By Charles F. Bastable
In preparing this edition (which has been seriously delayed owing to pressure of other work) it has been my aim, while preserving the general character of the book, to give due place to the various recent contributions to financial theory and to the latest developments of fiscal policy in the leading countries of the world…. [From the Preface to the Third Edition]
First Pub. Date
London: Macmillan and Co., Limited
The text of this edition is in the public domain
THE STATE AS CAPITALIST. ADMINISTRATIVE REVENUE
BOOK II, CHAPTER IV
§ 1. The agricultural and industrial property of the State, though the former has lost most of its importance and the latter is confined to particular sections of industry have both retained a place as substantial sources of revenue in the case of at least some countries. The domain, the forests, and the railways of Prussia contribute a considerable amount to the budget, and cannot be passed over in any estimate of the financial position of that country. The land revenue is a mainstay of Indian finance, and England would feel the loss of the postal revenue. Very different is the position of what once might have been regarded as a co-ordinate part of the quasi-private income of the State, viz., the revenue from commerce. At one time the regulation, and even the monopoly, of certain branches of trade was believed to be a part of the royal prerogative. This position, which was most strongly held in the sixteenth century, gave way before the presence of new economic forces and the criticisms of the more intelligent theorists. It is now universally recognised that, to use Adam Smith’s words, ‘no two characters seem more inconsistent than those of trader and sovereign.’
*125 The speculative nature of commerce, the need for constant watchfulness and minute calculation of the chances of gain or loss which are its essential features, make it impossible for a State to hope for revenue by engaging in it.
Exceptions to this general rule are rather apparent than real. When a State possesses and works lands, forests, mines, or factories—unless the products are used in the state service—it must find a market for what it turns out, but even this irreducible minimum of commercial transactions is the weakest part of state economy, and by its risks forms an additional objection to those already urged against increasing public lands or industries. The same necessity, of course, exists where an article is artificially monopolised for the purpose of effective taxation, a process that is sometimes confined to the sale, leaving the production to private enterprise. Revenue obtained in this way is virtually taxation on the commodities so treated, and must be considered in that connexion. The only special case that we need notice is that of the Dutch Government trade from Java. Under the ‘culture system’ large quantities of valuable products, chiefly coffee, tea, and spices, were received by the Colonial Government and sold at a high rate. For many years large surpluses were realised, but lately the modifications of the culture system and the fall in prices have led to deficits in the colonial budget, and given still further proof of the hazardous nature of such revenues.
§ 2. The business of banking is in so many ways connected with the State that its public management appears to have much to recommend it. The ordinary method has, however, been that of granting concessions to privileged companies, which are bound to afford facilities to the State in return for advantages enjoyed. England, France, and Germany at present adopt this policy, with the various modifications that the circumstances of each country make advisable. The pure ‘state-bank,’ in which the capital of the undertaking is supplied from the public funds, is found only in Russia and Sweden. In most countries banks contribute to the revenue either by the special services that they perform for the State, by taxation, or by sharing profits over a certain point with the Treasury, the last being the system of the German Imperial Bank.
Banking may naturally be divided into dealings (1) with money, and (2) with capital. There are strong reasons for regarding the former as a state function, and it is probably from this part of the business that public revenue may best be obtained.
*128 The trade in capital, on the other hand, seems entirely unfit for governmental intervention, though some small revenue may be gained from it by judicious taxation.
The relations of public finance with the banking system are not confined to questions of revenue. The public debt in its different forms, especially that of inconvertible paper issues, is mixed up with the trade in capital, and the whole mechanism of the financial system is dependent for its successful operation on the agencies of credit. We shall therefore have more than once to return to the subject.
Another form of state banking has come into existence in the last thirty years in the savings bank, which originated in England in 1861, and has extended to Belgium, Italy, Holland, France, Austria, and Sweden; but its financial importance is confined to the aid which the large deposits afford in the creation of terminable annuities.
