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

Public Finance - Chapter I 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

This extremely vague and general statement is, however,
supplemented by a declaration in favour of laissez faire as a
general rule.

' Letting alone, in short, should be the general practice :
every departure from it, unless required by some great
good, is a certain evil V

In regard to state action, as in so many other respects,
Mill occupied a transitional position. He had accepted the
traditional creed of the economists which was strengthened
by his own sympathies in favour of freedom, as well as
by his study of the brilliant work of Dunoyer 2 , which he
frequently quotes with approbation. But other influences
affected him ; the writings of the French socialists and the
social philosophy of Comte both tended to impress him
with the advantages of state action in certain comparatively
untried directions, and consequently his attitude as to the
true policy of the State is in some respects not defined with
sufficient precision.

Since his time the disposition to criticise the short-
comings of the doctrines of the Physiocrats and Adam
Smith has become general. The possible theoretical
difficulties and the conflicts of individual with general
interest have been most forcibly stated in the minute and
thorough examination of Dr. Sidgwick 3 . ' This natural
tendency has been reinforced by the influence of German
economists who repudiate the practical position of Adam
Smith as a product of the ' shallow a priori rationalism ' of
the eighteenth century, which regarded the State as an
agent for determining private rights and duties (Rechtsstaai)
in opposition to the older system of paternal government
(Polizeistaat). This newer and wider conception of the
State's sphere is conveyed in the term s civilizing State '
(Culturstaai) or in the fuller description of Bluntschli who
regards 'the proper and direct end of the State as the development of the national capacities, the perfecting of the
national life, and finally its completion 1 .'

Admitting the force of some of the criticisms that have
been urged against an exaggerated policy of laissez faire^ it
seems nevertheless possible to adhere to the substantial
truth of the doctrine quoted above from the Wealth of
Nations. The real ground for limitation of state functions
is not the existence of an abstract rule forbidding various
classes of acts. The rule itself is dependent on the results of
experience. To the plea that in many cases state inter-
vention would obviate evils to be found under a system of
liberty, Adam Smith would reply that the legislator's
' deliberations ought to be governed by general principles/
that he must act by rules which in the supposed cases
would do more harm than good, and that it is the balance
of advantage which needs to be regarded.

This consideration duly weighed suggests the possibility
of so modifying the older position as to include a class of
cases that has appeared to be the greatest stumbling-
block in its way, viz. the functions of the State in the
lower stages of social development. Now it is beyond
question plain that the province, and therefore the ex-
penditure, of the regulating organs of society will vary at
different stages of social progress. We may take it as in-
disputable that the duties of the Sovereign of a central
African State and of the government of a European society
are and must be very different, but the conclusion does not
follow that there are no general principles to which the
modes of state action may conveniently conform. The
construction of a ( cut and dried ' formula for the duties of
the State is perhaps an impossible task, but a careful study
of the nature and forms of state activity as determined by
the character of its organization will help to elucidate the
difficult problem of its suitable duties.

5. For understanding the true position of the State it is essential to see the way in which its functions have been
gradually evolved. In the rudest forms of society each
individual depends on his own resources. The Fuegians,
e.g. have no conception of government and consequently,
as Darwin notes 1 , no chance of attaining to civilization.
Iff the hunting tribe, where the first advance beyond the
lowesr>%tage of savagery has been made, the elder is
leader in war and judge in peace, the ' warriors ' are soldiers
and administrators. The tribe hunts in common over its
territory which it tries to protect from intruders, and it
divides the game that is captured among its members.
Thus we see that war, justice, or rather the administration
of custom, and economic effort are the three forms of the
rudimentary society's activity. The two former, and especi-
ally war, are, however, the kind of action in which regulation
is needed and where the power of the chief is particularly

The domestication of animals, which is the characteristic
of the pastoral stage, facilitates the further differentiation of
the chief and ruling body. The accumulation of the
peculiar wealth of the period is more an individual concern,
but war and justice are public duties. Here, and even in
the preceding stage, we can notice the primitive forms of
public expenditure, viz. the services of the members of the
clan, and commodities, in the form of weapons and supplies
for those going on expeditions.

When the tribe settles down on the land and devotes
itself to agriculture a further division of duties appears.
The primitive agricultural community frequently tills its
land by means of slaves ; the freeman confining himself to
warlike pursuits and the duty of attendance at the public
assembly where he has to decide disputes and regulate
matters of general interest.

