The revenue is likewise of two kinds, one permanent,
and the other provided for currently. About three fourths
of the entire revenue comes in the first class, so that it is
necessary to provide in the finance bill the amount above
this which is required to meet the needs of the appropria-
tions bill, or about one fourth of the total amount. These
estimates of expenditures and receipts are so closely an-
ticipated that the actual amounts do not usually vary
more than 2 per cent from the expectations. The funds
are placed in the Bank of England, and are at the control
of the comptroller and auditor-general.

In England's fiscal machinery it is seen that absolute
responsibility for the success of the budget rests in the
ministry. The finance minister has a seat in the legisla-
tive body, which hi turn has complete control over ex-
penditures. Another interesting feature is that one branch
of the legislative assembly has practically the entire con-
trol over the budget. No doubt the marked centralization
of control over the fiscal system has had much to do with
the success of the system.

215. Many European States Use a Form of Budget.
England must be given the credit for having the most
systematic fiscal scheme, yet many of the systems of the
continental states have made an approach toward an
orderly arrangement of their fiscal machinery. Space will
be taken only to give the bare outlines of two of the better
organized systems.

The German Fiscal Plan. In Germany, before the war,
the budget estimates originated in much the same manner
as in the English system. A set of estimates was made up
by local and provincial authorities and turned into the
hands of the general treasury, where an attempt was made
to eliminate any difficulty. It was the duty of the Im-
perial Chancellor to act as arbitrator if necessary. The
Various estimates were of minute detail, and were first



424 OUTLINES OF PUBLIC FINANCE

voted upon by the upper chamber of the government.
Army and navy appropriations were for a period of seven
years, while all established institutions were assured of
continued support. The question of funds for current ex-
penditures was, therefore, the one around which discus-
sion centered. If the system is continued under the new
governmental regime it can doubtless be made more satis-
factory, since the former Emperor granted very limited
powers to the fiscal authorities.

French Fiscal Plan. Under the French system the esti-
mates are much less accurate than those in England.
Here the fiscal year coincides with the calendar year,
while the estimates are made a full year in advance of the
actual expenditures. With the lapse of a year between
the time an estimate is made and the time it goes into
effect, it is, of course, impossible to have a close estimate.
The budget is prepared by the Treasury Department, but
the Minister of Finance has much less power in modifying
the estimates than has the English Chancellor.

After the Minister of Finance has compiled the estimates
in presentable form, they go to the Chamber of Deputies.
Here the budget takes the form of a bill, with schedules
authorizing certain expenditures. The bill is prepared
by a joint committee from the two houses, which fre-
quently pays little attention to the estimates which have
been submitted. After much time has been consumed
here, the bill, with its seven or eight hundred chapters, is
presented to the Chamber of Deputies, where each chap-
ter is discussed and voted upon separately. Motions for
changes may be made by any member, and because of the
lack of any centralized responsibility, much extravagant
expenditure results. The President cannot veto, but may
suggest a reconsideration of the items.

An estimate of the revenues forms a part of the budget.
The major part of these comes from indirect taxes. As
might be expected, since such a long period elapses before
the estimates are put into effect, it frequently becomes



THE ADMINISTRATION OF PUBLIC FUNDS 425

necessary to pass additional and special budget Acts.
This necessity is alleviated somewhat by the practice of
transferring funds from one purpose to another within the
various departments, although they are not transferred
between departments. These difficulties, however, show
the evil consequences of having the estimates and expend-
itures so widely separated in point of time. The real
administration of the budget and the auditing of the ac-
counts is under the control of a committee of accounts.

216. The Fiscal Machinery of Canada Resembles That
of England. The influence of the Mother country, as
might be expected, is clearly discernible in the fiscal sys-
tem of Canada. Estimates are prepared by the Ministers
of the departments and presented to the Minister of
Finance. Changes are made, if considered necessary, by a
conference with the Minister of the department concerned.
After the budget has met the approval of the Cabinet,
the Minister of Finance presents it to the House of Com-
mons, where items may be reduced, but not increased.
Since the Cabinet belongs to the dominant party in the
House, the bill usually goes through with comparatively
little difficulty. It is quite evident that the system closely
resembles the English practice of centralization and Cabi-
net responsibility.

