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

Public Finance - Chapter IV

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 As Capitalist. Administrative Revenue.

1. THE agricultural and industrial property of the
State, though the former has lost most of its importance,
and the latter is confined to particular sections of industry,
have both retained a place as substantial sources of revenue
in the case of at least some countries. The domain, the
forests, and the railways of Prussia contribute a consider-
able amount to the budget and cannot be passed over.
The land revenues of India are the mainstay of the Finances
of that country, and England would feel the loss of
the postal revenue. Very different is the position of what
once might have been regarded as a co-ordinate part
of the quasi-private income of the State, viz. the revenue
from commerce. At one time the regulation and even the
monopoly of certain branches of trade was believed to be
a part of the royal prerogative. This position, which was
most strongly held in the sixteenth century, gave way
before the pressure of new economic forces and the criti-
cisms of the more intelligent theorists. It is now univer-
sally recognised that, to use Adam Smith's words, ' no
two characters seem more inconsistent than those of trader
and sovereign l '. The speculative nature of commerce,
the need for constant watchfulness and minute calculation
of the chances of gain or loss which are its essential features,
make it impossible for a State to hope for revenue by
engaging in it.

The exceptions to this general rule are rather apparent
than real. 'When a State possesses and works lands, forests,
mines or factories unless the products are used in the
state service it must find a market for what it turns out,
but even this irreducible t minimum of commercial trans-
actions is the weakest part of state economy, and by its
risks forms an additional objection to those already urged
against increasing public lands or industries. The same
necessity of course exists where an article is artificially
monopolized for the purpose of effectual taxation, a pro-
cess that is sometimes confined to the sale, leaving the
production to private enterprise. Such revenue as is
obtained in this mode is virtually taxation on the com-
modities so dealt with, and must be considered in that
connexion. The only other exception that we need
notice is that of the Dutch government trade from Java.
Under the ' culture system ' large quantities of valuable
products, chiefly coffee, tea and spices, are received by the
Colonial government and sold at a high rate. For many
years large surpluses were realized, but lately the modifica-
tions of the culture system and the fall in prices have led
to deficits in the colonial budget, and given still further
proof of the hazardous nature of such revenues ] .

2. The business of banking is in so many ways connected
with the State that its public management appears to have
much to recommend it. The ordinary method has, how-
ever, been that of granting concessions to privileged
companies who are bound to afford facilities to the State
in return for advantages enjoyed. England, France and
Germany at present adopt this policy, with the various
modifications that the circumstances of each country make
advisable. The pure ' state-bank ' in which the capital
of the undertaking is supplied from the public funds is
found only in Russia and Sweden. In most countries
banks contribute to the revenue either by the special ser-
vices that they perform for the State, by taxation, or by
sharing profits over a certain point with the Treasury, the
last being the system of the German Imperial bank 1 .

Banking may naturally be divided into (i) dealings with
money, and (2) with capital. There are strong reasons
for regarding the former as a state function, and it is
probably from this part of the business that public revenue
may best be obtained 2 . The trade in capital on the other
hand seems entirely unfit for governmental intervention,
though some small revenue may be gained from it by
judicious taxation.

The relations of Public Finance with the banking system
are not confined to questions of revenue. The public
debt in its different forms, especially that of inconvertible
paper issue, is mixed up with the trade in capital, and the
whole mechanism of the financial system is dependent for
its successful operation on the agencies of credit. We
shall therefore have more than once to return to the
subject 3 .

Another form of state-banking has come into existence
in .the last thirty years, in the savings bank which origin-
ated in England in 1861, and has extended to Belgium,
Italy, Holland, France. Austria and Sweden ; but its
financial importance is confined to the aid which the large
deposits afljprd on the creation of terminable annuities.

