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

Public Finance - Chapter III 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 English Post dates from Charles I (there being little
evidence for the earlier dates of Edward IV and Henry VIII),
and became a strict monopoly during the Commonwealth.
After the Restoration it was bestowed on the Duke of
York, who retained it on his accession to the throne as
James II in 1685. The net annual revenue was at that
date about 50,000 1 . The growth of revenue during the
1 8th century was steady, and various improvements, such
as the introduction of mail-coaches in 1784, improved its
position. The invention of railways and steamships further
aided the expansion of the postal service, until in 1840
the introduction of the penny letter-post, on Rowland Hill's
proposal, widely distributed the advantages of cheap com-
munication. Without in the least denying the wisdom of
this reform, its real financial result was not what is popularly
believed. So far from improving the net revenue of the
service, it actually lowered the gross revenue, and so far
reduced the already deficient income of that period. In
1839 the gross revenue had been .3,390,000, and the net
revenue 1,630,000. In 1840 the former fell to 1,360,000,
and the latter to 500,000, showing a loss of over 1,130,000,
and this loss continued for several years : the gross receipts
did not exceed those of 1839 till 1855, and the net revenue
did not recover its losses till 1864. Taking into account
the growth that would have taken place even under the
older system, it is plain that the immediate adoption of the
penny post involved a sacrifice of financial resources 2 <

The French post office was instituted by Louis XI in
1464, and carried on irregularly, till in 1627 the service was
better organized and improved. The business was farmed
out in 1672, and the competition of the agents of the
University of Paris was prohibited ; the yield increased
from 100,000 livres in 1661 to 1,220,000 in 1677, and
1,400,000 livres in 1683. In 1699 the postal income was
2,800,000 livres, in 1750 it had increased to 4.500,000 livres,
and in 1788 it reached 1 2,000,000 livres. The method of
farming, so common under the Ancien Regime, made it in
fact a monopolized private industry, on which the State
levied a gradually increasing rent.

The Revolution separated the carriage of letters from the
other duties of the old ' Poste} and in 1792 placed the
former under the direct management of the State. The
great financial pressure and the general mismanagement of
the revolutionary period caused a great increase in the
charge for letters, destroyed the receipts from the business,
and even left a deficit on the working. The postal service
did not gain much during the Consulate and Empire, but
several improvements were introduced after 1815. The
rates were better adjusted, and the increased facilities of
transport allowed of a better service. The example of
England, whose adoption of the uniform penny post at-
tracted much attention and was eulogized by Bastiat, led
to the establishment in 1848 of a charge of 20 centimes (2 which has been raised to 25 centimes in 1850 and again in
1871, restored to 20 centimes in 1854, and finally reduced
to 15 centimes (i\d.) in 1878 \

The same fact of financial loss through reduction pre-
sented itself in France in 1848 as in England in 1840. The
gross revenue fell from 45,000,000 francs to 32,000,000
francs in the first year after the change (1849), and only
recovered the earlier amount in 1855.

The postal history of other States is very similar. Ger-
many, owing to its political disorganization, was in part
served by the house of Thurn and Taxis, who managed the
carriage of letters for several of the smaller States. The
Prussian post began in 1646, and was under direct state
administration. Its net yield in 1685 was less than 40,000
thalers ; by 1740 it had increased to 220,000 thalers.
The financial necessities of the government caused an in-
crease in the tariffs, and in 1806 there was a clear surplus
of 667,000 thalers. The amount in 1856 had risen to nearly
1,760,000 thalers, and in 1862 to over 2,200,000 thalers.
The events of 1866 and 1870-1 changed the Prussian post
into that of the German Empire Bavaria and Wiirtemberg
only retaining separate establishments. The net revenue of
the imperial post was, in 1874, 5,000,000 marks (i thaler =
3 marks) ; in 1879, 17,500,000 marks; and in 1888, 28,000,000

The postal systems of Austria, Russia, Italy, and those
of the smaller European States need not be examined in
detail. Nor does the postal development of the United
States, India and the Colonies present any special features of
interest. One general fact is the smallness of the revenue
obtained. England, France, and Germany are the only
countries that derive a substantial amount from the post 1 .

8. The so-called ' Post Office ' is in fact a collection of
different, though connected, industries. The earliest state
posts in both England and France carried passengers as
well as letters, and this function lasted in the latter country
till the Revolution, when the state passenger-service became
a separate organization, and endured till 1870. But the
conveyance of patterns, books, newspapers, and small
parcels forms an extensive part of the postal service, and is
the least profitable side of its endeavours. The rates for
these separate classes are below the ordinary letter charges,
since otherwise the amount of business would be much
reduced. The State is compelled to adopt the prin-
ciple familiar to railway-managers of charging what ' the
traffic will bear,' but it necessarily obtains very little over
the cost of its operations. So far as the conveyance of
parcels and newspapers is concerned, the English Post
Office does not possess a monopoly, and is therefore a true
industrial agency whose earnings contain no tax element.
The German post has specially developed the conveyance
of parcels, a part of the business which is left entirely to
private companies in the United States, and is a recent
addition in England (only since iHSa) 1 .

