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Home -> Merlin Harold Hunter -> Outlines of public finance -> Chapter 4 continue

Outlines of public finance - Chapter 4 continue

1. Preface

2. Chapter 1

3. Chapter 1 continue

4. Chapter 2

5. Chapter 2 continue

6. Chapter 3

7. Chapter 3 continue

8. Chapter 3 continue

9. Chapter 4

10. Chapter 4 continue

11. Chapter 4 continue

12. Chapter 5

13. Chapter 5 continue

14. Chapter 5 continue

15. Chapter 6

16. Chapter 6 continue

17. Chapter 7

18. Chapter 7 continue

19. Chapter 7

20. Chapter 7 continue

21. Chapter 9

22. Chapter 9 continue

23. Chapter 10

24. Chapter 10 continue

25. Chapter 10 continue

26. Chapter 11

27. Chapter 11 continue

28. Chapter 11 continue

29. Chapter 12

30. Chapter 12 continue

31. Chapter 13

32. Chapter 13 continue

33. Chapter 13 continue

34. Chapter 14

35. Chapter 14 continue

36. Chapter 14 continue

37. Chapter 15

38. Chapter 15 continue

39. Chapter 15 continue

40. Chapter 16

41. Chapter 16 continue

42. Chapter 17

43. Chapter 17 continue

44. Chapter 17 continue

45. Chapter 18

46. Chapter 18 continue

47. Chapter 18 continue

48. Chapter 19

49. Chapter 19 continue

50. Chapter 19 continue

51. Chapter 19 continue

52. Chapter 20

53. Chapter 20 continue

54. Chapter 20 continue

55. Chapter 20 continue

From the standpoint of
securing revenue, a state would more likely succeed by
owning or managing forests and mines than agricultural

Importance of Forests and Mines. The revenue aspect,
however, has not been the item of greatest concern in
considering the retention of forests and mines. Lumber
and minerals are used up once and for all, while agricul-
tural lands continue to give their return year after year.
It is to the interest of the individual owner, moreover, to
conserve the qualities of the soil so it will continue to pro-
duce as much as possible. Its fertility may be preserved
so that the soil will be as productive for future generations
as for those using it at present. This is not true of the
other industries under consideration.

An individual who owns a tract of mineral or forest
land is interested in getting an immediate return. The
method of production which will give this return will likely
be the method used. Little concern has been had for
future generations in the wasteful consumption of forests
and minerals. Minerals once used cannot be replaced,
while the fruition of reforestation is too distant to interest
a particular generation. Since the products of forests and
mines are so vital to the life and development of society,
and since individuals are not sufficiently concerned with


the welfare of future generations to seek to provide a con-
tinuous supply, it seems that the government should
undertake this function. The state is the one entity
which is concerned with posterity and its interests, and
should be relied upon to see that future generations are
properly protected from the greed of those living at

Indirect Effects of Forests. That forests supply a useful
product directly is, of course, important. Their indirect
effect on climate, commerce, and industry is no less im-
portant. Porous forest lands assimilate moisture and
give it up gradually. The removal of the forests is likely
to cause disastrous floods in the winter and spring, and
serious droughts in the summer and autumn. Such a
situation is a detriment not only to agricultural develop-
ment, but also to the use of water power as a means of
conserving coal. Streams are a valuable and cheap
source of power, which is greatly lessened, however, if the
flow is not reasonably steady throughout the year. Steadi-
ness of volume is also a necessary feature of streams
which are to be used as commercial highways. Any ad-
vantage which may come from water transportation is
quickly counterbalanced if vessels must lay up for a part
of the time because of low water. These indirect influences
of forests only magnify the need that the state exercise
its authority in preserving them from generation to

53. States May Successfully Conduct Some Forms of
Industry. Much discussion has arisen over the relative
efficiency of the management of industries conducted by
individuals compared with the management of those con-
ducted by the state. Some countries have extended their
activities in these directions much more rapidly and ex-
tensively than have others. The governments of the
United States and its political divisions have proceeded
slowly in taking up these operations, yet there is at pres-
ent much agitation for government ownership and opera-


tion. It is too much to expect that a government could
successfully manage every kind of industry, yet some may
be carried on to better advantage than others. No rule
can be definitely stated which would mark off the field
for state enterprise, yet it may be possible to suggest some
conditions which favor the success of state activity in

