Railway rates have already suffered a substantial

decrease, and will be further reduced down to a certain point, which

for the present is determined by the fiscal needs of the country. For

railway rates are a form of taxation: the railways are the chief

revenue producer, and to lower the rates too far would be merely

robbing Peter to pay Paul--a form of relief which would need to be

balanced by some new form of taxation. The chief efficient cause of

the expense of living is undoubtedly the exorbitant monopoly of local

merchants. It is no exaggeration to say that anything sold at 100 per

cent profit is to the ordinary trader a form of charity: legitimate

business begins for him at 120, or thereabouts. No class is so

clamorous about its interests, so ready to identify its profits with

national wellbeing, and claim a monopoly of the purer civic emotions.

But no part of the economic situation is so radically unsound. The

Polish Jew and the coolie make a profitable living throughout the

country, not because the white population have no prejudice against

them, but because they are driven to their stores by the comparative

reasonableness of their prices. This cause, as I have said, is

artificial and terminable. The influx of a large population will

increase the area of competition, and reduce profits to a normal

basis. And this, again, depends on the prosperity of the mines; so

that we are brought round to the starting-point of all South African

economics. Once this result were achieved its benefits would react

on the mines, for with the decrease of the cost of living wages would

go down, and what is at present an ideal--an increase in the area

over which white labour can be employed--would come within the sphere

of practical politics.

The economic situation of the two colonies is therefore composed of a

number of perplexing oppositions. The one certain fact is the great

hidden wealth. But to make those riches actual there must be labour,

and, over and above any question of imported and indentured workmen,

to secure labour there must be reasonable cheapness in the necessaries

of life and work. Customs tariffs, railway rates, general taxation,

must all be calculated on a modest scale. But, on the other hand, if

the country is to advance to that civilisation which is its due, money

must be spent freely by the State on productive and unproductive

enterprises; and in addition to such services, which are the basis of

the Guaranteed Loan, there is the War Debt, 30 millions of dead-weight

round the neck of a struggling people. To pay the interest on debts

and to provide money for day-to-day needs there must be revenue, and

so there comes a point where direct and indirect charges, whatever the

demands of the situation, simply cannot be reduced further if the

mechanism of Government is to continue in action. Heroic persons

advocate heroic remedies, such as the cessation of all enterprise in

favour of mining progress, or the renunciation of certain charges in

favour of cheap living. In one sense all politics are a gamble; but

there are limits beyond which statesmanship cannot go in the way of

staking everything on a chance, and yet hope to justify itself in the

eyes of the world in the event of failure. The real problem for the

statesman is not how to plunge wildly--it requires little skill to do

that--but how to adjust with nice discrimination. To preserve an

adequate revenue, while at the same time giving ample play to the

forces of production, is, in a word, the only policy which contains

the rudiments of ultimate success.

[15] The latest information available on the subject of the

Transvaal gold mines will be found in the exhaustive

report prepared for Mr Chamberlain by the mining

engineers, and published at Johannesburg in 1903.

[16] The following are some of the working costs of the mines.

Low costs: Geldenhuis Deep, 22s.; Geldenhuis Select,

17s. 6d.; Geldenhuis Main Reef, 17s. 4d.; Meyer and

Charlton, 18s. 2d.; Simmer and Jack, 20s. 7d. High

costs: City and Suburban, 29s. 1d.; Bonanza, 27s. 6d.;

Robinson Deep, 30s. 2d. The Robinson-Randfontein group

have ore of a gold value of 34s. 9d. per ton, and a

profit of 2s. over the working cost. The Bonanza has ore

worth L5 a-ton.

[17] Imported labour reduces itself in practice to Chinese or

Japanese. Even supposing that the Indian Government

consented to the strict form of indenture necessary for

mining purposes, the political danger of introducing

coolie labour into a country which already contains a

considerable coolie population would be very great.

[18] An argument often used in this connection is that the

employment of Asiatic labourers, repatriated at the end

of their contract, would mean that a very large sum of

money annually left the country. But the same thing will

happen if native African labour is brought from Central

or Western Africa or Somaliland. It is happening at

present with the natives from Portuguese territory, who

form 90 per cent of the existing labour-supply.

[19] I have said elsewhere that there are few South African

problems which are not long-descended. The first

proposal to introduce Chinese labour was made by Jan van

Riebeck, the first Governor of Cape Colony, about the

year 1653. He urged the scheme with great persistence,

but home opinion proved too strong for him.

[20] The cost of the acquisition of the present railway

systems was roughly 14 millions. This does not, of

course, represent an accurate statement of capital

outlay, as in the Orange Free State considerable sums

were spent out of State revenue. But even if we put the

figure at the outside limit of 20 millions, the net

profits are still more than 10 per cent of the capital

value.

II.

The foregoing is a rough survey of the assets with which the new

colonies start on their career. As in all beginnings, a multitude of

questions protrude themselves. Every politician has his own nostrum,

every interest its own pressing demands. But the main questions are

simple, at least in their outlines, and it is permissible to

disentangle from the web the chief threads of economic policy. Three

postulates there must be before a solvent and progressive nation can

be founded. In the first place, life must be made possible,--life on

the various scales which a civilised society demands. In the second

place, industries--the gold industry and the host of subsidiaries

which must follow--should be given free scope for development by

enlightened legislation, and the removal of burdens from the raw

material of progress. Finally, a sufficient revenue must be secured

to meet the vast reproductive expenditure which the country demands.

To reconcile these three needs, which in practice often appear

contradictory, is the task of the new Government.

Taking the three axioms as our guide, we have to consider the two

questions in all administration--the raising of revenue and the

apportionment of expenditure. Our inquiry into revenue must be chiefly

concerned with the Transvaal. The Orange River Colony is for the

present prosperous, and its future solvency seems assured. With a

certain income of half a million, and an expenditure of a little

less, its fiscal problem is simplicity itself. But the Transvaal

presents the case of a country with great potential wealth, which must

borrow heavily to elicit its prosperity. Certain revenue-producing

charges must be cut down to make life on a proper scale possible, but

revenue must also be raised to make this life possible. It is the old

story of Egypt--taking out of one pocket to put into the other, with

somewhere behind the transaction an economic Providence to enhance

values in the exchange. Such a policy is based upon a faith in the

land, which by its productive power provides a natural sinking fund to

wipe off encumbrances. Loans can be raised at 4 per cent, because the

country repays a hundredfold.