To secure a proper adjustment of rates on the many
classes of articles, and to duly apportion cost and service
to the several items, is beyond doubt a most complicated
problem. Such solutions as have been reached are for the
most part empirical, and are the outcome of innumerable
changes. The mere recapitulation of the diverse charges of
the various state letter-posts would fill many pages with
figures that could hardly be explained on any definite
principle. There are, it would appear, three elements that
might be taken into consideration, two of which depend on
definite physical facts, viz. (i) the weight of the communi-
cation or document ; (2) the distance over which it has to
be carried ; and (3) its nature ; to which (4) the mode of
conveyance might conceivably be added. The first is at
present the basis of the charge for letters, which increases
with the weight, but in a reduced proportion, and there is a
disposition to raise the lowest weight. The second element
has lost most of its importance. Since 1839 the question
of distance has entirely disappeared in the postal charges
of the United Kingdom. A letter from Penzance to Wick
pays the same as one posted to a person residing in the
same street as the sender. France has with one exception
adopted the same policy since 1848, and the United States
have also a uniform rate, practically the same as that of
England (2 cents). The reason for this at first sight curious
system is found in the fact forcibly urged by Rowland Hill,
that the actual cost of carrying letters is small enough to
be ignored. At the rate of one penny per ounce a ton of
letters all up to the full weight would produce almost i$o,
while the mere cost of conveyance would certainly not be
5 or one-thirtieth of the receipts. The real charges are
those of collection and distribution and the maintenance of
offices, the cost of which is equal on all letters. The uni-
form charge irrespective of distance and the lower charges
on additional weights are thus easily explained and proved
to be sound as well as equitable. It is in the extension of
this principle to international postage that the greatest
advance in the future may be expected l .

The character of the articles transmitted is now one of
the principal distinctions. Circulars and post-cards would
not bear the same charge as ordinary letters. The trans-
mission of newspapers and books gives a yet smaller
fund of utility on which to levy a tax, and the result is a
series of differential charges not very logical or simple, but
in its essence expedient in the interests of the postal
revenue. The mode of conveyance might be used as a
measure of the relative value of the service, speed in trans-
mission being a very important part of the advantage of
communication, but in fact this test has been little used.

9. The question of the retention of the postal business by
the State is hardly an open one. Long experience seems
to have decided altogether in its favour. No country has
adopted the method of private industry as regards letters,
though the extension to parcels is not so general. The
reasons for this remarkable unanimity are to be found
partly in the facts of governmental administration, partly in
certain special features of the employment. Before the rise
of the economic schools that opposed industrial action on
the part of the State, the method of public postal service
was firmly established, and was seen to give, on the whole,
sufficiently satisfactory results. It therefore escaped the
hostile criticism that economists freely bestowed on the
less efficient public departments. Mr. Herbert Spencer
1 The Berne Convention of 1875, by which the uniform rate of 2^-d. per x>z.
was settled as the International postage charge for most civilised nations, and
gradually extended to others, has been a great advance. India and the Austral-
asian Colonies have since the opening of 1891 obtained the same rate with
himself has hesitated to condemn the continuance of the
English Post Office. The peculiar nature of the service
supported the evidence of facts. It requires as a first con-
dition that the agency shall cover the whole territory to be
served, or be universal. Next, it must be uniform and
regular, and conducted on a definite routine ; and, thirdly,
the necessary capital is very small in proportion to the re-
curring expenditure and receipts. All these conditions
favour state management, while its close connexion with
everyday life secures a constant supervision on the part of the
public who are the consumers interested in the efficiency of
the service 1 . It is, therefore, expedient as a matter of
policy to place the work in the hands of the State, and
the bestowal of a monopoly is justified on the double
ground that otherwise private agencies would compete for
the more profitable parts of the business, leaving the supply
of sparsely peopled and backward districts to the official
post office, while the waste involved in rival establishments
would hinder the reduction of rates below their actual

On the purely financial side the gain from the service
must generally be a small one ; the return for capital
employed is little, and the only remaining element would
be the economy that results from the application of mono-
poly, and the consequent unity of the service. Any
further charge is really a form of taxation and requires
to be tested by the rules applicable to that mode of pro-
curing revenue 2 . The resources to be obtained are in any
case not important, though good management may easily
prevent a deficit, and unduly high charges will by their
reaction on industry prove seriously detrimental to other
financial resources.