3. A more important but at the same time more
questionable source of revenue is by many States derived
from the receipts of lotteries conducted by the government.
The tendency of the State to seek gain from the errors or
vices of its subjects is very noticeable in the earlier periods
of financial history. Appeals were often made to men's
' absurd presumption in their own good fortune ' by the
establishment of periodical lotteries, in which the con-
tributors taken as a whole were certain to lose. In many
cases the lottery became a state monopoly, and several
examples still exist. The Prussian budget estimate for
1890-1 assumes a net yield of 8,291,500 marks from 'this
source. The Austrian state lottery was estimated to give
21,500,000 florins in 1889. Italy is the receiver of the
largest revenue from lotteries, the gross yield for 1889-90
being computed at 76,300,000 lire. Saxony, Hamburg,
Spain and Hungary are also indebted to this system for
portion of their revenues. The objections are rather moral
than economic, though the virtues weakened by the pre-
valence of gambling are the peculiarly economic ones of
prudence and willingness to acquire wealth by labour.

From the purely financial point of view, the more refined
lottery systems depending on combinations of numbers
are objectionable, as there is some uncertainty as to their
gains. The State is exactly in the position of the banker
of the gambling table. Thus 1885 was a bad year for
the Italian lottery, 1886 a good one. The simple method
of prizes arranged in classes is preferable, but it appeals
less powerfully to the spirit of adventure, on the prevalence
of which the institution depends for its continuance.

The pernicious effects of state sanction of the vice of
gambling have led to the abandonment of the lottery
system in England (1826), Hesse (1832), France (1836),
Sweden (1840), Bavaria (i 86 1), and Switzerland (1865), and
Prussia seems likely soon to follow the example thus set.

4. Adam Smith has made the institution of a ' public
pawnshop ' familiar by his reference to the case of Ham-
burg, and many similar establishments in the shape of the
' monts de piete* in France, Belgium and some German
States are in existence. The proceeds when they exceed
the advances and cost of working are not applied to public
use, so that the whole system is rather a charge, chiefly on
municipal revenues.

A priori it would seem that the lending of accumulated
wealth would be a convenient mode of securing a revenue
for the public services, but, as in the case of industrial
investments, the test of experience makes it plain that this /
is really an expensive way of obtaining the necessary V[
supplies, since the principal has first to be raised and is
afterwards less productively employed than when left in
the ownership of private persons. A true conception of
the relation of state income to the national income, which
is the sum of all private incomes within the nation, over-
throws the fallacy of state accumulation and investment.

Notwithstanding the force of this general canon, the
financial accounts of modern states exhibit apparently
many examples of advances of capital by the State. On
investigation these cases turn out be connected with the
use of public credit. For the furtherance of certain
economic or social ends, as e. g. the improvement of land, or
the erection of better dwellings for workmen, or municipal
improvements, advances are made by the central govern-
ment either to individuals or local bodies, but these loans
are themselves ultimately derived from private capital by
means of the public credit. The Treasury acts simply as
an intermediary in supplying capital for certain desirable
objects a position made clearer in England by Mr.
Goschen's separation of the local from the general debt.
The repayment of the money so advanced is but the
appropriate method of discharging the amount of debt
that was contracted for the original loans.

5. The interest on capital lent out is thus not a source
of state revenue that need receive attention here since it
does not really increase the public receipts. We may there-
fore pass on to consider those kinds of revenue that are
fixed in amount and admit of capitalization, a circumstance
that connects them with the gains from invested capital,
notwithstanding that their origin is very different.
Foremost among such revenue is the gain from charges
on land. In an earlier chapter of the present Book we
found that the agricultural domain had often passed gradu-
ally from the hands of the sovereign by the introduction of
hereditary leases. Permanency of tenure without limita-
tion of rent is of little benefit, as increase in the charge can
always be used to destroy the tenant's interest. Con-
sequently the fixing for ever or for a long term of the rent
to be paid accompanies the hereditary lease. The variable
payments become settled and definite charges.

