Book II: Public Revenue the Economic or Quasi-private Receipts, Chapter I: the forms and classification of public revenu

§ 1. A System of public expenditure such as has been examined in the preceding book requires as its necessary basis a corresponding public revenue. State economy is in nowise exempt from that condition of all private economies which makes it essential to provide that consumption shall be balanced by production, and that effort must be put forth in order to procure satisfaction. In respect to the public power there is a wider field, but no change in the nature of things; the correlation of exertion and enjoyment holds here as elsewhere, and if temporarily disturbed is certain to be sooner or later reestablished. All financial systems are in fact compelled to recognise the relation, though political exigencies may sometimes make it inconvenient to adopt a line of conduct completely in accordance with that recognition. Every Parliamentary Government has arrangements for raising funds as well as for granting supplies. In England the Committee of Ways and Means is parallel to the Committee of Supply, as in the United States the small House Committee on Ways and Means is to the Committee on ‘Appropriations.’ The raising of revenue has to be formally separated from the more agreeable occupation of applying it for the public requirements. Public revenue being thus the counterpart or obverse of expenditure, it becomes our duty to consider its forms and sources, and to see how far they admit of logical grouping and arrangement.

§ 2. This, like most financial questions, needs to be studied at first from the historical side. The early tribe shows us expenditure and revenue in combination; the services and commodities required for public use are directly levied and applied to the particular end. When once this primitive stage is passed, revenue as distinct from expenditure emerges, and its collection and administration become matters of vital concern to the growing state organisation. It is true that for a long time contributions of goods are levied in kind, but their employment is more complicated, and involves redistribution of the different forms of wealth obtained by the State. With the introduction of money, the divorce between the revenue collected and the expenditure undertaken is finally established, since public agents can directly buy what they need for the public service, while the revenue is brought in under the form of the general medium of exchange. What strikes the observer most forcibly in contemplating this development is the extreme variety of the forms of revenue or state receipts. Dues levied on land, on goods of all kinds, on the performance of different acts, in addition to the several kinds of individual revenue, are enjoyed by the State. The Egyptian revenues under the Ptolemies were of the most varied kinds. The Roman finances received contributions from very many and diverse sources, and so did the Exchequers of mediæval sovereigns. When we run over the long lists that appear in legal and historical works treating of this side of mediæval law and economy, the greatest difficulty is to reduce them to some manageable form. This complexity seems to have puzzled the earliest scientific students of finance. Bodin, as noticed before, arranged the sources of revenue under seven heads, but Klock, who fairly represents the German views of the seventeenth century, gives a far more extensive list. The ‘chamber science’ writers were more successful in grouping the forms of revenue under (1) those from the domain of the sovereign, (2) the so-called ‘regalia’ or prerogative rights, and (3) taxes. In Adam Smith's hands the double aspect of the State became the basis of classification. Regarded as an artificial personality, or (in the language of modern jurisprudence) ‘juristic person,’ it might hold property and engage in trade. Revenue obtained in such ways ‘peculiarly belonged to the sovereign.’ It was his quasi-private income. In another aspect, as sovereign or supreme power he was able to impose charges on the revenues of his subjects, and these contributions or ‘taxes’ formed the second group of state receipts. The simplicity and clearness of this classification commended itself to English and French writers, who have almost universally adopted it. The greater political development of France and England, by making taxation the most important part of the state income, favoured its acceptance. The remains of the feudal system were more numerous in Germany, and its methods of finance in particular, with all their variety and confusion, were slow in disappearing from that country. Consequently German Finanzwissenschaft aimed at so arranging the forms of revenue as to give harmony and consistency to the existing systems. The ‘regalia’ or prerogatives were always regarded with particular attention, and it was sought to place them alongside of taxation as a head of revenue.

Rau is in great measure responsible for another addition to the main groups, viz. that of ‘fees’ (Gebühren). He noticed that in many cases public institutions gave special benefits for which they charged an equivalent; e.g. in law proceedings fees were asked from the litigants. It was natural to regard this class of objects, denoted by a special name (Gebuhr), as a separate and independent form of revenue, giving as a final result that state receipts were distributed under four heads: (1) Private industry of State, (2) Prerogative rights, (3) Fees, (4) Taxes. On this classification of public revenues most of the controversies as to arrangement in German financial works turn. It is too plain for dispute that the first and fourth of the above-mentioned heads must be kept apart, but in the endeavour to bring the two intermediate divisions into some form of combination with them, great difference of opinion is to be found. Some writers oppose ‘Taxes’ to the three other forms of revenue, which are joined under some more general term. Others place Taxes and ‘Fees’ under one head, and oppose them to the ‘quasi-private income’ and prerogative dues, or with greater wisdom eliminate the latter from the division altogether. There is even a decided tendency in the latest inquirers to come back by a somewhat devious route to the plainer position of Adam Smith, and to recognise only the two great divisions of state revenue into (1) quasi-private and (2) public, though distinguishing, as he has done, the various cases of extra payment for special services. A detailed examination of the many points raised in the controversy on this subject of classification would lead us too far, but some of the results are too important to be altogether passed over, and must therefore be briefly noted.