The main items, exclusive of railways, which in the financial year

1902-3 made up the revenue of the Transvaal, were customs revenue at

upwards of two millions, mining revenue at half a million, stamp and

transfer duties at L720,000, taxes on trades and professions and post

and telegraphs at a quarter of a million each, and native revenue at a

little over L300,000. The total revenue was about L4,700,000. The

estimated revenue for 1903-4 has been put at L4,500,000, made up of

customs at L1,800,000, mining revenue at L750,000, post and telegraphs

at L360,000, taxes on trades and professions at L200,000, native

revenue at L500,000, stamp and transfer duties at L700,000, and

L200,000 for miscellaneous items. Since the object of the present

inquiry is to estimate the financial position of the country, it is

necessary in the first place to take the various sources of revenue

one by one, and estimate their value and their defects. Several may at

once be omitted. Post and telegraphs barely pay for their working

expenses, and cannot be counted upon as a source of revenue. Stamp

and transfer duties, stand licences and rent, and the bulk of the

miscellaneous items, are for the present static figures, or vary

within narrow limits, and it is improbable that they will be altered

so as to greatly increase their present revenue during the next few

years. Revenue questions for the Transvaal are concerned with two

items which far excel all others in importance--mining revenue and

customs. There is a third, and the largest of the three, railway

profits; but, as will be explained later, this item has been excluded

from the separate budgets of the two colonies.

The old mining revenue was mainly indirect. A tax on profits was

indeed imposed by the late Government in February 1899, but war broke

out before there was time to organise its collection. The real burden

lay in the dynamite monopoly, which at its worst increased the price

of explosives by L2 the case, and at its best by about 30s. The mines

required an annual supply of 300,000 cases, which meant an annual

charge, beyond the cost of material, of L450,000. The average net

profits on the annual production of gold may be put at L6,000,000,

which, with a 5 per cent profit tax, would return L300,000 a-year.

Had the Boer _regime_ continued, the mining industry would have

contributed in the form of imposts something between L600,000 and

L750,000 per annum (for a reduction of 10s. in the dynamite charge

had been promised on the eve of the war). From the standpoint of the

mines the whole sum was an impost, but only the yield from the profit

tax would have found its way into the Exchequer.

The present charges on the mining industry consist of the prospectors'

and diggers' licences, the 10 per cent tax on profits, imposed by

Proclamation No. 34 of 1902, and the cost of native passes, which was

formerly paid by the native himself, but is now borne by the employer.

The mining industry will therefore on its present basis pay from half

a million upwards in profit tax, about L120,000 for native passes, and

about L50,000 in licences. It is difficult to see how this taxation

could be fairly increased. To add, for example, a charge of 20s. per

case to explosives would be to tax the means of production,--a fatal

heresy,--to keep some of the smaller mines out of the profit-making

class, and in the long-run to harm the Exchequer itself. The true

policy is not to hamper the earning of profits by excessive charges,

but to enlarge by judicious encouragement the area over which profits

are made. It is of the first importance that European capital should

be attracted to, and not scared away from, the country. Under the

present system the Government receipts will advance _pari passu_ with

any increase in the prosperity of the mines, and to secure the

ultimate gain one may well be satisfied to forego a larger immediate

return.

There is a fourth source of revenue from mining enterprise which may

be roughly described as windfalls. The Government has a moral right,

which no one denies, to profit by new discoveries, and in any case, as

a large landowner, it will be interested as an immediate participant.

The provisions of the old Gold Law have been so often discussed in

print that it is sufficient here to give the briefest sketch of them.

Legislation by the late Government on precious minerals began as

early as 1858, and continued in a long series of resolutions and

counter-resolutions till the somewhat confused position of affairs

was simplified and regulated by the famous law, No. 15 of 1898. The

basis of this law is to be found in the principle that to the owner

belonged the ownership of minerals found under his land, but to the

State the right of regulating their disposal. It attempted to give to

both owner and State a fair share of the proceeds, while at the same

time the prospector and discoverer received a moderate reward for

their enterprise. There can be no question about the validity of the

three rights; the only dispute is concerned with their relative

proportions. Besides the matter of share, there is one other question

of great importance--how far it is permissible for an owner to refuse

to allow the exploital of minerals under his land.

I take the last question first. Under the old law the owner of private

property could prospect without a licence on his own land, and could

give authority to any licensed person. If minerals were found, the

State President, subject to certain compensation, could throw open the

land as a public diggings. State land could be prospected and

proclaimed in exactly the same way. But if the owner of private land

refused to prospect himself or allow others to prospect, the State

could not interfere to compel the exploital of his minerals. Much has

been said of the right of the public in the shape of the prospector to

go anywhere in his search; but no such _right_ has ever existed or can

exist. The whole question is one of policy. It is clearly not the

interest of the State to leave the chief source of its wealth

unworked; nor in any real sense is it the interest of the private

owner. But it would be an intolerable burden to a farmer to be

subjected to constant trespass by any prospector who cared to take out

a licence. We must, however, clearly distinguish between Crown and

private land, so far as the steps towards the discovery of the

minerals are concerned. Crown land, under strict conditions, should be

free to any licensed prospector; but, as the settlement of Crown land

by agricultural tenants is a vital part of Government policy,

provision must be made for ample compensation to such a tenant for

disturbance caused by prospecting. Such provision should refer not

only to unproclaimed or hereafter to be proclaimed Crown land, but

should be brought to cover areas such as Barberton, Lydenberg, and the

Wood Bush, which have been long working gold-fields. If compensation

and security is not provided, some of the most valuable agricultural

and pastoral lands in the country will be incapable of white

settlement, and their only occupants will be the Kaffir, the coolie,

and the bywoner, who have no interest in creating permanent homes. It

is undesirable to tie up minerals, but it is equally undesirable to

tie up agricultural wealth. People have talked of proclamation as if

it were an inviolable contract between the Crown and the public, to

which no new conditions could be added. There is neither legal nor

historical justification for this view. It is right for the Crown,

having given permission to the public to go upon its lands for a

particular purpose, to impose from time to time conditions under which

the permission may be exercised. On private lands the case is

different. No owner of a private farm who is in beneficial occupation

of it (when he is not, the land should be treated for this purpose as

Crown land) should be compelled to allow prospecting unless he has

already himself prospected or given authority to others. To enact

otherwise would be to make a freehold title little more than a farce.