In another way the same form of revenue comes into
existence. The servile tenures of the Middle Ages pre-
scribed a great variety of duties to be performed by the
tenants, which under the new conditions of * money economy '
were commuted into fixed sums. English legislation on
copyholds, the measures of the French Constituent As-
sembly, and the Prussian land legislation since 1807, have
all had this commutation and settling of dues as one of
their objects. The tithes, so peculiarly distinctive of eccle-
siastical property, have also undergone the same treatment,
wherever they have not been abolished. The universality
of the forces that work this change is shown by the
extension of the terms of the Indian land settlements and
the favour in which perpetual settlements are held. The
difficulties as to the distinction between rent and taxation
in India have been already noticed, as also that with a
perpetual settlement the state receipts are in reality
neither \

A still further question arises, viz. whether long-continued
taxes on land should not be included in this class of re-
ceipts. Much controversy has arisen in connexion with
the French Impot Fonder ; one party contending that its
burden has ceased to be felt, since all purchasers deducted
the capitalized amount of the tax from the purchase money ;
opponents of this view have brought forward the ever open
possibility of changes in the amount so levied. The broader
theoretical aspects of the matters at issue will occupy us in
studying taxation, when we shall see reason for adopting
the last- mentioned view, but some concession can be made
to the advocates of the rent charge conception of land
taxes. Where as in the case of the English Land Tax of
1692 (originally intended to include all property, but evaded
by the holders of movable wealth) the amount is fixed on
each estate, it does become a charge on the land. The
system of redemption, applied first in 1798, is of itself
sufficient to prove the correctness of this view. The so-
called ' English Land Tax ' is gradually disappearing.
From its highest point of 1,911,663 in 1798, it has come
down to 1,035,000 in 1889 1 .

The expediency of allowing the parties liable to redeem
charges depends altogether on the nature of the burden.
As long as the land tax was really variable or intended to
be so, the permission to capitalize the payments would
necessarily be futile, since a fresh charge could always be
imposed, but where fixity has been introduced the redemp-
tion is generally for the advantage of both sides, for that of
the person liable since otherwise he would not consent to
redeem, and for that of the State which is thereby enabled
to reduce its liabilities. Whether a charge should be
rendered fixed or not depends on the way in which it has
been established, and is mainly determined by considera-
tions of public policy. The conversion of taxes into fixed
payments is, however, unquestionably an error in Finance,
as, owing to the growth of public expenditure, provision has
to be made for procuring larger sums, while the immo-
bility of each existing tax compels the financier to have
recourse to new, and on the whole, less eligible sources of
revenue. The same consideration applies to commutations
of rent, either of land, of mines, or of concessions for rail-
ways, canals, and other undertakings. The probability is
that they will give a larger return at each renewal, and
this additional gain is lost by commutation for a fixed sum
unless, indeed, full allowance is made in the arrangement
for the value of the increments that may reasonably be
expected in the future. Such transactions are* not usually
settled on terms favourable to the public revenue. An
individual will not estimate a very distant gain at its real
value to the community, and as a result the fixed payment
will be but slightly raised by the inclusion of a benefit to
come later on. Financially, it is best to reserve these
prospective receipts for the new objects of outlay that are
certain to arise.

6. Besides the services attached to land, there is a mis-
cellaneous group of receipts which may conveniently be
noticed here. Historically they belong to the class of
regalia^ and are due to the Sovereign's prerogative.
Amongst them we may mention charges for the privilege
of hunting, or of fishing, which to some small extent con-
tribute to the public revenue at present. Mediaeval Finance
expanded this class of receipts to a remarkable extent.
They acted, as Roscher has shown, as a transitional form
between the earliest condition in which the domanial revenue
sufficed for the royal service, and the later state economy
depending chiefly on taxation 1 . Our modern customs and
excises appear in germ in these feudal or imperial dues.
Succession duties can also be referred to the same source,
but apart from what may fairly be regarded as tax revenue
in rudimentary form, there are the well-known feudal aids ;
the right of the Sovereign to fines ; that of taking owner-
less goods, and the numberless other claims that the in-
genuity of lawyers succeeded in establishing.

Modern Finance has chiefly to deal with these preroga-
tive rights so far as they help to explain the evolution of the
existing systems of taxation, or in the scattered remnants
which are found as survivals in every country, inexplicable
except on historical grounds. This discussion also serves
as a suitable introduction to another class of public receipts
that has presented much difficulty in regard to its correct
position in the financial system.