§ 3. First, it is abundantly established that much of the difficulty of classification arises from the historical peculiarities of different countries. The whole doctrine of the regalia is an instance in point. It was the result of attempting to apply the special German forms of revenue, due to the slow development of the financial system, as general categories suited for all times and places. A particular kind of state rights was opposed to the general state right to raise funds, of which it was but one part.

A second result of the discussions on arrangement is that the many and varied shapes of public revenue do not always admit of sharp and clear-cut divisions. Just as in economics we pass by a series of steps from the purest form of productive capital to what could not by any straining of terms be regarded as such, so do we find many transitional forms between what is the State's private income and what it gains by pure taxation. The attempt to create a co-ordinate class composed of ‘fees’ parallel to taxes is the outcome of this circumstance, as also of the want of analytic power in the originator of the classification. If Rau had recognised the frequent combination of the double elements of state industry and taxation under the apparently simple and independent form of revenue, he would have aimed at separating and assigning to its proper place each of those elements, while he duly noted the intermediate forms that presented most difficulty. The department of fees (Gebühren) touches at one end the quasi-private income of the State, and at the other, as in the case of ‘taxes on commerce,’ the field of taxation, but it has no central point possessing well-assigned and definite features, and enabling us to give a definition that is at once rational and useful in practice.

A third conclusion is also warranted, viz. that it is easy to overrate the value of precise and rigid classification. We need not deny that a good and natural grouping (i.e. a grouping in accordance with the real affinities of the objects dealt with) is very helpful both for exposition and investigation. By its aid, features of resemblance and of contrast are most easily perceived, and new and hitherto neglected relations are often suggested; but notwithstanding these undeniable advantages, the most essential matter after all is to give adequate and proper treatment to the material of study, and even with a somewhat faulty arrangement this end can be attained. And not only so; the merits of any particular classification depend partly on the end in view. In a purely historical inquiry the class of regalia is entitled to a prominence to which it has no claim when a scientific exposition of principles is specially desired. So in descriptive and statistical works the terms and divisions adopted by positive financial legislation have to be followed, subject to whatever qualifications scientific arrangement may necessitate. In an investigation of general finance, the grouping of topics ought to be based on the underlying economic and social conditions, and aim at bringing out their relations as clearly as possible. Besides, different arrangements naturally tend to place different parts of the subject in prominence, and thus study of a new, even if on the whole inferior, system of grouping will suggest novel points of view to the inquirer.

§ 4. We have already suggested in the preceding criticisms the arrangement that appears to be most suitable. It has now to be more fully stated. The widest division of public revenue is into (1) that obtained by the State in its various functions as a great corporation or ‘juristic person,’ operating under the ordinary conditions that govern individuals or private companies, and (2) that taken from the revenues of the society by the power of the sovereign. To the former class belong the rents received by the State as landlord, rent charges due to it, interest on capital lent by it, the earnings of its various employments, whether these cover the expenses of the particular function or not, and finally the accrual of property by escheat or absence of a visible owner. Under the second class have to be placed taxes, either general or special, and finally all extra returns obtained by state industrial agencies through the privileges granted to them. This course seems best calculated to satisfy the conditions of scientific accuracy and practical convenience. It places together distinct and well-defined parts of public revenue, and it separates the economic from the compulsory receipts of the State.

To test it in its relation to other divisions, we may consider the place it assigns to (1) the prerogative dues and (2) ‘fees.’ If these classes can be fittingly placed, then the arrangement may be said to be justified. A very slight examination shows that many, if not most, of the prerogatives or regalia are really special property-rights. Roscher has noticed that they originated in the mixture of landed property and sovereignty. They are thus in their right place when classed along with other economic sources of revenue. In some instances, however, an element of monopoly created by law comes in, and where there is an additional receipt from this condition it is certainly a tax, and must find its place in the compulsory revenue of the State.

