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Home -> Charles Francis Bastable -> Public Finance -> Book II Chapter I

Public Finance - Book II Chapter I

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

Book II. Public Revenue.

The Economic Or Quasi-private Receipts.
The Forms And Classification Of Public

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 con-
sumption 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 tem-
porarily disturbed is certain to be sooner or later re-
established. 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 quite distinct from the
Committee of Supply l ; and in the United States the small
House Committee on Ways and Means is composed of
different members from that of the Committee on ' Appro-
priations.' There seems to be an instinctive feeling that
the raising of revenue should be formally separated from
the more agreeable occupation of applying it for the
public requirements.

Public revenue, then, being 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 l . 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
organization. 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 intro-
duction of money the divorce between the revenue col-
lected 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 all the kinds of individual revenue, are enjoyed
by the State. The Roman Finances received contributions
from very many and diverse sources, and so did the
Exchequers of mediaeval sovereigns. When we run over
the long lists that appear in legal and historical works
treating of this side of mediaeval law and economy, the
greatest difficulty is to reduce them to some manageable
form l . 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 group-
ing the forms of revenue under (i) 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 parti-
cular 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' (Gebiihreii). 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
as a separate and independent form of revenue, giving as
a final result that state receipts were distributed under four
heads : (i) '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 endeavours to bring the two inter-
mediate divisions into some form of combination with them,
great difference of opinion is to be found. One set of
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 recognize only
the two great divisions of state revenue into (i) quasi-
private and (2) public, though distinguishing, as he has
done, between the cases of extra payment for special
services". 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 passed over and must be briefly noted.
3. First, it is abundantly established that much of the
difficulty of classification arises from the historical pecu-
liarities of different countries. The whole doctrine of the
regalia is an instance in point. It was the result of attempt-
ing to apply the special German forms of revenue, due
in part to rudeness 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 strain-
ing of terms be regarded as such, so do we find many
transitional forms between what is the State's private in-
come 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 classifica-
tion. If Rau had recognised the frequent combination of
the double elements of state industry and taxation under
an 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 inter-
mediate forms that presented most difficulty. The depart-
ment of fees or Gebilhren at one end touched the 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 very precise and correct classifica-
tion. We need not deny that a good and natural grouping
(i.e. a grouping in accordance with the real affinities of the
objects) is very helpful both for exposition and investigation.
Features of resemblance and of contrast are in this mode
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 were a
scientific exposition of principles most 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 *. 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 shown in the preceding criticisms the
arrangement that appears to be best. It has now to be
more fully stated. The widest division of public revenue
is into (i) 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
method seems best 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

To test it in its relation to other divisions we may con-
sider the place it assigns to (i) 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 preroga-
tives 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

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 deduct 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 govern-
ment 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 com-
munications, though, as we shall see, sometimes admitting
of full justification. 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 ex-
penditure we have already noticed the first aspect l ; 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

5. So much suffices at present with reference to the
general classification of public revenues. We have now to
arrange the sub-divisions of the public ' economic ' 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 adminis-
trative 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 l . 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 commo-
dities ' 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 cate-^
gories 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 firstly, the
massing together of the interest on capital and the earnings
made by its productive use is now perceived to be in-
accurate. The function of the capitalist is distinct from
that of the 'undertaker' or 'employer/ and is so dis-
tinguished in all later economic work 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 ' under-
taking ' or ' management ' of industry. We thus get three
broad divisions of the public industrial revenues, viz. (i)
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 atten-
tion to the State as a landlord in receipt of rent, we
shall find it more convenient to consider all its deal-
ings 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 indus-
trial 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 capitalization. And finally
to the revenue-yielding industrial domain we ought to add
those state institutions that either give no direct returns,
or whose expenses may exceed any receipts that they
may bring in.

In short, to sum up. the public economic revenue may,
partly on grounds of logical arrangement, partly for prac-
tical convenience, be classed into (i) returns from land.
including forests, (2) payments which_ejther represent or
of those industrial forms of property that yield not revenue
but utility in a less distinctly measurable form.

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