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

Public Finance - Chapter VII a

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

The sphere of local agencies in directing expenditure
can be indicated by reference to conditions strongly con-
trasting with those just described, that make it expedient
to call into play the administrative energies of the smaller
territorial bodies.

As the central power guards the general interest, so do
the representatives of localities best attend to their par-
ticular interests. * That people manage their own affairs
best ' is not universally true, but it has sufficient truth to
justify the intrusting of local matters to the several
localities affected. A second case in which local is superior
to central administration occurs wherever minute super-
vision is required. Central authorities with superior skill
and intelligence may often fail through the difficulty of
regulating from a distance operations that need unfailing
attention and watchfulness. It is to this circumstance that
we must attribute the almost universal devolution of the
smaller parts of economic administration, as it is to it that
we probably owe the origin of the attempts at decentrali-
zation en the part of the general government. Finally, it
is expedient to place the charge of public duties in the
hands of the smaller bodies when diversity rather than unity
is needed. Some of the forms of state action are not
suitable for being conducted on a uniform pattern. Special
conditions and habits have to be taken into account, so
that the very tendency to adopt different methods becomes
a benefit instead of an injury. In fact, as the result it ap-
pears that if attention to the general welfare, the command
of higher intell ; gence and skill, and the power of unity in
action are advantages possessed by the central govern-
ment, regard to local interests, attention to details, and
possibilities of judicious variety in practice will be best
secured by local management.

The same conditions help to determine the functions of
the intermediate public organs. A county administration
has the same advantages over a parochial one that the
national one has over it, and it is inferior in the same
respects. An American State holds the same position in
respect to the smaller local divisions. Its sphere of action
has to be limited in both directions by reference to the
general principles already noticed. When we come to such
important divisions as the State of New York or the newly-
formed administrative County of London, the restrictions
on their functions are dictated rather by considerations of
national unity than by defects of organization. The position
of the larger German States, Baden and Saxony, and still
more Bavaria and Wiirtemberg, in the distribution of power
can hardly be settled by reference to principle. Their claims
to national independence are strong, but are tending to be

7. Taking up in order the different forms of public
expenditure, we find it easy to understand the reasons for
making the military and naval forces a national charge.
Security is the greatest general interest of a society :
the appliances and organization necessary for successful
defence tax severely the highest powers of human intelli-
gence ; and unity of management is of great advantage in
warfare. Consequently the cost of war and preparation
for it always comes from the national budget. Germany
and Switzerland still preserve some traces of the older
independence of their component parts, but the German
forces are in fact completely under imperial control and their
cost is defrayed from imperial funds l . One of the most
decisive marks of union between hitherto independent
States is the formation of a common army.

The cost of Justice also seems most fitly to belong to
the general expenditure. It figures in all national budgets,
but some of the charge may be thrown on localities. In a
Federal State the subordinate courts are usually reserved by
the separate units, but the Judiciary of the Union becomes
a general charge. The reason of this division is plainly
historical, and as there is no pressing necessity for com-
plete unity in the judicial organization it is allowed to
continue. The importance of distinguishing between
federal and state law is a further ground for separating
the central and local courts. Uniformity in law and in its
administration is such a benefit to a society that, unless
under special circumstances, it is advisable to place it in
the hands of the national government. Efficiency, too, is
increased by removing the judges from the distracting
influence of local feeling that is sure to affect them when
they are appointed and paid by the district in which
they act.

, yy v Police, and the treatment of criminals, cannot be definitely
assigned to either department. On the one hand it is cer-
tainly advantageous to have these matters arranged on
general principles. All members of the nation are interested
in the preservation of internal order in every part of their
country. No district should be allowed to so relax its
prison administration as to offer inducements to a criminal
class to congregate within it 1 ; but on the other hand, the
benefits in closer supervision and greater economy when

though part of the forces are cantonal, the first claim on their services belongs
to the Federal Government, and the principal outlay is by it. In 1876 it was
about six-sevenths of the whole.
the duty is intrusted to localities are a considerable set off ;
besides, the principal interest of good order is found in the
case of those resident in the district. A practical solution
is generally discovered in a division of the duties, combined
with regulations as to the distribution of the burdens

Administrative duties have also been divided, and, though^-^
in most countries no attempt has been made to settle the
partition on intelligible principles, usually in conformity
to the guiding conditions indicated above. Where wide,
general interests, requiring a high degree of skill from
those who control them, are involved, the central govern-
ment has been the acting body. In smaller and more
detailed matters the local governments have undertaken
the task.