§ 3. A more important but at the same time more questionable source of revenue is by many States derived from the receipts of lotteries conducted by the government. The tendency of the State to seek gain from the errors or vices of its subjects is very noticeable in the earlier periods of financial history. Appeals were often made to men’s ‘absurd presumption in their own good fortune,’ by the establishment of periodical lotteries, in which the contributors, taken as a body, were certain to lose. In many cases the lottery became a state monopoly, and several examples still exist. The Prussian budget estimate for 1902-3 assumes a yield of 88,263,500 marks from this source. Italy is the receiver of a large revenue from lotteries, the gross yield for 1901-2 being computed at 67,500,000 lire. Saxony, Hamburg, Spain, and Hungary are also indebted to this system for a portion of their revenues. The objections are rather moral than economic, though the virtues weakened by the prevalence of gambling are the peculiarly economic ones of prudence and willingness to acquire wealth by labour.
From the purely financial point of view, the more refined lottery systems depending on combinations of numbers are objectionable, as there is some uncertainty as to their gains. The State is exactly in the position of the banker of the gambling table. Thus 1885 was a bad year for the Italian lottery, 1886 a good one. The simple method of prizes arranged in classes is preferable, but it appeals less powerfully to the spirit of adventure, on the prevalence of which the institution depends for its continuance.
The pernicious effects of state sanction of the vice of gambling have led to the abandonment of the lottery system in England (1826), Hesse (1832), France (1836), Sweden (1840), Bavaria (1861), and Switzerland (1865).
§ 4. Adam Smith has made the institution of a ‘public pawnshop’ familar by his reference to the case of Hamburg; and many similar establishments in the shape of the ‘
Monts de Piété‘ in France, Belgium, and some German States are in existence. The proceeds, when they exceed the advances and cost of working, are not applied to public use, so that the whole system is rather a charge, chiefly on municipal revenues.
A priori it would seem that the lending of accumulated wealth would be a convenient mode of securing a revenue for the public services, but, as in the case of industrial investments, the test of experience makes it plain that this is really an expensive way of obtaining the necessary supplies, since the principal has first to be raised, and is afterwards less productively employed than when left in the ownership of private persons. A true conception of the relation of state income to the national income, which is the sum of all private incomes within the nation, overthrows the fallacy of state accumulation and investment.
Notwithstanding the force of this general canon, the financial accounts of modern States exhibit apparently many examples of advances of capital by the State, but on closer investigation these cases turn out to be connected with the use of public credit. For the furtherance of certain economic or social ends, such as the improvement of land, or the erection of better dwellings for workmen, or municipal improvements, advances are made by the central government either to individuals or to local bodies, but these loans are themselves ultimately derived from private capital by means of public credit. The Treasury acts simply as an intermediary in supplying capital for certain desirable objects—a position made clear in England by Viscount Goschen’s separation of the local from the general debt. Repayment of the money so advanced is but the appropriate method of discharging the amount of debt that was contracted for the original loans.
§ 5. The interest on capital lent out is thus not a source of state revenue that need receive attention here, since it does not really increase the public receipts. We may therefore pass on to consider those kinds of revenue that are fixed in amount and admit of capitalisation, a circumstance that connects them with the gains from invested capital, notwithstanding that their origin is very different.
Foremost amongst such revenue is the gain from charges, on land. In an earlier chapter of the present book we found that the agricultural domain had often passed gradually from the hands of the sovereign by the introduction of hereditary leases. Permanency of tenure without limitation of rent is of little benefit, as increase in the charge can always be imposed in order to destroy the tenant’s interest. Consequently the fixing for ever, or for a long term, of the rent to be paid accompanies the hereditary lease. The variable payments become settled and definite charges.