But in order to prevent a reactionary or indolent owner from tying up

valuable minerals for an indefinite time, when there are reasonable

grounds for believing that such minerals exist, the Commissioner of

Mines should have the power to give notice to the owner that he must

prospect or allow others to do so, and, if he still refuses, to issue

to the public a small number of prospecting licences on the property.

When prospecting has taken place, and, after an investigation by the

Government, minerals are found to exist in payable quantities, the

area, subject to all rights of compensation, should be proclaimed a

public digging.

Under the old law the discoverer, if his discovery were made at least

six miles distant from a locality already worked, was entitled to mark

off six claims which he could work without payment of licence-moneys.

He had also the ordinary public right of pegging off not more than

fifty claims in the proclaimed area, and fifty additional claims on

payment of reduced licences. The only real reward to the prospector

for his trouble and expense was the six free claims--hardly a

sufficient inducement to undertake laborious, and often costly,

enterprises. The Gold Law Commission recommended that the discoverer

should receive one-thirtieth of the proclaimed area, provided that in

no case such one-thirtieth exceeded thirty claims. This seems a

reasonable but not extravagant honorarium to the pioneer. He would be

entitled to the first selection, and would hold his claims free of

licence-moneys till they reached the producing stage.

The owner, under the old law, was entitled to reserve a _mynpacht_,

equal to one-tenth of the proclaimed area, for which he paid either

10s. per morgen per annum or 2-1/2 per cent of his gross profits. He

was also entitled to mark off a _werf_ or homestead area, on which

prospecting was forbidden; and on this, too, he could claim a

_mynpacht_ from the State. He was entitled to a certain number of

owner's claims, which could not exceed ten. He was entitled, before

proclamation, to grant to other persons a certain number of claims

called _vergunnings_. Finally, he was entitled to share equally with

the Government in all licence-moneys on claims, and to receive a share,

varying from one-half to three-fourths, of all licence-moneys on

stands. This system gave the owner about one-sixth of the whole

proclaimed area,--an extravagant share, and one complicated by the

curious rights into which it was divided. Such unmeaning complexity

must be abolished, and one form of title--claim licences--substituted.

_Werf_ and _vergunning_ claims should be done away with, and the owner,

as the Commission recommended, be allowed to peg out one-seventh of the

proclaimed area, which should take the place of _werf_, _mynpacht_,

_vergunnings_, and owner's claims. The Commission has also recommended

that, while the owner should retain half of the proceeds of licences,

the Crown should have the right, without consulting him, to remit or

reduce the licence-moneys in what appear to be deserving cases.

The State, under the old law, received all licence-moneys on claims

and stands situated on State lands, and half the licence-moneys from

claims and stands on private lands. It received also certain payments

from the owners of _mynpachts_. This in itself should provide for a

considerable revenue. But in addition the Crown should have the right

of sale of claims in proved districts, where the ground has a certain

value. The former method, in places where pegging was out of the

question, such as along the Main Reef, was to hold a claims' lottery,

a method which was neither rational nor lucrative. The sale by

auction of claims in proved districts would bring in a large

additional revenue and do no injustice to the prospector. But in all

places yet unproved the public should be free to peg out claims and

try their fortune. It is important, also, to revise the present system

of licence-moneys, so as to make the licences small during the

prospecting and non-producing period, and raise them when mining

actually begins. Under the old law all licences were L1 per claim per

month, a payment which bore heavily upon the poor prospector who was

still labouring to prove his claim. Prospectors' licences were issued

at 5s. per month on private land and 2s. 6d. on Government land. The

Commission recommended the abolition of prospectors' licences, and the

substitution of one general licence to search for minerals, on which a

stamp duty of 2s. 6d. per month should be charged. When minerals are

found and a public digging has been proclaimed, licence-moneys of 2s.

6d. per claim per month should be paid on Government land, and 5s. on

private land till the producing stage is reached. After that date the

old licence of L1 would come into force.

The Transvaal Legislature will shortly be called upon to consider a

new Gold Law based on the report of the Commission, of which I have

sketched the chief features. Of almost equal importance, in the light

of recent discoveries, is the new Diamond Law, where substantially the

same questions of principle are involved. Owner, discoverer, and State

should have a fair share of profit--but especially the State. We are

none too well off in the ordinary course of things to be able to

afford to neglect our windfalls. A serious and permanent increase of

revenue can come only from a gradual increase of producing activity;

but, apart from permanent needs, many occasions will arise for capital

expenditure in reproductive works which are vital to progress. A

windfall is a development loan without guarantee or interest or

sinking fund to burden the mind of the Exchequer.

