Front Page Titles (by Subject) BOOK II: PUBLIC REVENUE THE ECONOMIC OR QUASI-PRIVATE RECEIPTS - Public Finance
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BOOK II: PUBLIC REVENUE THE ECONOMIC OR QUASI-PRIVATE RECEIPTS - Charles F. Bastable, Public Finance 
Public Finance. Third Edition, Revised and Enlarged (London: Macmillan, 1903).
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PUBLIC REVENUE THE ECONOMIC OR QUASI-PRIVATE RECEIPTS
the forms and classification of public revenue
§ 1. A System of public expenditure such as has been examined in the preceding book requires as its necessary basis a corresponding public revenue. State economy is in nowise exempt from that condition of all private economies which makes it essential to provide that consumption shall be balanced by production, and that effort must be put forth in order to procure satisfaction. In respect to the public power there is a wider field, but no change in the nature of things; the correlation of exertion and enjoyment holds here as elsewhere, and if temporarily disturbed is certain to be sooner or later reestablished. All financial systems are in fact compelled to recognise the relation, though political exigencies may sometimes make it inconvenient to adopt a line of conduct completely in accordance with that recognition. Every Parliamentary Government has arrangements for raising funds as well as for granting supplies. In England the Committee of Ways and Means is parallel to the Committee of Supply, 1 as in the United States the small House Committee on Ways and Means is to the Committee on ‘Appropriations.’ The raising of revenue has to be formally separated from the more agreeable occupation of applying it for the public requirements. Public revenue being thus the counterpart or obverse of expenditure, it becomes our duty to consider its forms and sources, and to see how far they admit of logical grouping and arrangement.
§ 2. This, like most financial questions, needs to be studied at first from the historical side. The early tribe shows us expenditure and revenue in combination; the services and commodities required for public use are directly levied and applied to the particular end. 1 When once this primitive stage is passed, revenue as distinct from expenditure emerges, and its collection and administration become matters of vital concern to the growing state organisation. It is true that for a long time contributions of goods are levied in kind, but their employment is more complicated, and involves redistribution of the different forms of wealth obtained by the State. With the introduction of money, the divorce between the revenue collected and the expenditure undertaken is finally established, since public agents can directly buy what they need for the public service, while the revenue is brought in under the form of the general medium of exchange. What strikes the observer most forcibly in contemplating this development is the extreme variety of the forms of revenue or state receipts. Dues levied on land, on goods of all kinds, on the performance of different acts, in addition to the several kinds of individual revenue, are enjoyed by the State. The Egyptian revenues under the Ptolemies were of the most varied kinds. The Roman finances received contributions from very many and diverse sources, and so did the Exchequers of mediæval sovereigns. When we run over the long lists that appear in legal and historical works treating of this side of mediæval law and economy, the greatest difficulty is to reduce them to some manageable form.2 This complexity seems to have puzzled the earliest scientific students of finance. Bodin, as noticed before, arranged the sources of revenue under seven heads, but Klock, who fairly represents the German views of the seventeenth century, gives a far more extensive list. The ‘chamber science’ writers were more successful in grouping the forms of revenue under (1) those from the domain of the sovereign, (2) the so-called ‘regalia’ or prerogative rights, and (3) taxes. In Adam Smith's hands the double aspect of the State became the basis of classification. Regarded as an artificial personality, or (in the language of modern jurisprudence) ‘juristic person,’ it might hold property and engage in trade. Revenue obtained in such ways ‘peculiarly belonged to the sovereign.’ It was his quasi-private income. In another aspect, as sovereign or supreme power he was able to impose charges on the revenues of his subjects, and these contributions or ‘taxes’ formed the second group of state receipts. The simplicity and clearness of this classification commended itself to English and French writers, who have almost universally adopted it. The greater political development of France and England, by making taxation the most important part of the state income, favoured its acceptance. The remains of the feudal system were more numerous in Germany, and its methods of finance in particular, with all their variety and confusion, were slow in disappearing from that country. Consequently German Finanzwissenschaft aimed at so arranging the forms of revenue as to give harmony and consistency to the existing systems. The ‘regalia’ or prerogatives were always regarded with particular attention, and it was sought to place them alongside of taxation as a head of revenue.
Rau is in great measure responsible for another addition to the main groups, viz. that of ‘fees’ (Gebühren).1 He noticed that in many cases public institutions gave special benefits for which they charged an equivalent; e.g. in law proceedings fees were asked from the litigants. It was natural to regard this class of objects, denoted by a special name (Gebuhr), as a separate and independent form of revenue, giving as a final result that state receipts were distributed under four heads: (1) Private industry of State, (2) Prerogative rights, (3) Fees, (4) Taxes. On this classification of public revenues most of the controversies as to arrangement in German financial works turn. It is too plain for dispute that the first and fourth of the above-mentioned heads must be kept apart, but in the endeavour to bring the two intermediate divisions into some form of combination with them, great difference of opinion is to be found. Some writers oppose ‘Taxes’ to the three other forms of revenue, which are joined under some more general term.1 Others place Taxes and ‘Fees’ under one head, and oppose them to the ‘quasi-private income’ and prerogative dues, or with greater wisdom eliminate the latter from the division altogether.2 There is even a decided tendency in the latest inquirers to come back by a somewhat devious route to the plainer position of Adam Smith, and to recognise only the two great divisions of state revenue into (1) quasi-private and (2) public, though distinguishing, as he has done, the various cases of extra payment for special services.3 A detailed examination of the many points raised in the controversy on this subject of classification would lead us too far, but some of the results are too important to be altogether passed over, and must therefore be briefly noted.
§ 3. First, it is abundantly established that much of the difficulty of classification arises from the historical peculiarities of different countries. The whole doctrine of the regalia is an instance in point. It was the result of attempting to apply the special German forms of revenue, due to the slow development of the financial system, as general categories suited for all times and places. A particular kind of state rights was opposed to the general state right to raise funds, of which it was but one part.
A second result of the discussions on arrangement is that the many and varied shapes of public revenue do not always admit of sharp and clear-cut divisions. Just as in economics we pass by a series of steps from the purest form of productive capital to what could not by any straining of terms be regarded as such, so do we find many transitional forms between what is the State's private income and what it gains by pure taxation. The attempt to create a co-ordinate class composed of ‘fees’ parallel to taxes is the outcome of this circumstance, as also of the want of analytic power in the originator of the classification. If Rau had recognised the frequent combination of the double elements of state industry and taxation under the apparently simple and independent form of revenue, he would have aimed at separating and assigning to its proper place each of those elements, while he duly noted the intermediate forms that presented most difficulty. The department of fees (Gebühren) touches at one end the quasi-private income of the State, and at the other, as in the case of ‘taxes on commerce,’ the field of taxation, but it has no central point possessing well-assigned and definite features, and enabling us to give a definition that is at once rational and useful in practice.
A third conclusion is also warranted, viz. that it is easy to overrate the value of precise and rigid classification. We need not deny that a good and natural grouping (i.e. a grouping in accordance with the real affinities of the objects dealt with) is very helpful both for exposition and investigation. By its aid, features of resemblance and of contrast are most easily perceived, and new and hitherto neglected relations are often suggested; but notwithstanding these undeniable advantages, the most essential matter after all is to give adequate and proper treatment to the material of study, and even with a somewhat faulty arrangement this end can be attained. And not only so; the merits of any particular classification depend partly on the end in view. In a purely historical inquiry the class of regalia is entitled to a prominence to which it has no claim when a scientific exposition of principles is specially desired. So in descriptive and statistical works the terms and divisions adopted by positive financial legislation have to be followed, subject to whatever qualifications scientific arrangement may necessitate. In an investigation of general finance, the grouping of topics ought to be based on the underlying economic and social conditions, and aim at bringing out their relations as clearly as possible.1 Besides, different arrangements naturally tend to place different parts of the subject in prominence, and thus study of a new, even if on the whole inferior, system of grouping will suggest novel points of view to the inquirer.
§ 4. We have already suggested in the preceding criticisms the arrangement that appears to be most suitable. It has now to be more fully stated. The widest division of public revenue is into (1) that obtained by the State in its various functions as a great corporation or ‘juristic person,’ operating under the ordinary conditions that govern individuals or private companies, and (2) that taken from the revenues of the society by the power of the sovereign. To the former class belong the rents received by the State as landlord, rent charges due to it, interest on capital lent by it, the earnings of its various employments, whether these cover the expenses of the particular function or not, and finally the accrual of property by escheat or absence of a visible owner. Under the second class have to be placed taxes, either general or special, and finally all extra returns obtained by state industrial agencies through the privileges granted to them. This course seems best calculated to satisfy the conditions of scientific accuracy and practical convenience. It places together distinct and well-defined parts of public revenue, and it separates the economic from the compulsory receipts of the State.
To test it in its relation to other divisions, we may consider the place it assigns to (1) the prerogative dues and (2) ‘fees.’ If these classes can be fittingly placed, then the arrangement may be said to be justified. A very slight examination shows that many, if not most, of the prerogatives or regalia are really special property-rights. Roscher has noticed that they originated in the mixture of landed property and sovereignty.1 They are thus in their right place when classed along with other economic sources of revenue. In some instances, however, an element of monopoly created by law comes in, and where there is an additional receipt from this condition it is certainly a tax, and must find its place in the compulsory revenue of the State.
Fees admit of a somewhat similar analysis. Usually they are but a small return for the expenses of the state agency to which they are paid, and find a position among the private economic receipts as a deduction from the expenditure. It may even be best to subtract them from the expenses and charge the balance as net outlay, though in practice the wisdom of bringing all expenditure and receipts (not merely balances) into the budget is well established. In some cases it happens that fees just cover all expenses, and then the public office or agency is a state industry that pays its way. Up to the point at which ordinary profit is obtained the same title is justified, but when (the institution being exclusively a public one) ordinary profit is exceeded, the monopoly possessed by the office is employed for taxation. It therefore follows—and this is perhaps the greatest difficulty that our classification raises—that one and the same public institution may occupy different positions in this respect at different places or times. The Post Office, for example, may be a purely public function involving expenditure, as the earliest government Posts probably did; it may in another country, or at a later time, just cover its expenses, or even pay fair interest on whatever capital it employs,—such has been at times the position of the United States Post; or, lastly, it may, as in England at present, give a large surplus to the general revenue, when its charges become a tax on communications, though, as we shall see, sometimes admitting of full justification.1 In truth this apparent defect is a reason in favour of our grouping of the forms of revenue. Such institutions as the Post Office are in this respect different in different countries, but in all they are capable of presenting the three elements of expenditure, industrial revenue, and tax revenue. In treating of economic expenditure we have already noticed the first aspect;2 in the present book we shall consider the second, reserving the last for its appropriate place.
Some classes of fees, e.g. law fees, are closely connected with the primary functions of the State. They then approach so nearly to taxation as to be best classed with it. There is an appearance of straining the conception of state industry by including them under that head. Here acquaintance with the historical development is of use in establishing that in their origin such fees were strictly payment for service done; and even when this element has been obscured by the increase of state power, it gives place to that of special as opposed to general advantage, a distinction on which so much of local taxation turns, and which can be applied to the class of fees under consideration.
§ 5. So much suffices at present with reference to the general classification of public revenues. We have now to arrange the subdivisions of the quasi-private income in their natural order. The great importance of this part of the receipts in less developed societies made it a subject of greater attention formerly than it is now, and led to those long lists of the heads of revenue above referred to. The modern student of finance gains little from these enumerations, made in all cases from the legal or administrative point of view, but he is impressed by the fact that such receipts are regarded as the ‘ordinary’ revenue of the State, taxation being merely an occasional resource. This idea survives in Blackstone's chapter on ‘The King's Revenue,’ where the tax revenue is regarded as ‘extraordinary.’ Even such recent writers as Mr. Dicey have to notice this division, and the fact that the change in circumstances has made the old terms seem incongruous.1 A classification of the quasi-private funds of the State must, it would seem, have to follow the lines of the analysis of individual incomes made by economic science. One of the most valuable of Adam Smith's investigations was that presented in his chapter on ‘the component parts of the price of commodities,’ since it not only gave a starting point for all later analyses of cost of production, but it afforded in outline a scheme of economic distribution, and it is on it that the discussion of taxation in the Wealth of Nations is based. Its main point consists in showing that all incomes can be separated and referred to one or more of the three categories of rent—the return on natural agents; wages—the reward of labour; and profit—the gain on capital. The State's economic revenue must be capable of being put under the same heads, but the general doctrine, as it appears in the work of its originator,1 requires two corrections before we can use it in this connexion; for first, the massing together of the interest on capital and the earnings made by its productive use is now perceived to be inaccurate. The function of the capitalist is distinct from that of the ‘undertaker’ or ‘employer,’ and is so distinguished in later economic works.2 Another correction is needed for the present application. The category of ‘wages’ cannot enter into the public receipts; the State often pays, but never receives, a reward for labour. Any apparent exceptions really come under the head of ‘undertaking’ or ‘management’ of industry. We thus get three broad divisions of the public industrial revenues, viz. (1) the receipts of administrations, central or local, from rent of land or similar natural agents; (2)—and this is obviously a less important source—the gains of the State as capitalist or lender of funds; and (3) the returns to the industrial activities of the public power. Such a grouping would appear to be clear and logical, but it needs some further modification to bring it more into accordance with the realities of actual finance. Instead of confining our attention to the State as a landlord in receipt of rent, we shall find it more convenient to consider all its dealings with its agricultural property, whether retained in its own hands or let out to tenants. In like manner the treatment of mines may most suitably be placed along with the State's action as employer or undertaker of industrial operations. Two additional topics will also have to be brought into the list. The many and various fees and dues may be combined with the rent-charges and other settled sums payable to the State, and also with the interest on loans made by state authorities, the whole class being connected by the common idea of fixed payment, that is for the most part capable of capitalisation. And finally, to the revenue-yielding industrial domain we ought to add those forms of state property that either give no direct returns or whose expenses exceed any receipts that they may bring in.
In short, to sum up, our discussion of the public economic revenue may, partly on grounds of logical arrangement partly for practical convenience, deal with (1) returns from land, including forests, (2) industrial revenue, (3) payments which either represent, or can be converted into, a capital charge, with much administrative revenue, and (4) those forms of property that yield not revenue, but utility in a less distinctly measurable form.
Since the publication of the first edition of this book, the question of classification has been discussed by Professor Seligman in a special article,1 in which vigorous criticism of the views of preceding writers is accompanied by the exposition of a new mode of grouping, believed to be more in accordance with logical requirements. As the acceptance of this system would necessitate extensive changes in the arrangement adopted in the text, it seems right to state briefly the reasons for retaining out former classification.
The general advantages that result from a good method of grouping public revenues are admirably stated by Professor Seligman, whose opening pages may be referred to as supporting what has been said above on that subject.2 A single point of difference should, however, be noticed. We have sought all through to insist on the essentially relative character of classification. No system is in itself absolutely good or bad; each must be judged by its fitness for the purpose for which it is employed. And further, a system will hardly combine all possible advantages with no disadvantages. Any arrangement will probably have something to recommend it, and will bring out features that would remain unnoticed in a different system. On the other hand, Professor Seligman appears at times to maintain that there is one, and but one, perfectly logical arrangement, compared with which all others must be regarded as altogether erroneous. It is true he admits that historical circumstances may alter the mode of classifying, but for modern times no such allowance is to be made, and the least departure from the one ‘correct’ classification becomes deserving of censure. This view is, however, far too narrow. As Jevons points out,1 the distinction between ‘natural’ and ‘artificial’ systems of classification is really one of degree. When we are dealing with the classification of organic species, there is the guiding principle of arrangement according to descent,2 which makes the genealogical grouping the scientific one. But in such subjects as grammar, jurisprudence, legislation, and finance, this element is a subordinate one, and we have to take into account the convenience of a classification in considering the advisability of its adoption.3 Such is the procedure recommended alike by logic and the practice of the best investigators in those branches of knowledge. Applying this test to the particular matter in hand, we cannot avoid coming to the conclusion that the arrangement in the text, if less elaborate and less complicated than Professor Seligman's, is at least as well suited to exhibit in their order the chief features of interest in the financial system. The briefest inspection of the receipts obtained by public authorities suffices to establish the existence of (1) economic revenue and (2) taxes as the two great forms of income. These are broadly contrasted, and must form the basis of any division: it is to their discussion that by much the largest part of any work on the subject must be devoted, and it is by the way in which he handles them that a writer will be judged. Now is there any other form of revenue that can fitly be regarded as ‘co-ordinate’ with these great categories? To this question Professor Seligman replies in the affirmative, while the answer we have already given is in the negative. To justify our position, let us briefly consider the three classes of receipts which are put forward as entitled to so prominent a situation. These may be briefly described as consisting of ‘fines,’ ‘fees,’ and ‘special assessments.’4
‘Fines and penalties,’ we read, ‘form by themselves a class of compulsory revenues, levied according to definite but non-fiscal principles. It is obviously wrong to class them with fees as do some writers, or to ignore them entirely as do others.’5 It is, of course, true that fines are a part of state receipts which should not be ‘ignored,’ but it is equally true that they cannot be regarded as co-ordinate with taxes or economic revenue. Their yield is trivial, and their relation to the financial organisation of the State is remote. To give a separate book of a treatise on finance to fines and penalties would, to adopt Austin's phrase, ‘somewhat smack of the ridiculous.’1 The slightest and most cursory mention is the one best suited to give the reader a proper feeling of their financial insignificance.
With respect to ‘fees’ the case is different. A plausible argument may be framed in support of an arrangement that puts them in a prominent place, but, on the whole, the objections to this procedure appear to outweigh its advantages. An abstract distinction between ‘fees’ and ‘taxes’ may easily be made, but cannot be applied with satisfactory results in practice. Nor will it be easy to secure agreement as to the true boundary line. Professor Seligman himself disagrees with nearly all his predecessors, and confines the fee revenue to that derived from monopolised enterprises. Even then, if profit is obtained, the charge becomes a tax. Thus it would seem that, to take a concrete case, the British letter-post charge is a ‘tax,’ payments for telegrams are ‘fees,’ while the parcel-post service, not being a monopoly, charges a ‘price.’ Put in a general way, the distinction seems acute, and to some minds satisfactory, but what is to be said as to its practical convenience? Must the Post Office revenue be broken up into these several parts and its disjecta membra scattered over several distinct books? Such a course would, we believe, be altogether out of place in an orderly and systematic exposition of financial principles and facts. The different position of similar institutions in different countries further increases the difficulty. Are Prussian railway fares to be treated under ‘taxation,’ while Australasian ones are discussed when dealing with ‘fees’?
But a more serious difficulty remains. Perhaps the commonest use of ‘fee’ in this sense in the English language is its employment to describe the charges made for various official acts. We speak of ‘court fees’ or ‘registration fees’ far more readily than of ‘postal fees.’ In those cases, however, the idea of equivalent service is not very prominent.2 A certificate of birth or the issue of a writ involves some payment, but in each case there is really a small contribution towards the expense of a public department, not a charge based on ‘the special benefit accruing to the individual.’3 In fact, this kind of fee is essentially ‘incidental revenue,’4 and it is noteworthy that the earliest systematic writers took exactly this view. Professor Seligman will not allow that Rau was the originator of the separation of fees, and refers to Justi as having perceived their existence. Both Justi and his contemporary Sonnenfels do, indeed, speak of ‘casual revenue’ (Zufällige Einkünfte), and this is precisely what fees are. They come in, if not as a windfall, at least as a by-product, a characteristic which prevents their being entitled to be classed as co-ordinate with taxes. The transference of one large portion of the matter, sometimes placed under the head of fees, to that of economic revenue, and of another less extensive portion to the category of taxation, leaving the miscellaneous residue to come in as an appendix to the treatment of the former, commends itself as a logical and convenient distribution of material.
