Public Finance

Bastable, Charles F.
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First Pub. Date
London: Macmillan and Co., Limited
Pub. Date
3rd edition




§ 1. The modern State has in some respects added, if not exactly to the classes of objects under its care, at least to the complexity of the tasks connected with those classes. It is still possible to stretch Adam Smith's description of state functions so as to include the subjects of the present chapter, but the extension, though conforming to the letter, hardly agrees with the spirit of that well-known statement. In this instance we have a good example of the way in which public tasks are conditioned by the circumstances of time and place, and of the impossibility of using an inflexible formula to guide the course of social action. The expansion of administrative supervision in the last fifty years has placed a fresh series of duties on public authorities. A century ago there was little of the kind in England, and the older French and German systems of regulation were in a state of decay. The French Revolution of 1789 was believed to have removed these checks on individual liberty, and to have secured by its influence their ultimate abolition in other Continental States. The passage from the Ancien Régime was regarded as definitely accomplished.


Such expectations have proved unfounded; old methods of control and supervision have indeed for the most part disappeared,*63 and no one advocates their re-establishment. In their place we have a newer body of arrangements for the regulation of various parts of social life. Under an elaborate system of legislation, a large official staff has been created for the purpose of regulating the free movement of the ordinary citizen. There are inspectors of mines, factories, shipping, railways, tramways, hackney-carriages, &c. The soundness and purity of articles of food are tested by public agents. Many trades are placed under special rules, and local authorities are entrusted with wide discretionary powers in their dealings with the habits and occupations of the communities under their charge.*64 The foregoing account, applicable in all points to the United Kingdom, holds true generally of all modern States; there may be differences in detail; the power which exercises supervision may be local in one country and central in another; nevertheless, the broad fact remains, that in both Europe and America the department of 'administration' is increasing in extent.*65 Opinions may and do differ widely as to the merits of this movement,*66 but on the point most pertinent for our present inquiry there can be no dispute, viz. the increase of expenditure that necessarily results from it. The budget of every civilised society is swollen by the charges needed for the salaries of agents engaged in the work of inspection and regulation, while the total cost can only be ascertained by combining the general and local outlay.


§ 2. Some of the causes of the great increase in administrative outlay have been noticed when dealing with 'police.' They, however, deserve a more precise statement:—(1) The growth of great centres of population makes organisation and control more necessary; e.g. to employ a body of police to regulate the traffic on a country road would be absurd; in the Strand or Regent Street it is indispensable. The inspection of dwellings in order to prevent overcrowding is another prominent instance. (2) The moral sense of the community stands at a higher point now than it ever previously did, and as a consequence the public power is invoked to remove any evil that shocks public opinion. The legislation as to unseaworthy ships affords an illustration. (3) The democratic movement makes interference with the owners of capital or property generally, as also with large dealers in commodities, acceptable to the holders of political power. (4) The establishment of bodies of officials is carried on so gradually that the total expense entailed by the system is never realised, while the special gain hoped for in each case is distinctly conceived. (5) Finally, the influence of the prevalent political and economic theories should be added. Most cases of actual state regulation would come under the exceptions to laissez faire as discussed by J. S. Mill and H. Sidgwick; they also have been powerfully advocated both in Germany and America on theoretical grounds. It is, therefore, not unreasonable to assume that this tendency of speculative thought has in some degree influenced the conduct of statesmen.*67


§ 3. The difficult question remains. How far is this outlay financially justifiable? It may at once be conceded that many of the ends sought are eminently praiseworthy, and that no supposed principle of abstract right ought to hinder the adoption of measures of general utility. The final test must be expediency, but expediency in its broadest sense. It is only possible here to indicate some of the general considerations applicable to the problem, and which have to be used as guides in each particular case. (1) The pressure of taxation, and the probable sacrifice that its increase for a proposed new end would cause, or the advantage that would result from its remission. (2) The possibility of voluntary agencies undertaking the work now carried out by the compulsory power of the State. Thus it should be a matter for deliberation how far Trade Unions could insist on sanitary provisions in factories, and associations of consumers guard against adulteration and fraud generally. The danger of weakening the spirit of association by hasty state intervention is not to be overlooked; all the more that it is unobtrusive and cannot be readily weighed. (3) The extent to which administrative action is really effectual in meeting evils, though of extreme importance, is not easily determined. Sweeping general propositions, to the effect that 'individuals do things better than the State,' or that 'the State does things better than individuals,' will not carry us far, but the inertness of human nature when relieved from the stimulus of direct self-interest, and the danger of official corruption, both suggest a presumption against state interference, a presumption it is true of very different force according to the case in which it is used. The solution of the problem belongs to the statesman, who, however, will not form a less sound judgment by taking general principles into account.


It seems perfectly certain that administrative expenditure will continue to increase more rapidly than the cost of justice or police. These latter move with population; the cost of inspection and regulation grows much faster, it is, too, more divided and not so definitely ascertainable, and may therefore be regarded, in common with military and naval expenditure, as presenting the principal difficulty for the finance of the future. Growing expenditure implies increased revenue or additional debt, and either means extra pressure on the subjects of the State. The duty of seeing that all outlay is productive of compensating advantage to the community is more than ever imperative.


