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

Public Finance - Chapter VIII 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

To complete the illustration, we may state that for the
year 1879-80 the national expenditure had risen to
82,184,000, and the local expenditure to 61,174,000,
making a total of 143,358,000, or an increase over 1859-
60 of over 60 per cent. ; and finally, that in 1886-7 tne
national expenditure was 89,996,000, and the local ex-
penditure 65,974,000, giving a total outlay of 155,970,000,
or in round figures 156 millions, being an increase of 87 J
millions over the expenditure of 1842-3, i. e. 127 per cent.

France presents a similar movement. In 1820 the
general expenditure was 906 million francs, by 1860 it had
reached 2084 million francs, or much over double ; more
precisely, 130 per cent. The budget estimate for 1890 is
3769 millions, giving a growth since 1860 of 80 per cent.

The Italian expenditure of 1861 was 812 million lire:
the estimate for 1889-90 is 1857 million lire, an increase of
1045 million lire, giving a growth in 28 years of 128 per

The Prussian budget in 1849 was 282 million marks, in
1865 it had grown to nearly 507 million marks. Since the
formation of the North German Confederation (1866) and
the German Empire (1871) the increase has continued,
the actual expenditure in 1885-6 being 1376 million marks,
and the estimate for 1890-1, 1591 million marks.

The smaller German States exhibit like features. Bavaria
spent thirty-two million marks in 1819-20 ; the estimated
expenditure for 1889 was 2 ^ million marks.

In Austria, Russia, and even in small States like Belgium,
we find the same general tendency towards increased outlay.
In the last-mentioned country, whose administration has
been well-conducted, the expenditure in 1835 was 87 million
francs, the estimate of ordinary expenditure for 1890 is
321 million francs, making (with the usual extraordinary
expenditure) a fourfold increase.

So well-established is the general fact of increasing out-
lay and whoever doubts it need only run over the examples
just given that even conservative writers on Finance, such
as Roscher and Umpfenbach, lay it down as a general law
of progress l ; and they explain it by reference to the
increasing demands made by society on the modern State.
* What judgment should we pass,' asks the former, ' on a
government that, after the manner of the Middle Ages, did
not trouble itself about the health, mental training, main-
tenance, or enriching of the people ? ' And so far there is
no doubt that the intensifying of State duties is one cause
of the almost universal increase. In previous chapters we
have seen how the cost of defence, of administration, and
the minor needs of civilization have gone to swell the
growing totals of modern budgets, and in each case special
causes have appeared that went far to explain the final

Before collecting these, it may be well to correct to some
extent the impression that increasing figures of outlay are
apt to produce. Leroy-Beaulieu remarks * that one cause
of the general increase is to be found in the depreciation of
the precious metals. As expenditure is estimated in terms
of money, any change in the value of the circulating medium
should be taken into account, and the application of some
test as to the reduced purchasing power of money would
considerably alter the figures for the earlier part of the
period that we have taken, i.e. from 1820 to 1870, but for
the last twenty years the correction would act in the other
direction. Increases in outlay since 1873 would certainly
mean more than the amount as measured in money, so that
we cannot place much stress on this part of the explanation
of increase. Another element is however important. In
most countries population is growing, and national income
grows with it ; and in the exceptional cases where, as in
France, population is stationary, income is increasing. It
therefore is not certain that the proportion of public outlay
to national income has become greater. Moreover, and this
is the most important consideration, the extension of the
economic activity of the State in certain directions has been
accompanied by a passage of special industries from private
to public management. As a necessary consequence, public
expenditure and income are both increased without the real
pressure on the people becoming greater. It may be that
in this tendency there lies in Roscher's phrase ' ein com-
munistischer Zugl and it is plain that the transfer in this
manner of all industries means the establishment of
socialism pure and simple. But apart from its economic
reactions, financial theory is not entitled to absolutely
condemn this movement. Its duty is however to point
out that comparison between the expenditure of a State
with large industrial enterprises in its charge and one
without them is illegitimate unless due correction is made.
To take a simple illustration, it is plain that if the State
purchased the English railways, and the accounts entered
into the national budget (as they should), both expenditure
and income would be largely increased. This has actually
happened in Prussia, and explains a large part of the
increase in outlay in that country *.
Notwithstanding these extenuations, there has been we
believe an increase in expenditure that is not balanced by
receipts from the property of the State, and this larger
outlay may be attributed to the following causes :

(1) The cost of war and preparation for war. We need
not repeat the details already given on this subject 1 , but
we ought to emphasize the general fact The annual
military and naval expenditure of Europe is 140,000,000,
and the disturbance to industry, the apprehension of hos-
tilities, and above all the interest on debts incurred for the
most part for the pupose of war, considerably increases the
burden 2 . As if to enable us to judge of its effects, a test
case has been provided in the condition of the United
States, which further shows that it is not war, but the
necessity of constant readiness for it, that affects most
injuriously the economic interests of nations.

