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

Public Finance - Chapter V

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

State Property. General Considerations On Quasi-private Revenue.

WE have now examined the different classes of public
receipts that can be fairly classed as ' quasi-private ' or
' economic ' ; what the practical financier would describe
as ' non-tax revenue.' The component elements are some-
what heterogeneous, a necessary result of the variety and
complexity of public administration. Some of the categories
shade off indefinitely into the other great class of contribu-
tions obtained through taxation, and thus deprive the
technical groupings made for practical purposes of the
logical consistency needed in scientific inquiry. In another
respect the nature of things presents difficulties in the way
of precise classification. The ' economic ' revenue of the
State is the product of property held, or payment for ser-
vices done, by it. Great masses of public property are
however, not productive of revenue in the ordinary sense.
From the Houses of Parliament down to the smallest
court-house, from Epping Forest to the village green,
there are buildings and lands that bring in no return to be
entered in any budget, local or general. They are, never-
theless, a constituent part of the public domain, the loss of
which would be seriously felt even financially. They con-
tribute not wealth in the strict sense but utility, and the
problem of determining their financial advantage is there-
fore a difficult one. It seems that the best mode of framing
an approximately correct estimate is to take the sacrifice
that their loss would impose. The destruction of the public
buildings of this class in the United Kingdom would place
a considerable charge on both national and local resources,
and this sum gauges the value of the existing buildings.
The same test applies to the land devoted to general use,
such as parks, commons, and roads when free from tolls 1 .
The last-mentioned case shows how revenue-yielding pro-
perty can pass into the class under discussion, and the
French canals previously noticed afford another instance.
Strictly speaking, the policy of charging fees only equi-
valent to the cost of maintenance or less than it is an
intermediate stage between using state possessions as a
source of economic revenue, and abandoning them to
gratuitous use.

The extension of this ' unproductive ' public domain is
one of the remarkable features of the present century. The
movement, usually described under the title of ' State
Socialism/ has made the public powers owners of museums,
picture-galleries, libraries, baths, gardens, and the other
appliances of a civilized society. No data are at present
available for forming an adequate conception of the extent
of the movement, but of its reality and importance there
can be no question. It is not limited to any particular
country, and it is as prominent in local as in central govern-
ment. Though commonly placed under the head of ' State-
sacialismj it is really communistic rather than socialistic,
since it implies the gratuitous supply of certain advantages
that may be wholly unearned by the receivers. The classes
who benefit directly are not those who contribute, even in
labour, to the work of society. The public domain applied
to either state or general use also influences the financial
position by the outlay that is needed to keep it in efficient
working. The existence of numerous public buildings, of
large areas of land devoted to the service of the community,
of works directly supplying state needs might give a very
considerable sum of assets to be entered in the national
ledger if an inventory of state property were taken *. It
must, however, be remembered that the State is in mercan-
tile phraseology ' a going concern.' Its property cannot be
realized without suspending the processes of political life,
and so long as these continue further expenditure is un-
avoidable. This part of public property resembles the
mansion, demesne, coinage, plate and furniture of a rich
man, which are only productive of wealth on the break-
ing-up of his establishment, and otherwise involve him in
additional outlay. Each is in the language of modern
economists the ' consumers' capital ' of the proprietor,
affording utility but not revenue in the narrower sense of
the word.

These various points of connexion are quite sufficient
ground for noticing the unproductive possessions of the
State, and their suitable position is plainly in immediate
sequence to that other section of public property which does
contribute to the resources of the Budget. Between land
earning profit and land that merely affords enjoyment
there are so many intermediate gradations, that we pass
almost insensibly from one to the other ; and the same
statement is applicable to some other forms of fixed

There is an evident convenience in the use of separate
terms for these two classes of public property. The
language of French administration describes the revenue-
giving part as Domaine prive de tetat, while the remainder
is the * Domaine public J though the latter term is some-
times used in a wider sense to include all the possessions of
the State. The phrase Domaine prive has often a legal
rather than an economical or financial meaning, and denotes
the property held by the State as a juristic person. Stein
has proposed the terms ' Staatsbesitz* and ' Domdnen ' for
the * unproductive ' and ' productive ' parts of the public
property, and perhaps the best English equivalents would
be 'property' and 'domain,' though the former is rather
too vague unless qualified by some limiting term 1 .

