The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Translator's Note
• Where and Why Public Ownership Has Failed
• Book I: Public and Private Trading Operations
• Chapter I: Two Precepts
• Chapter II: The Three Mainsprings of Human Action
• Chapter III: Determining Motives of Private As Against Public Enterprises
• Chapter IV: Government and Municipal Trading Operations
• Book II: Financial Results of Government and Municipal Ownership
• Chapter I: Bookkeeping In State and Municipal Trading Enterprises
• Chapter II: The Belgian State Railroads
• Chapter III: Prussian Railroads
• Chapter IV: State Railways of Austria and Hungary
• Chapter V: Italian Railways
• Chapter VII: Railways of New Zealand
• Chapter VIII: Government Railroads In France
• Chapter IX: Public Vs. Private Operation
• Chapter X: The Holy Cities of Municipal Operation
• Chapter XI: Operation of Gas and Electricity In the United Kingdom
• Chapter XII: Tramways In Great Britain
• Chapter XIII: Housing of the Working Classes and Public Ownership In Great Britain
• Chapter XIV: Housing of the Working Classes On the Continent
• Chapter XV: Government Control of Food Supplies
• Chapter XVI: Victims of Government Ownership
• Chapter XVII: Charges, Debts and Credit
• Chapter XVIII: Fictitious Profits
• Chapter XIX: Fiscal Monopolies
• Chapter XX: The Alcohol Monopoly In Switzerland and Russia
• Chapter XXI: Financial Disorder
• Chapter XXII: The Purchase Price
• Chapter XXIII: Delusions of Profit and the Life Insurance Monopoly In Italy
• Chapter XXIV: The Fiscal Mines of the Saar District
• Chapter XXV: Public Versus Private Enterprise
• Book III: Administrative Results
• Chapter I: Administrative Results
• Chapter II: The Safety of Travelers Upon State and Private Railway Lines
• Chapter III: Disorders, Delays and Errors
• Chapter IV: Official Conservatism
• Chapter V: Labor
• Chapter VI: The Consumer
• Chapter VII: Programs of Organization and Regulation
• Book IV: Political and Social Consequences of Public Operation
• Chapter I: Socialist Programs and the Facts
• Chapter II: Bluff
• Chapter III: Results of Experience
• Chapter IV: The State a Dishonest Man
• Chapter V: Corruption
• Chapter VI: Nationalization of Public Utilities and the Foundation of Great Fortunes
• Chapter VII: Disintegrating Character of Public Operation
• Appendix %u201ca%u201d: Alcoholism In Russia
• Appendix %u201cb%u201d: the Financial Year In Australia
• Appendix %u201cc%u201d: the Shortcomings of the Telephone In England

CHAPTER XVII

CHARGES, DEBTS AND CREDIT

Let us now take up the question of charges, debts, and credit, in relation to British local enterprises.

The first parliamentary report on municipal undertakings, which appears under the title of Municipal Corporations' Reproductive Undertakings, dates from 1899. It includes accounts of 265 towns of England and Wales for a period of five years, ending March, 1898. The financial results indicated are shown in the following table:

The second document dates from 1903. It is more comprehensive. The Municipal Year Book of 1912 reproduces it in its entirety. It gives the results of the undertakings of 299 municipalities out of 317—not including London—for a period of four years, or from 1898 to 1902.

An apparent profit of .312 per cent. is thus indicated.

In 1907 the Local Government Board published a supplementary statement, showing the results obtained by 192 municipalities out of 324 in England and Wales during the year 1904–1905.

Municipal Trading Returns (No. 171, 1909) gives statistics only regarding the work of the London County Council, the City Corporation, the London boroughs, and 43 municipalities in England and Scotland for the four years from 1902–1906.

Mr. J. H. Schooling, the celebrated statistician, has demonstrated that all the municipal enterprises taken together show, for the period 1898–1902, an annual profit of 6s 3d ($1.50) per 100 pounds sterling of capital invested. He adds, however, that, if the depreciation of roadbeds, equipment, etc., of the various undertakings was taken care of as it would be in private business normally managed, the annual loss would be 5,500,000 pounds sterling ($26,785,000), or, in other words, £4 10s 7d ($22) on every 100 pounds. Among the sources of profits are reckoned the sums collected from private businesses. These sums are very large in the case of some municipalities, but they cannot legitimately be called profits from municipal enterprises.1

The Local Government Board has published a statement of the receipts, expenses, and local loans in England and Wales for the year 191–1911. The number of local authorities included in this work is 2,500, representing about one-tenth of the local governments mentioned in the local taxation returns for the same districts. The financial situation, on March 31, 1911, of these 2,500 local governments was:

The debt of these 2,500 local governments reached, then, the enormous figure of £410,695,000 ($2,000,094,000). The expenses are more than £137,382,000 ($668,850,000). Of the £122,953,000 ($598,780,000) of receipts, local taxation accounts for £64,004,000 ($311,699,500) and grants from the exchequer (including the local share of license fees) for £21,073,000 ($102,625,510), giving a total of £85,077,000 ($414,325,000).