The third distinct category is of greater interest. Special assessments may be fairly described as an American creation,1 and it was therefore fitting that American writers should introduce them to the scientific students of finance. This pleasing duty has been ably performed by Professor Seligman and his pupil Mr. Rosewater,2 and the European writer will henceforth be compelled to enlarge his descriptive material in order to include this new phenomenon. It is not quite so certain, however, that he ‘will have to revise his classification.’3 That will depend on the view he takes of the character and working of these charges. One of the first features of the special assessment that attracts notice is its strictly local application. It is a product of a particular form of local finance, and has apparently little or no place in general receipts. Following out the clue thus supplied, we discover that the special assessment is a mode of distributing burden according to advantage received, and has thus one point of resemblance to the special improvement rates that British local bodies frequently levy on limited areas receiving advantage from work done. The doctrine that ‘special assessments must always be proportional to benefits’4 is merely an example of those legal fictions so dear to the minds of American judges and lawyers, since ‘acreage, frontage, value, superficial area,’ may any of them be taken as the measure of presumptive benefit (a benefit which, it should be added, may never be realised),5 and therefore the limitation of proportionality is effectually evaded. In any case there is no necessity for proportional charge. A sovereign legislature might levy assessments at a heavier percentage on those who held larger masses of property, or, in other words, it might permit the smaller owners to retain a greater part of the benefit or ‘betterment’ that the improvement had produced.6
Thus it seems that the line of demarcation between special assessments and taxes is by no means so sharp as Professor Seligman supposes. The real characteristic of the former is their imposition as a single charge on property instead of being a recurring charge on income.1 They belong, in mercantile language, to the ‘capital,’ not to the ‘profit and loss’ account. But in this respect they are paralleled by taxes levied for a single great occasion, e.g. a war or the discharge of debt.2 In estimating the financial position, it is important to keep both ‘capital’ and ‘revenue’ accounts in view; this, however, need not hinder us from regarding a capital payment as a tax levied uno ictu, instead of by recurring charges. When local bodies have recourse to this method, the circumstance deserves to be noted, but does not call for any revolutionary change in arrangement.3
Prof. Plehn, in an article entitled ‘Classification in Public Finance,’4 has sought to support Prof. Seligman's arrangement, and has criticised the views expressed in this note. He has, however, failed to understand them, and has been led into several misrepresentations, some of which have been already pointed out. Thus he seems unable to grasp the idea that the principle of classification is relative to the matter in hand; that an arrangement suitable for one purpose may be unsuitable for another. But this is a commonplace with logicians; it is familiar by practice to students of natural science, and should be equally so to investigators of social life.5 ‘It is unscientific,’ says Prof. Plehn, ‘in the study of legal institutions or economic life to confuse the old and new, or to classify in such a way as to hide the connecting links between them.’6 No doubt ‘confusion’ is always unscientific, but combination of similar phenomena, though of widely different origin, is not. To take examples: the emphyteusis of Roman Law may be placed along with Irish judicial tenancies, and the English income tax with other charges on revenue, without reference to the wide differences in origin. In fact, one of the most instructive lessons in social inquiry is derived from the adaptation of diverse institutions and rules to accomplish similar ends.
Equally incorrect is Prof. Plehn's assertion that ‘Prof. Bastable ... denies ... that there is any necessity for distinguishing between fees and taxes.’ It is hard to understand how any one who had read the sections on ‘Administrative Revenue’7 could have committed himself to so misleading a statement. It is hardly necessary to state once more that there is no denial of the existence of so-called ‘fees.’ What has been urged is (1) that ‘fees’ are not a class co-ordinate with ‘economic revenue’ and ‘taxes.’ (2) That some fees are really ‘industrial,’ that others are ‘special taxes,’ while the balance may best be described as ‘miscellaneous receipts.’ (3) That the heterogeneous character of ‘fees’ is proved by the divergence of opinion respecting their character and boundaries. The practical outcome of these views is the treatment of a large section of fees as a kind of appendage to economic receipts, and this course is supported by Prof. Plehn's ‘practice,’1 which in this, as in many other cases, is better than his ‘theory.’
the state domain. lands and forests
§ 1. The oldest form of public property undoubtedly consists of the territory on which the society is situated. There is a great body of evidence to show that communal holding of land is far more persistent and enduring than other kinds of common enjoyment. The witness of history is moreover supported by all the probabilities of the case. Until agriculture has extended and improved with the growth of population, a large part of the tribal land must lie waste or be only used for pasture. It remains under the control of the community or, at a later time, of the chief. Public land is increased by the action of war; the land of the vanquished becomes the property of the conquerors and goes to swell their public domain. But a counter-process is found steadily operating in the allotment to individuals of parts of the domain. The Roman ager publicus dwindled in extent under this influence, and the territory of the Provinces—in technical law the property of the Commonwealth 1 —was ‘possessed’ by individuals with the substantial rights of ownership. A public domain was notwithstanding retained, and some of the local revenue was derived from the letting of land, though it was largely supplemented by other sources. The earlier Middle Ages regarded the royal domain as the basis of public income. The feudal King was the greatest landholder, and was expected to discharge the necessary public duties by aid of the revenue that he obtained from that source. The same opposing forces that were operative in earlier times continued to affect the royal lands. They were reduced by lavish grants to royal favourites, and increased by resumptions and forfeitures. The position of the domain depended very much on the strength or weakness of the individual monarch, improving in extent during vigorous reigns and shrinking considerably in feeble ones.
The later history of the domain varied in detail in each European country, but one very general result is found in the transformation of what had been the King's estate into public property. In the few cases where royal or princely estates have remained in the possession of the reigning family, they are nevertheless, in substance, public, inasmuch as they supply the ruler's official income, and by rewarding his services relieve the treasury from an equivalent charge.1
§ 2. The disintegrating forces that tended to break up the great state domains, as well as the other parts of mediæval finance, did not everywhere act with the same intensity. Owing to peculiarities of situation and in some degree to differences of policy, the proportion of state domain is at present hardly the same in any two countries. England is remarkable for the almost complete alienation of its Crown lands, the revenue derived from that source being one of the most insignificant in the budget of receipts.2 ‘It was in the fifteenth century that,’ according to Thorold Rogers, ‘the great impoverishment of the Crown estate began,’ and though increased by the dissolution of the monasteries by Henry VIII, it was again reduced by his successors until it reached its present position at the commencement of the eighteenth century.1 In France also a series of losses has reduced the public lands held by the central government to a very small amount, with the exception of forests, of which it possesses 1,070,477 hectares (about 2,650,000 acres). There is, however, a remarkable difference as compared with England in the large quantity of land held by the Communes or local units. These bodies in 1877 had 2,058,707 hectares (or, in round numbers, 5,000,000 acres) of forests and 2,258,310 hectares (or 5,600,000 acres) of other land, most of it being of very poor quality. The productiveness, however, as distinguished from the extent of this property, is not considerable; in 1877 the receipt from communal property, including other items than land, was only 51,702,694 francs, or little over £2,000,000, showing less than £40,000 increase since 1862. These figures need some further correction, since a large amount of communal land has been sold, and in some cases timber has been freely cut down. Thus in 1877 over 24½ million francs were obtained from those extraordinary resources that had for the earlier year 1862 yielded over 34 million francs. It accordingly appears that a sum of about £3,000,000 was the contribution from immovable property for 1877 towards a total communal expenditure of about £27,000,000.2 It is plain that neither England nor France can hope for much financial advantage from public lands either general or local. The policy, or at all events the desire, of alienation has been too strong, as the speedy disposal of the confiscated estates of the clergy and the emigrant noblesse shows in regard to France.3 Nor are the cases of Italy and Spain substantially different. The heavy expenditure that the accomplishment of Italian unity necessitated was partly met by sale of the state lands, and at a later time by confiscation and sale of the possessions of the ecclesiastical bodies so numerous in that country. By 1886 over £33,000,000 had been realised through those sales, and by far the greater part of the lands had been disposed of.
The countries of Eastern Europe are differently situated. Germany, Austria, and Russia all possess large public estates—a circumstance that may be fully explained by the later growth of constitutional government in the former, and its absence as yet in the last-named. A State that cannot rely on taxation as a resource at need must provide other financial support, and taxation is productive only on the condition of general willingness to contribute. States, therefore, in which royal power has not been completely displaced by popular government will probably retain a larger amount of public land. The position of Prussia illustrates this proposition. The budget estimate for 1902–3 gives a gross receipt of 106,854,000 marks, and after allowing for the working expenses of over 46,653,0000 marks, there is a net revenue of about 60,000,000 marks, or £3,000,000. The Bavarian domains are, in proportion, larger and more valuable than those of Prussia. The biennial budget estimated the yield for each of the years 1898 and 1899 at 38,800,000 marks. Würtemberg, Baden, and Saxony also have large domains, chiefly forests.
Austria and Hungary have each state lands and forests, the estimated revenue in the former country from that source being over 5,000,000 florins, and in the latter 2,500,000 florins.1 Russia is a more remarkable case: it illustrates the statement that the less the development of the society the greater is the proportion of public land. At the time of the great reform usually known as the emancipation of the serfs an amount, estimated at from two-fifths to one-half of the land of Russia, was held by the State. About eighty years earlier 10,500,000 serfs were found on the state lands, and in 1861 this number had increased to 23,000,000. The measures of emancipation—so far as the state domain was concerned—consisted in a readjustment of the dues that were payable, which henceforth, in many cases, assumed the form of taxation, either imperial or local Economic inquiries are said to show that rent has been evolved from taxation, but it is equally true that in many cases taxation has passed into rent, or rent-charge. In some parts of Russia the state charges on the former imperial serfs are higher than an economic rent, in others they are lower, and in the latter case they may be looked on either as a reserved property or as a land tax. It appears in this way that the income of the State as landowner may approach very closely to the tax revenue that is imposed on land, and that the line of separation can only be fixed with reference to all the circumstances of each particular case. In addition to this wider form of state domain, the Russian government received, in the year 1900, over 76,500,000 roubles from lands and forests, though the expenditure on the same objects (40,600,000 roubles) has to be deducted to arrive at the net gain.1
The Indian land tenures present the same features even more forcibly. Under all the varying forms of assessment the principle that the State is ultimate owner has not been, in practice, completely lost sight of, except in the settlement of Bengal. Nothing appears more equitable than that this head proprietor should receive a share of the increasing value of the soil. On the other hand, the machinery of assessment and collection is compulsory; it is nearer akin to the process of the tax-collector than of the landlord, and the difficulty recurs of saying whether the receipts are taxes or rent. The best solution of this question is arrived at when we see that in strictness they belong to neither class.1 They differ most markedly from the rent, either customary or competitive, of a modern landowner, and more nearly resemble the dues of the feudal lord. They are just as distinct from the ordinary tax, and are not governed by the canons to which it ought to conform; at the utmost they might be assimilated with the taxes on special advantages or monopolies, of which class the possession of land is one example. Where the state dues are frequently revised in accordance with the movement of land values the approximation to rent is very close; where they are changed in order to suit the needs of the State, they are practically taxation;2 but where, as is most common, they are fixed for long periods, or in perpetuity, they are really charges that may be capitalised at the market rate of interest. The Indian Land Tax, with its great net return of nearly £20,000,000, has, at different times and in different provinces, shown each of the three features, but on the whole the rent-charge element has preponderated over the others. The lengthening of the period of settlement, and the disposition to keep the assessment under the value, have both tended to this end.
§ 3. European colonies, and more particularly the English settlements in North America and Australasia, contrast remarkably with the preceding cases. The most prominent economic features in a new country are abundance of land with scarcity both of labour and capital; land is consequently the cheapest of commodities, so much so, that it is freely offered in full ownership as an inducement to fresh settlers. The progress of cultivation soon changes this state of things. The more fertile land is taken up, and acquires value from the growth of population. At first sight it seems that the State might derive important resources from a reserved charge on its land, or, by adopting the simple expedient of leasing it out, instead of giving it away, would obtain a share of the increase in its value. The Wakefield system, though not designed for financial ends, sought to secure a higher capital return for land that was sold, at the same time applying the funds so derived for the promotion of immigration; in fact, increasing both colonial receipts and expenditure. The advantages of free access to land are, however, so great in a new country, the effect on economic development of a speedy growth of population is so considerable and so easily perceived, that no effectual method of limiting the occupation of the soil in full ownership has been continued. The United States, the various English colonies, and the South American republics have all found that nothing is such a stimulus to immigration as full liberty of acquiring vacant land. For this reason the revenues of those States from land are, comparatively speaking, small, and for obtaining the necessary funds recourse must be had to other forms, principally indirect taxation. As examples it appears that in 1889 the United States obtained over £1,600,000 by the sale of public lands, but against this the expenses on the same account have to be set off, and the result seems to be that on the whole there is a loss on the state lands: they really are an item of expenditure, not of receipts.1 For the financial year 1892–3 the Canadian land receipts were a little over £65,000, though it is hoped that in future years the return will be greater. In the same year the Australasian colonies received £4,150,000.2 Thus neither in new nor in old countries are state lands one of the main supports of the financial system. It requires an extraordinary combination of circumstances, as in the case of India, to create an exception to this general rule.
§ 4. The apparent advantages of a large state revenue from land and the peculiar nature of the income received from the use of superior natural agents have suggested the advisability of dispossessing all private owners and reverting to the primitive system of public ownership. Whether levied under the name of rent or of the single tax, this plan of imposition involves the confiscation of all existing rights in land. Its bearings, when regarded as a form of taxation, belong to the theory of that part of our subject, but we may at present notice it in so far as it advocates an extension of state property. And here there is an evident distinction to be made. In one form of the proposal, existing owners are to be compensated, when it simply amounts to an extension of the state domains by purchase. In the other and more drastic form no compensation is to be allowed. Owners of land, no matter how acquired, are to be compelled to surrender their incomes from this source to the State. It is not necessary to characterise the morality of this scheme, but its financial attractiveness, at first sight great, is much diminished on closer examination. The disturbance of economic relations and the general feeling of insecurity that the adoption of such a measure would produce, even on the assumption that it could be carried into effect without a revolution, would go far to reduce the productiveness of land to the State, and to lower the incomes of other classes of the society in whose interest the measure is advocated. In another way, too, the gain would be reduced. The large amount of general and local taxation at present raised from land, as also the necessary expenditure for keeping it in proper condition, must be deducted before the net advantage to the Exchequer can be known. Besides, all the difficulties attendant on state management of land would exist in at least equal strength if it were acquired without paying its fair value.1
§ 5. From these far-reaching and unsafe theoretical plans we may now turn to the actual questions connected with the public ownership of land. They are divided into two groups, the first of which considers the advisability of the State retaining its domains, and the second, taking the retention as desirable, investigates the best methods of administration. As the former comprises the already noticed question of land nationalisation with full compensation, we shall find it convenient to commence with it.
At the opening of scientific economic inquiry the treatment of state lands was a subject for discussion. German writers, e.g. Justi, favoured their retention as being a better source of income than taxation, but the tendency of the new doctrines of the Physiocrats and Adam Smith was in the opposite direction. Taxation in the form of a direct charge on the net revenue of land was regarded by the former as the proper support of the State, and the latter has unequivocally pronounced in favour of the alienation of the public domain. ‘The revenue which in any civilised monarchy the crown derives from the crown lands, though it appears to cost nothing to individuals, in reality costs more to the society than perhaps any other equal revenue which the Crown enjoys. It would in all cases be for the interest of the society to replace this revenue to the crown by some other equal revenue, and to divide the lands among the people, which could not well be done better perhaps than by exposing them to public sale.’1
The reasons given in favour of this policy are clear and simple. Firstly, the lands held by the State are managed so badly that the revenue of the society would be increased by their alienation, since the produce obtained from them would be larger. The price obtained by the government would go to discharge liabilities, and therefore the amount of receipts, if not larger, would certainly not be less; and finally, the improvement of the alienated lands, under the management of private individuals, would, by adding to the source from which taxes are drawn, make their yield greater. The case as so presented is a strong one, and, in the main, convincing. Nevertheless, the German writers on finance have regarded this view of Adam Smith's as one-sided and exaggerated. His condemnation of state property is, it is said, too absolute, and various arguments in favour of the retention of state domains have been put forward. Thus the advantage of such property as a security for public loans is suggested as a reason for its retention; also its use as supplying model estates on which improvements may be introduced as a means of instruction to agriculturists. The political gain to the Crown from possessing an independent source of in come and the prospect of the value and return of land increasing through the progress of society, are given as further reasons in favour of retention. Most of these pleas are unfounded: if public lands are a security for loans, their sale would prevent the need of borrowing. The royal income is just as secure when settled on the civil list; no matter what be its form, a revolution will disturb it. The value of model estates is a distinct and separate question, and belongs rather to expenditure than to revenue, so that the only valid argument remaining is that derived from the growth of rent or unearned increment. The question, however, remains, whether this very growth is not in great measure due to the incentive that private ownership of land gives, and which is removed by state appropriation. Still it must be admitted that, more especially in the case of land suited by position for building sites, there is a decided advantage in reserving the constant increments of rent for public use; and that any equitable mode of accomplishing this end would be deserving of approval. The retention of state or crown lands is of itself by no means sufficient for the purpose. Even in Germany or Russia the proportion of public land really at the full disposal of the State is only a fraction of the whole, and the part of it that is situated within urban districts is much smaller, so that it appears that under actual conditions the difficult question of unearned increment in connexion with ground rents must be solved, if solved at all, by special taxation. The contention of Adam Smith therefore holds good, that in general, from a purely financial point of view, the sale of lands in order to clear off debt or meet extraordinary expenditure is expedient. Underlying the discussion in the Wealth of Nations there are, it should be noticed, some assumed conditions that did really correspond to the facts in Adam Smith's time. These are (1) the existence of debt on the part of the State. While it is financially wise to dispose of property yielding small returns in order to discharge obligations paying a high rate of interest, it is not equally clear that alienation of property to meet current expenditure is justifiable. Expenditure of the normal kind should be met by equally normal receipts, and the sale of land is not of this nature.1 Unfortunately, the case of complete freedom from debt is rather conceivable than actually existent, as every country has public debts to a larger amount than the sale of its domains would meet. (2) The expediency of selling the state domain also depends on the available market. In most European States in the eighteenth century there was no difficulty in finding an open market for the amount of land held by the sovereigns. But under other circumstances it would be hopeless to expect that large masses of land could be sold at their proper value, owing to want of capital and enterprise on the part of individuals. Such is plainly the position of India in those cases where the land tax is really a rent.1 In addition to the political and social evils there would almost certainly be a financial loss from forced sales. The same statement would hold good for all new countries where the sale of land depends on the demand of fresh settlers, and where the amount disposable in any one year is limited.
The evident conclusion seems to be that the function of the State as owner of agricultural land is sure to decline in importance with the advance of society. The proportion that the quasi-private income of the State bears to tax revenue becomes smaller in the course of time; and as the industrial domain has in certain directions a tendency to expand, the falling off in the yield from rent must be very decided. Though this will be the probable final result, it is also true that for a long period the management of state lands will be of practical interest in some countries, and will always remain as a problem of financial science. If the State, through its central or local organs, is the owner of landed property, it is desirable that property so held should be wisely managed.
§ 6. The methods of administering state lands may be reduced to the same classes as those existing in the case of a large private owner. As in the latter instance the estate may be worked by the proprietor or let out to tenants, so may public property be either directly under state administration or be leased to private individuals. The former system is probably the earliest. The capitulary of Charlemagne, entitled de villis, contains a set of regulations for the management of his manors, and in Germany several parallels are to be found,1 but the same influences that caused land-owners to abandon farming by bailiffs affected the royal estates. A direct financial gain was procured by letting the land to tenants. To work effectively a large area of land requires a good deal of capital applied with intelligence, under diligent supervision. All these conditions were wanting in public or royal management, and therefore the economic advantages of the tenancy system were too great to be disregarded. The method of direct state administration as a financial policy has no supporters.2
The dealings of the State with agricultural tenants ought, it is plain, to be modelled on the system of a prudent landlord. There is no possible reason why the treatment of state domains should differ from that applied by private owners to the management of their properties. In two respects, indeed, the nature of the public power has peculiarities that affect its dealings with land. It is of longer duration than the individual owner, and it has necessarily to act through agents. A result of the former is the possibility of longer agreements and a more continuous policy in the system adopted: the latter makes the use of definite rules desirable, in order to prevent corrupt action on the part of officials. Even as regards these special features there is not much difference between state properties and those of the largest class of English owners where the method of estate management is handed on unchanged for generations, and most of the administrative work has to be done by paid representatives.3
The earliest agricultural tenants are probably to be found in the serfs who cultivated the soil and paid rents in labour, or produce, or both. The advance in personal liberty freed these cultivators from many of the more degrading incidents of their tenure, and by degrees they became established as free tenants paying money rents. In another way a class of larger tenants was created. Officials in charge of land were bound to account for a certain return, the surplus, if any, going to them; and this function of collecting dues, with the obligation of giving a fixed quota to the sovereign, became in many cases tenancy passing later on into ownership.
