Now from State _loans_ let us turn to State _taxation_, which has to-day for its most permanent object the payment of interest on internal and external loans. How does the State tax its citizens? Taxation levied by the State is divided into two kinds--called _direct_ and _indirect_. Direct taxation is the taxation levied upon the money which the person who pays it has at his disposal. For instance: If you have £1,000 a year and the State makes you declare that and then taxes you £100 every year, that is direct taxation. Indirect taxation takes the form of levying a tax on the manufacturer of an article or on the importer of an article, which tax he passes on to the person who consumes it, by an addition to the price of the article. Thus, when you buy a pound of tea or a bottle of wine you are paying indirect taxation. The price which you paid for the tea is so much for the real value of the tea and so much more (though you do not feel or know it at the time) which has been paid on the tea as it came into England at the ports. The brewers who make beer have got to pay the Government so much for every gallon they make, and this is passed on to the people who buy the beer by an extra amount put on to the price. The wisest men who have discussed how taxes should be levied laid down four rules which, unfortunately, no Government has kept to as it should. It is worth while knowing those rules, because they are a guide to what good taxation should be. These rules are:-- 1. A tax should fall in such a fashion that it is paid most easily. For instance: it is much easier to pay £100 a year in small sums which fall due at frequent intervals than to pay the whole £100 upon demand in one lump. 2. The tax should be so arranged that the cost of collecting it should be as slight as possible. For instance: if I put a tax upon everyone who crosses a particular bridge, I shall have to appoint and pay someone to collect the tax at the bridge, and I shall probably have to pay inspectors to go round and see that these bridgemen do their duty and do not cheat. If I tried to levy a tax of this kind on a great many bridges that are not much used the cost of collecting would be very high compared with the revenue produced. But if I put a tax on every cheque issued by a bank, _that_ tax is collected with hardly any expense. All the Government has to do is to say that no cheque will be valid unless it carries a stamp. The banks stamp all their cheques with this stamp, and when they sell a cheque book to a customer they take the value of the stamps from him. All the Government has to do is to find out the number of cheque books issued, and ask for the money from the banks.[6] 3. Taxes are better in proportion as they fall on unnecessary things rather than on necessary things.