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

Public Finance - Chapter II

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 State Domain. Lands And Forests.

1. THE oldest form of public property undoubtedly
consists of the territory on which the society is situated.
There is a great body of evidence to show that communal
holding of land is far more persistent and enduring than
other kinds of common enjoyment. The witness of history
is moreover supported by all the probabilities of the case.
Until agriculture has extended and improved with the
growth of population there will be a large part of the
tribal land lying waste or only used for pasture. It remains
under the control of the community or, at a later time, of
the chief. Public land is increased by the action of war ;
the land of the vanquished becomes the property of the
conquerors and goes to swell their public domain. A
counter-process is found steadily operating in the allotment
to individuals of parts of the domain. The Roman ager
publicus dwindled in extent under this influence and the
territory of the Provinces x in technical law the property of
the Commonwealth was * possessed ' by individuals with
the substantial rights of ownership. A public domain was
notwithstanding retained and some of the local revenue
was derived from the letting of land, though largely supple-
mented by other sources. The earlier Middle Ages regarded
the royal domain as the basis of public income. The
Feudal King was the greatest landholder and was expected
to discharge the necessary public duties by aid of the
revenue that he obtained from that source. The same
opposing forces that were operative in earlier times affected
the royal lands. They were reduced by lavish grants to
royal favourites, and increased by resumptions and for-
feitures. The position of the domain depended very much
on the strength or weakness of the individual monarch,
improving in extent during vigorous reigns and shrinking
considerably in feeble ones.

The later history of the domain varied in detail in each
European country, but one very general result is found in
the transformation of what had been the King's estate into
public property. In the few cases where royal or princely
estates have remained in the possession of the reigning
family, they are nevertheless, in substance, public, inasmuch
as they supply the ruler's official income, and by rewarding
his services relieve the treasury from an equivalent charge 1 .

2. The disintegrating forces that tended to break up the
great state domains as well as the other parts of mediaeval
Finance did not everywhere act with the same intensity.
Owing to peculiarities of situation, and in some degree to
differences of policy, the proportion of state domain is
at present hardly the same in any two countries. England
is remarkable for the almost complete alienation of its
Crown lands, the revenue derived from that source being
one of the most insignificant in the budget of receipts 2 .
* It was in the fifteenth century that,' according to Thorold
Rogers, ' the great impoverishment of the Crown estate
began,' and though increased by the dissolution of the
monasteries by Henry VIII, it was again reduced by his
successors until it reached its present position at the com-
mencement of the eighteenth century x . In France there
has been also a series of losses which has reduced the
public lands held by the central government to a very
small amount, with the exception of forests, of which it
possesses 1,070,477 hectares (about 2,650,000 acres). There
is, however, a remarkable difference as compared with
England in the large quantity of land held by the Com-
munes or local units. These bodies in 1877 had 2,058,707
hectares (or, in round numbers, 5,000,000 acres) of forests
and 2,258,310 hectares (or 5.600,000 acres) of other land,
most of it being of very poor quality. The productiveness,
however, as distinguished from the extent of this property,
is not considerable; in 1877 the receipts from communal
goods, including other items than land, was only 51,702,694
francs, or little over 2,000,000, and showing less than
40,000 increase since 1862. These figures need some
further correction, since a large amount of communal land
has been sold and in some cases timber has been freely
cut down. Thus in 1877 over 24! million francs were
obtained from those extraordinary resources that had for
the earlier year 1862 yielded over 34 million francs. It
accordingly appears that a sum of about 3,000,000 was
the contribution from immovable property for 1877 towards
a total communal expenditure of about 27,000.000 a . It
is plain that neither England nor France can hope for
much financial advantage from public lands, either general
or local. The policy, or at all events, the desire of aliena-
tion has been too strong, as the speedy disposal of the
confiscated estates of the clergy and the emigrant noblesse
shows in regard to France 3 . Nor are the cases of Italy and
Spain substantially different. The heavy expenditure that
the unification of Italy necessitated was partly met by sale of
the state lands, and at a later time by confiscation and sale
of the possessions of the ecclesiastical bodies so numerous
in that country. By 1886 over ^33,ooo,,ooo had been
realized through those sales, and by far the greater part of
the lands had been disposed of.