2. All the sources of revenue described in the present
book possess one common feature that differentiates them
from the tax receipts. Their amount has no essential con-
nexion with the public wants. No matter what may be 1
the demands on the public treasury the various parts of the!
national domain will continue to give the returns that the
economic conditions establish. State lands will afford rentj
state investments interest, and state industries profit under
the normal form of those divisions of income. They will
not increase in times of pressure, nor will they diminish
when funds are abundant, and they therefore deserve the
epithet ' mechanical ' as opposed to ' organic ' which has
been given to them 2 . This feature of itself makes recourse
to taxation a necessity in times of increasing expenditure.
Even on the supposition that England had sufficient returns
from its economic revenues to meet the expenditure of
1790, the French wars would have disturbed the balance,
and it would never since have been restored. It might
appear that the proposition just stated is not strictly
exact. Fresh state wants might lead to more judicious
management of the domain. Rents might be brought
nearer to the economic limit. State industries might be
worked with a closer eye to profit, and fees, notably, might
be made higher. This qualification is only apparent. The
previous low receipts were either the result of bad manage-
ment or of a particular line of policy, and if the former,
could have been rectified apart from the new needs ; if the
latter, would involve the loss of the object previously aimed
at. Increased rents may retard agricultural advance ;
higher railway charges injuriously affect commerce, and
increased fees tend to limit the transactions on which they
are charged. Assuming then that pre-existing receipts
have been arranged on correct principles, no increase can
be obtained without a corresponding loss to the community,
and in many instances it will be really taxation, as may
easily happen with regard to any economic source of
income. It is further probable that new demands will act
injuriously on the economic revenues, e.g. a war retards
social progress.

The antithesis between ' mechanical ' and ' organic '
revenue is thus shown to be based on the natural conditions
of the two classes, and to indicate the place of each in a
developed financial system.

3. The division of the mechanical sources between central
and local authorities is in general determined by the
history and situation of each particular country. Land
may, it would seem, be held either by the State as repre-
senting the sovereign of mediaeval times, or by the parish
or commune which is the descendant of the old village
community, but peculiarities in legal development have
influenced the actual position. The English parish is very
different from the French commune with its juristic per-
sonality, and separate property. The commune and the
State are in most European countries the only public powers
that have had enough continuity of existence to acquire
the ownership of land. The crown and church possessions
have passed to the latter, the 'waste' of the district to the

Intermediate bodies under unified governments, e. g.
the English ' County ' and the French ' Department ' have
little economic receipts, and what they possess is of recent
orig'in. Federation naturally supplies the principal sub-
divisions with larger possessions, or rather it leaves them
the wealth which they held before union, though in certain
cases the tendency is towards placing land, and especially
forests, under the central government 1 .
| With regard to industrial undertakings the general rule,
confirmed by practice, is in favour of placing them in
charge of the State. ' Local bodies cannot be expected to
deal wisely with the complicated and involved questions
that must arise. The principle of 'particular interest' is
the reason for a class of exceptions. Just as those public
functions that principally concern a town or district should,
generally speaking, be entrusted to its authorities, so should
the industries connected with those functions or services.
It is on this ground that municipal gas and water works,
main drainage systems, and tramways are to be justified.
Such undertakings are most prominent in urban districts,
but, if needed, rural bodies may fitly carry them out. Local
railway lines (e. g. the Chemins de Per tfinteret local of
French Finance) may be, and sometimes are, owned by the
appropriate local body. The railways possessed by the
various German States would probably be more successful
if they were in the hands of the imperial administration,
and such was the original design of the promoters of state
purchase, only defeated by the jealousy of the smaller States.
Postal and telegraphic administration and industries
monopolized for the purpose of special taxation are best
suited for administration by the general government. As
regards the various receipts capable of capitalization no
general rule obtains. Where they are received by local
bodies supervision by state officials is desirable in order to
prevent mal-administration or redemption for insufficient
value, but there seems to be no reason for depriving a town
or district of any resources of the kind that it may possess.
Its taxation is so far reduced, and the nation as a whole
has no claim to the funds.

/Fees have to be distributed according to their source.
Local administration is fairly entitled to what may be
called its ' incidental earnings.' On the other hand all
administrative revenue that is gained by agents of the
central government is justly due to it/ By this simple
rule much confusion is avoided, and there is the best
chance of effective control.