Far later in historical order, but still presenting many
points of resemblance so far as public functions are con-
cerned comes the ' feudal' organization. Some of the actuating sentiments are different, and the traditions of the
Empire and the Church exercise a potent effect ; but
the same economic basis brings about a reversion to the
phenomena of earlier periods. The ' feudal ' society is
essentially militant. State power is vested in the ' King '
or ' Lord ' who represents and personifies the community.
In this capacity he contracts with the vassals for the supply
of his (i. e. the State's) needs. The feudal army with its
loose organization is one result of this arrangement. Justice
is administered through the ' Lord's ' Courts. The economic
side of state activities appears in the management of the
domain and the regulation of commerce. In this particular
historical form we notice the rudiments of much that is im-
portant in the developed financial systems of the present time.
The City State as it is found in ancient Greece and Italy,
or in Germany and Italy during the mediaeval period,
presents a distinctly higher type of political life. There
is no longer the tribe struggling dimly to attain to the
conception of political unity. The disorganization and
absence of the idea of political, as opposed to personal,
duty which mark the ' feudal ' epoch have disappeared.
The free citizen of Athens or Florence had as firm a
(perhaps a firmer) grasp of the truth that he owed duties
to his city as the Englishman of to-day. An exaggerated
conception of the State's powers, and a disregard of private
rights were a natural consequence, but so far as the financial
aspect of political life is concerned, we may note the close
analogy in many respects to the modern State. More
especially is this true of the objects of public outlay. The
maintenance of military (and in some cases of naval) force,
the administration of justice and police, the furtherance of
certain economic ends are the principal claims on the
public resources. Subordinate to these main parts of
public service may be enumerated certain requirements,
also represented in modern budgets, to wit, provision for
religious service, for education and for matters affecting
social well-being.
The later developments of state life, either in the Roman
Empire or in modern European countries, present the same
general groups of public wants. Many special points will
require attention when we come to examine more closely
the detailed heads of expenditure, but so far as the general
outline goes there is in many respects a consensus of
practice in all stages of society respecting the sphere of the
State '.

6. The preceding survey of the actual development of
state functions brief and imperfect as it is tends to confirm
and yet in some degree to qualify the conclusions of theory.
The forms of state outlay have arisen gradually in the
course of history as the outcome of social conditions and
sentiments, and they in turn influence the society. A com-
munity in which some special duty has been for a long
period entrusted to the public power will not easily be able
to dispense with this mode of supplying its need. The
force of habit is as great here as in other cases. The con-
ditions of social life are, however, subject to incessant
change. The state outlay suited for the Middle Ages
when war and religion were the great operating forces is
almost necessarily unfit for the modern age concerned as
well with industry and commerce. The ready acceptance
of this truth must not lead us to ignore the equally im-
portant fact, that state wants in their main features are
permanent to a surprising degree. It is not in the character
of the public needs but in the modes of supplying them that
the most remarkable changes occur. There is, moreover, a
universal recognition of the superior claims of defence and
justice as being the primary duties of the State.

Writers of all schools agree in this belief, and so far
history and analysis are in accord. The disputable part
of state outlay is that which more especially concerns eco-
nomic and social administration, and even here a good
deal of the matter of controversy lies outside the subject of pure Finance and belongs more fitly to economic
policy. Some trifling amount may be expended, say, on
the promotion of art. The advocate of laissez faire may
object to the course as a matter of economic policy, but so
far as Finance is concerned the smallness of the amount
makes it a matter of comparative indifference. The ques-
tion of public expenditure in its fiscal aspects is best
considered in relation to each particular period of society.
We may even accept the doctrine of Mill, that ' In the
particular circumstances of a given age or nation, there is
scarcely anything, really important to the general interest,
which it may not be desirable, or even necessary, that the
government should take upon itself 1 ,' while we at the same
time remember that Adam Smith's determination of the
Sovereign's duties can include these possible cases. Finan-
cial theory in its application to the modern State is at all
events bound to recognise and indicate clearly the diffi-
culties which extension of state action is likely to produce.
The growing budgets of all modern societies have the
tendency towards enlarging the sphere of the State as their
ultimate cause, and it is important to see that a persistence
in this policy is certain to lead to embarrassments in financial
administration, but the very necessity for discussing this
subject compels us to examine the forms of expenditure as
they have been, and are, while seeking to indicate what
they ought to be.

7. Another aspect of State wants requires notice. All
economic life depends on a due supply of two distinct
classes of objects, viz. commodities and services, or, in less
technical language, material objects and human labour.
The public power cannot dispense with either of these
forms of supply, and at each period of its existence we
find it demanding them both. The hunting tribe requires
its warriors and their weapons and food : either the men
without equipment, or the outfit without the men, would
be useless. This distinction runs through every phase of
social evolution, though it is much more complex in the
higher stages. A very rude community can summon its
members to act for the public good, and require them to
fit themselves for their task. In such cases outlay and
income are combined ; the member of the tribe is at once
paying his taxes and performing a public service. The
opposite extreme is witnessed in a civilized State of the
present age. The supply of public wants is obtained by
the purchase of commodities and the hire of services ; the
power to carry out these transactions being procured
through the possession of the public revenue. Intermediate
stages show us the way in which personal service was
commuted for money payment, and the delivery of com-
modities in kind was obviated by the development of a
money economy. Survivals of the older order continue ; in
some cases they are too important to be regarded as mere
relics of the past : they are rather ' revivals ' under new
and favouring conditions. When dealing with revenue we
shall have to compare the direct with the circuitous method
of satisfying public needs, and in the present Book we shall
have to note some of the economic consequences of the
adoption of one or other of these modes.

Having disposed of the more general aspects of public
expenditure, we shall next consider the several details, com-
mencing with the oldest and most enduring the need for
defence against outside enemies.

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