Public Finance

An instance of the disposition to unduly confine the subject is found in the
Wealth of Nations. The section of the work devoted to this topic deals solely with the administration of justice. Adam Smith appears to have believed that the one matter of importance for the State was to decide disputes, though his account of the introduction of law courts shows that it is just as essential to suppress disorder. The sovereign does certainly discharge a most useful function in settling controversies about the precise nature of private rights and duties: but beside the claims of individuals, there is the whole body of public law, and even individual rights have to be determined in respect to their orbit and incidence by the State. The ultimate aim is the promotion of social welfare by the establishment of security, which may be obtained in two different ways, with very dissimilar financial effects. ‘The Legislature may pass laws which give certain rights and remedies to the persons interested, and may leave it to them to enforce the law by taking their own proceedings, according to their own interests, in the courts of law. In this case the courts are the organs through which the State exercises its power. Or, again, the Legislature may entrust the duty of enforcing the law to an executive department, which then becomes the organ of the State for the purpose.’
*54 The former method would come under the head of ‘justice’; the latter under that of ‘police’ or ‘administration,’ and it is a significant fact that it is not noticed by Adam Smith. His whole economic system, on its practical side (in this respect in strict agreement with the Physiocratic position), was a protest against the older paternal policy. He had no conception of the development of administration and supervision for social and even economic ends, which is so characteristic of the modern State, and consequently his work presents a gap in regard to this important subject.

The student of modern finance is, however, compelled to take the different elements of justice and administrative police into account when seeking to estimate the cost incurred in guarding the rights of private persons, and the security of the community which is an essential condition precedent to the former object. The growth of expenditure in this direction has been very large, and presents some serious financial problems.

§ 2. Though many of the details of legal development are as yet obscure, its broad outlines have been sufficiently elucidated by the labours of the historical jurists.
*55 In the primitive community custom is binding; violations of its prescriptions are offences, but any disputes as to the fact of a breach of the customary rule have to be decided by the opinion of the tribal or village assembly. As soon as the chief comes into existence the decision of controversies becomes one of his tasks—or privileges; the submission of the parties is, notwithstanding, voluntary, at least in appearance, and the Judge is entitled to a ‘fee’ for his services.
*56 Under such conditions, justice is a matter of special bargain. The chief, as judge or arbitrator, gives his time and attention to the decision of disputes, and like any labourer is ‘worthy of his hire.’ Very many legal systems afford evidence of the existence of this dealing out of the commodity, justice, and of the slow process by which voluntary submission became compulsory.

At a far later stage of growth, and even when the coercive power of the sovereign State was fully established, this idea of ‘service for service’ was retained. The financial significance of such a view is apparent. As long as the suitors paid fees for the services of judges there was no need for including the item among the heads of public expenditure. Even if entered, it would only be a matter of account, the receipts balancing the outlay.
*57

First appearances are in favour of this arrangement. The public revenue is exempted from charge; the persons who are supposed to gain have to pay for a service rendered; and judges are stimulated to diligence by the hope of reward. The operation of individual interest seems to produce a sufficiently satisfactory result. So plausible is this idea that it was maintained by Adam Smith. But before his time the practical weakness of the method was so apparent that the abolition of all law charges was advocated, and Bentham had little difficulty in showing the mistake of the older view. It based its case on a series of false comparisons. The judge—and every judicial official—is indeed a labourer discharging a most useful service even in a strictly economic estimation; but his toil is for the interests of the society at large, and he ought to be paid out of the fund created indirectly through his work, that is, the increased wealth of the society owing to an exact administration of justice and the consequent increase of security. If lawsuits always arose from mistakes, there might be something to be said for compelling the parties in fault to pay for the correction, but this is not the usual case; far more often they arise from intentional wrong-doing by one party, or in many instances through the difficulty of knowing the law. The innocent suitor is not a special gainer by the action of law; he is in rather a worse position than those who by the restraining effect of justice have been saved the necessity of asserting their rights. The great advantage that a legal system sustained by fees gives to the rich is an additional argument against it, as is also the tendency of payment by fees to foster judicial corruption. A court supported by charges on suits would be likely to work so as to increase those charges, and might not be strictly scrupulous in the methods adopted.