Of the entire appropriations in the Canadian budget,
about three eighths are permanent. Some of the more
important appropriations in this class are for debt
charges, collection of revenue, court maintenance, and
salaries. If it becomes necessary to maintain existing
institutions, and the House has failed to pass the budget,
the Governor-General is empowered to issue special war-
rants for expenditures to meet the needs.

The subject of revenues arises after a decision has been
reached on the appropriation part of the budget. The
House goes into a committee on ways and means for this
purpose, and the finance Minister presents the plan for
raising revenues. The most important sources of revenue



426 OUTLINES OF PUBLIC FINANCE

are customs duties, excise taxes, the sale of public lands,
and the post office. Tariff Acts are frequently passed
outside of budgetary consideration, while Acts authoriz-
ing the borrowing of funds usually have nothing to do
with the budget. The expenditures are controlled by the
auditor-general, who makes an annual report to Parlia-
ment. A careful study of the report aids in securing more
successful fiscal legislation for the ensuing year.

217. Budget Development in the United States Has
Been Toward an Unsystematic System. The above out-
lines of different budgetary systems has been given to
indicate the tendency toward a systematic procedure in
arriving at expenditures and revenues. The same tend-
ency exists in many other countries. In the United
States, however, as a brief historical review of our fiscal
system will show, the development has been away from
systematic estimates of revenues and expenditures.

Ideas of Early Officials. The evidence is strong that
the founders and early leaders of our government had in
mind the establishment of a fiscal system very similar to
the one used in England. Under the government by the
Articles of Confederation, committees were appointed for
the purpose of making estimates of the expenditures.
From what can be gathered from the debates over fram-
ing the Constitution, it appears certain that some such
system as the English was intended to be incorporated in
our basic law. The Constitution includes in the duties of
the President, "to give Congress information on the state
of the Union, and to recommend to its consideration
such measures as he shall judge necessary and expedient."
The people, moreover, are given control over the Federal
revenues and expenditures. This safeguard is shown in
such provisions as the following: "No money shall be
drawn from the treasury but in consequence of appro-
priations made by law." "All bills for raising revenue
shall originate in the House of Representatives, but the
Senate may propose or concur with amendments." "A



THE ADMINISTRATION OF PUBLIC FUNDS 427

regular statement and account of the receipts and expend-
itures of all public money shall be published from time
to time." While all the details of the fiscal machinery
were left to be provided by statute or custom, it seems
probable that some such arrangement as was used in Eng-
land was anticipated.

At the very beginning the House of Representatives
went into a committee of the whole, where revenue meas-
ures were discussed, which corresponded to the English
method of considering such measures. The relation of
the Treasury Department to Congress was made very
close, and the law which established the department made
it the duty of the Secretary "to prepare and report esti-
mates of the public revenue and the public expenditures."
Somewhat later an Act imposed upon the Secretary the
duties of digesting, preparing, and laying before Congress
at the beginning of each session a report containing esti-
mates of revenue and expenditures, as well as plans for
increasing the revenues. The intense political feeling
kept these plans from being fully realized, while the
President neither insisted upon any constitutional right
to present administrative proposals, nor accepted the re-
sponsibility for doing so.

Modification of Early Plans. It was not long after the
beginning of the government that important modifica-
tions began to be made. In 1796 the Ways and Means
Committee was established in the House of Representa-
tives, with the right to initiate fiscal legislation. Little
administrative initiative existed after the administration
of J. Q. Adams. The Cabinet members were barred from
holding seats in Congress. Real disintegration of au-
thority began in 1865, when the Committee on Appro-
priations was appointed, with the power to initiate all
expenditure bills. This action gave the power over rev-
enues and expenditures to two separate committees. In
1880 the power of this committee was curtailed when the
Committee on Agricultural Appropriations was formed,



428 OUTLINES OF PUBLIC FINANCE

and still further reduced when the Rivers and Harbors
Committee was created a few years later. Further dis-
integration has continued to the present, until no sem-
blance of centralized responsibility remains.