§ 4. The relief of indigence is now in most countries one of the charges on the public revenue, and has even become at times—as in England under the old poor-law—a heavy burden; it has not, however, been assigned a prominent place in the estimates of outlay given by financial theorists. The reasons for this comparative neglect are not hard to find, for (1) it has generally been a local charge, and has not found its way into the national budgets, which used to occupy most attention; and (2) the state relief of pauperism has been one of the contested questions of economic policy. It is probable that Adam Smith, who does not mention poor-relief in his examination of public expenses, disapproved of any form of compulsory aid to distress, and his followers would in most cases take the same view.*68 But though we can thus explain the omission of poor-relief, we cannot accept the reasons as sufficient. From the point of view of public finance, it is immaterial whether the State acts through general or local authorities: e.g. in England before the Act of 1877, prisons were maintained by the counties; since the passing of that measure they are under the Prisons Commission; but in either case they involved a public charge. In regard to the second point, finance is engaged in dealing with facts, and therefore the existence of state aid to those in distress is a valid reason for examining the subject. We may at the same time admit that the question of expediency in this respect is a most difficult one, involving as it does reference to a number of political and economic considerations.


The problem presents itself in the following way. In all modern societies there are persons who, by reason of physical or moral causes, are unable to—or at least as a matter of fact do not—provide themselves with the means of subsistence. The question then arises, what is to be done with this class? Ancient societies relieved themselves from the difficulty by the rude expedients of infanticide and slavery. The Middle Ages met it by the inculcation of private charity by the Church, and by the monastic institutions. In modern times the insufficiency and irregularity of private relief have led to state intervention. The break-up of the mediæval system, and the resulting economic disturbances, made it an urgent matter of public policy to deal with distress. The greater power of the principal European monarchies also furnished the means, in the shape of legislative action, prescribing and limiting the conditions of relief. The growth and expansion of the system of public relief is of itself an argument in favour of its expediency as meeting an evil common to all communities that have reached a certain stage of development.*69


This simple and obvious ground for the policy has been supported by several arguments of a more theoretical character. (2) Thus it has been urged that the State is 'bound' to relieve distress. The methods in use in ancient times for the suppression of indigence are happily impossible; private charity is not sufficiently regular, and the State cannot with safety so far outrage the sentiments of its citizens as to allow even the poorest to perish by starvation; it therefore has an imperative duty to discharge in the relief of actual destitution. (2) Another contention appeals to justice rather than sentiment. If the relief of distress were left to voluntary exertions, it would in fact amount to an extra tax imposed on the charitable, who would have to pay more than their due share, the niggardly escaping the payment of anything whatsoever towards what ought to be a common burden. (3) In addition to justice amongst taxpayers, the plea of justice to the indigent may be advanced; it may be said that the real cause of destitution is the appropriation of the agents of production by private persons, and that consequently those in distress may fairly claim at least that minimum of subsistence probably attainable in a state of nature, or—to vary the argument slightly—the holders of property may justly be called on for the amount required for the relief of actual want, in return for the benefits that they obtain from the present social organisation; i.e. they are asked to pay a 'ransom' for their possessions.*70 (4) To these somewhat abstract arguments, a more direct and practical one may be added. Under the present penal system*71 criminals are supported in a way that secures them a tolerable and healthy existence: now to deny to the pauper what is thus guaranteed to the criminal amounts to an inducement to crime.


The force of these several arguments, and the fact of the almost universal existence of public relief, would appear to leave no room for doubt on the subject, but we find to our surprise that a formidable list of arguments may be brought forward on the other side. The opponents of poor-relief contend (1) that to give support to the non-worker is essentially 'communistic,' and that any such system has 'communism' as its logical result; (2) that aid to distress tends to act on population; that therefore an increasing number of applicants for assistance would present themselves, until at last the whole revenue of the community would be absorbed in their support; (3) that state relief demoralises the recipients, while (4) it interferes with the beneficial action of private charity, and injuriously affects the moral sentiments both of givers and receivers. The more extreme foes of relief, public or private, would add (5) that all relief (and therefore public relief) discourages providence and saving. Almsgiving is—as Professor Newcomb puts it—'a demand for beggars'*72 The industrial and economic virtues are, it is said, weakened by every attempt at distributing aid. Finally, (6) evidence has been adduced to show that poor-relief lowers wages, since it allows the lowest sections of the population to work for less than the amount needed for subsistence by the amount of relief that they get from the public authorities.*73


§ 5. To strike a true balance between the opposed arguments that have been just stated is indeed difficult, but for financial discussion it is possible to arrive at a satisfactory result. In the present position of most modern societies a methodised system of public relief is indispensable, and therefore forms a legitimate part of public outlay; nor is it hard to fix approximately the standard of relief. If the treatment of the pauper should be better than that of the criminal, it should, on the contrary, be worse than the standard of living of the poorest self-supporting labourer, and unhappily the limits as thus determined are very narrow. For financial as well as for social and moral reasons all relief should be given in the form prescribed by the State, i.e. generally 'indoor maintenance.' Assistance from public funds is not 'charity,' from which it should be clearly and distinctly separated, and in no way can this be better accomplished than by confining the action of the public agents engaged in relief to a definite sphere. It may be further said that in the administration of poor-relief the reformation of the habits of those who are indigent should be aimed at. What the habitual criminal is in the prison the hereditary pauper is in the poor-house. Expedients calculated to improve the moral of the destitute would powerfully affect the productive forces of the nation.