* * * * *

The other direct taxes are so few and unimportant that they may safely

be neglected. But it is necessary to face the question of adjustment

and new taxation, for the time may come when it may be expedient to

lower many of the existing duties and to revise thoroughly railway

rates, and it is desirable to have alternative proposals to meet the

decline of revenue which will follow. It may be desirable, for

instance, to abolish wholly the present charge on dynamite, as it most

certainly will be necessary to lower still further the cost of transit

on the railways. But new taxation must be imposed with the greatest

caution. The present population of the Transvaal pays in indirect

taxes L10 a-head as against L2 at home; the field for direct taxation

is therefore strictly circumscribed. To certain taxes the road is

barred. A land tax, however light, would bear heavily upon the

impoverished rural districts, and in any case is impossible under the

Terms of Surrender. An income tax would make life unbearable if the

limit of exemption were low, and if the limit were high the yield

would be inconsiderable. A general profit tax on the earnings of both

companies and individuals may become feasible in time, but we must

first await the return of normal conditions of life. One way may be

found in increased native taxation, a matter which, as it is bound up

with other questions of native policy, is discussed in another

chapter. But the object of all new taxation must be to strike at the

untaxed and unproductive elements in society, for reasons quite as

much political as economic. On this ground two taxes seem just and

desirable, though there are certain obvious difficulties to be

surmounted before they can be levied. The first is a tax upon

unoccupied lands, a quite possible and equitable tax which would meet

with little real opposition. Land companies in the Transvaal alone

possess some 12 million acres, the bulk of which has been bought for

supposed mineral values. Not 10 per cent of the land is occupied, and

nearly 50 per cent is capable of occupation of some kind. Quite apart

from revenue considerations, a tax which would compel settlement, or,

failing that, would drive some of the more obstinate companies to put

good land in the market, would be sound policy. What applies to the

companies would apply to the private landowner who has his half-dozen

farms, and lives in a corner of one of them. _Latifundia_ bid fair to

be among the curses of the land, unless proper measures are taken to

check them in time; and if this is done, the land troubles of the

Australian colonies and their confiscatory legislation will be saved

to South Africa. The machinery would be simple. A permanent commission

would have to be established (the judicial committee of the Central

Land Board, provided for in the Settler's Ordinance, could do the

work). Each owner of unoccupied land would be summoned before it to

state his case. He might show that three-fourths of his land was at

the moment incapable of occupation, in which case he would only be

assessed on the remainder. The tax might be an _ad valorem_ tax of 2

or 3 per cent. A day might be fixed, say eighteen months from

assessment, when the tax would come into operation. In case owners

proved refractory and preferred to pay the tax, it might be increased

on a sliding scale till settlement became compulsory. There would be

no hardship to company or individual, since only land for which a

white occupier could be found would be assessable for the purpose. The

second tax is of equal importance but far greater complexity. The most

difficult person to reach in taxation is the holder for the rise, the

speculator who is nothing else, the great class which toils and spins

not and grows fat on the energy of others. The basis of his activity

is the quotation of shares, and a tax to affect him must be in

relation to such market values. You cannot introduce a too cumbrous

machinery without acting in restraint of legitimate trade, quite apart

from the fact that most of the business is done with bearer shares

which pass through fifty hands before registration. But it might be

possible--it is a problem for a revenue expert to decide--to affect

this class indirectly and curtail its activity by a tax on the profits

of companies based on the average quotation for the preceding year. At

the best it would be only a half measure, for it would be limited to

dividend-paying companies, and the energies of the middleman are

chiefly exercised on companies whose profits are still wholly

speculative. But with all deductions there seems to be a chance of

revenue in such a tax, and a certain general economic value. The tax,

again, would be limited to new issues, for in the case of old issues,

even when the shares stand at 1000 per cent premium, a high dividend

may represent a very moderate dividend on the capital of the investor

who bought in when shares were high. If the dividend of a new issue

justified a high quotation, the quotation would be high in spite of

the tax, but the existence of the tax would tend to keep down the

speculative quotation to some reasonable relation to former dividends.

If dividends declined, and the quotation fell, the tax would go

automatically out of existence. Such a tax, if possible, would not

yield in normal years a great revenue, but it would have certain

salutary and permanent effects. It would touch companies only in a

high state of prosperity. It would indirectly touch the man who buys

not for dividends but to realise by taking away in some part the basis

of his speculations. It would exercise a steadying influence upon the

market, and prevent, at least in one class of security, fictitious

rises. But as a means of revenue its position would be really that of

a windfall, for it would enable the Crown to profit largely out of any

period of great financial excitement. A boom, so eagerly desired by

all but in many of its results so maleficent, might be delayed by its

agency; and if it came, as no doubt it would in spite of any ingenious

taxation, and share values became blindly inflated irrespective of

past or present dividends, the Government would perform that rarest of

feats, and derive an honest profit from the vices of the multitude.

* * * * *

The Transvaal, till the other day, was the only important South

African state not included in the Customs Union. Its customs law was

No. 4 of 1894, amended by Ordinance 22 of 1902. The basis was an _ad

valorem_ tax of 7-1/2 per cent on all goods brought across the border,

with an addition of 20 per cent to the valuation price for the purpose

of the tax in the case of goods directly imported from over-sea. The

purpose of this provision is obvious, since to goods bought at the

coast the cost of over-sea freightage and handling is added in

reaching the price on which the tax is assessed. But to this general

duty there were two important exceptions. There was a lengthy free

list, which included, in addition to goods imported for Government

use, all live stock, books, tree, flower, and vegetable seeds and

plants, tools and effects of immigrant mechanics, fencing material,

mining and agricultural machinery, cement, and unmanufactured woods.

There was also a list on which, in addition to the general 7-1/2 per

cent, special duties were charged. Beer paid 3s. per gallon, dynamite

9d. per pound, gunpowder 6d. per pound, spirits from 14s. to L1 per

imperial gallon, manufactured tobacco 3s. per pound, leaf-tobacco 2s.

per pound (when brought from over-sea), wine from 4s. to 12s. 6d. per

gallon. The tariff was therefore moderately protectionist. Most

articles necessary for the great industries were free; articles of

common use were subject only to the _ad valorem_ duty; while articles

of luxury, and especially all fermented liquors, were subject to a

fair but not excessive special tax.

The difficulty was that the tariff was not a fair guide to the real

taxation of imports. The Transvaal has no seacoast; all her imports

have to be landed at the ports of other colonies or states, and

carried to her borders by alien railways. Moreover, all the seaboard

colonies, as well as the Orange River Colony, were banded together in

a Customs Union, from which she was excluded. A tariff hostility was

therefore smouldering on, which gave acute annoyance to the Transvaal

importer. I will take two instances of purely predatory imposts. The

coast colonies levied a so-called transit due of 3 per cent on

dutiable articles for the Transvaal, a due which was the same in

principle as the levies which the barons of the Rhine used to make

from the harmless merchants passing through their borders. Again, in

the case of the Orange River Colony, the only inland colony in the old

Customs Union, the duties were collected at the coast ports, and a

collecting charge was made, which was simply another form of the

transit due. At one time the charge was as high as 25 per cent of the

duties collected; but on the petition of the Orange River Colony it

was afterwards reduced to 15 per cent. How far such a rate was from

representing the real cost of collection is shown by the fact that the

Transvaal duties were collected by the coast colonies from the

occupation of Pretoria to the end of 1901 at a charge of only 2-1/2

per cent.