The relief of distress is primarily a local duty. During -
the development of the English Poor Law, previous to 1834,
the whole system of management was left to the small unit
of the parish, and though this arrangement led to much
irregularity, it afforded examples of the best method of ad-
ministration, which were utilized by the reformed system l .
Local administration and charge does, however, give rise
to difficulties ; in particular the question of the domicile or
' settlement ' of those relieved becomes a constant subject
of disputes. ' The birthplace and dwelling of the foremost
peer,' says Mr. McNeil-Caird, 'the birthplace and dwelling
of Newton, Shakespeare, Milton, or Burns were never
investigated with half the eagerness, or a tenth of the
expense, that is freely spent as to the birth and residence
of a pauper' 2 . -The injustices attending the distribution
of the cost are always perplexing, but local direction and
management under central regulation presents, on the whole,
the least objectionable method.

In dealing with education it is at once obvious that
elementary teaching has a closer relation to separate
localities, resembling, in this respect, poor-relief. Particular
circumstances so far affect it that there is reason for making-
it, at least in part, a local charge ; but it is also a general
interest affecting the well-being of the whole society and
requiring for its proper working a great amount of trained
intelligence, which can be best supplied by the central
government. The higher grades of education do not admit
of the same degree of localization. Universities in especial
bear a distinctly national character, and are therefore, so far
as they receive public aid, rightly a national charge. Other
appliances for instruction and the promotion of culture are
provided both from general and local sources, though it is
hard to determine what should be the exact position of each
in the matter.

Wherever the support of religion is a public function it
is met from the national budget or at least by national
endowments, the cases where local bodies pay for religious
services being simply compensation for work done, as in
the case of prison chaplains, &c.

The principle of general or particular interest explains
the division of the economic duties of the State. What
affects the whole society is done by the central govern-
ment ; what is specially needed by a locality or minor
division is usually done by it. Here, however, there are
exceptions. Works too extensive for the resources of a
district are undertaken by the central administration, or
aid is given to the subordinate authorities who direct and
manage them. In this department of expenditure the
smaller bodies are more likely to become embarrassed
than is the central state authority. Their available funds
are not of such vast extent, and change more speedily in
amount owing to their limited area. Local administration,
besides, in reference to public works is more liable to suffer
from the private interests that affect all public economy l .
The modern credit card system, moreover, affords facilities for
1 Bk. i. ch. i. 2.
expenditure based on a pledge of the property of the district
that will not be felt at once, but will prove a continuous
charge. It is in respect of this so-called ' reproductive '
outlay that the difficulties of local finance at present are
most serious.

Finally, with regard to what we have called constitutional
expenditure, the boundary line is plain and simple. Each
part generally pays for its own outlay. Members of the
central executive and legislature are paid from the central
budget. The officials and subordinate legislators of States,
cantons, or municipalities are paid from the budget that
they are connected with. As an exception, the charge of
all elections is sometimes a local one, but it is so on the
ground that it is really a local interest.

8. It thus appears that on a broad view and with full
allowance for the influence of previous history and special
circumstances in each case, there is a tendency to dis-
tribute functions, and therefore expenditure, in accordance
with the principles that we have seen in operation. Some
additional reasons for particular forms of distribution may
be noted here : they are really expansions of those already
pointed out.