The Senate, moreover, has so developed its power that
it practically rewrites revenue bills which come to it from
the House. Decentralization of authority, moreover, has
taken place in the Senate, until fiscal bills are acted upon
by a number of committees that function independently
of the other Senate committees, and of the House com-
mittees. The trend in the United States, then, has been
toward a decentralization of the fiscal machinery the
opposite of the development in other countries.

218. The Present Plan of Estimating Revenues and
Expenditures Is Unsatisfactory. It is instructive to know
the condition which has resulted from the fiscal develop-
ment which we have just traced. The Secretary of the
Treasury has become little more than an outlet through
which reports of estimates may reach the House of Rep-
resentatives. The power of making estimates was taken
from him and placed in the hands of the various depart-
ments, as well as in those of some independent establish-
ments. It then became the duty of the Secretary to re-
cord these estimates in the "Book of Estimates," which
he transmitted to the House. Such a sweeping decen-
tralization of power soon evidenced its weakness in that
some expected estimates were not made, and others did
not take the proper form, and it became necessary to em-
power the Secretary to see that all estimates were made
and that they were in the desired form.

Still more recent legislation has conferred upon the
Secretary of the Treasury the duty of submitting to Con-
gress an estimate of receipts and expenditures for the
current and ensuing years. It is now his duty, as soon as
estimates of expenditures are received, to make an esti-
mate of the revenues for the ensuing year. Should the
estimated revenues not equal the estimated needs, it be-



THE ADMINISTRATION OF PUBLIC FUNDS 429

comes the duty of the President, after a consideration of
all the estimates, to recommend to Congress how the ap-
propriations should be reduced or the revenues increased
to make the revenue correspond to appropriations. These
are steps in the right direction, but do not go far enough
to insure centralized responsibility.

No Budget System. The budget does not exist in the
United States hi the sense that other countries use it.
About September of each year the various spending de-
partments begin to make estimates for the year to com-
mence the next July. These come to the Secretary of
the Treasury to be transmitted to Congress in the "Book
of Estimates." The estimates of the various departments
are usually far from the actual needs. Past experience
has shown that Congress is likely to reduce materially the
appropriations from the estimates, consequently the de-
partments fortify themselves by padding their require-
ments. Under such a situation the estimates become of
little value. These estimates are transmitted to the House
without revision, with no comparison of the demands of
the different departments, and with no consideration of
the possible revenue. As already indicated, the Secretary
submits separately lists of estimated revenues and ex-
penditures, while the President may recommend methods
for increasing revenues or decreasing expenditures. Esti-
mates may also come from army engineers and from the
Court of Claims.

Fiscal Legislation. The actual preparation of the ap-
propriation and revenue bills really begins in Congress
before or at the time the "Book of Estimates" is received.
About fifteen separate committees that have the power to
originate appropriations exist in each branch of Congress,
each working separately from the others, and independ-
ently of the Secretary of the Treasury. Still other com-
mittees can make demands on the treasury. Still others
have power over the revenues. The appropriation and
revenue bills may be under the process of formation at



430 OUTLINES OF PUBLIC FINANCE

the same time, entirely independent of each other, with
nothing for guidance but past bills. The personnel of the
committees is often not exactly what is desired in the
consideration of such problems. Members are chosen ac-
cording to the lengths of term in Congress by a regular
system of promotion rather than for any special fiscal
knowledge. That such special knowledge is often not
found is indicated by the occupations which a number of
the committeemen have followed before taking seats hi
Congress.