The Transvaal had thus a tariff in itself reasonable, but she was

embarrassed by her isolation. It was obviously desirable that she

should enter into the Customs Union, which would then comprise the

whole of South Africa, for if federation is ever to become a serious

policy it is well to begin by throwing down economic barriers. But

economics have an awkward way of overriding all other considerations,

and the entrance of the Transvaal into the Union could only be a

matter of hard business--give and take on both sides. The interest of

the two parties was on this matter far apart. The coast colonies are

agricultural and pastoral, and their ports are forwarding depots. They

are frankly protectionist, and their customs have always been their

chief source of revenue. The Transvaal is industrial, and for the

present a free-trader; she must have cheap food, cheap raw material,

cheap necessaries. While at the moment customs form the largest item

in her revenue, it does not overshadow all others, and in time it is

probable that it will sink to a second place. The question was,

therefore, What of her present tariff would the Transvaal relinquish

to meet the wishes of the Union, and what compensating advantages

could she expect from her membership?

The Bloemfontein Conference of March 1903 prepared a Customs

Convention, which has since been ratified by the several states, and

the old Customs Union has been amended and extended to include the

whole of British South Africa. How far has this act improved the

economic position of the Transvaal? In the first place, there is one

solid gain, the abolition of the transit dues, estimated at between

L250,000 and L300,000 per annum. There is, too, a gain in the mere fact

of union, and the freedom which it gives from the incessant bickerings

of conflicting tariffs. Since her duties are collected by the coast

colonies at the moderate charge of 5 per cent, a saving may also be

effected by the reduction of the customs establishment on her borders.

The benefit which she has conferred in return is the opening of her

markets without restraint to the products of British South Africa, an

opening which should amply repay the coast colonies for the reduction

in the protective tariff from over-sea. The actual tariff charges are

in the nature of an elaborate compromise. To take first the case of the

simple food-stuffs. In 1898, under the old Transvaal tariff, imported

flour paid in duty L26,955, and imported mealies L16,290. Under the old

Union tariff they would have paid respectively L114,068 and L69,332--a

difference of over 400 per cent. The old Union rate was 2s. per 100 lb.

for grain and 4s. 6d. per 100 lb. for flour, while the old Transvaal

rate was an _ad valorem_ duty of about 9 per cent. It was impossible

that either party could accept the other's rate, so the present

solution of 1s. for grain and 2s. for flour may be taken as a

satisfactory compromise, which an industrial country could support. It

must be further remembered that all food-stuffs produced elsewhere in

South Africa enter free, and that the cost of bread under the new

system will be if anything reduced. Article XV. of the Convention gives

the Transvaal a further power in times of scarcity to suspend the duty

on food-stuffs altogether, and give a bonus to imports of the same

class produced in the neighbouring colonies. The ordinary manufactured

article, which in a non-manufacturing country plays as large a part in

the cost of living as bread, is also reduced for the purchaser. It pays

an _ad valorem_ duty of 10 per cent, which at first sight seems higher

than the old rate of 7-1/2, which with other charges worked out in

practice at about 9. But 2-1/2 per cent must be deducted on account of

the 25 per cent preferential rate for British goods, and with the

abolition of the transit dues the actual duty will work out at between

7 and 8 per cent. Raw material and the necessaries of industry remain

much where they were under the old tariff, which was highly favourable

to them; but the charge on dynamite has been reduced from 9d. a-pound

to 1-1/2d., which is a reduction of over 30s. on the 50-lb. case.

A mere comparison of tariffs does not show the real cheapening of the

necessaries of life; for to get at the practical effect, the abolition

of the transit dues, the reduction of railway rates, amounting to at

least L300,000 per annum, and the preference rate on British goods,

must all be considered. Under the old tariff and railway rates every

100 lb. of flour from Port Elizabeth to the Transvaal paid 9d. to the

Transvaal in duty. The freight was 6s. 2d., so that it paid altogether

in charges 6s. 11d. Under the Convention the same quantity of flour

will pay 2s. in duty and 3s. 9d. in railway rates, so that, in spite

of the higher duty, the charge is only 5s. 9d.,--a saving to the

Transvaal consumer of 1s. 2d., and a gain to the Transvaal treasury of

1s. 3d. There are many instances of a similar kind. Ordinary groceries

will be reduced by about 3 per cent, paraffin by 1s. 6d. a case,

grease by 2s. 6d. per 100 lb., cement by 2s. 9d. a cask. Tea and

coffee, on the other hand, show a slight increase. In one branch there

is a very marked increase, and an exception to the inter-colonial free

trade, which is the basis of the Convention. Each party to the Union

is entitled to levy on the importation of spirits distilled in and

from the produce of places within the Union a duty equal to any excise

duty which it may levy on spirits made within its own borders. In the

Transvaal there is no excise, for the manufacture of spirits is wholly

forbidden. It is of the most urgent importance to keep fermented

liquors out of reach of the native population, and to suppress all

illicit traffic. The importation of Portuguese spirits has been

stopped by treaty, and it was clearly impossible for the Transvaal to

consent to the importation of spirits on easier terms from the other

British colonies. The concluding paragraph of Article XVII.,

therefore, provides that "where a prohibition exists in any colony or

territory of the Union against the manufacture of spirits for sale, it

shall be lawful for such colony or territory to levy on spirits

produced within the Union a custom duty not exceeding that levied on

similar spirits produced outside the Union." The duty in force is

therefore from 15s. to L1 per imperial gallon in addition to the 10

per cent _ad valorem_ rate; which, it has been calculated, is an

increase on the former cost of from 4s. to 6s. per case.

The new Union is therefore almost wholly in the favour of the new

colonies. The cost to the consumer is lessened, but the revenue does

not lose appreciably, since charges, formerly diverted by the coast

colonies, now go to its coffers. The coast colonies, in an admirable

spirit of statesmanship, have consented to surrender a part of their

revenue in order that the chief industrial market of South Africa

might be open to their people--an example of that policy of foregoing

certain revenues on a narrow basis for the sake of a possible revenue

in a wider field which is of the essence of good government. The

preference given to British goods, while still further reducing rates

in favour of a large class of imports, is also a step towards

federation, which does not, as such experiments are apt to do,

militate in any serious way against local commerce. The one person who

might complain is the farmer of the Transvaal, who sees his markets

thrown open to the old grain-lands of Cape Colony; but if the long

railway journey which his rivals have to face is not a sufficient

handicap to enable him to hold his own, then we need not lament his

fall. Vital as agricultural progress is, it cannot hope for protection

at the expense of industrial prosperity.