The apologists for municipal enterprises give the impression that such undertakings may be substituted for taxes, with no apparent perception of the fact that, if municipal enterprises were to replace taxation, by reason of their innately fiscal character they would come to weigh heavily on the consumers. The conception of substituting municipal enterprises for a treasury is, therefore, only a delusion.

Local government undertakings have, in some instances, yielded profits which have relieved local taxation. But in others they have created deficits which are met only with the help of taxes.

In 191–1911 the total amount contributed in aid of taxes on gas, electricity, ports, docks, jetties, canals, quays, tramways, light railways, and waterworks undertakings was £1,320,000 ($6,428,400), of which £1,203,000 ($5,858,600) came from town councils.

The total amount of tax funds paid out to provide for deficits on the same undertakings was £971,000 ($4,728,800), of which £631,000 ($3,073,000) was provided by town councils.

Thus, the reduction of local taxation effected by profits from local enterprises amounted to £349,000 ($1,700,000), or, as against the £64,000,000 ($311,680,000) of local taxes and the £23,000,000 ($112,000,000) furnished by the exchequer to 0.41 per cent., or less than one-half of 1 per cent. These figures are a sufficient answer to those partisans of government ownership who are continually reiterating that expense may be incurred with impunity because government monopolies will pay for them. And, moreover, receipts from ports, jetties, quays, and canals, which are not industrial operations properly socalled, are included in these figures.

Moreover to the loans previously noted as granted to local governments, £23,210,000 ($113,033,000) should be added for the Port of London; £25,720,000 ($125,256,400) for the Mersey Docks and Harbor Board; £49,529,000 ($241,236,000) for the Metropolitan Water Board; more than £14,692,000 ($71,550,000) for ports, docks, quays, etc., or a total of £129,288,000 ($625,795,000). The taxable value of all this property was £217,180,000 ($1,057,667,000), from which must be deducted, however, £1,737,000 ($8,459,000) representing government property, which, in lieu of taxes, pays an equivalent sum under the name of “contributions.”

The following figures show the total local tax during the three years 1908–1911:

The pound sterling is 20 shillings. The tax of 1910–1911 represents then more than 30 per cent. of the assessed value of the taxable property just listed.

Municipal enterprises, far from having relieved the taxpayers, have not prevented local taxes from soaring higher in 1910–1911 than they had ever done before.

Municipal enterprises make loans necessary, and the increase of loans involves loss of credit.

The Birmingham Daily Mail, of May 24, 1911, published the letter of a correspondent, who says:

“The town made last year a profit of £132,174 ($643, 687), from which must be deducted a loss of £57,091 ($278,033). The citizens of Birmingham have loaned to the city £12,500,000 ($60,875,000), on which they lose all their taxes and receive in turn about £60,000 ($292,200), or less than 0.45 per cent., whereas if they (the municipal undertakings) were paying 5 per cent. they would yield £650,000 ($3,165,500).”

Hilaire Belloc, during a debate at Memorial Hall, in London, with Ramsay McDonald, the president of the Labor Party in Parliament, said:

“Municipal enterprises have been established by means of loans contracted with capitalists to whom the various local governments offered returns which these undertakings either did or did not furnish. The result has been that municipal undertakings have been bringing in about 1.8 per cent., while 3.2 per cent. interest was being paid out. The debt has been increasing. There has been more and more need of capitalists who have refused to consent to new loans seeing that the debts were growing in an alarming manner.” (Labor Leader, May 12, 1911.)

Major Darwin, in his objective study of municipal industries, reaches the following conclusion:

“Municipalities can manage markets, public baths, slaughter houses, cemeteries, and waterworks. Municipalities may own tramways. But all these enterprises ought to be operated privately. Gas, electricity, tramways, the telephone, ought to remain in the hands of private individuals.”

He further suggests that municipalities be forbidden to manufacture electrical apparatus; to own houses; to engage in construction without contractors. Municipalities should be forbidden to attempt to make money, and their borrowing power ought to be restricted.1

In the United States the debt limit for municipalities is: 10 per cent. of the taxable value in New York, 5 per cent. in many of the western states, and 2 per cent. in others.

This year (1913) the German cities are being much hampered for lack of credit. A loan sought by the city of Carlsruhe has had to be indefinitely postponed The smaller and medium sized municipalities, in the absence of funds, have been obliged to postpone necessary work.

[1]Fortnightly Review, August, 1906: Lord Avebury, On Municipal and National Trading, page 68.

[1]Constitutional Amendments to be added to the Declaration of Rights.