The reporting of an appropriation bill from its commit-
tee does not end its career. It is next placed before the
House, where individual members may propose amend-
ments. The Senate committee on the same subject must
have its turn at considering it, and then the floor of the
Senate. It is fortunate if it does not have to go before
an adjustment conference committee of members from
each House, where a bill is framed which is finally adopted.
It is evident under this method of procedure that Con-
gress initiates as well as ratines appropriation and revenue
bills. The House no longer has the balance of power in-
tended by the Constitution, while bills carrying appro-
priations are strung throughout the entire session, with
little consideration as to the source of funds. The revenue
bill usually comes up late in the session, and for the last
few years has not been sufficient to meet the appropria-
tions. Deficiency bills have been used to make up the
difference.

Lack of Control and Responsibility. The control of Con-
gress over fiscal administration practically ceases with
the passage of the appropriation and revenue bills. The
system of control over payments has been indicated.
While the Secretary of the Treasury must make an annual
report to Congress, no action is taken upon it. There is
a committee in Congress for each of the departments,
which has jurisdiction to examine the reports as to accu-
racy and conformity to the appropriations. Such investi-



THE ADMINISTRATION OF PUBLIC FUNDS 431

gations rarely occur unless initiated by some political
motive. The Treasury Department has been remarkably
free from suspicion, hence there has been little agitation
for a systematic auditing of accounts. The present ar-
rangement is, of course, no auditing at all, for there can
be no systematic check where one department audits its
own receipts and expenditures. Even though the various
committees did avail themselves of the right to audit
accounts, no verified result of expenditures and revenues
as a whole could be obtained from the nine committees,
the work of which would not be related. In no other
country does there exist such a lack of restraint upon the
Treasury Department.

The one outstanding criticism which appears from this
survey of the Federal fiscal methods is the lack of unity
and centralized authority from beginning to end. Appro-
priation and revenue bills arise and are modified in hap-
hazard ways, and with no one really responsible. Such
methods cater to the familiar "pork barrel legislation. "
Expenditures which will please the constituency of the
Senator and Representative take rank of first importance,
whether nationally desirable or not, because the future
support is desired. These "log rolling" practices have no
doubt been responsible for the waste of millions of dollars
in constructing needless Federal buildings and in "im-
proving" rivers and harbors where rivers and harbors can
scarcely be found.

Not only is this initial waste of funds apparent, but the
nation is saddled with an unnecessary upkeep charge in
providing for the current needs of these institutions of
political favoritism. Yet real responsibility for the many
needless expenditures can be traced to no one, for no one
in particular is responsible. The lack of coordination is
further emphasized by the failure of Congress to exercise
any further supervision over the funds after passing the
bills of appropriations and revenue, and by the failure to
provide some intelligent system of auditing accounts so



432 OUTLINES OF PUBLIC FINANCE

that it could be determined easily how much money is
being spent and for what purpose. The situation as por-
trayed by Secretary Glass was that " Congress votes with
a lavish hand stupendous sums, conceived in a magnificent
spirit of generosity, with a view to the enhancement of
the prestige of the nation, or for the benefit of this or that
element in the community." l

2ig. Much Agitation for Budget Reform Has Devel-
oped. The evils which have resulted from the lack of
centralized fiscal control and corresponding lack of re-
sponsibility have caused much demand for some change.
These demands began to take definite form under the
administration of President Taft. He was instrumental
in securing from Congress an appropriation of $100,000
for the purpose of making investigations into the efficiency
of the various executive departments. The investigations
were made by ably trained men who composed the Com-
mission on Economy and Efficiency. A part of their
report attempted to show the need for a budget system,
and suggested a remodeling of the fiscal program to con-
form to a real budget plan.

The President made an attempt to have our fiscal sys-
tem remodeled, but at this time both the Senate and the
House were antagonistic and the attempt failed. Much
wholesome publicity had been gained, however, and de-
mands for reform have continued from an ever increasing
number of individuals and organizations. Each of the
important political parties has declared in its platforms
for fiscal reform, which has been unmistakable in the
declaration for a businesslike budget. It has been, per-
haps, only the more pressing problems brought on by the
Great War which have delayed the expected changes. It
is not too much to expect that, in the near future, the
widespread demand for some system which will be more
efficient and economical will bear fruit through some form
of budgetary procedure.