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Home -> Charles Francis Bastable -> Public Finance -> Chapter VII

Public Finance - Chapter VII

1. Preface

2. Chapter I

3. Chapter I a

4. Chapter II

5. Chapter II a

6. Chapter III

7. Chapter IV

8. Chapter V

9. Chapter VI

10. Chapter VII

11. Chapter VII a

12. Chapter VIII

13. Chapter VIII a

14. Book II Chapter I

15. Chapter II

16. Chapter II a

17. Chapter III

18. Chapter III a

19. Chapter III b

20. Chapter IV

21. Chapter V

22. Book III Chapter I

23. Book III Chapter I a

24. Chapter II

25. Chapter III

26. Chapter III a

27. Chapter III b

28. Chapter IV

29. Chapter V

30. Chapter V a

31. Chapter VI

32. Book IV Chapter I

33. Chapter II

34. Chapter III

35. Chapter IV

36. Chapter V

37. Chapter VI

38. Chapter VI a

39. Book V Chapter I

40. Chapter II

41. Chapter III

42. Chapter IV

43. Chapter IV a

44. Chapter V

45. Chapter Va

46. Chapter VI

47. Chapter VIa

48. Chapter VII

49. Chapter VIIa

50. Chapter VIII

51. Chapter VIIIa

Central And Local Expenditure.

1. UP to the present we have taken no notice (except
incidentally) of the division of duties between the central
and local organs of the State. For the object that we had
in view, this mode of treatment was quite legitimate. In
order to bring out the fact that all expenditure by public
bodies is really one in kind, and that any differences are
subordinate and secondary, it is advisable to set forth the
leading forms of that expenditure in a general and compre-
hensive manner. The principles that determine the distri-
bution of public functions between central and local powers,
or even between federal and state governments, though
highly important and influential on financial policy, are yet
immaterial when we are considering the broad grouping
and effect of the cost of maintaining those compulsory
agencies that we place together under the title of ' the
State,' and the expediency of extending or contracting
their field of operations. It is, besides, impossible to
draw a precise and definite line applicable to all or most
ountries between general and local expenditure. What is
etained in one country or period in the hands of the cen-
tral authority is in other places or times delegated to sub-
ordinate bodies ; or to regard the subject from a different
aspect, which is in some cases more in accordance with
historical fact, the older and smaller groups have reserved
from the encroachments of the State very different amounts
of power in different ages and nations.
Examples of this diversity in usage are abundant. The
transfer of the English prisons from local to central
management has been already mentioned l . The older
system of poor-relief in England was purely local. The
grea\reform of 1834, though it did not go the length of
making the aid of the indigent a national charge, yet
accepted, and was based on, the recommendations of the
Poor Law Commission, in favour of complete and efficient
regulation of local administration by a specially formed
central board. The treatment of primary education affords
another example : in England and Wales it is largely under
local management, while in Ireland the national school
system is strictly centralized. The police systems of the
United Kingdom also show like differences in administra-

On extending our view to other nations we find that this
absence of uniformity is general. The powers of a Swiss
Canton or an American State are far greater than those of
an English County or a French Department. Even limit-
ing the comparison to countries with substantially similar
constitutions there still is much variety in the actual division
of duties.

2. Such remarkable differences have arisen from more
than a single cause, but undoubtedly the most powerful
reason is to be found in the peculiar historical conditions
under which States have been formed and developed 2 . To
explain e.g. the diversities in the distribution of public
duties in France and Germany, recourse must be had to
history. In no other way is a full interpretation possible.
The centralized system of French administration goes back
to the Revolution of 1789 ; it is a product of the absolute
monarchy and of the consequent impossibility of developing
local authorities 3 . The greater division of state power in
Germany is one result of the unhappy conflicts that pre-
vented its attaining to national unity till the present century.
In order to comprehend it we must know the history of
the Holy Roman Empire and its many changes. Exactly
similar is the case of Switzerland or the United States ;
each is the product of special conditions. The nature of
American state and local governments is affected by the
circumstances of the colonial institutions from which they
have sprung. At all stages of formation this influence is
powerful. It is due to the particular events of the time
that Italy at almost a single step reached the full unity of
France or England, while Germany as yet retains so many
traces of the process by which it has been formed. There
is nothing of rigorous necessity in the course of develop-
ment ; circumstances that may be regarded as accidental
have had most effect in deciding the result, and there
seems, consequently, little place for the employment of
scientific explanation in so purely empirical a matter.