/ A like consideration ought to guide the division of un-
productive property. Whatever land or buildings subserve
the wants of local administration should belong to the
authority so administering : the general government should
retain the remainder/ Thus buildings for the local courts,
parks, or baths for a town are best put under local control.
National museums or libraries, or the principal courts of
justice, belong rightly to the State.

4. The necessity or advantage of general rules on the
subject of division is, however, much reduced by two cir-
cumstances, viz. first, the variety of conditions in different
countries, and the numerous modifications in the structure
of local government. Much more depends on the character
of the particular people, or even the particular body, than
is usually the case in Finance. Thus the devolution with
benefit of powers to the Corporation or to the County
Council of London is no argument for a similar course
with the municipality of Paris. Nor can inferences be
safely drawn from both those bodies to the proper position
of the Corporation of New York. At present the duty of
the inquirer is rather to note the actual phenomena, avoid-
ing hasty generalization. The other qualifying circumstance
is the interaction of the central and local bodies in respect
to Finance. Not to touch as yet on taxation, we can, even
at present, see that land belonging to the communes may
for financial reasons be managed by the State, and the
receipts paid over to the owners. Again, local bodies may
for convenience or economy take charge of public property
which is essentially that of the State. So also general fees
may be received by local officials or vice versa. The con-
sequence is that the two agencies, or rather the two sides,
of the public power are so interlocked that systematic
distribution of revenue cannot be made without a compre-
hensive survey of the whole position, and full allowance
for the many influencing conditions.

5. A final question now presents itself, viz. what is the
proportion of revenue contributed by the ' mechanical '
sources ? Or in other words, how much is left to be
supplied by taxation ? The answer, it need not be said,
will vary according to the time and the country to which
it applies. In some German States, at the end of the
Middle Ages, taxation did not exist save as an exceptional
resource. The present English or French revenue is almost
wholly made up from this ' extraordinary ' aid, as it was
anciently called. And many intermediate positions are
to be found.

Before entering on these particulars we must recall a
distinction noticed already for another purpose, viz. that
between gross and net revenue. Modern Finance has
accepted as correct the policy of bringing all sums received
and expended into account, so that the Budget shall con-
ceal no defect in the operations carried on. For scientific
analysis it is just as necessary to eliminate certain elements
from each side of the accounts. To take the nearest
example. In the English budget statement of 1891,
Posts and Telegraphs figure on the revenue side for
^"12,180,000, and add roughly about 13 per cent, to
the receipts. The expenditure was, however, taken as
^75955 oo j an d this, deducted from the former sum, leaves
the more modest item of 4,230,000, or 5 per cent. If all
the component parts of revenue were equally affected by
this diminution there would be no difficulty in comparing
amounts ; but the nature of the quasi-private state revenue
makes the gross largely exceed the net receipts, while
in respect to taxation the existence of any remarkable
difference between the two is of itself a strong objection to
the particular form so affected as showing undue cost in col-
lection. Nor are these differences confined to the tax as
opposed to the non-tax receipts ; within the latter class the
relation of net and gross revenue is not in every, perhaps
hardly in any, case exactly the same. The Indian land
revenue gives a very high proportion of net return ; in
1888-9, about 19, 500,000 out of 23,000,000. The Prussian
mines on the contrary give very little net receipts, and
some purely industrial enterprises have often a balance on
the wrong side.

What is most important at present is to recognise that
in estimating the financial merits of the various sources net
revenue is the only sound basis of calculation. No matter
what are the gross incomings, if there are equal outgoings
the exchequer does not benefit. Taking this view we are
led to reduce very much the importance of the economic
receipts. Except in the case of rent the net returns are
small. Even the Prussian state railways, the most profit-
able of public undertakings, do not produce much revenue
when compared with the total net receipts of the budget.
Besides the intrusion of the tax element tends to deprive
some of the most important public industries of their
purely economic character.

6. The intermixture of economic and tax revenues as
well as the complications of net and gross receipts, and the
involved relations of capital and revenue accounts, prevent
a precise and definite answer regarding the proportion of
public expenditure defrayed out of taxation. It is, how-
ever, possible to give approximate results that are not
without value. In the English financial year 1890-91, the
taxation receipts were 73,663,000. The cost of collec-
tion was 2,645,000, leaving a net return of 71,000,000.
Non-tax receipts came to 15.911,000; expenditure to
9,450,000 ; and the net receipts to 6.460,000.