Conditions Favorable to State Management. An industry-
suitable for state management must be one which can be
closely watched by the public. It is necessarily carried on
by public officials, with the temptation always before them
of securing benefits to themselves at the expense of the
public. Not only must it be an industry which can be
closely observed, but it must be one in which the public is
interested. The managing officials, otherwise, will not be
held responsible for the method in which the business is
conducted. An industry which has reached, or nearly
reached, its final stage in development is better fitted for
government management than a new industry in which
much progress is needed to make it efficient. State officials
do not have the same motives for progress and efficiency
as individual entrepreneurs, since the returns of the busi-
ness are the rewards to the latter, while the former receive
a salary for their services. A mature industry has the
further advantage that the necessary operations have
been standardized so that it is comparatively easy to
assign definite tasks for which the employees can be held
responsible. In a new and progressive industry, the entire
method of operation may change every few years, while
different aspects are continually in the process of change.
This makes it difficult to secure men to be held accountable
for particular tasks. While many individual exceptions
doubtless exist, as a general proposition, however, the
government will be more successful in managing a mature
industry than one in the formative stage.

54. The Post Office Is a Good Example of Government
Enterprise. Some enterprises seem to fall naturally to


government management in fact, so naturally that the
situation that they are really government enterprises is
often lost sight of. The postal systems of various countries
give the best example, perhaps, of an industry conducted
by the government. The postal system is so generally
conducted by the government that the possibility of its
existence under individual management is scarcely given
a thought. Not only is it one of the most general forms of
public industry, but one of the oldest. Adam Smith re-
ferred to it as the only mercantile project which had been
successfully managed by every sort of government.

The beginnings of postal systems were usually with in-
dividuals connected with mercantile pursuits. Messages
were sent from establishment to establishment by a run-
ner, who gradually acquired the habit of carrying messages
for individuals who were along his route. An exception
to this was the postal system which the Romans estab-
lished as an adjunct to the military organization. As a
whole, however, the system had very little development
before it was taken over by the government in various

After the postal system became a government monopoly
a number of changes were made in rates of charges, and in
the method for their determination. Charges at first were
generally very high, and distance of carriage was an im-
portant factor to be considered in fixing the rate of charge.
Gradually, however, rates were lowered, weight became
the sole basis for the charge, while payment was made by
affixing stamps. It might be said that the postal system
had assumed its present form by 1850. While rates
within the various countries were gradually reduced,
cheap international postal rates came slowly. The recent
establishment of the Postal Union has secured lower rates
among the countries which are members.

Postal System in the United States. The growth of the
postal system in the United States has followed the gen-
eral trend of development of this enterprise. Acts passed


by the Mother country provided for a Colonial postal sys-
tem. A three-cent rate was adopted in 1851, and a two-
cent rate in 1883. Distance as a basis of charge was given
up comparatively early, and weight with payment by
stamp was adopted. This has no doubt imposed a burden
upon some parts of the country at the expense of other
parts. If statements could be secured which would
separate the postal revenues and expenditure of the part
of the country east of the Mississippi from those of the
territory west of this line, there is no doubt that the
eastern part would show a substantial surplus, while the
western part would show a large loss. It appears the
people in the more thickly settled part of the country are
paying an excessive price for their service, while the more
sparsely settled regions are securing services at less than
cost, with the deficits paid by the former class. If all the
indirect gains were considered, however, which have come
to the eastern population because of the rapid develop-
ment which a cheap postal service has fostered, it would
no doubt be quite evident that all expenditures for main-
taining the system have been very remunerative.

Motives for Conducting Postal System. The aims which
a state may have in view in conducting the postal system
are not the same in different countries, nor in the same
country at different times. In the earlier periods the idea
of securing revenue predominated, while the claim of pub-
lic service received little consideration. In that part of
the service where the government has a monopoly, as in
carrying letters, the charge will be comparatively high,
while in the part of the service where there may be com-
petition, as in carrying parcels, the rates will be fixed more
on a competitive basis.

There has been a tendency to minimize the importance
of securing the largest possible revenue, however, while
public service has been given greater consideration. It
is at present the policy of no country, perhaps, to secure
more than a good business profit, while some Attempt to


conduct the industry on a cost basis, or even run with a
deficit which must be made up from the common treasury.
France and England usually receive a substantial profit,
while the United States has practically attempted the cost
basis, although in a majority of years a deficit has ap-
peared. Before 1819, in the United States, the annual
revenues exceeded expenditures, while a deficit appeared
for more than half of the next thirty years. This whole
period showed a slight deficit, while a deficit has occurred
in practically every year since 1850. During the Great
War the revenue aspect received more emphasis. Rates
were raised, and distance was adopted as a factor in de-
termining the postage upon second class matter. Since
the war the letter rates have been reduced, and as expend-
itures assume more normal proportions the zone system
of charge for second class mail will doubtless be repealed.