7. The problem of classifying the revenues known as
' fees ' (Gebilhreii) need not be again considered 1 . In
accordance with the conclusion before reached no separate
department for fees is requisite. Some of the so-called
Gebuhren,) e. g. the postal revenue, have been noticed in the
preceding chapter, others will find their place in the study
of taxation, while the remainder of the heterogeneous class
will be considered here as a sequel to the fixed charges
imposed by the State. By this method the complications
that otherwise occur are avoided and the creation of a
distinct group of state receipts, co-ordinate with that
derived from taxation, becomes unnecessary.

If further justification were needed for this breaking up
of the topic of Gebilhren that German financial science has
laboured so strenuously to develope, it would be found in the
remarkable divergences of opinion among its exponents.
No two of the able and erudite workers at the subject give
precisely the same interpretation and arrangement. The
one fixed and definite result obtained can be and is recog-
nised in our treatment, viz. that the ' fee ' is paid in return
for service done, and that it does not bring in a clear return
to the State over and above the cost of the service for
which it is paid.

The classification and division of the different kinds of
fees is almost as unsettled as the nature and position of the
whole system, but when we deduct those charges that really
belong to the industrial domain, as also whatever is in fact
tax revenue the difficulty is very much lessened. Special
reasons apart, the State might charge for any service ren-
dered to a determinate individual, and therefore it would
seem abstractedly possible, that each public function would
have its corresponding fees. State services cannot, as we
know, be analyzed, and their effect on each citizen assigned.
The general interests of the society are a matter of im-
portance to all ; were it otherwise the whole organization of
the State might be dissolved and its duties given up to in-
dividual enterprise. Fees come in only as a supplement to
the other receipts of the public exchequer, and have to be
confined to certain cases of measurable services where the
citizen is brought into direct contact with the public

8. The administration of justice has been the occasion
for the earliest of these charges. Without returning to the
previously considered position of primitive law courts l we
need only bear in mind that the cost of law services has been
more and more placed on the general revenue. From being
self-supporting, the cost of justice has been steadily in-
creasing. Nevertheless, a large number of charges are still
levied in connexion with legal proceedings in every modern
country. The United Kingdom shows net receipts for the
year 1889-90 to the amount of 615,889 under the general
head of ' Fees/ of which by far the largest part was obtained
from court charges, the English Judicature alone con-
tributing 352,356. Local governments also receive fees
for police and justice which ought in strictness to be added,
but the total amount was less than 500,000 for 1887-8.
In France the system of court fees in the older form of
epices was abolished at the Revolution, but the charges for
documents and legal forms are still a part of the revenue
under the title Greffe. The Timbre or stamp duty also
affects judicial acts, but the greater part of its return is
really taxation. For the year 1888 the receipts from the
Greffe were 8,225,000 francs. The same category of
receipts in Italy for the year 1881 came to 7.000,000 lire.
The several German States, as well as the Imperial Go-
vernment, obtain more or less revenue from the same
source. So do many of the American commonwealths, but the value of the comparative figures is very little,
owing to the intermixture of fees with taxation
Besides the revenue derived from contentious proceed-
ings, or from fines on criminals, there are numerous juridical
acts which require for their validity the payment of a con-
tribution to the State, or which involve work on the part
of the public officials, that can be charged for on the
ordinary principle of service done. Such are entries in
official registers, grants of naturalization and the supply of
copies of legal transactions. One of the most important in
practice is the dealing with land titles. In all countries
with a proper land system owners' titles are registered and
changes in the rights over land are recorded. The benefit
of such a system to owners and intending purchasers is
beyond question, while the cost is very moderate. A low
scale of fees for the operations of the registry suffices to
cover its expenses, and therefore is an eminently suitable
mode of providing for them. Such charges are in principle
clearly distinct from the heavy duties on the transfer of
land that still exist in France, and form a part of the
system of Enregistrement. Low fees have the double ad-
vantage of securing without difficulty a good proportion of
the expense that administration entails, and of allowing
transactions to be carried on without check.