* * * * *

The normal expenditure of the Transvaal may be taken roughly at

L3,600,000. This figure is exclusive of debt charges, or any capital

outlay on development which may be met out of revenue. It represents

merely the day-to-day cost of the administrative machine. As revenue

is enlarged the expenditure will follow suit; but it is unlikely that

the proportion of costs to receipts, which is roughly three to four,

will ever increase. On the contrary, it might be considerably reduced

by a more complete administrative decentralisation. At present there

are a number of isolated departments--Native Affairs, Lands,

Mines--with local representatives wholly independent of each other,

and responsible only to the heads of their departments. The resident

magistrate, who is really an administrative official, since the legal

work is done by the assistant magistrate, and who as a rule is not a

lawyer, has a very narrow control over a few subjects like local

government and public health. The system is wasteful both of money and

energy, for the isolated departments often overlap unconsciously; and

since there is no local check, the tendency is for the head of a

department to increase his local staff and to vie with other heads in

securing large estimates. It also means that a constant inspection has

to be kept up from headquarters, and each department supports a force

of travelling officials. The Indian precedent might be followed with

advantage, and real heads of districts established, who would have a

control, direct or indirect, over all administrative work. They should

be responsible for the efficient and economic working of their

district, prepare their local estimates and reports, and answer for

their work only to the Governor and Council. The great departments

would exist as before, but their local staffs would be much reduced

in number, so far as such staffs were administrative and not

intrusted with expert work. Experts, such as inspectors of machinery,

customs officers, and veterinary surgeons, would remain directly

responsible to their own departments, though over these also the

district administrator would exercise a general supervision. In this

way a very considerable saving would be effected in salaries, the

unnecessarily large force of travelling inspectors could be reduced,

and the friction which inevitably attends the working of isolated

and independent officials in any district would be saved by the

establishment of responsible heads,--deputy administrators, whose

business it would be to supervise all district Government work, and

control all local expenditure.

III.

The natural assets of the country and the existing fiscal system have

been roughly sketched in the foregoing pages. It remains to consider

what burden these two factors in collaboration are called upon to bear.

In view of the peculiar situation of the new colonies, the necessity of

a loan for development is sufficiently obvious. The country was

desolated by war. Large sums were necessary for compensation to

loyalists and for the repatriation of the Dutch inhabitants. The

backward system of our predecessors had left public works ill provided

for in most places, particularly in the country districts. If the

wealth of the provinces, mineral and agricultural, was to be exploited,

and the existing industries granted reasonable facilities for progress,

a heavy expenditure was imperative for railway extension. If the rural

parts were to be developed and their population leavened with our own

countrymen, considerable sums must be expended on settlement, and on

such reproductive schemes as forestry and irrigation. Finally, certain

heavy liabilities awaited the incoming Government. To buy out the

existing railways and repay certain military debts and advances from

the Imperial Treasury, fully 14 millions were required. The old debt of

the Transvaal, amounting to 2-1/2 millions, which carried 4 per cent

interest, must be paid off, and the capital required for the repayment

made part of a new loan at an easier rate. The liabilities and needs

of the country stood therefore as follows: An advance by the Imperial

Government to cover the estimated Transvaal deficit of 1901-2,

L1,500,000; the old debt of the Transvaal, L2,500,000; compensation to

loyalists in Cape Colony and Natal, L2,000,000; the acquisition of the

railways and the repayment of the existing railway debt, L14,000,000;

repatriation[21] and compensation in the new colonies, L5,000,000;

railway extension, L5,000,000; land settlement, L3,000,000; various

public works, L2,000,000,--a total of L35,000,000. This is the sum

comprised in the famous Guaranteed Loan.

But this figure, large as it is, does not exhaust our burden. During

the year 1901 and 1902 the question of the contribution of the new

colonies to the imperial war debt was keenly discussed both in South

Africa and in England. Some fixed the payment likely to be required at

as much as L100,000,000; others argued that the new colonies were

likely to have so many burdens of their own that they could not be

called upon to contribute at all. Moderate men on both sides saw that

some contribution was equitable, but asked that it should not be fixed

so high as to cripple development. There were various proposals, such

as the ear-marking of certain sources of revenue and all windfalls, or

the allocating of a certain proportion of any annual surplus; but such

schemes were liable to the objection from the side of the Imperial

Government that there was no certainty in the contribution, and from

the side of the new colonies that there was no finality in the

liability. The settlement which Mr Chamberlain announced in his speech

at Johannesburg in January 1903 was, perhaps, the best possible in

the circumstances. The contribution was fixed at L30,000,000, to be

raised in three years by contributions of L10,000,000 per annum. The

first 10 millions at 4 per cent were underwritten without commission

by the great financial houses of the Rand, and there is no reason to

doubt that if they are called to make good their guarantee, it will

prove a profitable investment. It is difficult to overestimate the

merit of an arrangement which tends to bind the great houses to a

closer interest in the general development of the country. The War

Loan was secured wholly upon the Transvaal, but there is a contingent

liability on the Orange River Colony to pay a further sum of

L5,000,000 out of the Government share of any discoveries of precious

stones and metals.

We have, therefore, to face a total debt of L65,000,000, of which 35

millions at 3 per cent are a charge upon both colonies, and 30

millions at 4 per cent upon the Transvaal alone. It is a heavy

responsibility for a white population of a few hundreds of thousands,

face to face with a labour problem. That the world at large believes

in the future of the country is shown by the way in which the

Guaranteed Loan was taken up, the first 30 millions having been

subscribed more than thirty times over. On this loan the interest

charge, with 1 per cent sinking fund, will amount to an annual

payment of L1,400,000: in three years time the War Loan, unless (which

is probable) it can be issued at a lower rate than 4 per cent, will

mean an annual charge of L1,200,000, with no sinking fund allowed. We

have therefore in front of us a possible annual payment of L2,600,000,

with a slight increase in the future when a sinking fund is provided.