The theory, besides, is only applicable to civil courts. If we grant that the criminal courts are to be sustained by the parties—one of those parties is the State, and it must draw its contribution from the public funds. A possible source of revenue may be suggested in the penalties inflicted on wrong-doers. Unfortunately this, which so far as it goes is very suitable, proves insufficient. In many cases there is not enough to compensate the individual sufferers. The offender—either civil or criminal—may have no available property, and we therefore find ourselves forced to the conclusion that the cost of justice should be defrayed by the State. Nor, so long as due care is observed in scrutinising the outlay, is there any form of public expense that is more amply justified. On the due administration of justice depends in a great degree the prosperity of a country. The outlay incurred for it ought not to be regarded as a deduction from a definite and pre-determined fund; it is more correctly a percentage levied on wealth, that but for it would never have existed.
*58

§ 3. In regard to justice, as to defence, it is possible to adopt different methods of supplying the state requirements, consisting in this case chiefly of services. As Germany has given the world the greatest example of forced military duty, affording a model that has been widely imitated, so has England supplied the most striking and impressive instance of compulsory civic service. The jury system of the United Kingdom, though it does not enter into the national accounts, is, notwithstanding, a heavy tax on those who are subject to it and should be considered in estimating the national burdens. Continental legal systems economise in another direction. By placing judicial salaries at a lower scale, the work is done by an inferior class of men,
*59 but then they are enabled to employ a larger staff and can secure a quicker disposal of cases. In this they are aided by the superiority in form of their laws. A less skilled judge can deal successfully with the definite rules of a Code, when he would fail under the English method of case-law. But whatever mode be adopted, the total cost of the legal system is not light, as the figures show, and it tends to increase with the growth of population and industrial intercourse.

§ 4. Voluntary service contributes towards the performance of judicial work. As England has a volunteer army, so she possesses a volunteer judiciary in the unpaid justices, who discharge the lower tasks of courts of first instance, and are rewarded by the consideration that attaches to their office, and by the reflection that they have ‘done their duty.’ The Germans, and Gneist in particular, place great weight on the advantages of ‘Self-government’ as it exists in England and is being gradually introduced into Prussia. It is nevertheless of doubtful efficiency (‘justices’ justice’ has long been a byword), and from the financial point of view the gain is not great. At all events, the system of unpaid magistrates is only suited for thinly peopled districts, where small offences are comparatively few in number, and where the administrators command respect by their social position. Civil cases, above the lowest, have to be referred to a paid official—the county-court judge; and the criminal jurisdiction over large cities is given to well-trained and salaried magistrates, since the work would be beyond the power of volunteer service. Thus self-help, or rather free public service, turns out to be a valuable aid, but impracticable as a sole or even a chief resource.

§ 5. Next to the cost of law, the outlay on ‘police’ requires notice. The general term ‘police’ has been used in a wide sense;
*60 we may, however, limit it to its modern meaning. In this application it is of very recent growth. Formerly each citizen was in some degree prepared to defend himself, or belonged to some body or group that would protect him more or less effectually against aggression. All difficulties finally came to the tribunals. Now the State is held bound to have a force on hand to suppress disorder and bring criminals to justice. The absence of a police force from any scene of disturbance is regarded as a grievance, the support of order being supposed to concern it solely. A series of causes has tended to produce this remarkable change in public feeling; they are:—(1) The increase of population, and its great density in certain areas, affording naturally a greater facility for escape to offenders; (2) the alteration in manners that has abolished the custom of carrying arms; (3) the modern industrial system, with the consequent accumulation of valuable commodities, many of them incapable of being identified; (4) the development of agencies for locomotion, and the facilities for escape thereby provided, while pursuit, though difficult to an individual, is still easy for an organised body. The financial outcome of the normal forces has been a great increase both in central and local expenditure, for the purpose of maintaining police forces engaged in supporting and facilitating the action of courts of justice, as also in preventing outbursts of disorder.

§ 6. The penal system stands on the borderland between ‘police’ and administration. When the judge and policemen have dealt with the criminal, he is handed over to the jailor, and in this department of state outlay also there has been a noticeable change during the last century. Ancient societies treated offenders in a summary way. They were executed or reduced to slavery, so that the problems of prison expenditure or management did not arise. The mediæval idea was quite as barbarous, though not so efficient. Criminals who escaped death were the objects of great cruelty, as well as at times of undue lenity.
*61

The more humane spirit of the eighteenth century brought about a salutary change. Under the influence of the teaching and practical work of Beccaria, Bentham, and Howard, continued by their many followers in their various lines of exertion, the whole system of criminal legislation and penalties was remodelled. Punishment, instead of being regarded as the vengeance of the State or the individual, was transformed into an agency for prevention and reformation.
*62 Executions became few in number, and prisons, from being purely places for confinement, were used for purposes of discipline and instruction.

The necessary financial result has been a considerable increase of expenditure. Prisons and convict stations are formed on an elaborate scale, with careful provision for the health of the inmates. The comparative leniency of sentences has further tended to perpetuate the class known as ‘habitual criminals.’ This small body—for such it really is in all civilised countries—is yet responsible for the greater part of the outlay on ‘crime and police.’ Any effectual method of dealing with proven ‘habituals’ would be a financial as well as a social benefit. Even under the present arrangements the outlay on the ‘penal system’ is in the strictest sense productive, or at least preservative, of wealth.