As President of the Board of Trade I was able to obtain a general view of the structure of German finance. In 1909 a most careful report was prepared by my direction on the whole of this subject. Its study was not reassuring. I circulated it to the Cabinet with the following covering minute:— _November 3, 1909._ Believing that there are practically no checks upon German naval expansion except those imposed by the increasing difficulties of getting money, I have had the enclosed report prepared with a view to showing how far those limitations are becoming effective. It is clear that they are becoming terribly effective. The overflowing expenditure of the German Empire strains and threatens every dyke by which the social and political unity of Germany is maintained. The high customs duties have been largely rendered inelastic through commercial treaties, and cannot meet the demand. The heavy duties upon food-stuffs, from which the main proportion of the customs revenue is raised, have produced a deep cleavage between the agrarians and the industrials, and the latter deem themselves quite uncompensated for the high price of food-stuffs by the most elaborate devices of protection for manufactures. The splendid possession of the State railways is under pressure being continually degraded to a mere instrument of taxation. The field of direct taxation is already largely occupied by State and local systems. The prospective inroad by the universal suffrage Parliament of the Empire upon this depleted field unites the propertied classes, whether Imperialists or State-right men, in a common apprehension, with which the governing authorities are not unsympathetic. On the other hand, the new or increased taxation on every form of popular indulgence powerfully strengthens the parties of the Left, who are themselves the opponents of expenditure on armaments and much else besides. Meanwhile the German Imperial debt has more than doubled in the last thirteen years of unbroken peace, has risen since the foundation of the Empire to about £220,000,000, has increased in the last ten years by £105,000,000, and practically no attempt to reduce it has been made between 1880 and the present year. The effect of recurrent borrowings to meet ordinary annual expenditure has checked the beneficial process of foreign investment, and dissipated the illusion, cherished during the South African War, that Berlin might supplant London as the lending centre of the world. The credit of the German Empire has fallen to the level of that of Italy. It is unlikely that the new taxes which have been imposed with so much difficulty this year will meet the annual deficit.