Historical conditions are, however, often the result of
deeper forces ; the political destiny of a nation is not
altogether at the mercy of events.' The physical features
of its territory, the character and sentiments of its members,
go a long way in determining its constitution. We cannot
doubt that the mountains of Switzerland and the enthusiasm
of its citizens for independence have contributed towards
the great vitality of its local institutions, but then it is also
true that circumstances somewhat analogous have not
hindered Holland from becoming a centralized state.

3. The most complete recognition of the preponderating
influence of historical and physical agencies in determining
the actual division of state duties between the central
body and the local ones ought not to prevent us from en-
deavouring as far as possible to disentangle from the
mass of material any ascertainable general principles.
There seem to be quite apart from national peculiarities
some tendencies operative in all societies which assign par-
ticular duties to the central agency and place others under
local supervision. An examination of the several public
wants will we believe confirm this view, showing that some
of them can be best satisfied by local management, and
that others should, in order to attain the desired object, be
supplied through the central organization of the State.

In making this distribution by reference to general prin-
ciples it is necessary to take into account the historical
influences that we have previously noticed. They partly
determine, not only what are, but what should be general
and what should be local tasks. What has been for a long
time confided to local administration ought not without
good reason to be transferred to the general government,
as on the other hand where, from any cause, little has been
left to local action, the devolution of tasks by the central
administration should be gradual and cautious.

4. Additional light is thrown on the leading principles
and present position of the distribution of powers between
local and central organs by consideration of the fact that
two different tendencies have been in operation during the
course of history. Political evolution is not a direct move-
ment towards a definite goal ; it is rather a series of efforts
following the line of least resistance at any given time.
Early societies do not exhibit the opposition or distinction
between central and local powers. All government is local,
either in the tribal system as found in, Germany, or in the
city states of Greece and Italy. Wai^ and its result con-
quest is the introducer of centralization. The smaller
groups are unable to withstand the successful military chief
and have to submit to his rule. The municipal govern-
ments of the classical age for such they were in fact
passed at last under the dominion of Rome, which gives us
the picture of a vast administrative organization employing
local authorities as the instruments of its working. The
autonomous city was in practice reduced to take commands
even as to the smallest details from the Emperor and his
officials. Some place for local co-operation was allowed
under the earlier Empire, and up to the last the expenditure
of towns was distinct and separate from that of the Imperial
government l .

Mediaeval society shows a movement towards the revival
of local privileges. In all European countries the cities
succeeded in acquiring a large amount of freedom in deal-
ing with their own affairs. In some countries as Italy
they almost reached independence, and in all they were
enabled to apply their resources to objects of local interest.
One of the principal features of the steadily growing
consolidation of states in modern times has been the re-
duction in power of the various semi-independent bodies
within the state 2 . Provincial liberties were curtailed, and
particular immunities, whether of towns, districts, or as-
sociations, had to give way to the rule of uniform rights
and duties. With great varieties in the process in different
countries the same general result was reached, viz. the
absorption of all independent political forces in the single
organ of the State. This point was sooner attained in
England than in France, and in France than in other
continental states, but, except where a federal system has
preserved the authority of one group of bodies, it is now
accomplished in all civilized societies.

The establishment of a controlling and legally omni-
potent government, though it marks an important stage in /
political growth, is nevertheless accompanied by some dis-
advantages. However desirable it may be that the powers
of a nation should not be weakened by the existence in its
midst of powerful bodies in a position to frustrate the
attempts of its rulers to act with vigour and decision in a
given way, and however much society may suffer from the
absence of political cohesion, it is not conducive to the
interests of the nation to concentrate all administrative V
power in a single centre. The gains from centralization
may be great, but to obviate the evils that accompany it
a wise decentralization is also requisite. Having secured
political unity, it becomes the task of the statesman to so
distribute the powers of government as to obtain the best
Apolitical and financial results. The earlier historical move-
ment that has led to combination needs to be supplemented
and corrected by the rational process of division of duties.
All modern societies have to see whether their present
institutions strike the mean in this respect, and if not, how
\they can best attain it.