The application of what are called ‘commercial principles’ to the letting of land is of comparatively recent introduction, but it is only at this stage that the idea of conscious choice between different systems, hitherto followed through the blind influence of custom, comes prominently forward. Three forms of tenure are possible, viz. (1) tenancy from year to year, or in popular language ‘at will,’ (2) leases for years, and (3) heritable, extending to perpetual, leases. The first form has been almost universally condemned, though under the fair and impartial guidance of a public department it would be free from some of its most objectionable aspects. The undue increase of rent and the discouragement to improvements characteristic of the tenure would neither of them be likely to happen under state management. Leases for years are, however, free from even the chance of such evils, and it is perhaps wise to adopt this system, as otherwise the example of the public estates might be put forward to justify the conduct of private owners in adhering to yearly tenancies. The exact number of years to be given in the state leases can hardly be decided on general principles. The term should be long enough to give full room for the application of the tenant's industry and capital, while in the interest of the public it should not exceed the time during which a large increase in the natural value of the land takes place Provided that full allowance is made for the tenant's improvements, thirty years seems a fair period, and sufficient to eliminate the effects of casual disturbances.
Older than leases for years is the system of hereditary lease (Erbpacht) that has from early times been connected with public property. The emphyteusis—the form that it takes in Roman Law—was originally developed on the estates of municipalities, and in the Middle Ages ecclesiastical bodies were foremost in granting similar tenures.1 The advantages to a corporation of obtaining a settled rent without the trouble of supervision and calls for expenditure are greater than in the case of a single owner who hopes to gain extra rent by his attention and outlay, and, when combined with fines for change of possession, the revenue obtained is generally satisfactory. Nevertheless the hereditary lease is in reality a step towards alienation. The tenant holding by this tenure is part owner, and in course of time tends to take the position of full owner subject to a rent charge;2 more especially is this true when the fines, as usually happens, are redeemed by a fixed payment. The head landlord,—i.e., with regard to public lands the State—is substantially a creditor entitled to certain remedies if his obligation is not paid. What seems the most prudent policy, alike on financial and social grounds, with respect to state management of property, is to follow the system adopted by the best individual landowners, and the forms between which choice will generally lie are the lease for a sufficient term of years and the hereditary lease; the former is financially the wiser, but special circumstances may make the emphyteusis—to use the old title—more convenient, in which latter case the land revenue is practically converted into a fixed charge. Leases for lives are open to the objection that they are uncertain; but by judicious regulations as to renewals, much of the evil of insecurity can be avoided.
The modes of letting vacant farms, the duty of supplying buildings and permanent improvements, and the form in which rent is to be received, have all been carefully discussed in the older financial treatises. Most of these questions belong to practical administration, and are, moreover, not of great interest in modern times. Certain plain rules, may, however, be stated. The claims of successors to the late tenant should not be overlooked; it is better for the tenure to be continued without break, and therefore the question of new letting ought rarely to occur. When it does, the best mode of disposal will depend on the circumstances of the particular district; with capitalist farmers letting to the highest bidder is admissible, and it excludes all chance of unfairness. But where, as notably was the case in Ireland, there is exaggerated competition for land, the amount of rent payable over a series of years by a solvent tenant should not be exceeded. In such cases a sale of the interest, subject to a fixed rent, seems the best course. The supply of suitable buildings and the institution of permanent improvements must, under a system of short leases, be carried out by the State, but the modern plan of advancing public funds for improvements could be easily applied, the interest on loans being added to the rent and paid at the same time. Hereditary leaseholds may be safely left to the tenant, as he gains all the benefit of improvements. The form of rent ought clearly to be, as far as possible, in money. Special conditions may make payment in kind more convenient, but this mode of receiving rent should be only temporary, and all reasonable efforts be tried to introduce the more definite system of money payments. Even where for practical convenience the rent is a fixed part of the total produce, the actual payment had best be in money, the various articles being estimated at their money value.1
§ 7. We are now in a position to deal more fully with the expediency of extending the state lands. In their extremest form plans of this kind aim at the acquisition by purchase of all private landed property. More moderate proposals seek to increase these possessions in a smaller degree. Any plan of the kind, even when limited in the most careful manner, is open to overwhelming objections. It amounts to the creation of a new public department engaged in countless dealings with what is the most intricate and complicated form of property; arrangements as to valuation, the renewal of leases, allowances for improvements, abatements for unexpected losses, the maintenance and audit of innumerable accounts would all fall to the lot of the department. It would, on the supposition of purchase, have to pay interest on a large amount of debt. There would be little hope of a favourable financial result under such conditions. In short, we may say that if land-nationalisation without purchase is palpably unjust, land nationalisation with purchase is as evidently inexpedient. The same arguments apply to smaller acquisitions of land. They have little chance of being remunerative, while they so far contract the supply of a much desired commodity, and they necessitate a class of administrative duties of exceptional difficulty. If the alienation of state lands should only be carried out with due care and deliberation, the acquisition of new estates can only be justified on non-financial grounds. Practical politics clearly conform to this rule of prudence. State lands are often alienated and seldom acquired, and in these latter cases there is generally some social or political reason as the actuating cause. We may look on the slow decline of the state domain as one of the permanent facts of financial development.
§ 8. So far we have confined our attention to the case of cultivated land—of ‘farms’ as Carey would say—where the ordinary economic motives operate with considerable force. The State, it would seem, had best avoid entangling its interests with the difficult questions of land tenure, and can hardly expect any financial advantage from retaining its ownership of land. It does not follow that with regard to other closely allied forms of extractive industry it may not be expedient to retain, or even extend, public ownership. The principal example is afforded by forests, and in their case the wisdom of alienation is far less clearly established. Individual self-interest is not in the same general agreement with public advantage as in the case of ordinary agriculture. The creation of a forest is a work of time and technical skill which can hardly bring in recompense to the originators, and existing forests are a ready resource for the embarrassed owner. Moreover, forestry is only applicable to large tracts of land, and is most profitably carried on where the soil is of little use for other purposes. The estate of the large owner is, as we saw, not very differently managed from the state domain, and therefore some of the usual arguments against public ownership lose their weight. There is, besides, the important effect of suitable plantation on climatic conditions, and in some countries the need of wood as the only available fuel. There is here a striking example of failure in that harmony of individual and general interest which was so enthusiastically set forth by Bastiat and became a ‘watchword’ of what was supposed to be ‘Political Economy.’ The case against not simply state ownership, but even direct state management is accordingly deprived of its foundation; while the promotion of his own interest had best be left to the individual, the interest of the community cannot always be safely entrusted to his hands. The real questions at issue are to be decided by estimates as to (1) the influence of other than purely self-regarding motives on the proprietors, (2) the amount of general interest that is jeopardised by the possible action of individuals, and (3) the probability that public management will secure the desired results. In reference to the first, it has been universally remarked that large proprietors are in many cases willing to give up a portion of present wealth for the future advantage and beautifying of their estates, while peasant proprietors show no such disposition, but, on the contrary, seek immediate gain by the removal of valuable timber.1 The inattention of the State to forests in England compared with Continental countries is partly explicable on this ground. English proprietors have done at their own cost what foreign countries have to secure at the public expense. Another reason is to be added. The supply of fuel in England is not dependent in the smallest degree on the cultivation of timber, and the recent developments of naval architecture have destroyed the importance of forests as a source of shipbuilding material, the object to which the Woods and Forests Department principally attended. Considerations of climate are besides of less weight in the case of islands subject to the equalising influence of the sea. We can thus easily understand the peculiar attitude of England and the reasons for the very different policy of the Indian Government, where the circumstances are in all essential points reversed. The chance of success in state administration of forests depends on the application of the best scientific and technical ability to the work, which can only be attained by effective organisation. Among examples we may mention the Indian Forests Department and the Prussian administration. The benefit of a sound method of dealing with this part of the public domain is not mainly financial, though good management may make it yield a surplus. But, as appeared in dealing with expenditure,1 it is quite possible that the general revenue of the State may have to contribute for the maintenance of the requisite plantings, in which case the policy has to be judged as a matter of expenditure.
§ 9. The necessities of practice have led States to a recognition of the special advantages of directly controlling forests. In all nations they form the largest part of the public land; the figures for France have already been given, and the same general features mark the position in other countries. The broad result is that about one-third of the forests of Germany is held by the States; about one-sixth by communes and quasi-public bodies; very little over half remaining in private ownership. In Austria one-fourth belongs to public bodies, and in Norway one-eighth.
The excess of forests over other state land is easily explained when we call to mind that they are the last remnants of the old common property. To a primitive community land with timber is of little service. When, at a later time, wood rises in value the one aim is to clear the soil as speedily as possible, and land still under trees is waste. The fact that planting often succeeds best on poor soil tends to confine it to land of this kind, since more fertile land is turned to other and better uses. The recent movement towards reafforesting is for the same economic reason directed towards inferior land, and it is only by adopting this policy that new forests can be made even tolerably remunerative. There is almost a consensus of competent opinion in favour of state action for the purpose of increasing the area under trees, and directly administering those areas by a skilled and well-organised staff.1
Most European countries have a considerable area of uncultivated land which would be particularly suitable for planting, and a well-considered system of purchase by the State, perhaps accompanied and facilitated by the sale of the other parts of public landed property, is likely to be advantageous. The financial results cannot be of much importance. Prudence and judgment may, however, save a good deal of unnecessary expenditure and combine the two ends of public economy—utility and saving of effort.
§ 10. The division of control over landed property between the central and local governments can hardly be arranged on general principles. Historical conditions and the special features of each case are the principal factors in the settlement. Management by a central department is open to the dangers of laxity in administration along with pedantry in the application of inflexible rules. Public estates so placed have all the defects attributed to the absentee proprietor. Local bodies have a different but not less serious drawback, viz., the danger of jobbery and intrigue in the administration of what ought to be applied to the best advantage of the community. This evil is of varying magnitude according to the size of the body. Among the larger German States, as, e.g., Würtemberg or Baden, it disappears completely. In a small French or Swiss Commune it is at its maximum. The dealings with public or quasi-public property by small corporate bodies need to be carefully controlled and regulated, and this necessity has been recognised. Thus the French Communes are unable to sell or grant a lease of their lands for more than eighteen years without the sanction of the Préfet in the council of the Préfecture.2 The property of British corporations has in former times suffered from the want of such control, as has also that of the Swiss communes. When local government is applied to a sufficiently large area, and public spirit is operative, landed property is generally better managed than it would be by a central department. The concessions to tenants are more liberal, but, except where the land is within an urban district, its sale is probably advisable if there is a local debt sufficient to absorb the purchase money: where this is not so, there is the danger of the price, which is really capital, being treated as current revenue. The retention of building sites by corporations is, where practicable, the happiest solution of the vexed problem of taxation of ground rents, and their alienation should not, unless in the exceptional cases of extraordinary pressure or special encouragement to small proprietors, be sanctioned.
The above considerations are in some degree modified with regard to forests. So far as the inhabitants of rural districts obtain fuel from the communal possessions there is no reason to object to local management. But in modern times the need of husbanding and developing the national forests has become too important an end to be surrendered to the care of persons whose views are from the nature of the case certain to be limited to a particular district and to present advantage. The result has been a very general centralisation of management in this respect. France, Italy, Switzerland, and the United States have all dealt with the matter as one for the central government. The Swiss cantons, so jealous of their autonomy, have not refused to surrender the control of forests to the Federal government. All the conditions that we noticed in a former chapter as tending in favour of central management are in operation here. General interest, need of trained intelligence, and of unity of control make it expedient to continue the policy of centralisation.
the industrial domain
§ 1. In the preceding chapter the gradual decay of state revenue from landed property has been considered. Special circumstances may preserve a comparatively large amount of agricultural possessions in the case of some nations, but so long as the present system of private ownership and free competition continues—and it is only to societies resting on that economic basis that attention need be directed—no large part of the State's resources can, speaking generally, be obtained through the rent of public lands. The universal tendency exhibited in countries so widely separated in all respects as England, the United States, and India is towards a relative, or even an absolute, decline in the revenue derived from this form of receipts.
Another class of public property does not so clearly show the same movement. The industrial domain, if it has been contracted in some directions, has been enlarged in others, and its position in state and public economy is deserving of the most careful examination. For this purpose it is best to take the leading groups of industrial activity, beginning with that which belongs to extractive industry, and is consequently nearest to agriculture and forestry.
§ 2. Besides the retention of agricultural land and forests, the State has in most societies regarded mines as belonging to itself. Thus the famous silver mines of Laurium were an important source of revenue to the Athenian people, who let them out on lease. Rome retained its salt mines and monopolised the sale of the product. As the Roman dominion extended by conquest the mines of the provinces came under its control. The modes of management applied were different in respect to the various minerals, gold and silver mines being directly worked by the state slaves, and other mines conceded on lease or abandoned to private working, subject to a tax proportional to the produce.
The mining laws of mediæval Europe were affected by feudal ideas; they placed the right over minerals in the ‘Lord’ or ‘Seigneur,’ and the influence of this system can be traced at present in the English law as to gold and silver mines. The desire to encourage mining industry, and the need of gaining revenue for the sovereign, both tended to restrict the rights of landowners with respect to what lay beneath the surface. Hence the system of ‘free mining,’ under which the discoverer was entitled to open a mine against the landowner's wish, subject to the payment of royalties to the State (Bergregal), became usual.1 Notwithstanding this growth in Continental States of a separate property in mines, some countries retained much of their mineral wealth as public property, more particularly where the landed domain also was extensive. The various parts of the German Empire are noticeable for their state mines, though the distribution of these sources of wealth is far from uniform. Prussia owns coal, iron, lead, silver and copper mines, which (including the value of the partially worked-up products) contributed in 1901–2, 192,316,000 marks gross revenue. Austria, Russia, Spain, and India also possess some mines as state property, though they are practically conceded to private owners. The financier is not much concerned with this part of the public possessions, as the net revenue obtained is small. The mines and mining works of the Prussian government in 1901–2 gave only 33,794,000 marks (about £1,690,000) as their net yield. Salt, which in many countries contributes very largely to the public resources does so through taxation.
Whatever be the net return from mines, it should—economically considered—be divided into two parts, (1) the rent of the mine, and (2) the profit on its working, including the gain of elaborating the raw material obtained from it where this is done at the mine. The former is essentially the same as the rent of land, though possessing some peculiarities due to the exhaustible nature of mineral products, and is generally levied in proportion to the gross yield. Without state ownership it might be applied as a special tax on private owners of mines.1 The second element is plainly the result of the employment of capital, and should therefore comprise both ordinary interest and employer's gain. The use of capital in mining is a highly speculative one, being most uncertain in its returns. The receipts from the Prussian mines have varied much, and of course are dependent on the prices of the minerals produced.2 It therefore seems desirable to give up this source of revenue by selling the mines to private individuals or companies, and applying their price to the reduction of debt; and from the financial point of view the wisdom of the policy of sale is indisputable. The continuance of mines as state property is due partly to the survival of the older forms of public economy in which taxation was subordinate to quasi-private receipts, and partly to views of economic policy. The danger of mineral supplies being worked in a reckless and extravagant manner without regard to the welfare of future generations, and the dread of combinations by the producers of such commodities as tin, copper, and salt, with the aim of raising prices, have both tended to hinder the alienation of state mines. There are fortunately other and more effectual methods of warding off these by no means imaginary evils.3 The disposal of state property does not carry with it a surrender of the right of state regulation where public interests require it. It is also possible to retain the ownership (dominium) in the State, giving long leases to the capitalist workers, by which system the risk of market fluctuations is in a great measure avoided; or, finally, the net receipts from mining industries may be specially taxed.
In one case the policy of sale may not be a wise one. When the particular product of a mine is taxed, the necessity for supervision compels the public officials to watch the process closely; and under such conditions to place the whole business in the hands of the administration or of a powerful company may be the best course and prove the least inconvenient to all concerned. The principal example is in the case of salt, which is taxed in most countries, and monopolised by the State in some. Where the supply is obtained from mines there is an obvious advantage in keeping them in the hands of the State.1
§ 3. The modern State has not confined its activity to extractive industries. In the seventeenth century, France started some of those model manufacturing establishments which continue to the present, and possess so varied a character.2 The German States followed a similar course, and during the eighteenth century many artistic industries were founded under official management. The object was not financial; it was rather to supply a standard for private producers and to discharge the functions now supposed to belong to exhibitions. The more costly products were intended for court use, or as gifts to foreign princes.3
This class of state factories has preserved the original type, and is important only as giving examples of superior work or supplying some state need for a certain commodity. But though financial aims are not prominent in this department of public economy, there are opportunities for realising a moderate revenue by careful management and securing a superior class of products.
The latter consideration becomes of great importance when we pass to the method of supplying the larger public services such as the military and naval forces. The difficulty of deciding on the best mode of meeting the manifold needs of modern armies and fleets is chiefly due to the conflict of financial and technical reasons.1 As we shall see, there are strong economic and financial objections to direct manufacture by the State. But in some cases it is essential to secure a high standard of excellence in the products. Guns that will not go off at the right time and bayonets that bend under pressure are dear at any price; and state establishments for the production of these articles are defended on the ground that in no other way can goodness of quality be guaranteed. The state clothing factories and flour-mills have been supported by like arguments, since it is assumed that complete supervision of private contractors is practically impossible. On purely financial grounds state industries of the kind are open to serious criticism, owing to the very defective system of keeping accounts which is characteristic of such establishments. The amount of invested capital is hardly ever properly estimated; receipts that should go to capital are assigned to revenue, and expenditure that ought to be met from revenue is defrayed from other state funds or by borrowing.2 To meet this evil it seems best in a developed industrial community to trust to private enterprise for the supply even of warlike implements. The growth of such factories as those of Elswick and Essen ought to enable Government to dispense with the troublesome institutions that require so much attention and vigilance to prevent the grossest abuses. Where there is not a fully grown system of industry it may be necessary to keep up state arsenals, dockyards, and factories, to supply wants that would otherwise remain unsatisfied, and it is, perhaps, partly to this earlier condition that we owe the erection of the state industries in question. Moreover, the possibility of keeping down prices, by having an alternative source of supply in the not unknown case of there being only one private factory in existence, may be allowed in favour of state industry, though against it there is the risk of political corruption in towns that are largely supported by public outlay. Admitting then that the State's manufactories for its own use are necessary only in the earlier stages of development, and ought to diminish as society advances, we may go on to assert that the same proposition is true of public industry in general. The government of a backward country may rightly undertake works that would be quite uncalled for in more advanced nations. British India gives us numerous illustrations. The most promising agricultural industries have been taken under state management and costly experiments have been tried. The best available evidence, however, leads to the conclusion that the greater part of these well-meant efforts have been unsuccessful, and they have in some instances been abandoned.1
§ 4. Though any very large system of state-directed industries is not likely to be a financial success, and is besides open to other weighty objections both social and political, there are some exceptions to the general statement. There is no validity in a plea of laissez faire set up in opposition to special cases of state industry, when it can be shown that the interests of the community will be furthered by interference. The rule of non-intervention is nothing but a generalisation from experience, and holds good so far only as experience supports it. Where special reasons justify the action of the public power there is no ground for objecting to its employment. To avoid the opposite and more dangerous extreme, we should add that the advantageous conduct of certain industries by the State is no argument in favour of extending its activity to other and dissimilar cases.2
In addition to the direct supply of the needs of the public services, which in some cases is a good ground for the State undertaking industrial functions, there is the important class of cases in which the production of certain articles is subject to heavy taxation. In such cases the placing of the absolute control of the process of production in the hands of a state department may be a financial necessity, as the only effectual remedy against fraud and evasion. The French tobacco manufacture is probably the best example of this system, which is also exemplified in the Bengal opium regulations. But the large receipts obtained from these industries are not in reality industrial. Scientifically speaking, they are a part of the revenue raised by taxation, the state monopoly being only a particular form.3 The ordinary gains of a business are all that should be credited to it as ‘earnings,’ unless the extra amount is due to the superior efficiency of public management.
§ 5. The remaining cases, where the industrial action of the State may possibly be useful and has in practice been largely applied, may be grouped under two heads, according as they exhibit specially one of two characteristic features; viz. (i) those industries in which there is a tendency to the creation of monopoly, or in which the establishment of monopoly is likely to prove economically advantageous, and (ii) the large and important industries that deal with communication and transport. This classification is unfortunately not completely distinctive, since the last group in many instances exhibits the features of the first-mentioned one, but it is sufficient as a guide in discussing the principal points of interest.