The payment, large in itself, was made more difficult by the

circumstances of the two colonies. The larger loan is secured on both,

but while the Orange River Colony had a fair claim to a considerable

part of the proceeds, it was clearly impossible that she should pay a

share of the charge proportionate to her receipts. If she shared in

the loan only to the extent of the annual contribution which on her

small revenue she could afford, many important public works both of

land settlement and railway extension would have to be abandoned.

Joined with this general administrative difficulty, there was a

departmental one connected with the railways. The main line through

the Orange River Colony had acquired, as one of the main feeders of

the Transvaal, a purely fictitious value, and the Orange River Colony

profited greatly by the receipts. But to have within one system two

types of line, one a through line simply, the other connected directly

with the great centres of production and consumption, and to have

those two types of lines used as revenue-producing agents for two

different administrations, was to make a consistent railway policy

impossible. The country of the through line, whose fictitious value

produced a very real revenue, would reclaim against reduction in rates

for the benefit of the other.

Both difficulties have been met by a very ingenious scheme. The

Inter-Colonial Council of the two colonies, created by Order in

Council of 20th May 1903, is significant in many ways, notably as the

first overt step towards federation; but for the present we may look

upon it purely as a financial expedient. Two important departments,

common to both colonies, were placed wholly under the administration

of the Council--the Central South African Railways and the South

African Constabulary; and a number of minor common services, such as

surveys and education, were added, and power was given to the two

legislatures to increase the number when they saw fit. A Railway

Committee of Council forms the permanent controlling authority in all

railway matters. All net profits of the railways in each year are

assigned to Council to form its revenues. Out of these it has to meet

the expenditure of the Constabulary and the minor common charges, as

well as the annual charge and management costs of the Guaranteed

Loan.[22]

The financial duties of the Council are therefore twofold. It has the

entire administration of the Loan in its hands, it provides for its

apportionment among the different services, and it undertakes the

payment of its charges. It has also to meet the administrative

expenditure of the common departments intrusted to it, and for this

purpose it receives the net profits of the chief revenue-producing

asset of the two Governments. The first duty is comparatively simple.

A body composed of official and unofficial representatives of the two

parties to the Loan can allocate speedily and equitably without the

constant strife and jealousy which would attend the interference of

two different publics. But the second duty, which is concerned with

the annual inter-colonial budget, constitutes the index or barometer

of the new colony finances. The Budget for 1903-4 shows the following

figures: on the revenue side, L2,350,000 from the net railway

receipts; on the expenditure side, L1,441,000 for the service of the

Guaranteed Loan,[23] L1,520,000 for the Constabulary, and about

L70,000 for minor common services. This leaves a deficit of about

L680,000, which, according to the term of the Order in Council, will

be met by contributions from the Transvaal and the Orange River Colony

in proportion to their customs receipts--roughly, L600,000 from the

first, and L80,000 from the second.

Let us take the revenue side of the Budget first. The position of the

railways is anomalous. They are virtually a taxing-machine, and in

this respect the most effective of Government properties. The normal

position of a Government railway should be that of an institution

worked for the public benefit, the receipts being little in excess of

the working costs plus a moderate interest on the capital involved. In

this railway system the net profits, as we have seen, are estimated

for next year, allowing for the half-million decrease from the

reduction of rates, at L2,300,000. No doubt it is economically unsound

to levy a tax of such magnitude on what is virtually a necessity of

life and a constituent of production. But bad economics may be sound

statesmanship, if they are recognised as unsound--a temporary

expedient to obviate a more serious difficulty. Railway profits are

the buttress of inter-colonial finance: without them there is no

satisfactory provision for the debt charges, and some form of direct

taxation, which would interfere far more effectively with nascent

industries, would be the only resort. The rates have been already

reduced so as to provide, along with the new customs tariff, for a

very real decrease in the cost of living. They will be still further

reduced, always keeping a limit in view which is calculated on fiscal

needs. To so adjust the rates that industrial and rural development

will not be hindered, and at the same time to provide an adequate

revenue, presents a very pretty problem in railway finance. It is the

problem in the customs; it is the problem in direct taxation; it is

the essence of the economic problem of the country. But with all

reductions there is a good chance of railway revenue increasing. The 5

millions of the Loan which go to development will in a year or two

bear fruit. It is difficult to see how the net profits can ever fall

below L2,100,000, while it is not unreasonable to hope that in a few

years they may rise to L2,500,000 or L3,000,000.

But while the revenue side is likely to increase, the expenditure side

of the Budget will inevitably decline. When the full loan is raised

the annual charge will be L1,408,000, a stationary figure till the

loan is redeemed. The Council is a genuine _Caisse de la Dette_; its

revenues are charged in the first instance with the loan charges, and

the liability of the separate colonies to make up any deficiency

distributes the weight of the debt equitably among the parties to it.

The danger of a _Caisse_, that it tends to check general prosperity by

a too arbitrary appropriation of revenue, is avoided by the very

strict conditions of the Council's power and the nature of its

constitution. The minor common services will not increase, and they

may very probably decrease, as such branches as surveys and permits

shrink to normal limits. The large item of 1-1/2 million for the

Constabulary will be lowered in future to about L1,200,000, which, on

the present establishment, must be regarded as a final figure. We may,

therefore, take L2,500,000 as the average expenditure in two years'

time, which, if railway receipts increase to a like figure in the same

time, would make the Inter-Colonial Budget balance.

In the meantime the Transvaal is able to pay any contribution which

may be required from her. But in two years all or the greater part of

the War Loan will have been raised, and she may have to face a maximum

annual charge of L1,200,000, which contains no provision for any

sinking fund. In these circumstances, on her present revenue she could

pay nothing towards any inter-colonial deficit: she might even have to

ask for a contribution. There is every probability that such help

could be given, and an automatic system of adjustment might be framed

by which any inter-colonial surplus could go to pay the charges or

assist in the creation of a sinking fund for the War Loan. This is of

course on the most unfavourable assumption,--that the War Loan has to

be raised at 4 per cent, that the present industrial depression

continues, and that the Transvaal gets no increase of revenue from

that prosperity which she has a right to expect. It is far more

probable that the Council will be free to devote any surplus it may

show to the development of the common services, for which the Loan

provision cannot in the long-run be found adequate.

[21] This figure does not cover the expense of repatriation.

There was a free gift for the purpose of L5,000,000 by

the Imperial Government.