(2) A second cause is to be found in the extension of
administrative action. To maintain a large staff of com-
petent officials considerable outlay is needed, much of it
necessarily wasteful. It may be that a great deal of official
work does with advantage to society what men are too
busy or too careless to do for themselves. Perhaps also
it checks some moral and social evils, but, financially
speaking, it is undoubtedly costly, and if the end could be
otherwise gained it would be an economic benefit.

To these causes many would add a third, viz. the pro-
gress of democracy 3 . It is argued that a widely extended
suffrage lowers the standard of the legislatures, and that
under the influence of socialistic ideas the expenses of the
State are increased. There is probably some truth in this
doctrine. The ' new radicalism ' is not desirous of economy
in expenditure 4 , and it may be freely conceded that
* democratic Finance ' is remarkable for its disregard of
principles and its utter incapacity to measure financial forces ;
but on the whole it cannot be said that Russian Finance,
which is certainly not democratic, is much superior in these
respects. Nor is it plain that English Finance before
the Reform Act of 1832 was worthy of commendation.
The socialistic element in modern democracy has an
injurious influence on Finance, but it is not an essential
part of it. The technical administration of revenue and
expenditure is also likely to suffer while under the control
of an untrained democracy. But allowing all this, the
real enemy of sound Finance is ignorance whenever it
attains to power, an event which is unfortunately too
common under all forms of government.

6. Any discussion of public expenditure that neglected
to notice its influence on national and social economy would
be incomplete. The State through its central and local
organs is by far the greatest purchaser of goods and
employer of services ; it can in this way powerfully in-
fluence prices and wages, and through that influence affect
the distribution of wealth. The sum of ; 150,000,000
annually disbursed (after allowing for the amount that
goes as interest on loans which operate on the money
market) must both by its great amount and its changed
direction alter the structure of the British national industries.
Demand for commodities determines the direction that
production will take, and consequently the form of labour
in many cases depends on the policy of the State ; so also
do the rates of remuneration and the conditions of employ-
ment l . The economic systems of Germany and the
United States owe their different features largely to the
special direction of state activity in each country. The
technical arrangements for the supply of commodities for
public requirements are a serious consideration for adminis-
trators owing to their ulterior effects. Government manufacture is liable to the evils of expense and inferiority
in quality of products, but the alternative method of
purchase in the open market, necessarily carried out
through agents, is not free from similar evils. In par-
ticular, the result of giving contracts at the lowest tender
has been vehemently assailed by reformers as tending
to lower wages 1 . The direct employment of services
or labour by the State gives rise to further complications.
Hiring on the ordinary system and at the market rate
is impossible in the case of the higher officials, while for
military and naval services special conditions of engage-
ment are needed. The great extent and variety of the
general Civil Service makes the determination of its proper
remuneration a question of much difficulty. To avoid the
political evils that short tenure as in the American
system causes, its members ought to be permanently
employed. Permanence in state service soon affects pri-
vate employers, who will have to give either like security
of tenure or better pay 2 . In every part of national life
this influence of state expenditure is felt, and it is becom-
ing greater.

The great and increasing importance of state outlay
does not however afford a presumption that the move-
ment is advantageous. The current of modern sentiment
runs as strongly at present in favour of state action as
it did fifty years ago against it, but neither tendency can
be its own justification ; both have to be judged on the
grounds of reason and experience. Some popular argu-
ments for state expenditure may be at once dismissed.
Perhaps the crudest is that which regards the State as
affording employment, and imagines that if war and the
other conditions which call for state services were to cease,
there would be no field for the labour of those now em-
ployed as soldiers, policemen, and officials. This obvious
fallacy arises from entirely overlooking the previous
existence in private hands of the funds collected by the
State as its income, and which would afford like employ-
ment, but on other lines : the best practical refutation is
however found in the ease with which the enormous ex-
penditure of the United States during the Civil War was
reduced at its conclusion, and the military forces absorbed
in various industrial employments 1 . Expenditure of itself
is plainly not a good, it has to be judged by its object,
i. e. by the benefits obtained in return for the sacrifices
made. By taking this view we avoid the opposite fallacy
that all state outlay is bad, or at all events that the less the
expenditure the better. This doctrine, though accepted by
Say and Ricardo 2 , is palpably incorrect, since it takes no
account of one of the two factors in the problem. It is
not true that the cheapest article is the best, nor is ' the
cheapest State ' the most serviceable. That state organiza-
tion is the best and really the cheapest which, all elements
of the question being taken into account, gives the greatest
amount of benefit to its citizens and provides best for the
future progress of the nation.

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