(i) The first group is not easily characterised and separated, but there are some general marks that may be taken as common to all the industries in question; they are:—
(1) The products are much required, and in some cases absolute necessaries, or of high sanitary importance. (2) They are connected with special localities, and situation is an element in their advantages. (3) They are usually subject to the ‘law of increasing returns,’ and thus concentration and unity in management tend to cheapen the product. (4) Competition is not steadily operative even where no legal restrictions are imposed.1
On coming to collect the industries that belong to this group, we further notice that they in great measure fall within the domain of local rather than that of general government, and are moreover chiefly due to the conditions of city life. The oldest, and one of the most important, is the supply of water. Under ordinary circumstances this indispensable commodity is valueless in the economic sense, and has usually been the stock example in economic text-books of objects that possess utility, but are not wealth. The growth of population in certain confined areas at once creates a greater demand than can be supplied from natural sources, and at the same time pollutes that limited amount. Fresh supplies must be obtained from a distance, and often necessitate heavy outlay. In earlier times, this of itself made it incumbent on the State to do what no private individuals' association could accomplish, a policy extensively carried out by the Romans. In the modern period, the business of water-supply to cities has been placed in the hands of private companies, who have invested large amounts of capital for the purpose. The rise of the sanitary movement of the nineteenth century, and the danger of monopoly on the part of the holders, have led to an extension of public activity, and to the purchase of waterworks by the municipalities. This tendency has been clearly shown in the United Kingdom during the last thirty-five years. Of the larger towns, London, Bristol, and Newcastle only are supplied by private companies, and the purchase of the London water companies is actually proposed. The receipts for water-supply by English local bodies in 1897–8 were over £2,600,000. In the United States there has been a like movement. Out of 135 towns of about 10,000 inhabitants, 91 had municipal waterworks, the remaining 44 being supplied by companies. Continental cities also, in many cases, have acquired full charge of this industry: this is true of Berlin, Paris, and Vienna, not to mention smaller towns.1
The business of lighting has not as yet been so largely entrusted to public agency, but several leading British towns have acquired their gasworks: Manchester, Birmingham, Leeds, Glasgow, Edinburgh, and Belfast may be mentioned as examples. The United States have hardly entered effectively on this branch of state industry. The most remarkable example of municipal gasworks was that of Philadelphia, where they only had taken over the business in 1887, but abandoned this system in 1897 by leasing the works to a company for the term of thirty years. This change in policy was the subject of much discussion and somewhat severe criticism, as it seemed to be opposed to the prevailing tendency towards extension of public control.1 There are a few other cases of municipal management in the smaller American towns. Out of the forty-four largest German towns, twenty-nine (including Berlin, Leipzig, and Breslau) own their gasworks, while Paris is supplied by a privileged company.2
Drainage and the removal of refuse, as well as other sanitary arrangements, are usually regarded as a public function involving expense, though scientifically these operations are on exactly the same plane as the supply of water and light, and might be carried on as a private business; but in practice, as the service is a general one, its cost is defrayed from taxation.
The actually existing forms of these public industries, and the line of development that they are following, are easily explicable. The rapid increase of public waterworks is due to the great importance of a pure supply of that necessary, to the large quantity of it that is required for public purposes, and finally to the absence of invention in the industry. Lighting, while it possesses some of the features just mentioned, is very different in the last respect. Until the contest between gas and electric lighting is closed, the acquisition of either of these industries will be a financial risk that no prudent body will care to incur.1
§ 6. Without dwelling on further details, or considering the politico-social aspect of the movement, we need not hesitate to say that a new public domain, yielding large gross returns, has within the last fifty years become established in most civilised States. The gas and water works of the United Kingdom under municipal working give an estimated yield of about £7,000,000, and the similar German industries afford a considerable net return to the local budgets.2 It is quite possible that in the present century such industries will give substantial aid towards meeting the heavy expenditure that town administration requires.3
On the other hand, there are some financial aspects of the case which reduce this apparent gain to much more moderate dimensions. The purchase or construction of the needed public works has involved municipal governments in heavy debt. Thus the returns of English municipalities for 1897–8 show an outstanding debt for waterworks of £41,578,000, and of £15,800,000 for gasworks; there is further a debt of nearly £,3,000,000 for market buildings. Adding these figures together, we get over £60,000,000 of actually existing debt, besides what has been already paid off.4 According to the United States Census of 1890 about £38,500,000 of local indebtedness was incurred for waterworks. The interest on these loans has to be deducted from the gross receipts of the industries before a full estimate of their financial position can be made; and though the actual debt-charge is enhanced by the sinking funds attached,1 there is on the other side the cost of renewing the works after a period. Another deduction has also to be made. On the assumption that the different public industries were left open to private enterprise, it would be possible to tax their profits, or, as most of these industries are monopolies, to levy a special charge on their gains. The right of supplying a large city may be sold to a company or let for a term of years, and the revenue thus obtained without risk or trouble applied to the use of the municipality. By granting a long period, with the ultimate reversion to the local governing body, a large revenue would be provided for the future, and the difficulties of public management escaped.
As in the case of mines and their products, any charge for municipal services that exceeds normal profit must be regarded as taxation. The profit of capital expended on public works is a part of the earnings or industrial receipts: so is any further amount gained by the low interest at which well-managed towns can borrow, or the savings that monopoly, with the consequent check to waste by competition, may cause; but any additional charge for the supply of water, gas, or other services is in fact a tax on the consumers or users of that service.2 We have noticed before this mingling of earnings and taxes in public economy. Another financial evil may possibly result from municipal industries. Instead of taxing the consumers by heavy rates, the administrators may reduce the charges below the profitable level, and so give what is in fact a bounty on the commodity at the expense of the taxpayers. Where the article is required by the poorer members of the community, the temptation to adopt this course is very strong, but it really involves the transfer of the industries so dealt with to the head of expenditure; from being a source of revenue they become a charge on the municipal budget, and their development only adds to the public burdens.
§ 7. (ii) The second group of industries leads us back to the finance of the central power, and includes amongst its ranks the best known and most generally accepted of all state employments. The Post Office has been regarded, even by the older economists, as an exception to the general rule against state interference in trade and industry. ‘It is, perhaps,’ said Adam Smith, ‘the only mercantile project which has been successfully managed by, I believe, every sort of government,’1 and his opinion has been accepted by all his English followers, none but the extremest advocates of state abstention ever questioning the public management of this department.
State postal service originated in the claim of the sovereign to monopolise whatever affairs closely affected public interests, and in the need of communication between officials. Its development has been the same in its general features in all European countries. At first the service was rendered by private persons, or by some specially privileged body (e.g. in France the messengers of the University of Paris), and was finally taken by the State, though in most instances it was farmed out to a company.
The English Post dates from Charles I. (there being little evidence for the earlier dates of Edward IV. and Henry VIII.), and became a strict monopoly during the Commonwealth. After the Restoration, it was bestowed on the Duke of York, who retained it on his accession to the throne as James II. in 1685. The net annual revenue was at that date about £50,000.2 The growth of revenue during the eighteenth century was steady, and various improvements, such as the introduction of mail-coaches in 1784, improved its position. The invention of railways and steamships further aided the expansion of postal service, until in 1840 the introduction of the penny letter-post, on Rowland Hill's proposal, widely distributed the advantages of cheap communication. Without in the least denying the wisdom of this reform, it should be said that its real financial result was not what is popularly believed. So far from improving the net revenue of the service, it actually lowered the gross revenue, and so far reduced the already deficient income of that period. In 1839 the gross revenue had been £2,390,000, and the net revenue £1,630,000. In 1840 the former fell to £1,360,000, and the latter to £500,000, showing a loss of over £1,130,000; and this loss continued for several years: the gross receipts did not exceed those of 1839 till 1855, and the net revenue did not recover its losses till 1864. Taking into account the growth that would have taken place even under the older system, it is plain that the immediate adoption of the penny post involved a sacrifice of financial resources.1
Even during the last thirty years, though the mass of business has grown enormously, the net receipts have not shown a proportional increase. They amounted in 1872–4 to £3,060,000, in 1883–4 they had risen to £3,222,500, in 1893–4 to £3,749,000, and in 1901–2 to £3,999,000.2
The French Post Office was instituted by Louis XI. in 1464, and carried on irregularly, till in 1627 the service was better organised and improved. The business was farmed out in 1672, and the competition of the agents of the University of Paris was prohibited; the yield increased from 100,000 livres in 1661 to £1,200,000 in 1677, and 1,400,000 livres in 1683. In 1699 the postal income was 2,800,000 livres, in 1750 it had increased to 4,500,000 livres, and in 1788 it reached 12,000,000 livres. The method of farming, so common under the Ancien Régime, made it in fact a monopolised private industry, on which the State levied a gradually increasing rent.
The Revolution separated the carriage of letters from the other duties of the old ‘Poste,’ and in 1792 placed the former under the direct management of the State. The heavy financial pressure, and the general mismanagement of the revolutionary period, caused a great increase in the charge for letters, destroyed the receipts from the business, and even left a deficit on the working. The postal service did not gain much during the Consulate and Empire, but several improvements were introduced after 1815. The rates were better adjusted, and the increased facilities of transport allowed of a better service. The example of England, whose adoption of the uniform penny post attracted much attention and was eulogised by Bastiat, led to the establishment in 1848 of a charge of 20 centimes (2d.), which has been raised to 25 centimes in 1850 and again in 1871, restored to 20 centimes in 1854, and finally reduced to 15 centimes (1½d.) in 1878.1
The same fact of financial loss through reduction presented itself in France in 1848 as in England in 1840. The gross revenue fell from 45,000,000 francs to 32,000,000 francs in the first year after the change (1849), and only recovered the earlier amount in 1855.
The postal history of other States is very similar. Germany, owing to its political disorganisation, was in part served by the house of Thurn and Taxis, which managed the carriage of letters for several of the smaller States. The Prussian post began in 1646, and was under direct state administration. Its net yield in 1685 was less than 40,000 thalers; by 1740 it had increased to 220,000 thalers. The financial necessities of the government caused an increase in the tariffs, and in 1806 there was a clear surplus of 667,000 thalers. The amount in 1856 had risen to nearly 1,760,000 thalers, and in 1862 to over 2,200,000 thalers. The events of 1866 and 1870–1 changed the Prussian post into that of the German Empire—Bavaria and Würtemberg only retaining separate establishments. The net revenue of the imperial post was, in 1874, 5,000,000 marks (1 thaler = 3 marks); in 1879, 17,500,000 marks; in 1892–3, 21,000,000 marks, and in 1901–2, 40,320,000 marks.
The postal systems of Austria, Russia, Italy, and those of the smaller European States need not be examined in detail. Nor does the postal development of the United States, India, and the Colonies present any special features of interest. One general fact is the smallness of the revenue obtained. England, France, and Germany are the only countries that derive a substantial amount from the postal service.1
§ 8. The so-called ‘Post Office’ is in fact a collection of different, though connected, industries. The earliest state posts in both England and France carried passengers as well as letters, and this function lasted in the latter country till the Revolution, when the state passenger service became a separate organisation, and endured till 1870. But the conveyance of patterns, books, newspapers and small parcels forms an extensive part of the postal service, and is the least profitable side of its endeavours. The rates for these separate classes are below the ordinary letter-charges, since otherwise the amount of business would be much reduced. The State is compelled to adopt the principle familiar to railway managers of charging what ‘the traffic will bear,’ but it necessarily obtains very little over the cost of its operations. So far as the conveyance of parcels and newspapers is concerned, the English Post Office does not possess a monopoly, and is therefore a true industrial agency, whose earnings contain no tax element. The German post has specially developed the conveyance of parcels, a part of the business which is left entirely to private companies in the United States, and is a comparatively recent addition in England (only since 1882).1
To secure a proper adjustment of rates on the many classes of articles, and to duly apportion cost and service to the several items, is beyond doubt a most complicated problem. Such solutions as have been reached are for the most part empirical, and are the outcome of innumerable changes. The mere recapitulation of the diverse charges of the various state letter-posts would fill many pages with figures that could hardly be explained on any definite principle. There are, it would appear, three elements that might be taken into consideration, two of which depend on definite physical facts, viz. (1) the weight of the communication or document; (2) the distance over which it has to be carried; and (3) its nature; to which (4) the mode of conveyance may be added. The first is at present the basis of the charge for letters. The second element has lost most of its importance. Since 1839 the question of distance has entirely disappeared in the postal charges of the United Kingdom. A letter from Penzance to Wick pays the same as one posted to a person residing in the same street as the sender. France has with one exception adopted the same policy since 1848, and the United States have also a uniform rate, practically the same as that of England (2 cents). The reason for this at first sight curious system is found in the fact forcibly urged by Rowland Hill, that the actual cost of carrying letters is small enough to be ignored. At the rate of one penny per ounce, a ton of letters all up to the full weight would produce almost £150, while the mere cost of conveyance would certainly not be £5, or one-thirtieth of the receipts. The real charges are those of collection and distribution and the maintenance of offices, the cost of which is equal on all letters. The uniform charge irrespective of distance is thus easily explained, and proved to be sound as well as equitable. It is in the extension of this principle to international postage that the greatest advance in the future may be expected.1
One of the principal distinctions now turns on the character of the articles transmitted. Circulars and postcards would not bear the same charge as ordinary letters. The transmission of newspapers gives a yet smaller fund of utility on which to levy a tax, and is affected by the competition of carrying agencies. The result is shown in the lower halfpenny rate. The mode of conveyance might be used as a measure of the relative value of the service, speed in transmission being a very important part of the advantage of communication; but in fact this test has been little used.
§ 9. The question of the retention of the postal business by the State is hardly an open one. Long experience seems to have decided altogether in its favour. No country has adopted the method of private industry as regards letters, though the state parcel post is not so general. The reasons for this remarkable unanimity are to be found partly in the facts of governmental administration, partly in certain special features of the employment. Before the rise of the economic schools that opposed industrial action on the part of the State, the method of public postal service was firmly established, and was seen to give, on the whole, sufficiently satisfactory results. It therefore escaped the hostile criticism that economists freely bestowed on the less efficient public departments. Mr. Herbert Spencer himself has hesitated to condemn the continuance of the English Post Office. The peculiar nature of the service supported the evidence of facts. It requires as a first condition that the agency shall cover the whole territory to be served, or be universal. Next, it must be uniform and regular, and conducted on a definite routine; and, thirdly, the necessary capital is very small in proportion to the recurring expenditure and receipts. All these conditions favour state management, while its close connexion with everyday life secures a constant supervision on the part of the public, who are the consumers interested in the efficiency of the service.1 It is, therefore, expedient as a matter of policy to place the work in the hands of the State, and the bestowal of a monopoly is justified on the double ground that otherwise private agencies would compete for the more profitable parts of the business, leaving the supply of sparsely peopled and backward districts to the official post office, whilst the waste involved in rival establishments would hinder the reduction of rates below their actual level.
On the purely financial side the gain from the service must generally be a small one; the return for capital employed is little, and the only remaining element would be the economy that results from the application of monopoly, and the consequent unity of the service. Any further charge is really a form of taxation, and requires to be tested by the rules applicable to that mode of procuring revenue.2 The resources to be obtained are in any case not important, though good management may easily prevent a deficit, and unduly high charges will by their reaction on industry prove seriously detrimental to other financial resources.
§ 10. The telegraph as a state business forms a natural appendage to the postal system. It is generally connected with it, owing to the resemblance in the work to be done. There are, however, some serious differences. Unlike the letter-post, telegraphic work has been successfully carried on by companies, and international telegraphy is still largely in their hands.1 The capital expenditure is much greater in the case of the telegraphs, and therefore leaves room for that tendency of official bodies to confuse capital and revenue, which we have already noticed,2 and which is so detrimental to sound finance. Not only is the original cost of establishment or of the purchase of pre-existing rights comparatively speaking large, but incessant renewals and extensions are required in order to meet wear and supply new demands. The saving by unity of management is, besides, not so great, and the cost of transmission forms a larger proportion of the expense, which increases with increased work more rapidly than in the letter-post.
All the circumstances suggest that state telegraphy is not likely to prove financially successful, and such is apparently the result as shown by experience. The intermingling of postal and telegraphic business makes it hard to establish this proposition, but where a strict separation is kept up the telegraph balance is generally on the wrong side. The English state system has suffered financially, first from the excessive purchase money given to the companies who held the business, and secondly through the pressure on Parliament for lower rates, as shown in the adoption of sixpenny telegrams.
If full power to regulate its rates on economic principles be given to the department, there seems to be no reason why it should not at least meet expenses, including interest on capital, or perhaps give a small surplus, sufficient to clear off the first charges in a series of years. Behind the fiscal question there remains the more difficult one of the effect of state management on the development of improvements. To retard the progress of an essential modern auxiliary to commerce for the sake of adding a sum to each side of the national budget is not a desirable achievement. The dealings of state agencies with new inventions are the worst blot on public administration, and it seems that there is this risk in the state telegraphs, that though they are quite up to the standard at their inception, they almost insensibly fall behind as it advances with growing knowledge. This consideration belongs to economic policy rather than finance, which, however, suffers from any hindrance to commercial expansion and is certainly not likely to gain by state telegraphy.
§ 11. The agencies of transport and the different facilities for the movement of goods have in modern times acquired much greater prominence, and have to some extent come to occupy a different financial position. Adam Smith regards the maintenance of roads and canals as one of the duties of the State, requiring expenditure that ought to be defrayed out of the special receipts obtained from the users. His recognition of the so-called ‘fee-principle’ (Gebührenprincip) is qualified by his discussion of the taxes on communication, and is further weakened by the modern development of the transport system.1 To understand the financial position of the industries in question, we have to separate the different forms and examine them in order.
The maintenance of ordinary roads can hardly be regarded as a quasi-private industry. It is a part of the functions of the State, and preferably of the local governments. The principle of particular interest assigns this task to the smaller divisions, unless in the case of great main lines of traffic, but in no way does it fall within the industrial domain, unless the antiquated method of tolls is employed, and even then such charges have more resemblance to taxes.
The canal system has better claims to treatment under the present head. Private companies have in many instances reaped large profits from this form of investment, and there seems to be no reason why the State should adopt a different policy when it is the owner. In practice the usual tendency has been to keep the rates down to the amount necessary to cover expenses and meet the interest on the capital charge. The introduction of railways has put an additional strain on the canal finances, since rates have to be kept below those of the more rapid competitor, until finally in many cases all dues have been abandoned, and the canals have been maintained at the public expense. Such has been the position in France from 1880, when, in opposition to expert opinion, the last remnant of the canal dues was abolished. The Erie canal constructed by the State of New York, which at first gave very large surpluses, had to be relieved from all tolls in 1882. The German rates have also been lowered, and at the same time large expenditure has been incurred for new works; so that it appears that no assistance to the national or local revenues can be derived from this source so long as present industrial conditions continue.1 The system of purely gratuitous service is certainly unjustifiable. A canal ought at least to pay its working expenses, otherwise its maintenance is a direct loss. The charges needed for this purpose would come from the utility that it affords, and the assumed impossibility of levying them is a proof of the comparative inutility of the service.
With regard to capital expenditure the case is different. The tendency of all improvement is to displace fixed capital previously in use by newer and better forms, and state agencies cannot expect to escape this influence. But the existence of the danger is a good ground for seeking to get the maximum net revenue in the earlier years, in order to wipe off the capital charge, and in the period of decline for keeping the rates at the highest profitable level.2
§ 12. In social and financial interest and importance railways far surpass the other agencies of transport. The creation of the nineteenth century, they have contributed largely to promote its special characteristics. Existing political and economic arrangements depend for their successful operation on the modern railway system, supplemented by steamboats and telegraphs. Accordingly we need not be surprised to find that the principal financial problems of the public industrial domain centre in the treatment of railways. Every country has had to consider in what mode it might best utilise the invention, and in each the influence of national peculiarities and historical conditions has produced different effects. The railway legislation of England, France, Germany, and the United States affords many interesting examples of this statement.