In another way the same form of revenue comes into existence. The servile tenures of the Middle Ages prescribed a great variety of duties to be performed by the tenants, which under the new conditions of ‘money economy’ were commuted into fixed sums. English legislation on copyholds, the measures of the French Constituent Assembly, and Prussian land legislation since 1807 have all had this commutation and settling of dues as one of their objects. The tithes—so peculiarly distinctive of ecclesiastical property—have also undergone the same treatment, wherever they have not been abolished. The universality of the forces that work this change is shown by the extension of the terms of the Indian land settlements and the favour in which perpetual settlements are held. The difficulties as to drawing a distinction between rent and taxation in India have been already noticed, as also the fact that with a perpetual settlement the state receipts in reality belong to neither head, but are a thing
A still further question arises, viz. whether long-continued taxes on land should not be included in this class of receipts. Much controversy has arisen in connexion with the French
Impòt Foncier; one party contending that its burden has ceased to be felt, since all purchasers deducted the capitalised amount of the tax from the purchase money, while opponents of this view have brought forward the ever-open possibility of changes in the amount so levied. The broader theoretical aspects of the matters at issue will occupy us in studying taxation,
*131 when we shall see reason for adopting the last-mentioned view, but some concession can be made to the advocates of the rent-charge conception of land taxes. Where, as in the case of the English Land Tax of 1692 (originally intended to include all property, but evaded by the holders of movable wealth), the amount is fixed on each estate, it does become a charge on the land. The system of redemption, applied first in 1798, is of itself sufficient to prove the correctness of this view. The so-called ‘English Land Tax’ is gradually disappearing. From its highest point of £1,911,663 in 1798, it has come down to £755,000 in 1900-1.
The expediency of allowing redemption by the parties liable to such charges depends altogether on the nature of the burden. So long as the land tax was, or was intended to be, variable, permission to capitalise the payments would necessarily be futile, since a fresh charge could always be imposed, but, where fixity has been introduced, redemption is generally for the advantage of both sides: for that of the person liable, since otherwise he would not consent to redeem, and for that of the State, which is thereby enabled to reduce its liabilities. Whether a charge should be fixed or not depends on the way in which it has been established, and is mainly determined by considerations of public policy. The conversion of taxes into fixed payments is, however, unquestionably an error in finance, as owing to the growth of public expenditure, provision has to be made for procuring larger sums, while the immobility of each existing tax compels the financier to have recourse to new and, on the whole, less eligible sources of revenue. The same consideration applies to commutations of rent, either of land, of mines, or of concessions for railways, canals, and other undertakings. The probability is that they will give a larger return at each renewal, and this additional gain is lost by commutation for a fixed sum, unless, indeed, full allowance is made in the arrangement for the value of the increments that may reasonably be expected in the future. Such transactions are not usually settled on terms favourable to the public interest. An individual will not estimate a very distant gain at its real value to the community, and, as a result, the fixed payment will be but slightly raised by the inclusion of a benefit to be obtained later on. Financially, it is best to reserve these prospective receipts for the new objects of outlay that are certain to arise.
§ 6. Besides the services attached to land, there is a miscellaneous group of receipts which may conveniently be noticed here. Historically they belong to the class of
regalia, and are due to the sovereign’s prerogative. Amongst them we may mention charges for the privilege of hunting, or of fishing, which to some small extent contribute to the public revenue at present. Mediæval finance expanded this class of receipts to a remarkable extent. They acted, as Roscher as shown, as a traditional form between the earliest condition, in which the domanial revenue sufficed for the royal service, and the later state economy depending chiefly on taxation.
*133 Our modern customs and excises appear in germ in these feudal or imperial dues. Succession duties can also be referred to the same source; but, apart from what may fairly be regarded as tax revenue in rudimentary form, there are the well-known feudal aids, the right of the sovereign to fines, that of taking ownerless goods, and the numberless other claims that the ingenuity of lawyers succeeded in establishing.
Modern finance has chiefly to deal with these prerogative rights so far as they help to explain the evolution of existing systems of taxation, or in the scattered remnants which are found as survivals in every country, inexplicable except on historical grounds. The discussion also serves as a suitable introduction to another class of public receipts that has presented much difficulty in regard to its correct position in the financial system.
§ 7. The problem of classifying the revenues known as ‘fees’ (
Gebühren) need not be again considered.