5. The relations of the administrative organs become
more complex as States increase in size. A small society
has no need of intermediate political forms between the
lowest unit and the State, but in countries with the area
and population of the great European powers or the United
States something more is wanting. Between the * parish' or
' township ' the 'primitive cell ' of the political organism
and the central government there are found one or more
bodies essentially subordinate to the latter, but of greater
range and larger resources than the former. Thus France
has the canton, arondissement, and department ; Prussia,
the district, the circle, and the province ; England, the union
and the county; the United States, the county and the
state or ' commonwealth ' ; and in each nation a different
class of duties is assigned in proportion to the size and
importance of the particular body.

The complexities of local government and Finance have
in some countries been increased by the irregular and almost
haphazard method of expansion adopted. Instead of fol-
lowing a definite and orderly plan, each special need has
been met by a special creation. This natural but unfortu-
nate method of procedure is characteristic of English and
in some degree of American legislation. Where a new
local duty has been marked out, a new area with a separate
board has been formed, ideas of uniformity or co-ordination
being almost ostentatiously disregarded. The outcome in
England has been, according to Mr. Goschen's often-quoted
phrase, * a chaos as regards authorities, a chaos as regards
rates, and a worse chaos than all as regards areas V Some-
thing similar is the case in a few American States. ' In
many of our commonwealths,' says Professor Seligman,
' there are separate local taxes for almost every purpose
of local expenditure. In New Jersey, e. g. we find no less
than forty such separate taxes 2 .' The reason for this con-
fusion is only discoverable by considering the usual concep-
tion of local governing bodies ; they were regarded rather
as associations for a particular end than as delegations of
the public power, and it is in fact true that the smaller
subdivisions do approximate more closely to private groups
in proportion as their sphere of action is reduced. The
generally unsystematic character of English legislation also
favoured this extreme multiplication of local functions
arranged on no definite plan.

Political organization developed on perfectly logical prin-
ciples would offer a decided contrast to the multiplicity
of arrangements just described. It would be symmetrical
and convenient to a degree that no country not even
France can lay claim to at present. In actual political
life, perfectly-adjusted plans of the kind are inapplicable.
Constructive legislation is hindered by the nature of the
materials that are at hand. The correct and well-fitted
plan will not work by reason first of all of the varying
circumstances of different districts. Rural areas are suited
for a simple kind of local government that would utterly
fail if applied to towns or cities. The latter require a more
elaborate and careful system ; their expenditure is sure to
be much greater, and even if part of it be what is called
' productive ' and likely to afford counterbalancing receipts,
there is still a greater amount of energy and toil required
in working their Finances, and special provisions are needed
to prevent abuses :i . In many countries, however, backward
agricultural districts are often transformed in a few years
into seats of manufactures and commerce, making altera-
tions in the form of local government essential 1 . Some
particular interests are also so important as to need special
treatment. The management of harbours, river navigation,
and drainage, or of great public works created at the cost
of the State may have to be placed under bodies formed
to represent the interests chiefly concerned, and they must
be kept apart from the general system, and so far mar its
completeness 2 .

The necessity for attending to geographical boundaries
tends to prevent even an approximation to divisions with
equal areas or population, and special local habits and cus-
toms act with the same effect. But the greatest check in
this direction arises from constitutional restraints. Perfectly
unified governments such as those of France and England are
seemingly free from this defect. There is nothing in English
law to prevent Parliament from abolishing the divisions into
counties and parishes and substituting a new one in its
place. The whole machinery of municipal administration
might at the same time be handed over to a central board
with an official staff 3 . The federal countries Germany,
Switzerland, the United States are differently situated.
The power of constitutional legislation is distributed in a
more complex manner, with the intention and result of
checking its frequent exercise. Such ' rigid ' constitutions
as they have been happily called give a permanence to
particular local divisions that prevents the powers of admi-
nistration being divided in accordance with theoretical con-
ceptions. A Swiss Canton or American State claims a

1 The number of new towns that have sprung up in England, Germany, and
above all in America, during the last fifty years, makes this point important.