Passing over the various readjustments that the questions
of fees, and the distribution of interest on capital charges.
might in strictness necessitate, 92^ per cent, is obtained from
taxation against y| per cent, from other sources. Local
Finance in England and Wales, for the year 1888-9 (the last
available), gained by taxation almost 28,000,000 directly
and 4,750,000 from contributions of the central govern-
ment. Industrial undertakings yielded over 9,000,000 ;
while their cost was somewhat less than 5,000,000.
This balance of over 4,000,000 has to be further reduced
by the interest on credit card debt incurred on the industries in ques-
tion, or about three millions, the net gain being brought
down to 1,000,000. Fees, fines, school money, rents, and
dividends, came to about 4,750.000, from which the
uncertain cost of collection has to be taken. The broad
inference from these figures is that about 70 per cent, of
the gross local receipts come from taxation, the balance of
30 per cent, being otherwise obtained, but that in the net
receipts taxation stands to other sources in the ratio
of 6 to i l .

Germany shows a somewhat different position. Nearly
all the German States have a good percentage of their gross
receipts from economic revenue, but when the cost of gain-
ing that revenue is taken into account there is very little
surplus left. Thus the estimated net revenue for the year
1889-90 from the Prussian lands, forests, and industries
(other than railways), was less than 56,000,000 marks
(2,800,000), the railway earnings (part of which is perhaps
taxation) contributed 113 million marks (about 5,680,000),
or a total of about 169,000,000 marks (or 8,450,000). The
gross receipts would convey a quite different impression.
They for the same year were estimated at 965 million
marks, the corresponding outlay, including interest on rail-
way debt, being 796 million marks. The gross receipts
from all sources were taken at 1,513 million marks, the net
receipts at 839 million marks. The conclusion consequently
is that while the domain and industrial undertakings were
over 63 per cent, of the gross, they were only slightly over
20 per cent, of the net receipts 1 .

The inclusion of fees and administrative revenue would
increase the proportion of economic receipts, but the tax
element is so prominent in them (especially in the law fees)
that the correctness of this course is doubtful 2 .

The other German States resemble Prussia, though in their
case the proportion of net receipts by taxation is probably
larger, as their net income from railways and mines is lower.
Austria and Hungary, too, gain much less than Prussia
from the economic sources of revenue. The estimated net
product of the Austrian state domains, forests and mines,
is only 1.830.000 florins (; 183,000). The railways, as
stated before, do not meet their credit card debt charge.

India is the only other country whose proportion of
economic revenue is deserving of attention. One of the
noteworthy features of Indian finance is the contrast be-
tween its most productive sources, and those of European
countries, especially Great Britain. Its financial main-
stay is in the rent charges on land which, together with the
parts that are truly either rent or taxation, supply close
on 20,000,000 annually. Other sources of the same class
are unproductive. Postal service, telegraphs, and railways
lead to expenditure rather than profit. Forests produce a
small surplus. The tax revenue is just as sharply con-
trasted with that of England. Salt and opium are the
chief contributories, and fiscal monopoly is a prominent
agent in the collection. The ordinary excise, customs and
stamps are comparatively unimportant, so is direct taxation
which is of such importance in England. On the whole we
may say that even in India less than half the net receipts
are derived from quasi-private sources of revenue.

7. The preceding facts sufficiently support the general
proposition that the economic revenue of the State is
financially inferior to that gathered by the tax-collector,
and it also seems to hold good that the greater the economic
development of a country, the less important is the former.
Whether the statement will be applicable to the future is
perhaps doubtful. Modern tendencies are in the direction
of creating an industrial domain that may rival in value the
agricultural domain of earlier times, but the net revenue to
be obtained from it will probably be less than would at first
appear likely. The cost of constructing the modern state
domain and the pressure on the administration to reduce
the cost of service to the lowest point that expenses of
working will allow, are both hindrances to the use of state
industries as an effective relief from the charge of taxation.
There is no probability that in the near future the propor-
tion of the public charges to be met by direct levies from
the citizens of the State will diminish, more especially
when the rapid growth of public expenditure is taken into

Taxation will, therefore, next claim our attention and as
the main support of the State's economy will need fuller
and more critical investigation than has been necessary with
other forms of revenue.

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