*134 In accordance with the conclusion before reached, no separate department for fees is requisite. Some of the so-called
Gebühren, e.g. the postal revenue, have been noticed in the preceding chapter, others will find their place in the study of taxation, while the remainder of the heterogeneous class will be considered here as a sequel to the fixed charges imposed by the State. By this method the complications that otherwise occur are avoided, and the creation of a distinct group of state receipts, co-ordinate with that derived from taxation, becomes unnecessary.
If further justification were needed for this breaking up of the topic of
Gebühren that German financial science has laboured so strenuously to develop, it would be found in the remarkable divergences of opinion among its exponents. No two of the able and erudite workers at the subject give precisely the same interpretation and arrangement. The one fixed and definite result obtained can be and is recognised in our treatment, viz. that the ‘fee’ is paid in return for service done, and that it does not bring in a clear return to the State over and above the cost of the service for which it is paid.
The classification and division of the different kinds of fees is almost as unsettled as the nature and position of the whole system, but when we deduct those charges that really belong to the industrial domain, as also whatever is in fact tax revenue, the difficulty is very much lessened. Special reasons apart, the State may charge for any service rendered to a determinate individual, and therefore it would seem abstractly possible that each public function would have its corresponding fees. State services cannot, as we know, be analysed and their effect on each citizen assigned. The general interests of the society are a matter of importance to all; were it otherwise the whole organisation of the State might be dissolved, and its duties given up to individual enterprise. Fees come in only as a supplement to the other receipts of the public exchequer, and have to be confined to certain cases of measurable services, where the citizen is brought into direct contact with the public power.
§ 8. The administration of justice has been the occasion for the earliest of these charges. Without returning to the previously considered position of primitive law courts,
*135 we need only bear in mind that the cost of law services has been more and more placed on the general revenue. From being self-supporting, the cost of justice has been steadily increasing. Nevertheless, a large number of charges are still levied in connexion with legal proceedings in every modern country. The United Kingdom shows net receipts for the year 1893-4 to the amount of £870,844 under the general head of ‘Fees,’ of which by far the largest part was obtained from court charges. Local governments also receive fees for police and justice which ought in strictness to be added, but the total amount was less than £500,000 for 1887-8. In France the system of court fees in the older form of
épices was abolished at the Revolution, but the charges for documents and legal forms are still a part of the revenue under the title
timbre, or stamp duty, also affects judicial acts, but the greater part of its return is really taxation. For the year 1888 the receipts from the
Greffe were 8,225,000 francs. The same category of receipts in Italy for the year 1881 came to 7,000,000 lire. The several German States, as well as the Imperial Government, obtain more or less revenue from the same source. So do many of the American commonwealths, but the value of the comparative figures is very little, owing to the intermixture of fees with taxation.
Besides the revenue derived from contentious proceedings, or from fines on criminals, there are numerous juridical acts which require for their validity the payment of a contribution to the State, or which involve work on the part of the public officials, that can be charged for on the ordinary principle of service done. Such are entries in official registers, grants of naturalisation, and the supply of copies of legal transactions. One of the most important in practice is the dealing with land titles. In all countries with a proper land system owners’ titles are registered and changes in the rights over land are recorded. The benefit of such a system to owners and intending purchasers is beyond question, while the cost is very moderate. A low scale of fees for the operations of the registry suffices to cover its expenses, and therefore is an eminently suitable mode of providing for them. Such charges are in principle clearly distinct from the heavy duties on the transfer of land that still exist in France and form a part of the system of
enregistrement. Low fees have the double advantage of securing without difficulty a good proportion of the expense that administration entails, and of allowing transactions to be carried on without check.
§ 9. Fees for justice and juridical acts shade off almost insensibly into ‘administrative fees’ (
Verwaltungsgebühren), so that many of those enumerated in the preceding section might fairly be placed under the latter head, but where the payment is made in connexion with questions of legal right, it seems better to regard it as a ‘law fee.’ Among administrative fees those for ordinary certificates,
e.g. of births, deaths, and marriages, may be included the issue of passports, attestation of degrees and diplomas, and the many other payments for special official relations. More important, however, are charges connected with economic transactions, such as fees for testing the quality of articles, that now exist chiefly as survivals of the older system of regulation, as
e.g. the English hall-mark on gold and silver, or have been introduced on social grounds, as in the case of testing for adulteration.