The countries of Eastern Europe are differently situated.
Germany, Austria, and Russia all possess large public
estates a circumstance that may be fully explained by
the later growth of constitutional government in the former
and its absence as yet in the last named. A State that
cannot rely on taxation as a resource at need must provide
other financial support, and taxation is productive only on
the condition of general willingness to contribute. States,
therefore, in which royal power has not been completely dis-
placed by popular government will probably retain a larger
amount of public land. The position of Prussia illustrates
this proposition. The budget estimate for 1889-90 gives
a gross receipt of 87,000,000 marks, and after allowing for
the working expenses of nearly 40,000,000 marks, there is
a net revenue of about 47,000,000 marks, or 2, 350,000.
The Bavarian domains are, in proportion, larger and more
valuable than those of Prussia. The biennial budget esti-
mated the yield for each of the years 1888 and 1889 at
33>5 OO 5 OO marks. Wiirtemberg, Baden, and Saxony also
have large domains, chiefly forests.

Austria and Hungary have each state lands and forests,
the estimated revenue in the former country from that source
being over 4,000,000 florins, and in the latter 2,500,000
florins l . Russia is a more remarkable case : it illustrates the
statement that the less the development of the society the
greater is the proportion of public land. At the time of
the great reform usually known as the emancipation of
the serfs an amount, estimated at from two-fifths to one-
half of the land of Russia was held by the State. About
eighty years earlier 10,500,000 serfs were found on the
state lands, and in 1861 this number had increased to
23,000,000. The measures of emancipation so far as the
state domain was concerned consisted in a re-adjustment
of the dues that were payable which henceforth, in many
cases, assumed the form of taxation either imperial or local.
Economic inquiries are said to show that rent has been
evolved from taxation, but it is equally true that in many
cases taxation has passed into rent, or rent-charge. In
some parts of Russia the state charges on the former
imperial serfs are higher than an economic rent, in others
they are lower, and in the latter case they may be looked
on either as a reserved property or as a land tax. It
appears in this way that the income of the State as land-
owner may approach very closely to the tax revenue that
is imposed on land, and that the line of separation can only
be fixed with reference to all the circumstances of each
particular case. In addition to this wider form of state
domain the Russian government received, in the year 1888,
nearly 25,000,000 roubles from lands and forests, though
the expenditure on the same objects has to be deducted to
arrive at the net gain l .

The Indian land tenures present the same features even
more forcibly. Under all the varying forms of assessment
the principle that the State is ultimate owner has not been,
in practice, completely lost sight of, except in the settlement
of Bengal. Nothing appears more equitable than that this
head proprietor should receive a share of the increasing
value of the soil. On the other hand, the machinery of
assessment and collection is compulsory ; it is far more
akin to the processes of the tax-collector than of the land-
lord, and the difficulty recurs of saying whether the receipts
are taxes or rent. The best solution of this question is
arrived at when we see that in strictness they belong to
neither class. They differ most markedly from the rent,
either customary or competitive, of a modern landowner,
and more nearly resemble the dues of the feudal lord.
They are just as distinct from the ordinary tax, and are not
governed by the canons to which it ought to conform ; at
the utmost they might be assimilated with the taxes on
special advantages or monopolies, of which class the posses-
sion of land is one example. Where the state dues are
frequently revised in accordance with the movement of
land values the approximation to rent is very close ; where
they are changed in order to suit the needs of the State
they are practically taxation l ; but where, as is most
common, they are fixed for long periods, or in perpetuity,
they are really charges that may be capitalized at the
market rate of interest. The Indian Land Tax with its
great net return of nearly 20,000,000, has, at different
times and in different provinces, shown each of the three
features, but on the whole the rent-charge element has pre-
ponderated over the others. The lengthening of the period
of settlement, and the disposition to keep the assessment
under the value, have both tended to this end.