Confining our attention to the financial aspects of the subject, two divergent modes of treatment are broadly contrasted.1 The policy of England and the United States has been to regard railways as merely one particular form of industry taking a place beside banking, insurance, shipping, mining, or other companies, but dependent for any special privileges on the direct exercise of the legislative power. The railway company on its first appearance was regulated by enactments curiously similar to those devised for the earlier turnpike trusts and canal companies. The liberal laws of the various American commonwealths with reference to the formation of companies, while giving certain advantages to promoters, were based on the same principle. Such a policy reduced the public financial interest to a minimum. Railway companies were indeed taxed for local purposes in the same way as other proprietors of land and buildings. A passenger duty intended to balance the older stage-coach tax was imposed on them. Various corporation taxes were raised by the American States, lavish grants of land were given to new companies, some advances of money were made, but in all other respects the public powers and the railways were separate. The various changes of English and American legislation have not infringed on this complete isolation. The restraints of the Interstate Commerce Act and the Railway and Canal Act (1888) have had no financial aim or effect. They are confined to the field of economic policy.2
Continental countries have started from a different condition of things, and have all been willing to recognise a much closer connection of the State and the railways. The earlier transport agencies had been under state direction. The carriage of passengers was one of the branches of the French post before the Revolution, and the administration of both roads and canals had been carried on by a state department. The German States had the same general conception, but did not possess the centralised organisation of France. There was thus a predisposing cause for the recent movement towards state railways, which has been encouraged by the ablest theoretical writers. The direct action of the State in the construction and working of railways has been restrained by economic conditions too potent to be set aside by legislation. England was the birthplace of the railway, and its mode of procedure had some effect on other countries, but the principal check was found in the absence of sufficient capital for the work. It was only by severe pressure on the English middle classes that the rapid progress in railway construction of the years 1845–50 was accomplished,1 and the motive power was the extravagant hope of gain. No such force assisted Continental governments in procuring funds, and they were therefore compelled to fall back on the support of private companies, whose shareholders were actuated by the ordinary economic motives.
§ 13. The different circumstances of the different countries affected the railway system. France with its strongly unified government aimed from the first at establishing a well-arranged series of lines on a systematic plan, with the reservation of the ultimate property in them to the State. This course, when considered a priori, had much to recommend it. It preserved the routine policy of the administration as to the older communications, and it promised at the end of the periods of concession to the companies to add a valuable property to the public domain. The earlier concessions under the legislation of 1842 were for short periods, not in any instance exceeding forty-five years. The result was, however, to hinder the investment of capital, and to gradually force more favourable terms from the Government. To encourage the construction of new lines a guarantee of interest was given to the older companies who opened them, and the time of the concessions was extended. Special legislation was applied to induce the construction of local railways either at the expense or with the aid of the local governments. The war of 1870–1 and its effects made the improvement of the service a matter of great interest. In 1878 some railways were acquired and worked directly by the State, and a plan for the creation of state railways on a large scale was proposed. Owing to the impossibility of procuring the necessary capital, a new arrangement was made with the companies in 1883, by which the state railways became only one, and that the least important, of the seven groups into which the main lines are divided.
The financial results are decidedly unsatisfactory. The surplus from the government group after the working expenses are paid is small (for the year 1885, 4,257,000 francs), and by no means equals the interest on capital, which for the same year (1885) was over 40,000,000 francs. The local lines are a further charge on the central and local governments, and they have been proved to possess little earning power. Under the various conventions between 1859 and 1883 large advances have been made in the form of guaranteed interest, amounting for the eight years 1867–74 to over 290,000,000 francs. As these charges are repayable out of the future increments of value, they have under the newer system been separated from the annual budget charge.1 To state shortly the outcome of French railway policy on its financial side, we may say that as yet the expenditure of the State has been considerable, for which the returns so far have not been a sufficient recompense, but that the method of limited concession, which checks the development of railway enterprise, and almost forces the State to give subsidies or guarantees, has the advantage of creating a large state property in the future. The terms of the six great companies who possess the main lines of France all expire between 1950 and 1960, when nearly 16,000 miles of railway will revert to the State, besides the new lines, amounting probably to about 6,000 miles, for which public money is by the arrangement of 1883 being gradually advanced. The net revenue of the French lines for 1899 was 690,000,000 francs, so that, without taking the prospects of increased revenue into account, there would be an addition of £27,600,000 annually to the state resources. Whether undue sacrifices have been made for the sake of this distant benefit is a difficult question to answer but we may conjecture that a simpler and more consistent method would have been better for French finance.1
§ 14. The earlier German railways were developed chiefly by state assistance or in some cases by state construction, but on no uniform plan. Each of the smaller territories formed its own railway system to meet local needs, without paying attention to the through lines of communication. Prussian railway policy was somewhat exceptional. Private companies were allowed to take part in the work of supplying needed lines, and guarantees of interest were given as encouragement. On military grounds several railway lines were constructed and worked by the State, and thus a basis was laid for the later policy.
The creation of the German Empire and the unification of its monetary and banking legislation could not fail to influence the position of the means of communication. State ownership and management were decided on, the only question of difficulty being the determination of the bodies who were to undertake the duty. At first the central or imperial government was to have been the owner. When, in deference to the sentiment of the smaller States, this plan was abandoned, the Prussian administration proceeded to buy up the chief private lines and work them by state officials. The magnitude of this process, which commenced about 1870 may be judged from the fact that in 1878 the state-owned railways were about 3,000 miles against 11,000 miles owned by private companies. In 1893 the lines owned or worked by the State had 16,900 miles against 1,467 miles owned and worked by private companies. The smaller States have also purchased most of the few private lines in their territories. Hesse alone has a greater length of private than public mileage.1
So far as Prussia is concerned, the financial results have been extremely favourable. The prices paid for the purchase of the several lines were high, but nevertheless there has been a good surplus in each year after meeting all expenses and paying interest.2 . The services given to the imperial post by the railways form another gain, which is hardly ascertainable, since it is mixed up in the postal receipts, which are thereby increased. To obtain a clear revenue of over £15,000,000 is an undoubted proof of financial success, though it may partly be derived from limiting the facilities for goods and passengers, and be in fact a tax on industrial activity. The great amount of public debt contracted as the purchase money of the private lines should be taken into account in considering the policy of Prussia. All pre-existing debt makes the terms of future loans more onerous, even when there are assets sufficient to meet the earlier charges, and it may be that Prussia's railway debt will injuriously affect her credit should she need it for war.
In the smaller German States the financial advantages of state ownership are not so great. In Baden the estimate for 1893 assumed a surplus over working expenses of 14,297,000 marks, while the interest and sinking fund on the railway debt was taken as 18,370,000 marks. Würtemberg is in a similar situation. The net revenue for 1893–4 was estimated at 13,000,000 marks, the interest on the railway debt being over 16,000,000 marks. The Bavarian railways have only now come to yield more than the interest of their debt, and the lines of Saxony just balance. The reasons for this relatively inferior position are not clearly established. The greater activity and the wider area covered by the Prussian railroads probably allow of more economical management than can be applied to the smaller lines. The system of state management is of longer standing in the other States, and it is possible that sufficient time has not elapsed for a proper judgment on the merits of the state railways of Prussia.
§ 15. Both Austria and Hungary have in recent years increased the number of their state lines. In consequence of the financial troubles of 1873, and to avoid the heavy payments for guaranteed interest, several leading lines were purchased by the State, though more than half remain in the charge of private companies. The surplus of the Austrian Ministry of Commerce, so far as the state railways are concerned, for 1902 is estimated at 39,220,000 crowns, which does not meet the interest on the railway debt. The Hungarian state railways also have been in an unsatisfactory financial condition, but show an improvement, the surplus for 1892 being taken as 31,563,000 florins, a large increase over the preceding year.1
Belgium illustrates perhaps better than any other European country the operation of state and private railways. The earlier lines were created by the State with the object of developing the transit trade, for which the country was so well suited. Additional lines were afterwards constructed by private enterprise, which competed with the state railways and with each other. To avoid this struggle a large part of the company-lines has been purchased by the government, but with the unfortunate result of reducing the receipts below the profitable point. In 1870, before the era of purchase, the surplus was nearly 20,000,000 francs, and the interest on debt nearly 13,000,000 francs, giving a net gain of almost 7,000,000 francs. Ten years later the surplus had risen to 45,750,000 francs, but the debt charge had reached 45,795,000 francs, giving a deficit of 45,000 francs, or, speaking broadly, the total receipts and expenses balanced. By 1883 the surplus was 48,500,000, francs, the debt charge having grown to 52,500,000 francs thus making a deficit of 4,000,000 francs. Higher rates were imposed as a remedy for this evil, and in 1891 the surplus over working expenses reached 58,000,000 francs.
The experience of other European countries in regard to the financial effects of state-owned railways does not materially alter the conclusions that the cases already examined suggest. Holland and Italy (since 1885) have preferred to lease the state lines to private companies. Russia has conformed to the general tendency in favour of railway nationalisation. In January 1887 the state railways were only 4,418 verstes in length as against 21,045 verstes in the hands of companies. In September 1892 the relative lengths were 11,536 and 17,152 verstes. On September 1st, 1901, the state railways comprised 34,998 verstes, only 14,913 verstes remaining under private control. The financial results have not been satisfactory: for the fifteen years 1886–1900 the expenses have exceeded receipts in twelve, but a part of the outlay is properly assignable to capital. The excess of receipts over working expenses on the state lines amounted in 1900 to 114,500,000 roubles. Roumania, Norway, Sweden, and Denmark have most of their lines under state ownership, which in the former countries does not give sufficient surplus to pay interest on capital charges. Spain, Portugal, and Switzerland have as yet substantially adhered to the system of private enterprise.1
§ 16. Outside of Europe the railways have been mainly an item of state expenditure to the various governments. Both in North and South America large grants of land and guarantees of interest have been given as inducements to the undertakers of railways. Brazil and Chile possess some state lines which do not pay the interest on their capital. The government lines of Canada have not even paid working expenses for any year since 1871, and the accumulated excess of expenditure over receipts since confederation in 1868 amounts to over 7,800,000 dollars, besides the capital expenditure of 58,000,000 dollars.
The Australasian colonies have entrusted the work of railway construction to their governments, who have borrowed largely for the purpose. In the year 1892 the total receipts from the Australasian state railways were £10,040,000 and the working expenses £6,533,000, showing a surplus of over £3,500,000. The debt contracted for railway service, however, amounted to £123,100,000, with an interest charge of over £4,600,000. Thus the railway system, so far from being a source of gain, really involved expenditure to the amount of about £1,100,000. In all the colonies except Victoria the administration has been placed in the hands of an expert commission, with satisfactory results, especially in New South Wales, where the surplus nearly pays the interest on railway debt.1 It may reasonably be expected that the growth of population will in future largely increase the railway receipts in all the colonies without proportionally raising the working expenses.2
Indian railway policy is financially interesting as affording a further proof of the readiness of English administrators to adopt a system quite different from that of their own country. As in Australia, the State has taken a great part in the extension of railway communications. The first method was that of securing or guaranteeing interest to private companies, under which stimulus some of the main lines were constructed. Then came the pressure of military necessities and of famine relief. A number of smaller and less important lines were established, and for the most part worked by the government. Finally, financial conditions have made it desirable to return to the guarantee system, but at a lower rate of interest and for a limited time. Though the receipts from the state railways are large (195,517,000 rupees for 1893–4), the expenditure is still larger (215,458,000 rupees for the same period), so that if the net balance only be taken into account, there is an annual outlay for the service.
§ 17. The statistics of state-railway finance have been given at some length in order to facilitate the formation of a correct judgment on the system. Within the last thirty years the movement towards ‘railway nationalisation’ has been increasing in force, and though the grounds on which it has to be decided belong mainly to economic policy in the widest sense, financial considerations cannot be altogether neglected. The one conspicuous financial success of state-managed railways is found in Prussia, of which the minor German States, as Cohn points out,1 fall very far short. France, Belgium, and Russia in recent years have not profited financially from their state lines. Those of Australasia and Canada afford on the whole no direct addition to the public revenues, a statement which is also true of India.
If the question is to be determined on these definite facts, the conclusion ought, we believe, to be against state property in railways. Many other considerations are, however, to be taken into account. Advocates of state property dwell on the future increase from the growing movements of both persons and goods, and regard construction or purchase as a profitable investment for the future. Transport agencies act powerfully in the promotion of industrial and commercial development,2 and hence it is argued that even unremunerative lines may so benefit the community as to increase the productiveness of other sources of revenue. Again, unity of management, only to be obtained under the state, would reduce working expenses and leave a larger surplus as net profit. The superiority of state credit is alleged as another reason for believing that its ownership would be financially successful. The English Government could some years ago borrow at 3¼ per cent. (and now at less than 3 per cent.), and, buying up the railway shareholders' interests at their market value, would, it is supposed, secure for itself the difference between the return on railway shares and that on Consols. By an extensive investment of borrowed capital a margin of profit would be obtained for the discharge of other public services. The objections to such a policy are obvious enough. There is no financial reason for investment in railroads that might not be applied to other forms of industry. If the advantages of unified management are important, the dangers of attempting to deal with a varied and complicated business are grave. Railway nationalisation as a financial measure is open to the risks that attend similar proposals for land nationalisation. Without accepting Jevons's view that the supposed gain from purchase through the higher credit of the State is wholly a fallacy,1 it is certain that it depends on a series of events which are uncertain and incalculable. Depression in trade, appreciation of the standard of value, or new inventions would reduce very much the value of the fixed capital of the railway system. The policy of state acquisition exposes the public finances to all the chances of loss that these possibilities open up. At best the system of state owned and managed railways thus appears to be a speculative employment of financial resources, and, judged in the light of experience, to be of more than doubtful advantage to the Exchequer. The general difficulties of state industrial enterprise are besides very likely to occur in this case. Defective accounts of capital and revenue expenditure and receipts cannot be escaped any more than in the dockyards or arsenals. With the best intentions it is not easy to distinguish clearly between the different sources and applications of the funds with which a railway administration has to deal; and yet to get a perfectly trustworthy statement of the financial position of state railways is essential for a correct judgment on the policy that has created them.
§ 18. What the railway system is to the nation tramways are to the town, and therefore it is quite in accordance with the general course of policy that there should be an effort to ‘municipalise’ these means of communication. English legislation places local governments in an exceptionally favourable position, either for establishing tramways themselves, or, after the expiration of a period, purchasing the rights of companies. A large number of British towns own their local lines, but up to July 1st, 1899, only seventeen municipal bodies worked their lines; in other cases the lines are leased to companies. Capital to the amount £3,200,000 has been applied to this object by about thirty towns. In the United States ‘a few municipalities manage their own street-car lines,’1 but the number is small.
Though classed in accordance with their nature among the industries of transport, the tramways resemble in their economic and financial aspects the other industries discussed in an earlier part of the chapter.
§ 19. The proper administration of the railway system, assuming it to be owned by the State, is a further problem. Shall the lines be leased to a company, as in Holland, or be managed directly by state officials? The former seems the solution that offers the greatest financial advantages. The full value of the line can be obtained and the chance of loss in a great measure avoided. Unfortunately the objects for which state railways are often desired cannot be accomplished in this way. The lessees will doubtless use their privilege to gain the highest possible returns, and the evils of competition and unequal rates will continue.
State administration is so much desired by the opponents of private companies that, as in Germany, private lines are leased to the State. In this way great outlay of capital is avoided, and as the management of a railway line may be reduced to a system of routine, there at first appears to be a fair analogy with the Post Office. This resemblance is only apparent. Instead of the simple tariff and limited classes with which the Post Office deals, there must be very elaborate grouping and frequent adjustment to new conditions. The management of a great railway is an industrial ‘undertaking’ of peculiar difficulty, and is almost certain to suffer from the want of capable direction. The financial success of state-managed railways will be affected by the efficiency of the management of so complicated a business, and it is more than doubtful whether the gain through unity of direction and system will compensate for the lack of energy and zeal that state industries display.
A great deal will depend on the particular constitution and situation of the country. The good financial results of the Prussian railroads are largely attributable to the skill and care of the trained officials in the service of that State. Countries where the public service is not so well organised and with governments more subject to popular control cannot hope for equal success. ‘I tremble to think,’ said Jevons, ‘what might be the financial results if a property exceeding the National Debt in nominal value, and requiring in every part of it constant repairs, renewals, and extensions, were in the hands of a Parliamentary minister who might find some day that he had been illegally and ignorantly signing away great sums of money at the bidding of his subordinates.’1
The financial working of the system would be particularly exposed to danger; for, in addition to the risk of errors in management, there would be the pressure of public opinion in favour of low fares and rates. If a substantial surplus were realised in any year, it would be impossible to escape reductions that would effectually prevent its recurrence. Victorian experience is instructive on this point. Any increases in the gross receipts of the Colonial lines have been ‘absorbed by the additional working expenses’ due to extra facilities and lower rates. The Railway Commissioners declare that ‘No department controlling state-owned railways can expect to be allowed to realise more than a small margin beyond the amount required to pay the interest upon the capital invested, as immediately that point has been reached the public request and insist upon concessions in rates or increased facilities, both of which are practically an amelioration of taxation.’1 It remains to be seen whether Prussia will succeed in maintaining her high revenue from railways when once a movement for remission of taxation sets in. Cohn, for example, justifies the railway surplus on the ground that it is derived from the well-to-do classes, and makes the distribution of public burdens fairer, but if the duties on commodities of general use, which are so heavy in Germany, were modified, the claim for lower railway charges could not be met in this way.2
The question of compensation for loss is another serious financial point in railway administration. State post offices escape the difficulty by repudiating all responsibility, no matter what loss they inflict, but railways could not follow this most objectionable method. Over a large system it is probable that the cost of accidents and other losses could be averaged from year to year, though some variation would still occur. Smaller countries would not have this refuge from loss. A single heavy accident would disturb the balance, and turn profit into loss. The Victorian railways had for a single accident to pay claims to the amount of £128,988; but the total expenditure under that head for the year in question (1887–8) only amounted to £142,562, while for the preceding year it was but £6,655. It is moreover highly probable that if the amount of compensation were assessed, as at present in England, by juries, their bias would be altogether against the railway administration, and to a greater extent than it is now against private companies.
§ 20. One difficulty common to most forms of state industry arises from the necessity of dealing with large numbers of employees. The tasks of the modern State are sufficiently varied and comprehensive to take up all the ability and time of administrators, without adding unnecessarily to their duties. Public industries, however, require for their efficient working a body of organised hands, obtained by free contract. An unavoidable consequence is the possibility of disagreement between the State and its helpers, culminating perhaps in the last weapon of industrial war—strikes.1 The position of the public powers is in such cases a trying one. The agency that is bound to enforce order and fair play is one of the parties to the dispute; the natural disposition of an administrator in a popular government is to make things smooth by yielding to the demands of the discontented, a course that involves additional expense and injuriously affects the financial position. The pressure of the consumer—that is the community—for low rates, and that of state officials for better conditions of service, is the most serious financial risk that the industrial activity of the State is likely to encounter. The Prussian railway service controls its 80,000 employees on an almost military system, aided by the organisation of the national army. But any attempt to direct the railway system of the United Kingdom on a similar plan would be hopeless.
§ 21. But whatever be the judgment that we form as to the expediency of the policy, there can be little doubt that it has had important effects on public finance. In most European States a new branch of the public domain has been called into existence, with very large gross receipts. The weight of public indebtedness has moreover been increased, and the real nature and results of that burden have been obscured.1 A large section of private industry, that would otherwise contribute to the public resources through taxation, has come into the charge of the State. The broader social and political results do not concern us here. But the purely financial consequences of a continuance of the movement have much interest. One inevitable result will be the comparative reduction of tax-revenue as contributing to the gross receipts. The addition of English railway expenditure and receipts to the national Budget would far more than double its already portentous sum.2
Under such conditions the ordinary method of interpreting financial returns would prove defective. At present the Post Office unduly affects the balance of the Budget, but its effect is insignificant compared with accounts of the magnitude of the railways. The Indian Budget, as Fawcett very clearly showed,1 is open to misinterpretation on this ground. Until the gross and net figures are separated and arranged, there are no correct data for discussing the financial situation.
Of more weight is the fact that this great increase of gross receipts and expenditure would leave the real power and burdens of the country almost unchanged. The financial condition might be a little better or a little worse, according as there was a net gain or loss from the new state domain; but in substance the public wants would still have to be met from taxation, and the pressure would fall on private income, since the large revenues from quasi-private possessions would have corresponding charges against them.
The system of creating a state industrial domain by the policy of granting long concessions, with ultimate reversion to the State, is by far the most plausible. It appears to be a form of saving by securing advantages in the distant future at a small present sacrifice. For we cannot believe that the concessionnaries do not endeavour to compensate themselves for their shorter term by increased charges, the result of limitation of advantages. Such is apparently the case in France, where the railway companies, if their tenure is limited, derive a counter advantage from the very high dividends guaranteed to them.
