1. The Policy for the Present Depression—Establishment of International Peace—Reduction of National Expenditure—Lowering of Taxation—Stabilizing the Exchanges—Revision of Financial Policy—Reconsideration of Reparations Policy—Inter-Allies Debts—Export Credits—Bringing down Costs of Production. In approaching the formulation of a national industrial policy, we must first determine the proper relationship of the Government to industry. That involves consideration of what special action the Government can, and should, take in these exceptional times of abnormal trade depression to assist the restoration of industry, and of the position in which the Government should stand to industry in normal times. 1. THE POLICY FOR THE PRESENT DEPRESSION The present depression in trade and decline in industry are primarily due to the world-war. The causes are not clearly appreciated by the general public; they are international as well as national, and call for action abroad as insistently as for remedies at home. The causes are: first, a definite lack of demand from foreign markets for commodities of which this country was, before the war, a producer. It was customary, until recently, to hear it said that the countries of the world are crying out for our goods. That is not an accurate statement. A very considerable proportion of the foreign markets, open to this country before the war, has now, for the time being at any rate, definitely disappeared. I have had opportunities of discussing this question with foreign business men who have special knowledge of continental conditions. All were definite as to this want of demand; the explanation they said was simple—the devastation resulting from the war and the absence of settled and stable government. They described the most amazing expedients and contrivances to which resort is made in foreign countries in order to avoid the purchase of what in normal times would be ordinary trade machinery and equipment. Then next comes the inability of continental countries to produce commodities which—to use the compendious phrase in economics—they require to exchange for commodities from other countries, either because their mechanism of production is rusted or ruined as the result of the war, and they have not capital to renew it, or from inability to buy from abroad because of impoverishment resulting from the war, or the adverse balance of exchange against them. When one turns to this country, we see British manufacturers unable to sell to customers in many continental countries because of the uncertain credit of the foreign buyer, and, where credit is sufficiently satisfactory, or constitutes an insurable risk, because of the sharp variations in exchange. A manufacturer in this country may be in a position to do firm business with a foreign buyer at a given rate of exchange which is just sufficient to ensure a small percentage of profit; a violent fluctuation