3. European colonies and more particularly the Eng-
lish settlements in North America and Australasia contrast
remarkably with the preceding cases. The most prominent
economic features in a new country are abundance of land
with scarcity both of labour and capital ; land is conse-
quently the cheapest of commodities,, so much so that it
is freely offered in full ownership as an inducement to
fresh settlers. The progress of cultivation soon changes
this state of things. The more fertile land is taken up, and
acquires value from the growth of population. At first sight
it seems that the State might derive important resources
from a reserved charge on its land, or, by adopting the
simple expedient of leasing it out instead of giving it away,
would obtain a share of the increase in its value. The
Wakefield system, though not designed for financial ends,
sought to secure a higher capital return for land that was
sold, at the same time applying the funds so derived for
the promotion of immigration ; in fact, increasing both
colonial receipts and expenditure. The advantages of free
access to land are however so great in a new country ;
the effect on economic development of a speedy growth of
population is so considerable and so easily perceived, that
no effectual method of limiting the occupation of the soil
in full ownership has been continued. The United States,
the various English colonies, and the South American
Republics have all found that nothing is such a stimulus
to immigration as full liberty of acquiring vacant land,
For this reason the revenues of those States from land are
comparatively speaking small, and for obtaining the ne-
cessary funds recourse must be had to other forms,
principally indirect taxation. As examples it appears
that in 1889 the United States obtained over ; 1,600,000
by the sale of public lands, but against this the expenses
on the same account have to be set off, and the result
seems to be that on the whole there is a loss on the state
lands : they really are an item of expenditure not of re-
ceipts 1 . For the financial year 1886-7 the Canadian land
receipts were a little over .40,000, though it is hoped that
in future years the return will be greater. In the same
year the Australasian colonies received over ^"3,500,000,
about two-thirds of which was from sales and the remain-
ing one-third from rents on leases 2 . Thus neither in new nor
in old countries are the lands of the State one of the main
supports of the financial system. It requires an extra-
ordinary combination of circumstances, as in the case of
India, to create an exception to this general rule.

4. The apparent advantages of a large state revenue
from land and the peculiar nature of the income received
from the use of superior natural agents has suggested the
advisability of dispossessing all private owners and reverting
to the primitive system of public ownership. Whether
under the name of rent or of the single tax, this plan of
imposition involves the confiscation of all existing rights
in land. Its bearings, when regarded as a form of taxation,
belong to the theory of that part of our subject, but we
may notice it in so far as it advocates an extension of state
property. And here there is an evident distinction to be
made. In one form of the proposal, existing owners are
to be compensated, when it simply amounts to an extension
of the state domains by purchase. In the other and more
drastic form no compensation is to be allowed. Owners of
land, no matter how acquired, are to be compelled to sur-
render their incomes from this source to the State. It is
not necessary to characterize the morality of this scheme,
but its financial attractiveness, at first sight great, is much
diminished on closer examination. The disturbance of
economic relations and the general feeling of insecurity
that the adoption of such a measure would produce, even
on the assumption that it would be carried into effect with-
out a revolution, would go far to reduce the productiveness
of land to the State, and to lower the incomes of other classes
of the society in whose interest the measure is advocated.

The proportion of land revenue to the total receipts in each of the last men-
tioned colonies is as follows :

Western Australia 26-87 P er cent -

New South Wales 21-65

Queensland 21-25

South Australia n-5

Tasmania 10-99

New Zealand 9-17

Victoria 8-72

Average 14-98
In another way, too, the gain would be reduced. The large
amount of general and local taxation at present raised from
land, as also the necessary expenditure for keeping it in
proper condition, must be deducted before the net advantage
to the Exchequer can be known. Besides, all the difficul-
ties attendant on state management of land would exist in
at least equal strength if it were acquired without paying
its fair value l .

5. From these far-reaching and unsafe theoretical plans
we may now turn to the actual questions connected with
the public ownership of land. They are divided into
two groups, the first of which considers the advisability of
the State retaining its domains, and the second, taking the
retention as desirable, investigates the best methods of ad-
ministration. As the former comprises the already noticed
question of land nationalization with full compensation, we
shall find it convenient to commence with it.

At the opening of scientific economic inquiry the treatment
of state lands was a subject for discussion. German writers
e.g. Justi, favoured their retention as being a better source
of income than taxation, but the tendency of the new doc-
trines of the Physiocrats and Adam Smith were in the
opposite direction. Taxation in the form of a direct
charge on the net revenue of land was regarded by the
former as the proper support of the State, and the latter
has unequivocally pronounced in favour of the alienation of
the public domain. ' The revenue which in any civilized
monarchy the Crown derives from the crown lands, though
it appears to cost nothing to individuals, in reality costs
more to the society than perhaps any other equal revenue
which the crown enjoys. It would in all cases be for the
interest of the society to replace this revenue to the Crown
by some other equal revenue, and to divide the lands among
the people, which could not well be done better perhaps
than by exposing them to public sale 1 .'