From one point of view the formation of a state property may be regarded as a mode of saving, somewhat analogous to the treasures accumulated by sovereigns in earlier times. A long-continued process of judicious investment might succeed in raising these accumulations to a very large amount, but under modern conditions it is better to trust to taxation for the needed revenue, and allow the investment of capital to proceed from the action of individuals. It may be further remarked that each extension of state ownership and management is a step in the direction of Socialism. That the growth of public industries, if carried on unchecked, would ultimately transform society into the type desired by the more thoughtful Socialists, is undeniable; and, whatever may be the merits of this kind of social organisation, it is utterly incompatible with the continuance of the conditions which existing financial theories assume. During all changes of social life, the fundamental economic and financial categories will survive, but their form may be so changed as to render entirely new expositions essential. We are not called on to discuss socialistic proposals, but, to all who recognise their impracticability, the encouragement to Socialism that attends the extension of the industrial domain of the State may be noted as a further objection to it.
the state as capitalist. administrative revenue
§ 1. The agricultural and industrial property of the State, though the former has lost most of its importance and the latter is confined to particular sections of industry have both retained a place as substantial sources of revenue in the case of at least some countries. The domain, the forests, and the railways of Prussia contribute a considerable amount to the budget, and cannot be passed over in any estimate of the financial position of that country. The land revenue is a mainstay of Indian finance, and England would feel the loss of the postal revenue. Very different is the position of what once might have been regarded as a co-ordinate part of the quasi-private income of the State, viz., the revenue from commerce. At one time the regulation, and even the monopoly, of certain branches of trade was believed to be a part of the royal prerogative. This position, which was most strongly held in the sixteenth century, gave way before the presence of new economic forces and the criticisms of the more intelligent theorists. It is now universally recognised that, to use Adam Smith's words, ‘no two characters seem more inconsistent than those of trader and sovereign.’1 The speculative nature of commerce, the need for constant watchfulness and minute calculation of the chances of gain or loss which are its essential features, make it impossible for a State to hope for revenue by engaging in it.
Exceptions to this general rule are rather apparent than real. When a State possesses and works lands, forests, mines, or factories—unless the products are used in the state service—it must find a market for what it turns out, but even this irreducible minimum of commercial transactions is the weakest part of state economy, and by its risks forms an additional objection to those already urged against increasing public lands or industries. The same necessity, of course, exists where an article is artificially monopolised for the purpose of effective taxation, a process that is sometimes confined to the sale, leaving the production to private enterprise. Revenue obtained in this way is virtually taxation on the commodities so treated, and must be considered in that connexion. The only special case that we need notice is that of the Dutch Government trade from Java. Under the ‘culture system’ large quantities of valuable products, chiefly coffee, tea, and spices, were received by the Colonial Government and sold at a high rate. For many years large surpluses were realised, but lately the modifications of the culture system and the fall in prices have led to deficits in the colonial budget, and given still further proof of the hazardous nature of such revenues.1
§ 2. The business of banking is in so many ways connected with the State that its public management appears to have much to recommend it. The ordinary method has, however, been that of granting concessions to privileged companies, which are bound to afford facilities to the State in return for advantages enjoyed. England, France, and Germany at present adopt this policy, with the various modifications that the circumstances of each country make advisable. The pure ‘state-bank,’ in which the capital of the undertaking is supplied from the public funds, is found only in Russia and Sweden. In most countries banks contribute to the revenue either by the special services that they perform for the State, by taxation, or by sharing profits over a certain point with the Treasury, the last being the system of the German Imperial Bank.1
Banking may naturally be divided into dealings (1) with money, and (2) with capital. There are strong reasons for regarding the former as a state function, and it is probably from this part of the business that public revenue may best be obtained.2 The trade in capital, on the other hand, seems entirely unfit for governmental intervention, though some small revenue may be gained from it by judicious taxation.
The relations of public finance with the banking system are not confined to questions of revenue. The public debt in its different forms, especially that of inconvertible paper issues, is mixed up with the trade in capital, and the whole mechanism of the financial system is dependent for its successful operation on the agencies of credit. We shall therefore have more than once to return to the subject.3
Another form of state banking has come into existence in the last thirty years in the savings bank, which originated in England in 1861, and has extended to Belgium, Italy, Holland, France, Austria, and Sweden; but its financial importance is confined to the aid which the large deposits afford in the creation of terminable annuities.
§ 3. A more important but at the same time more questionable source of revenue is by many States derived from the receipts of lotteries conducted by the government. The tendency of the State to seek gain from the errors or vices of its subjects is very noticeable in the earlier periods of financial history. Appeals were often made to men's ‘absurd presumption in their own good fortune,’ by the establishment of periodical lotteries, in which the contributors, taken as a body, were certain to lose. In many cases the lottery became a state monopoly, and several examples still exist. The Prussian budget estimate for 1902–3 assumes a yield of 88,263,500 marks from this source. Italy is the receiver of a large revenue from lotteries, the gross yield for 1901–2 being computed at 67,500,000 lire. Saxony, Hamburg, Spain, and Hungary are also indebted to this system for a portion of their revenues. The objections are rather moral than economic, though the virtues weakened by the prevalence of gambling are the peculiarly economic ones of prudence and willingness to acquire wealth by labour.
From the purely financial point of view, the more refined lottery systems depending on combinations of numbers are objectionable, as there is some uncertainty as to their gains. The State is exactly in the position of the banker of the gambling table. Thus 1885 was a bad year for the Italian lottery, 1886 a good one. The simple method of prizes arranged in classes is preferable, but it appeals less powerfully to the spirit of adventure, on the prevalence of which the institution depends for its continuance.
The pernicious effects of state sanction of the vice of gambling have led to the abandonment of the lottery system in England (1826), Hesse (1832), France (1836), Sweden (1840), Bavaria (1861), and Switzerland (1865).
§ 4. Adam Smith has made the institution of a ‘public pawnshop’ familar by his reference to the case of Hamburg; and many similar establishments in the shape of the ‘Monts de Piété’ in France, Belgium, and some German States are in existence. The proceeds, when they exceed the advances and cost of working, are not applied to public use, so that the whole system is rather a charge, chiefly on municipal revenues.
A priori it would seem that the lending of accumulated wealth would be a convenient mode of securing a revenue for the public services, but, as in the case of industrial investments, the test of experience makes it plain that this is really an expensive way of obtaining the necessary supplies, since the principal has first to be raised, and is afterwards less productively employed than when left in the ownership of private persons. A true conception of the relation of state income to the national income, which is the sum of all private incomes within the nation, overthrows the fallacy of state accumulation and investment.
Notwithstanding the force of this general canon, the financial accounts of modern States exhibit apparently many examples of advances of capital by the State, but on closer investigation these cases turn out to be connected with the use of public credit. For the furtherance of certain economic or social ends, such as the improvement of land, or the erection of better dwellings for workmen, or municipal improvements, advances are made by the central government either to individuals or to local bodies, but these loans are themselves ultimately derived from private capital by means of public credit. The Treasury acts simply as an intermediary in supplying capital for certain desirable objects—a position made clear in England by Viscount Goschen's separation of the local from the general debt. Repayment of the money so advanced is but the appropriate method of discharging the amount of debt that was contracted for the original loans.
§ 5. The interest on capital lent out is thus not a source of state revenue that need receive attention here, since it does not really increase the public receipts. We may therefore pass on to consider those kinds of revenue that are fixed in amount and admit of capitalisation, a circumstance that connects them with the gains from invested capital, notwithstanding that their origin is very different.
Foremost amongst such revenue is the gain from charges, on land. In an earlier chapter of the present book we found that the agricultural domain had often passed gradually from the hands of the sovereign by the introduction of hereditary leases. Permanency of tenure without limitation of rent is of little benefit, as increase in the charge can always be imposed in order to destroy the tenant's interest. Consequently the fixing for ever, or for a long term, of the rent to be paid accompanies the hereditary lease. The variable payments become settled and definite charges.
In another way the same form of revenue comes into existence. The servile tenures of the Middle Ages prescribed a great variety of duties to be performed by the tenants, which under the new conditions of ‘money economy’ were commuted into fixed sums. English legislation on copyholds, the measures of the French Constituent Assembly, and Prussian land legislation since 1807 have all had this commutation and settling of dues as one of their objects. The tithes—so peculiarly distinctive of ecclesiastical property—have also undergone the same treatment, wherever they have not been abolished. The universality of the forces that work this change is shown by the extension of the terms of the Indian land settlements and the favour in which perpetual settlements are held. The difficulties as to drawing a distinction between rent and taxation in India have been already noticed, as also the fact that with a perpetual settlement the state receipts in reality belong to neither head, but are a thing per se.1
A still further question arises, viz. whether long-continued taxes on land should not be included in this class of receipts. Much controversy has arisen in connexion with the French Impòt Foncier; one party contending that its burden has ceased to be felt, since all purchasers deducted the capitalised amount of the tax from the purchase money, while opponents of this view have brought forward the ever-open possibility of changes in the amount so levied. The broader theoretical aspects of the matters at issue will occupy us in studying taxation,1 when we shall see reason for adopting the last-mentioned view, but some concession can be made to the advocates of the rent-charge conception of land taxes. Where, as in the case of the English Land Tax of 1692 (originally intended to include all property, but evaded by the holders of movable wealth), the amount is fixed on each estate, it does become a charge on the land. The system of redemption, applied first in 1798, is of itself sufficient to prove the correctness of this view. The so-called ‘English Land Tax’ is gradually disappearing. From its highest point of £1,911,663 in 1798, it has come down to £755,000 in 1900–1.2
The expediency of allowing redemption by the parties liable to such charges depends altogether on the nature of the burden. So long as the land tax was, or was intended to be, variable, permission to capitalise the payments would necessarily be futile, since a fresh charge could always be imposed, but, where fixity has been introduced, redemption is generally for the advantage of both sides: for that of the person liable, since otherwise he would not consent to redeem, and for that of the State, which is thereby enabled to reduce its liabilities. Whether a charge should be fixed or not depends on the way in which it has been established, and is mainly determined by considerations of public policy. The conversion of taxes into fixed payments is, however, unquestionably an error in finance, as owing to the growth of public expenditure, provision has to be made for procuring larger sums, while the immobility of each existing tax compels the financier to have recourse to new and, on the whole, less eligible sources of revenue. The same consideration applies to commutations of rent, either of land, of mines, or of concessions for railways, canals, and other undertakings. The probability is that they will give a larger return at each renewal, and this additional gain is lost by commutation for a fixed sum, unless, indeed, full allowance is made in the arrangement for the value of the increments that may reasonably be expected in the future. Such transactions are not usually settled on terms favourable to the public interest. An individual will not estimate a very distant gain at its real value to the community, and, as a result, the fixed payment will be but slightly raised by the inclusion of a benefit to be obtained later on. Financially, it is best to reserve these prospective receipts for the new objects of outlay that are certain to arise.
§ 6. Besides the services attached to land, there is a miscellaneous group of receipts which may conveniently be noticed here. Historically they belong to the class of regalia, and are due to the sovereign's prerogative. Amongst them we may mention charges for the privilege of hunting, or of fishing, which to some small extent contribute to the public revenue at present. Mediæval finance expanded this class of receipts to a remarkable extent. They acted, as Roscher as shown, as a traditional form between the earliest condition, in which the domanial revenue sufficed for the royal service, and the later state economy depending chiefly on taxation.1 Our modern customs and excises appear in germ in these feudal or imperial dues. Succession duties can also be referred to the same source; but, apart from what may fairly be regarded as tax revenue in rudimentary form, there are the well-known feudal aids, the right of the sovereign to fines, that of taking ownerless goods, and the numberless other claims that the ingenuity of lawyers succeeded in establishing.
Modern finance has chiefly to deal with these prerogative rights so far as they help to explain the evolution of existing systems of taxation, or in the scattered remnants which are found as survivals in every country, inexplicable except on historical grounds. The discussion also serves as a suitable introduction to another class of public receipts that has presented much difficulty in regard to its correct position in the financial system.
§ 7. The problem of classifying the revenues known as ‘fees’ (Gebühren) need not be again considered.1 In accordance with the conclusion before reached, no separate department for fees is requisite. Some of the so-called Gebühren, e.g. the postal revenue, have been noticed in the preceding chapter, others will find their place in the study of taxation, while the remainder of the heterogeneous class will be considered here as a sequel to the fixed charges imposed by the State. By this method the complications that otherwise occur are avoided, and the creation of a distinct group of state receipts, co-ordinate with that derived from taxation, becomes unnecessary.
If further justification were needed for this breaking up of the topic of Gebühren that German financial science has laboured so strenuously to develop, it would be found in the remarkable divergences of opinion among its exponents. No two of the able and erudite workers at the subject give precisely the same interpretation and arrangement. The one fixed and definite result obtained can be and is recognised in our treatment, viz. that the ‘fee’ is paid in return for service done, and that it does not bring in a clear return to the State over and above the cost of the service for which it is paid.
The classification and division of the different kinds of fees is almost as unsettled as the nature and position of the whole system, but when we deduct those charges that really belong to the industrial domain, as also whatever is in fact tax revenue, the difficulty is very much lessened. Special reasons apart, the State may charge for any service rendered to a determinate individual, and therefore it would seem abstractly possible that each public function would have its corresponding fees. State services cannot, as we know, be analysed and their effect on each citizen assigned. The general interests of the society are a matter of importance to all; were it otherwise the whole organisation of the State might be dissolved, and its duties given up to individual enterprise. Fees come in only as a supplement to the other receipts of the public exchequer, and have to be confined to certain cases of measurable services, where the citizen is brought into direct contact with the public power.
§ 8. The administration of justice has been the occasion for the earliest of these charges. Without returning to the previously considered position of primitive law courts,1 we need only bear in mind that the cost of law services has been more and more placed on the general revenue. From being self-supporting, the cost of justice has been steadily increasing. Nevertheless, a large number of charges are still levied in connexion with legal proceedings in every modern country. The United Kingdom shows net receipts for the year 1893–4 to the amount of £870,844 under the general head of ‘Fees,’ of which by far the largest part was obtained from court charges. Local governments also receive fees for police and justice which ought in strictness to be added, but the total amount was less than £500,000 for 1887–8. In France the system of court fees in the older form of épices was abolished at the Revolution, but the charges for documents and legal forms are still a part of the revenue under the title Greffe. The timbre, or stamp duty, also affects judicial acts, but the greater part of its return is really taxation. For the year 1888 the receipts from the Greffe were 8,225,000 francs. The same category of receipts in Italy for the year 1881 came to 7,000,000 lire. The several German States, as well as the Imperial Government, obtain more or less revenue from the same source. So do many of the American commonwealths, but the value of the comparative figures is very little, owing to the intermixture of fees with taxation.1
Besides the revenue derived from contentious proceedings, or from fines on criminals, there are numerous juridical acts which require for their validity the payment of a contribution to the State, or which involve work on the part of the public officials, that can be charged for on the ordinary principle of service done. Such are entries in official registers, grants of naturalisation, and the supply of copies of legal transactions. One of the most important in practice is the dealing with land titles. In all countries with a proper land system owners' titles are registered and changes in the rights over land are recorded. The benefit of such a system to owners and intending purchasers is beyond question, while the cost is very moderate. A low scale of fees for the operations of the registry suffices to cover its expenses, and therefore is an eminently suitable mode of providing for them. Such charges are in principle clearly distinct from the heavy duties on the transfer of land that still exist in France and form a part of the system of enregistrement. Low fees have the double advantage of securing without difficulty a good proportion of the expense that administration entails, and of allowing transactions to be carried on without check.
§ 9. Fees for justice and juridical acts shade off almost insensibly into ‘administrative fees’ (Verwaltungsgebühren), so that many of those enumerated in the preceding section might fairly be placed under the latter head, but where the payment is made in connexion with questions of legal right, it seems better to regard it as a ‘law fee.’ Among administrative fees those for ordinary certificates, e.g. of births, deaths, and marriages, may be included the issue of passports, attestation of degrees and diplomas, and the many other payments for special official relations. More important, however, are charges connected with economic transactions, such as fees for testing the quality of articles, that now exist chiefly as survivals of the older system of regulation, as e.g. the English hall-mark on gold and silver, or have been introduced on social grounds, as in the case of testing for adulteration.
In this somewhat miscellaneous collection, whose indefiniteness results from the wide extension of state functions, may be placed the revenue from seignorage. The function of coining money is undertaken by every civilised government, and in most cases a small amount of the metal sent for coinage is retained in order to meet the expenses of the process. Where the deduction is limited to the amount necessary to cover the cost it is substantially a fee for guaranteeing the fineness and weight of the currency. The English mint does not even do this in respect to the gold coinage, which is a cause of expense to the State. It is more than recompensed on the token coinage of silver and copper, which gives a varying surplus, amounting for the year 1889–90 to the unusually large sum of £774,000. Receipts of so considerable an amount, if normal, would not be treated under the present head. If it could be shown that the seignorage charge pressed on any class or classes, it would be a special tax levied on them; if it was the result of state monopoly, it would be a gain of the State from the industrial undertaking of coinage. As any large gain is very rare—the receipts of the English mint for 1889–90 were described by Viscount Goschen as a ‘windfall which cannot be expected to recur’1 —and as some mints do not cover their working expenses, it is best to regard seignorage as being one of the class of ‘fees.’
Charges for testing weights and measures make another item in the list; so do lighthouse dues and dock charges In almost every case of administrative action there will be some receipts owing to the definite services that are rendered to individuals or the commodities supplied to them. The sale of official publications may be given as an example.
A comparatively important but diminishing head of revenue from ‘fees’ is found in school attendance payments. The promotion of education is now regarded as a public duty, involving extensive outlay, which must be supplied either from taxation or from the fees paid by those who avail themselves of instruction. There seems to be no reason why a part of the expenses of the system should not be borne by the parents, unless in the case of actual destitution. The tendency, however, is towards their removal. The United States, and France since 1881, have no fees for primary schools. Prussia still retains them, but they have disappeared in the United Kingdom under the operation of the Education Acts of 1891 and 1892.1 The higher educational institutions also produce fees in small amounts, as e.g. in England the University of London, before the recent change in its constitution almost covered its annual working expenditure by the fees of candidates for its degrees and certificates.
§ 10. Looking back on the list of receipts that may fairly be classed as fees, we see the absence of any harmonious or logical arrangement. There is no branch of the public power to which they can be attributed; they are spread over the local and general budgets, and sometimes never come into account, being the perquisites of the officials who receive them, as is not uncommon in the United States. Much of the law that regulates them is only of interest in administration; they are often inextricably mixed up with the public industrial receipts and with taxes, especially ‘taxes on commerce’ (Verkehrssteuern),1 and finally the aid they give to the financier is not considerable. They may indeed be regarded as incidental products of state action. Just as in manufacturing processes certain by-products are found which are sold for what they can bring or as the labourer disposes of his spare hours for any wages that will overcome his desire for leisure, so the mechanism of the State, while aiming at the efficient discharge of the tasks set to it, nevertheless does not refuse to collect revenue that can be acquired without neglect of the primary object in view, and such revenue is that from fees.
There is thus complete justification for regarding them as an appendage to the quasi-private economic receipts, as we have done in the present chapter.2
state property.—general considerations on quasi-private revenue
§ 1. We have now examined the different classes of public receipts that can be fairly classed as ‘quasi-private’ or ‘economic’; what the practical financier would describe as ‘non-tax revenue.’ The component elements are somewhat heterogeneous, a necessary result of the variety and complexity of public administration. Some of the categories shade off indefinitely into the other great class of contributions obtained through taxation, and thus deprive the technical groupings made for practical purposes of the logical consistency needed in scientific inquiry. In another respect the nature of things presents difficulties in the way of precise classification. The ‘economic’ revenue of the State is the product of property held, or payment for services done, by it. Great masses of public property are, however, not productive of revenue in the ordinary sense. From the Houses of Parliament down to the smallest court-house—from Epping Forest to the village green—there are buildings and lands that bring in no return to be entered in any budget, local or general. They are, nevertheless, a constituent part of the public domain, the loss of which would be seriously felt even financially. They contribute not wealth in the strict sense, but utility, and the problem of determining their financial advantage is therefore a difficult one. It seems that the best mode of framing an approximately correct estimate is to take the sacrifice that their loss would impose. The destruction of the public buildings of this class in the United Kingdom would place a considerable charge on both national and local resources, and this sum gauges the value of the existing buildings. The same test applies to the land devoted to general use such as parks, commons, and roads when free from tolls.1 The last-mentioned case shows how revenue-yielding property can pass into the class under discussion, and the French canals previously noticed afford another instance Strictly speaking, the policy of charging fees only equivalent to, or even under, the cost of maintenance is an intermediate stage between using state possessions as a source of economic revenue and abandoning them to gratuitous use.