First, particular duties are often given to, or withheld
from, local bodies on the ground that they are well suited,
or unable, as the case may be, to bring the cost of the
service home to those who benefit by it. This, however, is
merely an application of the principle that particular in-
terests belong to those concerned in them and a further
reason for that policy. The division of control over outlay
so as to secure justice in the apportionment of the burden
can be realized in another way, viz. by a readjustment of
receipts between the central and local governments. A
further ground for limiting local duties is sometimes found
in the existing division of general and local taxation.
When, as in some countries, local revenues are rigidly
restricted in amount, it is evidently impossible to place
duties needing much extra cost on them. Here, too, the
true explanation is found in the narrowness of the local
interest that has led to the limitation on its taxing power,
and it can be remedied either by removing the restraint, or,
as in recent English legislation, by a transfer of part of the
general revenue. By dexterous use of the latter method it
is possible to combine the great aim in expenditure the
maximum return for outlay, with that in the collection of
revenue a just distribution of burdens.

9. Some further characteristics of local Finance in rela-
tion to expenditure require attention. We have seen the
classes of duties that local bodies deal with, and that they
are mainly of an economical character, at least in so far
that advantage and cost can be somewhat definitely mea-
sured. This feature suggests, as we saw, a comparison
with private economic associations ; and though the resem-
blance is closest in the industrial domain l , it also appears
with regard to expenditure. There is, however, one essen-
tial difference. The private company is formed on a volun-
tary basis. No one is compelled to enter it against his will ;
a local governmental body has compulsory powers, and
is therefore more particularly in need of being kept within
bounds in its action, and of being compelled to act when
circumstances require it. Some of the duties in its cnarge
are general state tasks, delegated for motives of convenience.
These it cannot be allowed to neglect. Otherwise pro-
visions for poor-relief, education, or police of the highest
value might be rendered utterly useless by hostility on the
part of the local administrators. In other cases, where the
task is purely of local interest, as e. g. water-supply, a
minority of the inhabitants may suffer from the ignorance
or carelessness of the majority when also there is ground
for interference by the central power. Such cases make
supervision and regulation of the various divisions a necessity
of good government. To insist on the discharge of cer-
tain functions, to prevent an undue extension of others,
and, finally, to protect the interests of individuals against
encroachnients._b^-iocal authorities, becomes an important
state work 1 . An organization connecting the local and
"central bodies is needed, and has been developed in most
countries. The English Poor Law Board becoming later
on the Local Government Board is a good example. So
are the many Commissions in the American States ; while
similar results are attained in another way by the bureau-
cratic systems of France, Germany, and Italy. The need
of securing due discharge of duties imposed, avoidance of
expenses in directions not allowed by law, and moderation
in the exercise of expenditure, even on lawful objects, has
brought about a system that shows in the clearest way how
all expenditure, local as well as general, is really one, and has
to be combined in order to judge correctly of the pressure
of the State and its organization on the national resources.
The value of this conception of the unity of state services
in helping to form a true idea of public expenditure, will be
better realized by reference to the following table :

TABLE (ooo's omitted).

United Kingdom (1887-8)
France (1886)
Italy (1885)
United States (1886-7) 2 ...




Percentage of total
expenditure by
Local Government.



2 1, 4 60 3



10. In some discussions of Finance two other kinds of
combined expenditure have been included l . They are,
first, the Finance of ' State confederations ' (Staatenbiinde],
and second, the Finance of colonies. Neither of these seem
entitled to a place. There is a clear^distinction between a
Federal State and a confederated group of States. The
former is a unity, and one of its points of unity is financial ;
the latter is easily dissolved into its component parts. The
resources of a confederacy are always derivative, and come
from the separate units. A comparison between the old
German Bund (1815-1866) and the present German Empire
brings out the difference in Finance, as in other points, with
the utmost clearness.

The same reasoning applies to colonial Finance. It is
perfectly correct to combine the Imperial and local Finance
of the United Kingdom into a single whole. To add
together British, Canadian, and Indian Finance would
be a transparent error. The conditions are different, and
the interests affected are independent. Even the Finance
of different colonies, e. g. Victoria and New South Wales,
could not be amalgamated. The conditions of unity do
not exist. The whole conception of a financial system rests
on the oneness of the State, and any departure from that
guiding rule is sure to lead to confusion.

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