10. The telegraph as a state business forms a natural
appendage to the postal system. It is invariably con-
nected with it owing to the resemblance in the work to be
done. There are, however, some serious differences.
Unlike the letter post, telegraphic work has been success-
fully carried on by companies, and international tele-
graphy is still largely in their hands. The capital ex-
penditure is much greater in the case of the telegraphs,
and therefore leaves room for that tendency of official
bodies to confuse capital and revenue which we have
already noticed x and which is so detrimental to sound
Finance. Not only is the original cost of establishment
or of the purchase of pre-existing rights comparatively
speaking large, but incessant renewals and extensions are
required in order to meet wear and supply new demands.
The saving by unity of management is, besides, not so great,
and the cost of transmission forms a larger proportion of
the expense, which increases with increased work more
rapidly than in the letter-post.

All the circumstances suggest that state telegraphy is
not likely to prove financially successful, and such is
apparently the result as shown by experience. The inter-
mingling of postal and telegraphic business makes it hard
to establish this proposition, but where a strict separation
is kept up the telegraph balance is generally on the wrong
side. The English state system has suffered financially,
first from the excessive purchase money given to the
companies who held the business, and secondly, through

it under Taxation. Roscher (28) practically follows Adam Smith. Stein
(ii. 315 sq.) places it in the list of prerogative rights (regalia} ; while Umpfen-
bach ( 61-3) and Wagner (ii. 141 sq.) regard the postal revenue as being
derived from ' fees ' (Gebuhren). These differences are due to the attempt to
reduce to simplicity what is in its nature complex, and are therefore necessarily
failures. J. S. Mill distinguishes, as in the text, between the industrial .and tax

1 3, supra. A grave oversight was committed with regard to the English
telegraph account, by which 800,000 was spent without sanction.
the pressure on Parliament for lower rates, as shown in
the adoption of sixpenny telegrams.

If full power to regulate its rates on economic principles
be given to the department, there seems to be no reason
why it should not at least meet expenses, including
interest on capital, or perhaps give a small surplus suf-
ficient to clear off the first charges in a series of years.
Behind the fiscal question there remains the more difficult
one of the effect of state management on the development
of improvements. To retard the progress of the most
essential of modern auxiliaries to commerce for the sake
of adding a sum to each side of the national budget is not
a desirable achievement. The dealings of state agencies
with new inventions are the worst blots on public adminis-
tration, and it seems that there is this risk in the State
telegraphs, that though they are quite up to the standard
at their inception, they almost insensibly fall behind as
it advances with growing knowledge. This consideration
belongs to economic policy rather than Finance, which,
however, suffers from any hindrance to commercial ex-
pansion and is certainly not likely to gain by state tele-

11. The agencies of transport and the different
facilities for the movement of goods have in modern times
acquired much greater prominence and have to some
extent come to occupy a different financial position.
Adam Smith regards the maintenance of roads and canals
as one of the duties of the State, requiring expenditure
that ought to be defrayed out of the special receipts
obtained from the users. His recognition of the so-called
'fee-principle' (Gebiihrenprincifi) is qualified by his dis-
cussion of the taxes on communication, and is further
weakened by the modern development of the transport
system l . To understand the financial position of the
industries in question, we have to separate the different
forms and examine them in order.
The maintenance of ordinary roads can hardly be re-
garded as a quasi-private industry. It is a part of the
functions of the State, and preferably of the local govern-
ments. The principle of particular interest assigns this
task to the smaller divisions, unless in the case of great
main lines of traffic, but in no way does it fall within
the industrial domain, unless the antiquated method of
tolls is employed, and even then such charges have more
resemblance to taxes.

The canal system has better claims to treatment under
the present head. Private companies have in many in-
stances reaped large profits from this form of investment,
and there seems to be no reason why the State should
adopt a different policy when it is the owner. In practice
the usual tendency has been to keep the rates down to
the amount necessary to cover expenses and meet the
interest on the capital charge. . The introduction of rail-
ways has put an additional strain on the canal finances,
since rates have to be kept under those of the more rapid
competitor, until finally in many cases all charges have
been abandoned, and the canals have been maintained at
the public expense. Such has been the position in France
from 1880, when, contrary to the opinion of experts, the
last remnant of the canal dues was abolished. The Erie
canal constructed by the State of New York, which at
first gave very large surpluses, had to be relieved from all
tolls in 1882. The German rates have also been lowered, so
that it appears that no assistance to the national or local
revenues can be derived from this source, so long as present
industrial conditions continue,, The system of purely
gratuitous service is certainly unjustifiable. A canal ought
at least to pay its working expenses, otherwise its mainten-
ance is a direct loss. The charges needed for this purpose
would come from the utility that it affords, and the
assumed impossibility of levying them is a proof of the
uselessness of the service.

With regard to capital expenditure the case is different.

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