[22] The Council is composed of the High Commissioner and

Governor (President), the two Lieutenant-Governors, the

Commissioner of Railways, the Inspector-General of the

South African Constabulary, two official members for

each colony, nominated by the Lieutenant-Governors, two

unofficial members for each colony, elected by the

unofficial members of the two legislatures, and two

members nominated by the Secretary of State.

[23] These figures require a word of explanation. Only 30

millions of the loan have been issued, so the charge for

interest and management should only be L1,208,000; but

as the loan year began in May and the financial year for

the budget began in July, interest and management

charges for fourteen months were included.

IV.

It is idle to deny that the present is a period of financial strain.

The new colonies are solvent, but the margin is narrow. Like

everything else in South Africa, their finances are on a needle-point,

and require strenuous intelligence and constant economy. I have taken

the railway profits and customs receipts as incapable of falling below

their present level; but it is to be remembered that the past year is

not a fair basis for prophecy, since the country has been in process of

reconstruction, and the heavy importations for the purpose have swollen

receipts in both departments. If industrial progress is still

retarded, both figures will sink enormously, and the whole system of

finance sketched in the preceding pages will require revision. If, on

the other hand, progress is assured, both figures will increase

largely, since, while this basis is high as compared with the present

situation, it is low compared with any real prosperity. In this case

the strain will be of short duration. _Ce n'est que le premier pas qui

coute._ Industrial development lies at the root of all things. The

Transvaal can only hope for a large permanent increase of revenue from

the licences and profit tax paid by the mining industry and from

Customs receipts drawn from a wider basis of population. Unless this

increase comes she may be unable to meet her own war debt, or to

contribute anything to an inter-colonial deficit. Inter-colonial

revenues, too, can only expand from the same cause, for mining

prosperity is at the bottom of railway profits. The State finances

depend upon mining development, and mining development depends on

labour: this is the true statement of the problem, and all others are

involved in a vicious circle. And this is as it should be. On the

great industry of the country the chief burden must lie.

There is, of course, the possibility of windfalls. From the Crown

share of gold and diamond properties very large sums of money may

from time to time flow to the Exchequer. But it is the part of a

prudent finance minister to base his forecasts on the normal only,

and to accept windfalls as gifts of Providence, to be used for

special purposes. It may be necessary to draw upon this source of

income to meet the debt charges; but, should this misfortune be spared

us, then we have in such windfalls the nucleus of a reserve fund for

development. There is need, as we have seen, of a capital outlay on

development far beyond that provided for in the Guaranteed Loan.

Railway extension alone, before we have done with it, will need not 5

millions, but 10, and, in cases where new lines are built by private

companies, we shall have to face sooner or later a considerable

expenditure on expropriation. Public works, when all the loan moneys

have been spent, will still be badly provided for. It may be necessary,

too, to spend money in expropriating land for public parks, for game

preserves, for public buildings, for new townships,--expenditure which

in the first instance will fall upon the Government. So, too, with

other schemes,--irrigation, the search for artesian water, the

establishment of colleges and technical schools, and all the thousand

activities of government in a new country, which will grow quickly and

develop early a multitude of needs. Lastly, land settlement in the two

colonies, if it is to serve the social and political purpose which is

its chief justification, demands more than the 3 millions allotted to

it. Such expenditure is in the fullest sense an investment, since the

bulk of it will be returned in time to the Exchequer with a reasonable

interest. It is proposed that, in so far as repayments of capital from

settlers are concerned, such repayments should form a special fund,

which can go out again in fresh advances and further purchases of

land. In this way a permanent fund for settlement will be created, and

the project will not be dependent upon a share of any annual surplus.

The economic problem of the new colonies finds a parallel in Egyptian

reconstruction in more ways than the analogy of the _Caisse de la

Dette_. There is the same undeveloped wealth in the country, the same

heavy bondage of debt, the same demand for reproductive expenditure.

To cut down the cost of living and the restraints on production, and

at the same time to provide money for development and for the charges

of an unproductive debt, is the threefold South African problem, as it

was the Egyptian. Solvency here, as there, is to be found in an

equipoise, and requires a nice and discriminating statesmanship rather

than any heroic cutting of knots. In most respects the Egyptian

difficulty was far the greater, for there the cast-iron debt

regulations and the endless European surveillance frustrated at every

turn the efforts of her statesmen. But one danger was absent. In Egypt

patience and diplomacy, faith in the country and in the work of time,

were so obviously the only cards to play, that, while there were many

temptations to lose heart and abandon the struggle, there was no

inducement to try short cuts and forsake the true path of policy for

those showy and unconsidered measures which in the rare event of their

success are called heroic. In South Africa the amateur financier is so

abroad in the land that we may look to find many odd nostrums

advocated to ensure prosperity. The kind of discussion which arose

over the labour difficulty is a guide to what we may expect in the

realm of high finance. But in both the one and the other the real

problem is plain once the obscuration caused by conflicting interests

is cleared away by a little common-sense.

The great questions of economics in relation to state growth are

always simple. If high finance means anything it is the power of

adding two and two together. Complicated financial adjustments belong

to a lower plane: the great financier may have no aptitude in reducing

results to a decimal. But there is this distinction, that whereas in

the intricate calculations of secondary finance the figures are mere

counters, the elaboration of accepted data, in the higher and simpler

finance they are symbols. To the statesman they are the gauge of

prosperity or decline, and behind them stand the millions of workers,

the miles of crops, the floods and droughts and pestilences, the rise

and fall of industries, the ore in the mine, the web in the factory,

the cattle in the stockyard. The yield of a land tax is to him not a

figure but a symbol, and in using it he has regard not only to its

formal place in estimates and returns, but to its political meaning.

It is, if you like, the quality which in other spheres constitutes

the distinction between statesmen and high permanent officials,

between economists and statisticians, between all leaders and all

subordinates. In the finance of a country which is still in process

of reconstruction, this power, so uncommon and so inestimable, of

getting behind figures to facts, and keeping the hand on the pulse of

national progress, is the only guarantee of ultimate success. In this

light the prospects of the new colonies give good reason for hope.

The budget of to-day, formally regarded, shows a delicate equipoise,

in which a pessimist might find material for dark forebodings; but it

is only the symbol of that stress of re-creation which must precede

an ample prosperity.