The extension of this ‘unproductive’ public domain is one of the remarkable features of the present century. The movement, usually described under the title of ‘State Socialism,’ has made public authorities owners of museums, picture-galleries, libraries, baths, gardens, and the other appliances of a civilised society. No materials are at present available for forming an adequate conception of the extent of the movement, but of its reality and importance there can be no question. It is not limited to any particular country, and it is as prominent in local as in central government. Though commonly placed under the head of ‘State Socialism,’ it is really ‘communistic’ rather than ‘socialistic,’ since it implies the gratuitous supply of certain advantages that may be wholly unearned by the receivers. The classes that benefit directly are not those who contribute, even in labour, to the work of society. The public domain, applied to either state or general use, also influences the financial position by the outlay that is needed to keep it in efficient working. The existence of numerous public buildings, of large areas of land devoted to the service of the community, of works directly supplying state needs, might give a very considerable sum of assets to be entered in the national ledger if an inventory of state property were taken.1 It must, however, be remembered that the State is in mercantile phraseology ‘a going concern.’ Its property cannot be realised without suspending the processes of political life, and so long as these continue further expenditure is unavoidable. This part of public property resembles the mansion, demesne, carriages, plate, and furniture of a rich man, which are only productive of wealth on the breaking-up of his establishment, and otherwise involve him in additional outlay.2 Each is, in the language of modern economists, the ‘consumers’ capital' of the proprietor, affording utility but not revenue in the narrower sense of the word.
These various points of connexion are quite sufficient ground for noticing the unproductive possessions of the State, and their suitable position is plainly in immediate sequence to that other section of public property which does contribute to the resources of the budget. Between land earning profit and land that merely affords enjoyment there are so many intermediate gradations that we pass almost insensibly from one to the other; and the same statement is applicable to some other forms of fixed capital.
There is an evident convenience in the use of separate terms for these two classes of public property. The language of French administration describes the revenue-giving part as ‘Domaine privé de létat,’ while the remainder is the ‘Domaine public,’ though the latter term is sometimes used in a wider sense to include all the possessions of the State. The phrase ‘Domaine privé’ has often a legal rather than an economical or financial meaning, and denotes the property held by the State as a juristic person. Stein has proposed the terms ‘Domänen’ and ‘Staatsbesitz’ for the ‘productive’ and ‘unproductive’ parts of the public property, and perhaps the best English equivalents would be ‘domain’ and ‘property,’ though the latter is rather too vague unless qualified by some limiting term.1
§ 2. All the sources of revenue described in the present book possess one common feature that differentiates them from the tax receipts. Their amount has no essential connexion with the public wants. No matter what may be the demands on the public treasury, the various parts of the national domain will continue to give the returns that the economic conditions establish. State lands will afford rent, state investments interest, and state industries profit under the normal form of those divisions of income. They will not increase in times of pressure, nor will they diminish when funds are abundant, and they therefore deserve the epithet ‘mechanical’ as opposed to ‘organic’ which has been given to them.2 This feature of itself makes recourse to taxation a necessity in times of increasing expenditure. Even on the supposition that England had sufficient returns from its economic revenues to meet the expenditure of 1790, the French wars would have disturbed the balance, and it would never since have been restored. It might appear that the proposition just stated is not strictly exact. Fresh state wants might lead to more judicious management of the domain. Rents might be brought nearer to the economic limit. State industries might be worked with a closer eye to profit, and fees, notably, might be made higher. This qualification is only apparent. The previous low receipts were either the result of bad management or of a particular line of policy, and if the former, could have been rectified apart from the new needs, if the latter, would involve the loss of the object previously aimed at. Increased rents may retard agricultural advance, higher railway charges injuriously affect commerce, and increased fees tend to limit the transactions on which they are charged. Assuming then that pre-existing receipts have been arranged on correct principles, no increase can be obtained without a corresponding loss to the community, and in many instances it will be really taxation, as may easily happen with regard to any economic source of income. It is further probable that new demands will act injuriously on the economic revenues, e.g. war with its accompanying expenditure retards social progress.
The antithesis between ‘mechanical’ and ‘organic’ revenue is thus shown to be based on the natural conditions of the two classes, and to indicate the place of each in a developed financial system.
§ 3. The division of the mechanical sources between central and local authorities is in general determined by the history and situation of each particular country. Land may, it would seem, be held either by the State as representing the sovereign of mediæval times, or by the parish or commune, which is the descendant of the old village community, but peculiarities in legal development have influenced the actual position. The English parish is very different from the French commune with its juristic personality and separate property.1 The commune and the State are in most European countries the only public powers that have had enough continuity of existence to acquire the ownership of land. The Crown and Church possessions have passed to the latter, the ‘waste’ of the district to the former.
Intermediate bodies under unified governments, e.g. the English ‘County’ and the French ‘Department,’ have little economic receipts, and what they possess is of recent origin. Federation naturally supplies the principal subdivisions with larger possessions, or rather it leaves them the wealth which they held before union, though in certain cases the tendency is towards placing land, and especially forests, under the central government.1
With regard to industrial undertakings the general rule, confirmed by practice, is in favour of placing them in charge of the State. Local bodies cannot be expected to deal wisely with the complicated and involved questions that must arise. The principle of ‘particular interest’ is the reason for a class of exceptions. Just as those public functions that principally concern a town or district should, generally speaking, be entrusted to its authorities, so should the industries connected with those functions or services. It is on this ground that municipal gas and waterworks, main drainage systems, and tramways are to be justified. Such undertakings are most prominent in urban districts, but, if needed, rural bodies may fitly carry them out. Local railway lines (e.g. the Chemins de Fer d'intérêt local of French finance) may be, and sometimes are, owned by the appropriate local body. The railways possessed by the various German States would probably be more successful if they were in the hands of the imperial administration, and such was the original design of the promoters of state purchase, only defeated by the jealousy of the smaller States.
Postal and telegraphic administration and industries monopolised for the purpose of special taxation are best suited for administration by the general government. As regards the various receipts capable of capitalisation no general rule obtains. When they are received by local bodies supervision by state officials is desirable in order to prevent maladministration or redemption for insufficient value, but there seems to be no reason for depriving a town or district of any resources of the kind that it may possess. Its taxation is so far reduced, and the nation as a whole has no claim to the funds.
Fees have to be distributed according to their source. Local administration is fairly entitled to what may be called its ‘incidental earnings.’ On the other hand, all administrative revenue that is gained by agents of the central government is justly due to it. By this simple rule much confusion is avoided, and there is the best chance of effective control.
A like consideration ought to guide the division of unproductive property. Whatever land or buildings subserve the wants of local administration should belong to the authority so administering; the general government should retain the remainder. Thus buildings for the local courts parks, or baths for a town are best put under local control National museums or libraries, or the principal courts of justice, belong rightly to the State.
§ 4. The necessity or advantage of general rules on the subject of division is, however, much reduced by two circumstances viz. first, the variety of conditions in different countries, and the numerous modifications in the structure of local government. Much more depends on the character of the particular people, or even the particular body, than is usually the case in finance. Thus the devolution with benefit of powers to the Corporation or to the County Council of London is no argument for a similar course with the municipality of Paris. Nor can inferences be safely drawn from both these bodies to the proper position of the Corporation of New York. At present the duty of the inquirer is rather to note the actual phenomena, avoiding hasty generalisation. The other qualifying circumstance is the interaction of the central and local bodies in respect to finance. Not to touch as yet on taxation, we can, even at present, see that land belonging to the communes may for financial reasons be managed by the State, and the receipts paid over to the owners. Again, local bodies may for convenience or economy take charge of public property which is essentially that of the State. So also general fees may be received by local officials, or vice versa. The consequence is that the two agencies, or rather the two sides, of the public power are so interlocked that systematic distribution of revenue cannot be made without a comprehensive survey of the whole position, and full allowance for the many influencing conditions.
§ 5. A final question now presents itself, viz. what is the proportion of revenue contributed by the ‘mechanical’ sources? Or, in other words, how much is left to be supplied by taxation? The answer, it need not be said, will vary according to the time and the country to which it applies. In some German States, at the end of the Middle Ages, taxation did not exist save as an exceptional resource. The present English or French revenue is almost wholly made up from this ‘extraordinary’ aid, as it was anciently called. And many intermediate positions are to be found.
Before entering on these particulars we must recall a distinction noticed already for another purpose, viz. that between gross and net revenue. Modern finance has accepted as correct the policy of bringing all sums received and expended into account, so that the budget shall reveal any defect in the operations carried on. For scientific analysis it is just as necessary to eliminate certain elements from each side of the accounts. To take the nearest example. In the English accounts for the year 1900–1, Posts and Telegraphs figure on the revenue side for £17,250,000, and form over 13 per cent. of the receipts. The expenditure was, however, taken as £12,700,000, and this, deducted from the former sum, leaves the more modest item of £3,550,000, or less than 3 per cent. If all the component parts of revenue were equally affected by this diminution there would be no difficulty in comparing amounts; but the nature of the quasi-private State revenue makes the gross largely exceed the net receipts, while in respect to taxation the existence of any remarkable difference between the two is of itself a strong objection to the particular form so affected as showing undue cost in collection. Nor are these differences confined to the tax as opposed to the non-tax receipts; within the latter class the relation of net and gross revenue is not in every, perhaps hardly in any, case exactly the same. The Indian land revenue gives a very high proportion of net return. In 1899–1900, about £14,500,000 out of £17,200,000. The Prussian mines, on the contrary, give very little net receipts, and some purely industrial enterprises have often a balance on the wrong side.
What is most important at present is to recognise that in estimating the financial merits of the various sources net revenue is the only sound basis of calculation. No matter what are the gross incomings, if there are equal outgoings the exchequer does not benefit. Taking this view, we are led to reduce very much the importance of the economic receipts. Except in the case of rent the net returns are small. Even the Prussian state railways, the most profitable of public undertakings, do not produce much revenue when compared with the total net receipts of the budget. Besides, the intrusion of the tax element tends to deprive some of the most important public industries of their purely economic character.
§ 6. The intermixture of economic and tax revenues as well as the complications of net and gross receipts, and the involved relations of capital and revenue accounts, prevent a precise and definite answer regarding the proportion of public expenditure defrayed out of taxation. It is, however, possible to give approximate results that are not without value. In the English financial year 1901–2, the receipts from taxation were £121,893,000. The cost of collection was £2,970,000, leaving a net return of £118,923,000. Non-tax receipts came to £21,105,000, expenditure to £13,300,000, and the net receipts to £7,805,000.
Passing over the various readjustments that the question of fees and the distribution of interest on capital charges might in strictness necessitate, 94 per cent. is obtained from taxation against 6 per cent. from other sources. Local finance in England and Wales for the year 1898–9 (the last available) gained by taxation £38,600,000 directly, and £11,790,000, from contributions of the central government. Gas, electric lighting, waterworks, and tramways yielded over £10,430,000, while their cost was £7,785,000. This balance of £2,645,000 has to be further reduced by the interest on debt incurred on the industries in question, or about £2,350,000, the net gain being brought down to less than £300,000. Tolls, dues, repayments, rents, and dividends came to about £9,000,000, from which the uncertain cost of collection has to be taken. The broad inference from these figures is that about two-thirds of the gross local receipts come from taxation, the remaining one-third being otherwise obtained, but that in the net receipts taxation stands to other sources in the ratio of 5 to 1.1
Germany shows a somewhat different position. Nearly all the German States have a good percentage of their gross receipts from economic revenue, but when the cost of gaining that revenue is taken into account there is very little surplus left. Thus the estimated net revenue for the year 1902 from the Prussian lands and forests (other than railways) is 59,600,000 marks (£2,980,000); that from mines and salt-works 30,800,000 marks (£1,540,000), the railway earnings (part of which is taxation) contributed 532 million marks (£26,600,000), or a total of about 623 million marks (or £31,150,000).1 The gross receipts would convey a quite different impression. They for the same year are estimated at 1,714 million marks, the corresponding outlay, net working interest on railway debt, being 1,091 million marks. As the gross receipts from all sources are taken at 2,614 million marks, while the net receipts only reach 883 million marks,2 we may conclude that though the domain and industrial undertakings were over 62 per cent. of the gross, they formed a smaller proportion of the net income.3 The inclusion of fees and administrative revenue would increase the proportion of economic receipts, but the tax element is so prominent in them (especially the law fees) that the correctness of this course is doubtful.4
The other German States resemble Prussia, though in their case the proportion of net receipts by taxation is probably larger, as their net income from railways and mines is lower. Austria and Hungary, too, gain much less than Prussia from the economic sources of revenue.
India is the only other country whose proportion of economic revenue is deserving of attention. One noteworthy feature of Indian finance is the contrast between its most productive sources and those of European countries, especially Great Britain. Its financial mainstay is in the rent charges on land, which, together with the parts that are truly either rent or taxation, supply close on £15,000,000 annually. Other sources of the same class are unproductive. Postal service, telegraphs, and railways lead to expenditure rather than profit. Forests produce a small surplus. The tax revenue is just as sharply contrasted with that of England. Salt and opium are the chief contributories, and fiscal monopoly is a prominent agent in the collection. The ordinary excise, customs, and stamps are comparatively unimportant; so is direct taxation, which is so effective in England. On the whole we may say that even in India less than half the net receipts are derived from quasi-private sources of revenue.
§ 7. The preceding facts sufficiently support the general proposition that the economic revenue of the State is financially inferior to that gathered by the tax-collector, and it also seems to hold good that the greater the economic development of a country, the less important is the former. Whether the statement will be applicable to the future is perhaps doubtful. Modern tendencies are in the direction of creating an industrial domain that may rival in value the agricultural domain of earlier times, but the net revenue to be obtained from it will probably be less than would at first appear likely. The cost of constructing the modern state domain and the pressure on the administration to reduce the cost of service to the lowest point that expenses of working will allow, are both hindrances to the use of state industries as an effective relief from the charge of taxation. There is no probability that in the near future the proportion of the public charges to be met by direct levies from the citizens of the State will diminish, more especially when the rapid growth of public expenditure is taken into account.
Taxation will, therefore, next claim our attention, and as the main support of the State's economy will need fuller and more critical investigation than has been necessary with other forms of revenue.
Though each is simply the House of Commons sitting under a special name.
Supra, Bk. i. ch. 1, § 7.
Thus Blackstone (i. 281–337) gives twenty-one different rights as composing the ‘ordinary’ revenue of the King, from which enumeration taxes are excluded. Cibrario describes twenty-four heads of revenue in mediæval Italy. Economia Politica del medio aevo, Lib. iii. cap. 6. For the diverse Egyptian revenues, see Wilcken, Griechische Ostraka.
Justi and Sonnenfels both speak of ‘accidental revenue’ (Zufällige Einkünfte), but they can hardly be credited with a theory of ‘fees’ as distinct from ‘taxes.’
This is the course followed by Stein and Roscher; the former (i. 138 sq.) speaks of ‘economic’ income; the latter of ‘whole or half private economic State receipts.’ Bk. i. chs. 4, 5 (§§ 18–24).
Umpfenbach, who substitutes the term ‘Fiscal prerogative rights’ (Varrechte) for ‘regalia,’ takes the former course: 78; Wagner, i. 487 sq., ii. 33, the latter. In recent discussion, ‘contributions’ (Beiträge) have been brought in as an additional section of revenue by some writers.
This is the case with regard to Cohn (see e.g. § 107), who declines to discuss the question of state property, as being economic rather than financial.
Cp. Wagner, i. 474–5. For the regalia, cp. Sax: ‘Die Regalien gehören der Wirthschaftsgeschichte und dem positiven öffentlichen Rechte an, die volkswirthschaftliche Theorie ... hat mit ihnen nichts zu schaffen.’—Staatswirthschaft, 480.
§ 18. This confusion is characteristic of the feudal system. Cp. ‘Among the many things which may be said about the system known to us as Feudalism, one of the least doubtful is that it mixed up or confounded property and sovereignty.’ Maine, Early Law and Custom, p. 148.
See for further discussion of this point, Bk. ii. ch. 3, § 9 n.
Bk. i. ch. 6, § 2.
For the view of taxation as an occasional resource, Neumann, Progressive Einkommensteuer, 1, 2, and the references there given. Also Blackstone, Bk. i. ch. 8, and contrast Mr. Dicey's view. ‘We may therefore, putting the hereditary revenue out of our minds, direct our whole attention to what is oddly enough called the extraordinary, but is in reality the ordinary or Parliamentary revenue of the nation.’—Law of the Constitution (1st ed.) 316.
Though the root-idea of the analysis can be traced back to the Physiocrats, yet Adam Smith originated its form and applications.
The text-books of General Walker, Dr. Sidgwick, and Prof. Marshall are instances. The separation between capitalist and entrepreneur is made both by J. B. Say and Rau.
‘The Classification of Public Revenues,’ Quarterly Journal of Economics, April 1893, vii. 286–321, now forming ch. 9 in his Essays in Taxation, to which work the references are made.
Cp. Seligman, Essays, 265–6, with Book ii. ch 1, § 3 supra.
Principles of Science, 679–80.
Darwin, Origin of Species, ch. 14.
Professor Plehn has distorted this statement into the assertion that ‘Professor Bastable claims that the sole consideration in the choice of a classification in such subjects as “grammar, jurisprudence, legislation, and finance” is convenience for the immediate purpose in hand.’ Political Science Quarterly, xii. 84. Contrast with this supra Book ii. ch 1, § 3. ‘The merits of any particular classification depend partly on the end in view.’
Professor Seligman's tabular arrangement, Essays, 302, would seem to give ‘fines and penalties’ even a higher rank. They result from the ‘penal power,’ and are opposed to special assessments, fees, and taxes, which are due to exercise of the taxing power; but this is comparatively unimportant.
Jurisprudence, i. 237.
Professor Plehn tries to meet this objection by referring to the change of meaning in the terms ‘value, rent, wages’ made by economists. But his own explanation shows that there is no real parallelism in the two cases. ‘A word adopted from daily life by science must,’ he says, ‘be deprived of some of its “extension” for the purpose of giving it a perfectly clear “intension,”’ Political Science Quarterly, xii. 85. The term fee has not been treated in this way. Its ‘extension’ has been enormously increased, and, as a necessary consequence, its ‘intension’ has been reduced, and, judging from the somewhat dreary disputes on the matter, has lost, not gained, in clearness. It may be remarked that if ‘Gebuhr’ is to be translated into English, ‘due’ is the least inappropriate equivalent.
Cp. infra, Bk. ii. ch. 4, § 10.
The few European instances are not prominent enough to attract attention.
See the excellent study entitled Special Assessments, by the latter.
This is Professor Seligman's expressed belief. Essays, 292.
Seligman, Essays, 286.
See on this point the following American cases: Matter of Church, 92 N.Y. 6; Allen v. Drew, 44 Vt. 174; N. Indian Railway Co. v. Conelly, 10 Ohio, 159.
It is also possible, and actually happens, that taxation is by constitutional provisions confined to proportional charges.
‘Special assessments are paid once and for all.’—Seligman, Essays, 289. Cp. Rosewater, Special Assessments, 129.
Ricardo's plan for paying off the National Debt may be given as an instance. See his Works, 545–6; and cp. Cannan, ‘Ricardo in Parliament, Economic Journal, iv. 421–3.
On this point Prof. Plehn is a supporter of the view taken above, though he regards it as partly based on an entire misconception.
Pol. Science Quarterly, xii. 82–92.
In addition to the references given above, see Mr. Montague’s article in the Dict. of Pol. Economy, i. 303.
Pol. Science Quarterly, 84.
See Bk. ii. ch. 4, §§ 7–10.
39. Plehn, pt. ii. ch. 11.
Cp. the statement ‘Provincialia prædia usucapionem non recipiunt.’ Caius, Institutes, ii 46.
The distinction between the property of the ruler as a private person and that which accompanies his office is now of little interest. It was emphasised in the Roman Empire—res privatæ opposed to res fiscales—(Humbert, i. 187 sq.), and was of much importance in Germany in the case of mediatised princes, who naturally tried to stretch the private element as far as possible. In practice the same end is reached by different means in modern States, as in the cases of Baden and Würtemberg, noted by Roscher, § 9.