9. Fees for justice and juridical acts shade off almost
insensibly into ' administrative fees ' ( Veriualtungsgebiihren},
so that many of those enumerated in the preceding section
might fairly be placed under the latter head, but where the
payment is made in connexion with questions of legal right
it seems better to regard it as a ' law fee.' Among ad-
ministrative fees those for ordinary certificates, e. g. of
births, deaths, and marriages, may be included, the issue of
passports, attestation of degrees and diplomas, and the
many other payments for special official relations. Most
important, however, are the charges which are more or less
connected with economic transactions, such as fees for testing
the quality of articles that now exist chiefly as survivals of
the older system of regulation, as e.g. the English hall-
marks on gold and silver, or have been introduced on social
grounds, as in the case of testing for adulteration.

In this somewhat miscellaneous collection, whose in-
definiteness results from the wide extension of state func-
tions, may be placed the revenue from seigniorage. The
function of coining money is undertaken by every civilized
government, and in most cases a small amount of the metal
sent for coinage is retained in order to meet the expenses
of the process. Where the deduction is limited to the
amount necessary to cover the cost it is substantially a fee
for guaranteeing the fineness and weight of the currency.
The English mint does not do even this in respect to the
gold coinage, which is a cause of expense to the State. It
is more than recompensed on the token coinage of silver
and copper which gives a varying surplus amounting for
the year 1889-90 to the unusually large sum of .774,000.
A receipt of so considerable an amount, if normal, would
not be treated under the present head. If it could be
shown that the seigniorage charge pressed on any class or
classes it would be a special tax levied on them ; if it was
the result of state monopoly it would be a gain of the
State from the industrial undertaking of coinage. As any
large gain is very rare the receipts of the English mint
for 1889-90 were described by Mr. Goschen as 'a windfall
which cannot be expected to recur 1 ' and as some mints
do not cover their working expenses it is best to regard
seigniorage as being one of the class of * fees.'

Charges for testing weights and measures make another
item in the list, so do light-house dues and dock charges. In
almost every case of administrative action there will be
some receipts owing totHlTtrefinite services that are ren-
dered to individuals or the commodities supplied to them.
The sale of official publications may be given as an

A comparatively important head of revenue from ' fees '
is found in the school payments that excite so much hos-
tility on the part of reformers. The promotion of educa-
tion has become a public duty, involving extensive outlay,
which must be supplied either from taxation or from the
fees paid by those who avail themselves of instruction.
There is no valid reason why a part of the expenses of the
system should not be borne by the parents, unless in the
case of actual destitution. The policy pursued is very
varying. The United States, and France since 1881, have
no fees for primary schools. England and Germany retain
them as yet, though there is every probability of their
speedy disappearance in the former country. The receipts
from school fees in the United Kingdom for 1889 came to
almost ^"2,230,000. The fees obtained in Prussia in 1886
to nearly 11,000,000 marks l .

The higher educational institutions also produce fees in
small amounts, as e. g. in England the University of
London almost covers its annual working expenditure by
the fees of candidates for its degrees and certificates.

10. Looking back on the list of receipts that may fairly
be classed as fees, we see the absence of any harmonious or

1 More precise figures are :

England. Fees in School Board schools 635,255

Fees in other schools receiving grants 1,207,695

Scotland. Fees in Public Schools 249,155

In other Schools 46,164

Ireland. School Fees in National Schools 110,592

Total 2,245,861

In Germany the School Fees were in 1871 10,498,794 marks.

1878 12,975,527

1886 10,926,085
logical arrangement. There is no branch of the public
power to which they can be attributed ; they are spread
over the local and general budgets, and sometimes never
come into account, being the perquisites of the officials who
receive them, as is not uncommon in the United States.
Much of the law that regulates them is only of interest in
administration ; they are often inextricably mixed up with
the public industrial receipts and with taxes, especially
' taxes ori commerce ' ( Verkehrssteuern) 1 , and finally the
aid they give to the financier is not considerable. They
may indeed be regarded as incidental products of state
action. Just as in manufacturing processes certain by-
products are formed which are sold for what they can bring,
or as the labourer disposes of his spare hours for any wages
that will overcome his desire for leisure, so the mechanism
of the State, while aiming at the efficient discharge of the
tasks set to it, nevertheless does not refuse to collect revenue
that can be acquired without neglect of the primary object
in view, and such revenue is that from fees.

There is thus complete justification for regarding them
as an appendage to the quasi-private economic receipts as
we have done in the present chapter.

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