The relations between the system of legal aid and private charity are of extreme importance. One of the most serious blots in the usual poor-law arrangements is the absence of any connexion between the two classes of agency. We can hardly doubt that the contributions of private persons, properly utilised, would go very far towards meeting the necessary outlay on those in distress, with the double advantage of economising the public funds for other objects, and preventing the evils that result from the existing abuses of almsgiving. Discrimination as to the causes of distress, and consequently the amount and character of relief, can be properly applied only through the operation of private beneficence.*74


§ 6. In addition to the direct relief of indigence, the State has been called on to meet the difficulty either by instituting a system of public works, by granting old-age pensions, or by compulsory insurance on the part of the workers. The assertion of the 'right to obtain work' supplied by the State is distinctly of French origin.*75 It has never obtained full recognition in practice, as the difficulties it would cause are evidently insuperable. The provision of work, the mode of supervision, the rate of pay, and the disposal of the products, are each and all so many obstacles in the way of its adoption. The economic effect on the whole working class would, moreover, be surely evil; the expenditure would be indefinite, and not capable of easy control. A general system of pensions for the aged would undoubtedly provide for one large section of the pauper body, but it would at the same time necessitate a great increase in the public burdens. To add £16,000,000 to the annual expenditure of the United Kingdom would involve a grave disturbance in financial equilibrium, which could only be restored by a series of retrograde measures in respect to taxation. Without pronouncing any opinion on the social and economic aspects of the various pension schemes lately put forward, it is here in place to dwell on the serious financial difficulties that their adoption would be certain to create, and which by themselves suffice to make any step of the kind one of very doubtful expediency.*76 'Compulsory insurance,' as advocated in England, and in some degree carried out in Germany, is less open to criticism on the financial side, but it may be remarked that the collection of the insurance charges is likely to be ineffective in a country where labour is allowed full freedom of movement, while the scheme involves the State in extensive financial operations, and at the same time weakens the action of voluntary effort. The English friendly societies even now insure a large number of the more provident artisans, and have been favourably contrasted with the foreign state insurance bodies by Mr. Goschen.*77 A strict administration of public relief encourages the habit of insurance, or other provision against distress, and the development of such methods of self-help makes it easier for the State to adhere to the rigid policy of relieving nothing except absolute indigence.

Notes for this chapter

E.g., the restraints so forcibly criticised in Turgot's Éloge de Gournay could not exist now. Turgot, i. 266-270.
Farrer, State and Trade, and Cunningham, Economics and Politics, both describe this movement, but with divergent sentiments.
For the United States, see Bryce, American Commonwealth, ch. 91. For the English Colonies, Dilke, Problems of Greater Britain, 508.
Farrer and Cunningham, as above. For vigorous protests against the tendency, see H. Spencer, State and Man; the recent work, A Plea for Liberty; and the publications of the Liberty and Property Defence League; also Léon Say, Socialisme d'État.
For a statement of these causes, Goschen, 'Laissez faire and Government Interference,' Addresses, 59-84.
Ricardo, Works (ed. McCulloch), 58-9; Malthus on Population (8th ed.), 428 sq.
'Every society, upon arriving at a certain stage of civilisation, finds it positively necessary for its own sake ... to provide that no person ... shall perish for want of the bare necessaries of existence.' Fowle, Poor Law (1st ed.), 10, who regards this as the 'general principle' and 'cause' of poor-law legislation.
Sidgwick, 'Economic Socialism,' Fortnightly Review, Sept. 1886.
Bk. I. ch. 3, § 6.
Political Economy, 526.
See J. E. T. Rogers, Economic Interpretation of History, 487.
In an interesting article on 'Old Age Pensions' (Economic Review, iii. 475-85), Mr. Phelps shows the effective working of private charity in supplementing and modifying the rigour of the legal provision.
Droit au Travail, quite different from the Droit du Travail.
Mr. C. Booth's Endowment of Old Age contains the best statement of the case for old-age pensions. See especially chap. vi. for the financial aspects of the subject. Mr. Booth contemplates calmly the reimposition of the sugar duty, increased taxation on tea and 'drink,' 3d. additional on the income-tax, with 'an adjustment of death duties in reserve.' It may be fairly asked what resources would remain for use in case of the outbreak of war, with its inevitable pressure on the national earning power. The additional inquiries by the Commission on 'The Aged Poor' (1895) and the Departmental Committee on pension schemes, also the evidence taken by Mr. Chaplin's Committee, appear to establish the immense difficulties in the way of any general pension scheme. The effect on the British finances of the South African War proves the justice of the criticism made in this note on Mr. Booth's proposals.
Addresses, 113 sq.

Book I, Chapter V

End of Notes

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