The reasons given in favour of this policy are clear and
simple. Firstly, the lands held by the State are managed
so badly that the revenue of the society would be increased
by their alienation, since the produce obtained from them
would be larger. The price obtained by the government
would go to discharge liabilities, and therefore the amount
of receipts, if not larger, would certainly not be less ; and,
finally, the improvement of the alienated lands, under the
management of private individuals, would by adding to
the source from which taxes are drawn, make their
yield greater. The case as so presented is a strong one,
and, in the main, convincing. Nevertheless, the German
writers on Finance have regarded this view of Adam
Smith's as one-sided and exaggerated. His condemna-
tion of state property is, it is said, too absolute, and various
arguments in favour of the retention of state domains have
been put forward. Thus, the advantage of such property
as a security for public loans is suggested as a reason for
their retention ; also the advantage of model estates on
which improvements may be introduced as a means of
instruction to agriculturists. The political gain to the
Crown from possessing an independent source of income,
and, too, the prospect of the value and return of land in-
creasing through the progress of society are given as further
reasons in favour of retention. Most of these pleas are
unfounded: if public lands are a security for loans their
sale would prevent the need of borrowing. The royal
income is just as secure when settled on the civil list ; no
matter what be its form a revolution will disturb it. The
value of model estates is a distinct and separate question,
and belongs rather to expenditure than to revenue, so that
the only valid argument remaining is that derived from the
growth of rent or unearned increment. The question, how-
ever, remains, whether this very growth is not in great
measure due to the incentive that private ownership of
land gives, and which is removed by state occupation.
Still it must be admitted that in the case more especially
of land suited by position for building sites there is a
decided advantage in reserving the constant increments of
rent for public use ; and that any equitable mode of accom-
plishing this end is deserving of approval. The retention
of state or crown lands is of itself by no means sufficient
for the purpose. Even in Germany or Russia the proportion
of public land really at the full disposal of the State is only
a fraction of the whole, and the part of it that is situated
within urban districts is much smaller, so that it appears
that under actual conditions the difficult question of un-
earned increment in connexion with ground rents must be
solved, if solved at all, by special taxation. The contention
of Adam Smith therefore holds good, that in general, from a
purely financial point of view, the sale of lands in order to
clear off debt or meet extraordinary expenditure is expe-
dient. Underlying the discussion in the Wealth of Nations
there are, it should be noticed, some assumed conditions that
did really correspond to the facts in Adam Smith's time.
These are (i) the existence of debt on the part of the State.
While it is financially wise to dispose of property yielding
small returns to meet obligations paying a high rate of
interest, it is not equally clear that alienation of property
to meet current expenditure is justifiable. Expenditure of
the normal kind should be met by equally normal receipts,
and the sale of land is not of this nature *. Unfortunately,
the case is rather conceivable than actually existent, as every
country has its public debts to a larger amount than the sale
of its domains would meet. (2) The expediency of selling
the state domain also depends on the available market. In
most European States in the eighteenth century there was
no difficulty in finding an open market for the amount of
land held by the sovereigns. But under other circum-
stances it would be hopeless to expect that large masses of
land could be sold at their normal value owing to want of
capital and enterprise on the part of individuals. Such is
plainly the position of India in those cases where the land
tax is really a rent l . In addition to the political and
social evils there would almost certainly be a financial loss
from forced sales. The same statement would hold good
for all new countries where the sale of land depends on
the demand of fresh settlers, and where the amount dis-
posable in any one year is limited.

The evident conclusion seems to be that the function of
the State as owner of agricultural land is sure to decline in
importance with the advance of society. The proportion
of the quasi-private income of the State to tax revenue
becomes smaller in the course of time, and as the industrial
domain has in certain directions a tendency to expand, the
falling off in the yield from rent must be very decided.
Though this will be the probable final result, it is also true
that for a long period the management of state lands will
be of practical interest in some countries, and will always
remain as a problem of financial science. If the State,
through its central or local organs, is the owner of landed
property it is desirable that property so held should be
wisely managed.

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