In this somewhat miscellaneous collection, whose indefiniteness results from the wide extension of state functions, may be placed the revenue from seignorage. The function of coining money is undertaken by every civilised government, and in most cases a small amount of the metal sent for coinage is retained in order to meet the expenses of the process. Where the deduction is limited to the amount necessary to cover the cost it is substantially a fee for guaranteeing the fineness and weight of the currency. The English mint does not even do this in respect to the gold coinage, which is a cause of expense to the State. It is more than recompensed on the token coinage of silver and copper, which gives a varying surplus, amounting for the year 1889-90 to the unusually large sum of £774,000. Receipts of so considerable an amount, if normal, would not be treated under the present head. If it could be shown that the seignorage charge pressed on any class or classes, it would be a special tax levied on them; if it was the result of state monopoly, it would be a gain of the State from the industrial undertaking of coinage. As any large gain is very rare—the receipts of the English mint for 1889-90 were described by Viscount Goschen as a ‘windfall which cannot be expected to recur’
*137—and as some mints do not cover their working expenses, it is best to regard seignorage as being one of the class of ‘fees.’
Charges for testing weights and measures make another item in the list; so do lighthouse dues and dock charges In almost every case of administrative action there will be some receipts owing to the definite services that are rendered to individuals or the commodities supplied to them. The sale of official publications may be given as an example.
A comparatively important but diminishing head of revenue from ‘fees’ is found in school attendance payments. The promotion of education is now regarded as a public duty, involving extensive outlay, which must be supplied either from taxation or from the fees paid by those who avail themselves of instruction. There seems to be no reason why a part of the expenses of the system should not be borne by the parents, unless in the case of actual destitution. The tendency, however, is towards their removal. The United States, and France since 1881, have no fees for primary schools. Prussia still retains them, but they have disappeared in the United Kingdom under the operation of the Education Acts of 1891 and 1892.
*138 The higher educational institutions also produce fees in small amounts, as
e.g. in England the University of London, before the recent change in its constitution almost covered its annual working expenditure by the fees of candidates for its degrees and certificates.
§ 10. Looking back on the list of receipts that may fairly be classed as fees, we see the absence of any harmonious or logical arrangement. There is no branch of the public power to which they can be attributed; they are spread over the local and general budgets, and sometimes never come into account, being the perquisites of the officials who receive them, as is not uncommon in the United States. Much of the law that regulates them is only of interest in administration; they are often inextricably mixed up with the public industrial receipts and with taxes, especially ‘taxes on commerce’ (
*139 and finally the aid they give to the financier is not considerable. They may indeed be regarded as incidental products of state action. Just as in manufacturing processes certain by-products are found which are sold for what they can bring or as the labourer disposes of his spare hours for any wages that will overcome his desire for leisure, so the mechanism of the State, while aiming at the efficient discharge of the tasks set to it, nevertheless does not refuse to collect revenue that can be acquired without neglect of the primary object in view, and such revenue is that from fees.
There is thus complete justification for regarding them as an appendage to the quasi-private economic receipts, as we have done in the present chapter.
Malay Archipelago, chs. 7 and 17. See also Wagner, i. 626-7.
History of Taxation, ii. 48 sq., and iii. 81-91, for the history of the tax. Movable property was exempted in 1833, and offices and pensions in 1875.
|England.||Fees in School Board schools||635,255|
|Fees in other schools receiving grants||1,207,695|
|Scotland.||Fees in public schools||249,155|
|In other schools||46,164|
|Ireland.||School fees in National schools||110,592|
|In Prussia the||school fees were||in 1871||10,498,794 marks.|
Cohn, § 190, n*.
Book II, Chapter V