2 The Harbour and Dock Boards very common in England, elected under
special franchises and with powers to levy tolls, are a good example.

3 Every one knows that Parliament will do neither of the things mentioned in
the text, but the limitations on its action are moral, not legal, and consist in the
fear of exciting opposition on the part of the people, and in its own sentiments,
i. e. they are external and internal. Cp. Dicey, Law of the Const ittttion, Lect. ii.
legal position essentially different from that of a County or
Department. It is prior in order of time to the central
government, towards whose creation it may be said to have
contributed, and it is entitled to object to measures affect-
ing its existence 1 . Whatever be the reasons in favour of
this system and we need not undervalue them it is a
fatal barrier to orderly and proportionate distribution of
functions. Delaware and Rhode Island, insignificant both
in population and area, hold the same place as the great
States of New York, Pennsylvania, and Texas ; Berne,
with more than half a million of people, is only equal to
Uri, with less than one-twentieth of that number.

Difficulties of the kind just noticed are not in reality so
serious as they at first appear. To begin with, the intract-
ableness is found in one only of the minor groups or sub-
divisions ; the others can be easily adjusted. Congress
cannot indeed re-distribute the areas of New York and
New Jersey without the consent of both of those States,
but either State can re-arrange its counties and municipali-
ties as it pleases ; the important cities of New York and
Brooklyn are absolutely dependent on the legislature of
their State for corporate powers. Therefore within each
State a re-organization of local government is possible.
Again, by taking extreme cases an unfair impression is
produced. The average State or Canton (say Wisconsin or
Freiburg) is a convenient body to interpose between the
national government and the smaller local groups. There
is besides a tendency towards adjustment between the habits
of a people and its indigenous institutions. The Americans
and Swiss have by usage become fitted for their particular
systems, which therefore work with greater ease. The
distribution of the several German States is more irregular,
and illustrates, as noticed before, the powerful influence of
historical conditions. The principal anomaly is due to the
preponderance of Prussia compared with the very small
States that form part of the empire. The internal local
government of Prussia is however based on a well-propor-
tioned system l .

6. Applying our results to the financial question of
expenditure and its proper division, we commence with the
central government. Its claims to disburse the larger part
of the total public revenue are unquestionably strong. It
is the representative of the nation. Other bodies exist
under it and to relieve it of undue toil, but 'the State ' in the
popular sense of the term isprimd facie the agent in charge
of all public duties. It is at once clear that all general
interests ought to belong to its province. What concerns the
whole community may indeed for other valid reasons be
delegated to localities, but the fact that a public function
concerns all is a weighty reason for intrusting it to the
central government. No smaller body can take the same
ground, no matter how liberal its constitution may be.
Even an absolute ruler is in most cases more likely to
regard the welfare of all than the representative assembly
of one part of the nation's territory, while the highest secu-
rity for due attention is obtained by the representation of
all districts in a national legislature. This attitude of the
central government is partly the consequence of the wider
view that it is almost compelled to take, but it is also partly
due to the higher intelligence and skill that it has at its
disposal. For tasks in which these elements are of im-
portance the superiority of the central administration is
generally apparent. A third circumstance in many cases
favours the centralization of certain classes of state duties
those namely in which unity and co-ordination are re-
quired. Though division of labour is beneficial, combina-
tion of labour is no less so, and public duties that need
combination will naturally be placed under a single control.
It would be too much to assert that these conditions have
completely determined the actual sphere of the national
government in modern countries ; it would be a grosser
exaggeration to say that they have done so consciously.
There is however much truth in the doctrine that the
actual forces which they describe have generally had a
powerful effect.

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