55. States Enter Many Fields of Activity. The owner-
ship and management of the postal system is perhaps the
oldest and most general of government enterprises, yet
modern state activities reach into many other fields.
Many causes have contributed to the development of this
situation. The success which attended the various states
in the management of the postal system, whatever the
aim primarily in view, soon led to the conclusion, among
certain classes, that the state could be just as successful
in other lines of endeavor. The doctrine of laissez faire,
moreover, under which competition was expected to work
out justice in charges and services, soon proved to be un-
satisfactory. This became increasingly true in the indus-
tries with which the public is most deeply interested the
public utilities. From factors inherent in the nature of
their business, competition is destructive, and combina-
tions and trade agreements soon began to appear.

Public ownership has been proposed as one method of
escape from the abuses perpetrated by these monopolies.
It has been carried much farther in some countries than
in others. In many European states the telegraph, tele-


phone, railroad, and express companies are owned and
operated by the government. In the United States these
industries still remain under individual management in
spite of increased agitation and pressure from certain
classes for government ownership. The extension of the
postal system to the carrying of parcels has made the
government a competitor with express companies, while
the extensive regulation through the Interstate Commerce
Commission and the numerous state public utility com-
missions substantially limits the activities of the individual

56. Public Ownership Has Had Most Rapid Extension
in Municipalities. The larger governmental units of the
United States, as has been indicated, have been slow in
developing public industries. The opposite tendency has
been shown in the municipalities, especially in the smaller
ones. The waterworks very early began to be taken over
by the cities, and the policy has grown until at present
comparatively few individuals are supplying water for
cities. A few large cities have taken over the task of sup-
plying gas and electricity, yet unqualified success has
not crowned the efforts. Cases have arisen where failure
was so marked that the plants have been turned back to
private management. In the smaller cities, however, ex-
tension of ownership has been much more rapid. Not
only is the supply of nearly all the water furnished from
public plants, but the cities have frequently undertaken
to supply a number of other utilities. In some cases the
success has been certain; in others, doubtful, while failure
has sometimes resulted. Instances in which smaller cities
have given such industries over to individuals are infre-
quent, which would lead to the belief that the experiment
has been fairly satisfactory.

Reasons for Municipal Industries. The reasons for the
rapid municipalization of industries are not far to seek.
Competition naturally gave way to monopoly, followed
by an exploited public. Antagonistic public sentiment


was quickly aroused, in the development of which the
public press played an important part. A number of
magazines devoted to municipal problems rapidly came
to the front, which supplemented the agitation already
carried on by numerous newspapers. State legislatures
influenced the development by facilitating the acquisition
of the industries by the cities. Debt limitations frequently
have been lifted so that bonds could be issued for con-
struction or purchase.

The above factors have not only caused a rapid exten-
sion of municipal ownership, but have had a salutary
effect upon the individuals who continue to operate public
utilities, in that more consideration is given to the wishes
of the public. Where this results in a satisfactory agree-
ment between the operator and the public, the desire for
public ownership may be indefinitely postponed. The
inauguration of regulation by public boards, in so far as
this succeeds in securing just relations between the public
and the individuals or corporations supplying its utilities,
will postpone and weaken the desire for municipal owner-

However successful public management has been, it
does not indicate that a rapid extension may be expected.
The agitation has, perhaps, done much to accomplish its
purpose through the changes in the service given by indi-
viduals, and the past successes of public ownership sug-
gest a plausible alternative if the desired results cannot be
obtained through private management.

57. Revenue Has a Place of Relatively Small Impor-
tance in Modern Public Enterprise. It has been indicated
that the post office may be conducted with a number of
ends in view. The same may be said of public industries
in general. The revenue aspect first held an important
place, such as it still holds in the tobacco and salt monop-
olies of some European countries. The general trend,
however, has been to emphasize the service aspect, and
with this in mind net revenues have often disappeared,


and deficits have to be made up from the general fund.
Such a situation does not indicate that the conduct of the
industry has been a failure, because success is not always
to be measured in financial returns. The postal system of
the United States must be considered a success in that it
has been a factor for the cheap dissemination of informa-
tion, even though there has been a financial deficit.

Highways were once conducted with the idea of getting
at least some return, yet the public tollgate is an institu-
tion that most members of the younger generation have
never seen. The maintenance of highways, moreover, is
not branded as a failure because no revenue, gross or net,
is received. Municipal waterworks, while they have
never been conducted on the same principle as highways,
frequently tend in this direction.

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