The net receipts in the year 1900–1 were £500,000, or less than one-half per cent. of the total receipts. The revenues of the duchies of Lancaster and Cornwall should in strictness be added with a corresponding item of expenditure for the sovereign's support. Bk. i. ch. 6, § 5.
Economic Interpretation of History, 417 sq.
Say, Dictionnaire des Finances, s. v. ‘Budget Communal.’
The most careful estimates place the amount of immovables disposed of during the revolutionary period at £220,000,000, i.e. £120,000,000 for Church and Crown lands, £100,000,000 for those of the émigrés. Stourm, ii. 461.
The estimate for the Austrian domains and forests for 1891 was less than 500,000 florins (net revenue).
For the position of the state serfs, see Wallace, Russia, 105, 473, 553.
‘It is also fruitless to discuss exactly what the Oriental institution of a Land Revenue is, whether a “land tax,” or rent, or what. ... Practically the discussion is a profitless war of words, and we may be content to speak of the “Land Revenue” as a thing per se.’ Baden Powell, Land Revenue in British India, 49.
‘It seems to me that the distinction between a tax and a rent is merely a matter of amount; and that if a land tax is so high as to absorb the rent it becomes in fact rent.’ Campbell in Cobden Club Essays (1st series), 130–1. Cp. Marshall, Principles (3rd ed.), 727 n.
‘Except for the period 1830 to 1840 the lands have been a drain upon our finances. At the end of the financial year 1882–3 the government was out of pocket. ... in the sum of more than $126,000,000.’ Hart, Essays on American Government, 241.
The precise figures are—
The proportion of land revenue to the total receipts in each of the last-mentioned colonies was as follows:—
The idea of state ownership of land, based on an application of the economic theory of rent, first appeared in James Mill's Elements. He was probably led to it by his study of India. J. S. Mill, in the later years of his life, maintained a like opinion, which in later years has been urged with much enthusiasm by Henry George, and in Australia by Mr. Syme.
Wealth of Nations, 347. Cp. the opinion of Burke, ‘A landed estate is certainly the very worst which the Crown can possess. All minute and dispersed possessions, ... which require a continued personal attendance, are of a nature more proper for private management than public administration.’ Speech on Economical Reform (1780), Works, ii. 79.
The Australasian colonies, incorrectly as it seems, have placed sales of land among current receipts; a partial exception is found in Victoria, where a small sum is carried to the Railway Construction Account, Victorian Year-Book (1887–8), i. 140.
The sale of fee-simple estates to European settlers is emphatically one of those exceptions that prove the rule.
Roscher, § 11.
Not even Wagner, cp. i. 540–1.
An interesting description of estate management is given in Escott's England, ch. 3. The following passage bears out the view in the text: ‘The Crown and the Ecclesiastical Commissioners are at the present moment the most extensive land proprietors in England, having the management of properties with a rental of upwards of £400,000, situated in all parts of the United Kingdom. These are administered upon practically the same principles which obtain in the cases of the large landed nobility,’ 37. See also the evidence given to the Royal Commission on ‘Agricultural Depression,’ i. 1–19, 115–121.
For the origin of the Emphyteusis, see Gaius, Institutes, iii. 145; cp. the Aforamento in Portugal described by Laveleye, Cobden Club Essays (1st series), 241.
Thus the Emphyteuta had for his remedy the ulitis actio in rem closely analogous to the Vindicatio or owner's remedy.
The transition to money payments is a mark of advance. This took place in England in the 12th century. See the Dialogue of the Exchequer, Book i, in ch. 7, Stubbs, Select Charters, 193–4.
‘Presque partout le paysan n'aime pas la forêt, dans le Midi il n'aime pas l'arbre; il n'a qu'une faible idée d'utilitéindirecte des choses. Les grandes et les moyennes propriétés, les parcs, auxquels s'attaque la frivolitédémocratique, rendent à ce point de vue de réels services à la communauté.’—Leroy-Beaulieu, État Moderne, 124. The cutting of trees by peasant purchasers in Ireland is a good illustration of this general tendency.
Supra, Bk. i. ch. 6, § 3.
Leroy-Beaulieu, i. 46–66, 91–2; Wagner, i. 571 sq.; Roscher, §§ 16, 17.
Say, Dictionnaire des Finances, s. v. ‘Communes,’ 1120; see also s. v. ‘Alienation,’ 117–8.
Roscher, Handel und Gewerbfleiss, § 180.
On the nature of mining rents see Sorley, Mining Royalties; also Marshall, Principles, i. 491.
Wagner, i. 609.
Jevons, Coal Question, 354 sq. The ‘rings’ formed in the articles mentioned in the text illustrate the danger, but in all cases the originators have suffered heavily.
See Bk. iv. ch. 6 for the salt tax.
‘On ne se fait pas une idée de tout ce que fabrique l'état en France; il fait des tapis (les Gobelins), des porcelaines (Sèvres), des cartes au Bureau d'état major, des gravures (au Louvre), de l'imprimerie (à l'Imprimerie Nationale): il fait des boîtes d'allumettes, des cigarettes, il élève des chevaux et des poulains dans ses haras; il fait du vin à l'école d'agriculture de Montpellier.’—Gide, L'École Nouvelle, 18.
Wagner, i. 623.
The Report of the Committee on ‘War Office Organisation’ (Cd. 580–581) brings out forcibly the difficulties of this question, and particularly those surrounding the system of audit and the estimation of the cost of production. See particularly the evidence of Mr. Harris (pp. 380–7).
This defect in state industrial management is very forcibly exposed in Cobden's last speech in Parliament (July 22nd, 1864): ‘Throughout the inquiries before Parliamentary Committees upon our Government manufactories, you find yourself in a difficulty directly you try to make the gentlemen at the head of these establishments understand that they must pay interest for capital, rent for land, as well as allow for depreciation of machinery and plant.’ Speeches (popular ed.), 301–2. ‘The accounts rendered of this clothing department are most fallacious. I find that about £15,000 a year for fixed charges and interest of money have never been brought into the accounts at all, and that there is no allowance for rates and taxes,’ ib. 304. Cp. ‘Although the victualling and other offices that carry on manufactures produce accounts by way of showing that they make them cheaper than they can be got by contract, this does nothing towards supporting their case, because their accounts are all kept in so imperfect a manner that they cannot be relied on.’ Parnell, Financial Reform, 162–3.
Hunter, Imperial Gazetteer of India, vi. 515–6.
These cautions are particularly important as dealing with the very practical question of the proper limits of municipal trading.
See Bk. iv. ch. 6; and, for particular forms, ‘Taxation through Monopoly,’ Economic Journal, i. 307–325.
The nature and characteristics of these industries are discussed by Farrer, State and Trade, 68 sq.; also cp. H. C. Adams, Relation of the State to Industrial Action, and Science of Finance, 263–4.
For the position of English municipalities, see the annual Reports of the Local Government Board. For the United States, The relation of modern municipalities to quasi-public works (American Economic Association, ii. No. 6); also Ely, Taxation in American States and Cities, 47 sq. For Germany, Wagner, ii. 160–4; Roschér, § 158. Also Leroy-Beaulieu, État Moderne, 228 sq.; Say, Dictionnaire d' Économie politique, s. v. ‘Eau dans les Villes.’ For an instructive comparison between Berlin and Paris, see Rowe, Gemeindefinanzen, ch. iv. In the last few years there has been a great development of municipal industries, specially in connexion with electric lighting, and very keen controversy as to the expediency of this movement. See the evidence taken by the Committee on ‘Municipal Trading.’
See the articles on the subject by L. S. Rowe, Annals of American Academy, xi. 301–23; and W. S. Lewis, Quarterly Journal of Economics, xii. 209–24.
In addition to the works given in the preceding notes, see James, The Modern Municipality and the Gas Supply; and Farrer, State and Trade, ch. 11.
‘Waterworks are generally owned by our municipalities, and gasworks rarely.’ Ely, 48.
In 1891–2 Berlin obtained the following net profits:—
Making 7,216,506 marks, or over £360,000. Rowe, pp. 87, 90. For 1897–8 the gasworks yielded about 5,000,000 marks.
Leroy-Beaulieu, i. 110.
The city of Berlin owed in 1892 nearly 75,000,000 marks (£3,750,000) on account of its gas and water works. Rowe, 191.
See Bk. v. ch. 8, for an examination of local indebtedness.
Cp. Cohn, § 458.
Wealth of Nations, 344.
Macaulay, History of England, ch. 3.
The reform is described by one of the most sober of English statesmen as ‘a measure of undoubted social and general advantage, but extremely inconvenient in a financial sense.’ Northcote, Twenty Years of Financial Policy, 9. It was opposed at the time by J. R. McCulloch; see his Taxation and Funding, 327–32. For an examination of the use of the Post Office as an agent for taxation, see Bk. iv. ch. 8.
These amounts do not include the telegraph service, or the payments for packets
For the French Post before 1789, Vignes, Traitédes Impôts, i. 476 sq.; Clamageran, ii. 658; iii. 43, 232, 293, etc. For its later history, Leroy-Beaulieu, i. 645 sq.; De Parieu, iii. 287 sq.
Wagner, ii. 142; Cohn, §§ 293–6, also Finanz-Archiv, x. 765–6.
Another side of the Post Office, its dealings with money, belongs to ‘Banking,’ and will be considered under that head. Bk. ii. ch. 4, § 2.
The Bern Convention of 1875, by which the uniform rate of 2½d. per ½ oz. was settled as the international postage charge for most civilised nations, and gradually extended to others, has been a great advance. India and the Australasian Colonies have since the opening of 1891 obtained the same rate with England.
Adam Smith noticed these conditions: ‘The capital to be advanced is not very considerable. There is no mystery in the business. The returns are not only certain but immediate,’ 344; cp. the fuller account of Jevons, Methods of Social Reform, 277–80; also Wagner, i. 654–5.
This combination of different elements in the postal revenue has led to a curious diversity in the classification made by financial writers. Adam Smith considers it under the head of ‘Funds which peculiarly belong to the sovereign. Leroy-Beaulieu (Bk. ii. ch. 12), De Parieu (iii. 285), and Cohn (§ 77) place it under Taxation. Roscher (§ 28) practically follows Adam Smith. Vocke (Finanzwissenschaft, 36) treats it as an ’economic monopoly.' Stein (ii 315 sq.) places it in the list of prerogative rights regalia); while Umpfenbach (§§ 61–3) and Wagner (ii. 141 sq.) regard the postal revenue as being derived from ‘fees’ (Gebühren). These differences are due to the attempt to reduce to simplicity what is in its nature complex, and are therefore necessarily failures. J. S. Mill (Bk. v. ch. 5, § 2) distinguishes, as in the text, between the industrial and tax elements. The question of the true nature of postal revenue is discussed at length in the Memoranda on Classification and Incidence. The prevailing view agreed with that given in the text, but the answers of Professors Sidgwick and Edgeworth suggest the necessity of considering the loss to the society in consequence of the state monopoly through the destruction of ‘consumer's rent.’ (see pp. 100 and 127). Sir R. Giffen and Mr. Cannan argue that the gross postal receipts should be regarded as taxation, but this is obviously incorrect. The former writes, ‘The postage of letters is a tax on letters—taxe des lettres it is called by French economists’ (p. 94). This, however, ignores the fact that taxe, as distinguished from ‘impôt,’ and like the Italian ‘tasse,’ is rather a ‘fee’ or ‘due’ than a ‘tax’ in the English sense. If the gross receipts of the Post Office are to be called taxation, it would follow that the purchase of the English railways by the State would transform railway rates and fares into taxation, and thus nearly double the tax revenue. See for a series of acute but over-subtle distinctions, Seligman, Essays, 295 sq.
‘The present mileage of submarine cables is 152,000 miles, of which 90 per cent. has been provided by private enterprise and 10 per cent. by the various governments.’ Times, July 21st, 1894.
§ 3, supra. A grave oversight was committed with regard to the English telegraph account, by which £800,000 was spent without sanction.
Wealth of Nations, 303 sq.; cp. 379.
According to Professor Cohn, the expenditure of the Prussian Government on waterways for the years 1880–90 shows an annual average of £1,835,000 against annual receipts of £100,000. He declares that ‘thus nearly the entire surplus of the railway administration is swallowed up by the waterways.’ Economic Journal, iv. 544.
Much stress has been laid on the indirect benefits likely to result from the abolition or lowering of dues on waterways by encouraging industry. This claim really amounts to the advocacy of a bounty, and should be judged on that ground. Cp. Bk. i. ch. 6. For the economic and financial position of canals, see De Foville, La Transformation des Moyens de Transport, ch. 7.
For a clear statement of the opposed methods see Cohn, § 437.
For an admirable account of the variations of American and English railway policy see Hadley, Railroad Transportation, chs. 7 and 9.
Tooke-Newmarch, History of Prices, v. 367–9.
Say, Dictionnaire des Finances, 991, s. v. ‘Chemins de Fer’; Stourm, Le Budget, 257.
For French railway policy see Hadley, ch. 10, and the articles ‘Chemins de Fer’ in Say, Dictionnaire des Finances and Dictionnaire d'Economie politique.
For the history of German railway policy, see Wagner, i. 707–13; Hadley, 203–8.
The surplus over working expenses, the interest on debt, and the net gain are as follows:—
The zone tariff policy of Hungary has improved the net receipts, but it is perhaps too soon to say whether the improvement will be permanent.
In addition to works already referred to, see Von Scheel in Schönberg, 94–104.
See Mr. Acworth's instructive article, ‘Government Railways in a Democratic State.’ Economic Journal, ii. 629.
Victorian Year-Book, 1893, ii. 475–7. The following table gives more accurate figures for each colony:—
‘Die anderen deutschen Staaten sind Preussen (sofern sie nicht vorangegangen) in der Richtung der Staatsbahnpolitik gefolgt, haben freilich nicht ebenso günstige finanzielle Ergebnisse aufzuweisen,’ § 439.
This is specially true of undeveloped countries such as Australia and Russia.
‘If the State manages the railways just with the same degree of skill and success as the companies there would then be no gain or loss; if better, there would be gain accruing, not from good credit, but from good management; if worse, there would be certain loss. Thus, in theory, the use of the public credit proves to be a pure fallacy, and if it were not so there would be no reason why the Treasury should not proceed to invest money in many kinds of industrial enterprises besides railways and telegraphs.’ Methods of Social Reform, 371. The fact that the chance of loss is usually over-estimated is here neglected. Jevons would be right if the same income as formerly were to be secured to shareholders, but the suggestion is that only the market value of the shares should be given. It would, however, be very difficult to carry this out in practice. Railway shareholders would claim, and probably receive, compensation for their sacrifice of possible increase in future dividends.
Ely, Taxation, 270.
Methods of Social Reform, 359. His judgment is amply supported by the recent history of the Australasian railways.
Victorian Year-Book, 1887–8, ii. 139.
Cohn, §§ 440–1. See also his article, Economic Journal, ix. 93, sq., which shows that the claim for lower rates is being made in Prussia.
That this is not an imaginary danger is proved by the fact that in July, 1890, there were ‘strikes’ at the municipal gasworks in Leeds, at the London Post Office, and in the Metropolitan Police, and also a ‘mutiny’ in the Guards!
Bk. v. ch. 5, on the so-called ‘reproductive’ debt.
The railways of the United Kingdom show the following results for the year 1900:—
The gross public revenue for the year ending March 31st, 1901, was
The inclusion of the railway accounts in the Budget would raise the receipts to nearly £220,000,000, and, assuming the shareholders to receive their present income, the total expenditure to over £270,000,000, and the public debt to about £1,880,000,000. If the now standard 2¾ per cent. stock were to be given, the capital would be proportionately increased, or severe loss inflicted on the shareholders who had invested in the assurance of being undisturbed. The establishment of a sinking fund, in the same proportion as that applied in normal times to the present debt, would necessitate increased taxation, unless state management proved very much more economical.
Indian Finance, 17–25.
Wealth of Nations, 344
The Dutch policy in Java is too favourably described by A. R. Wallace, Malay Archipelago, chs. 7 and 17. See also Wagner, i. 626–7.
The Imperial Bank of Germany appears as an annual contributor to the Budget, the amount for 1901 being 12,417,770 marks.
Cp. Ricardo's ‘Plan for the Establishment of a National Bank,’ where the two branches of banking are carefully distinguished. Works, 503–12.
For inconvertible issues as a form of loan see Bk. v. ch. 6, and for the relation of the Treasury to banks see Bk. vi, ch. 2.
See Bk. ii. ch. 2, § 2.
See Bk. iv. ch. i. § 9.
See Dowell, History of Taxation, ii. 48 sq., and iii. 81–91, for the history of the tax. Movable property was exempted in 1833, and offices and pensions in 1875.
Roscher, § 18. The whole chapter (Bk. i. ch. 4) is one of the best in his work.
See Bk. ii. ch. 1, §§ 4, 5, and note at end.
Bk. i. ch. 3, § 1.
‘Die absolute und relative Höhe des Gebührenertrages in verschiedenen Staaten mit einander zu vergleichen, ist darum bis jetzt nur höchst unvollkommen möglich, weil die Gebühren fast überall, jedoch mit sehr verschiedenem Grade, mit Verkehrssteuern verquickt sind.’ Roscher, § 23, n. 16. Cp. Wagner, ii. 69.
Budget Speech, April 17th, 1890. The receipt for 1897–8 was £421,000.
The amounts paid in 1889 were as follows:—
Cohn, § 190, n∗.
Cp. ‘Bei dem engen Zusammenhang von Rechts- und Verwaltungsgebühren mit Verkehrssteuern in der Praxis und bei der für beide vielfach gemeinsamen Erhebungsform im Stempel ist die bezügliche Einnahme daraus ebenso wie die Gesetzgebung darüber nicht wohl zu trennen. Die Gesetze betreffen meist beide Abgabearten in bunter Vermengung.’ Wagner, ii. 69.
See note to Bk. ii. ch. 1 for further discussion of this point.
Other but less satisfactory measures have been sometimes suggested. Instead of the cost of restoration the original cost of production or acquisition would, it is said, show the amount of public advantage obtained from the outlay. This method is certainly easier and more definite, but it overlooks the fact that mere cost, as such, does not determine value, and that all fixed forms of wealth change their values, generally in a downward direction, in the course of time. Land is the only part of the national possessions that is likely in the long run to increase in value. The measure of present exchange value is also inapplicable, as much of the property forming the public domain is not of a kind that is demanded by private purchasers.
As pursued in Italy under the system of M. Cerboni.
As pointed out by Mr. Devas—Pol. Economy, 585—there may be a financial gain by the inducement given to foreigners to settle in the country, e.g. Italy with its artistic treasures. Further, the earning powers of the inhabitants may be increased. This property is then indirectly productive.
Leroy-Beaulieu, i. 28; Say, Dictionnaire d'Économie politique, i. 719; ib., Dictionnaire des Finances, i. 1482–85; Stein, ii. 144 sq.
The Local Government Act (1894) by the creation of parish councils and the powers given to the parish as a unit has considerably diminished the force of this contrast.
Cp. the recent Swiss legislation on forests already mentioned (Bk. ii. ch. 2, § 10), and the surrender of public lands by American States to the Federal Government.
The returns of local finance for Scotland and Ireland fail to distinguish between tax receipts and payments for gas and water. Nor are the English accounts as yet quite clearly separated. For earlier periods they are almost useless for the present purpose.
The interest on the railway debt has also to be taken into account.
This even includes the interest on the state railway debt, which should in strict accuracy be deducted.
The contributions (Matricular-beiträge) of the States to the Empire and the assignments from the imperial revenue to the States further confuse the statistics. In 1889–90 the Prussian contribution was 114,000,000 marks, the assignment from the imperial revenue 170,000,000 marks, showing a net gain to the Prussian revenue of 56,000,000 marks (£2,800,000). For 1894–5 the contributions are estimated at 234,000,000 marks, the assignments at over 215,000,000 marks, or a net loss to Prussia of 18,700,000 marks. In 1902–3 the Prussian contribution is estimated at 347,912,000 marks, the assignments at 375,789,000 marks, i.e. a net gain to Prussia of 27,877,000 marks (£1,394,000).
The German law fees (Rechtsgebühren) are so high as to really amount to a tax on litigation. For estimates of the proportion of taxation and industrial receipts cp. Von Scheel in Schönberg, 68–69.