Fees admit of a somewhat similar analysis. Usually they are but a small return for the expenses of the state agency to which they are paid, and find a position among the private economic receipts as a deduction from the expenditure. It may even be best to subtract them from the expenses and charge the balance as net outlay, though in practice the wisdom of bringing all expenditure and receipts (not merely balances) into the budget is well established. In some cases it happens that fees just cover all expenses, and then the public office or agency is a state industry that pays its way. Up to the point at which ordinary profit is obtained the same title is justified, but when (the institution being exclusively a public one) ordinary profit is exceeded, the monopoly possessed by the office is employed for taxation. It therefore follows—and this is perhaps the greatest difficulty that our classification raises—that one and the same public institution may occupy different positions in this respect at different places or times. The Post Office, for example, may be a purely public function involving expenditure, as the earliest government Posts probably did; it may in another country, or at a later time, just cover its expenses, or even pay fair interest on whatever capital it employs,—such has been at times the position of the United States Post; or, lastly, it may, as in England at present, give a large surplus to the general revenue, when its charges become a tax on communications, though, as we shall see, sometimes admitting of full justification. In truth this apparent defect is a reason in favour of our grouping of the forms of revenue. Such institutions as the Post Office are in this respect different in different countries, but in all they are capable of presenting the three elements of expenditure, industrial revenue, and tax revenue. In treating of economic expenditure we have already noticed the first aspect; in the present book we shall consider the second, reserving the last for its appropriate place.

Some classes of fees, e.g. law fees, are closely connected with the primary functions of the State. They then approach so nearly to taxation as to be best classed with it. There is an appearance of straining the conception of state industry by including them under that head. Here acquaintance with the historical development is of use in establishing that in their origin such fees were strictly payment for service done; and even when this element has been obscured by the increase of state power, it gives place to that of special as opposed to general advantage, a distinction on which so much of local taxation turns, and which can be applied to the class of fees under consideration.

§ 5. So much suffices at present with reference to the general classification of public revenues. We have now to arrange the subdivisions of the quasi-private income in their natural order. The great importance of this part of the receipts in less developed societies made it a subject of greater attention formerly than it is now, and led to those long lists of the heads of revenue above referred to. The modern student of finance gains little from these enumerations, made in all cases from the legal or administrative point of view, but he is impressed by the fact that such receipts are regarded as the ‘ordinary’ revenue of the State, taxation being merely an occasional resource. This idea survives in Blackstone's chapter on ‘The King's Revenue,’ where the tax revenue is regarded as ‘extraordinary.’ Even such recent writers as Mr. Dicey have to notice this division, and the fact that the change in circumstances has made the old terms seem incongruous. A classification of the quasi-private funds of the State must, it would seem, have to follow the lines of the analysis of individual incomes made by economic science. One of the most valuable of Adam Smith's investigations was that presented in his chapter on ‘the component parts of the price of commodities,’ since it not only gave a starting point for all later analyses of cost of production, but it afforded in outline a scheme of economic distribution, and it is on it that the discussion of taxation in the Wealth of Nations is based. Its main point consists in showing that all incomes can be separated and referred to one or more of the three categories of rent—the return on natural agents; wages—the reward of labour; and profit—the gain on capital. The State's economic revenue must be capable of being put under the same heads, but the general doctrine, as it appears in the work of its originator, requires two corrections before we can use it in this connexion; for first, the massing together of the interest on capital and the earnings made by its productive use is now perceived to be inaccurate. The function of the capitalist is distinct from that of the ‘undertaker’ or ‘employer,’ and is so distinguished in later economic works. Another correction is needed for the present application. The category of ‘wages’ cannot enter into the public receipts; the State often pays, but never receives, a reward for labour. Any apparent exceptions really come under the head of ‘undertaking’ or ‘management’ of industry. We thus get three broad divisions of the public industrial revenues, viz. (1) the receipts of administrations, central or local, from rent of land or similar natural agents; (2)—and this is obviously a less important source—the gains of the State as capitalist or lender of funds; and (3) the returns to the industrial activities of the public power. Such a grouping would appear to be clear and logical, but it needs some further modification to bring it more into accordance with the realities of actual finance. Instead of confining our attention to the State as a landlord in receipt of rent, we shall find it more convenient to consider all its dealings with its agricultural property, whether retained in its own hands or let out to tenants. In like manner the treatment of mines may most suitably be placed along with the State's action as employer or undertaker of industrial operations. Two additional topics will also have to be brought into the list. The many and various fees and dues may be combined with the rent-charges and other settled sums payable to the State, and also with the interest on loans made by state authorities, the whole class being connected by the common idea of fixed payment, that is for the most part capable of capitalisation. And finally, to the revenue-yielding industrial domain we ought to add those forms of state property that either give no direct returns or whose expenses exceed any receipts that they may bring in.

In short, to sum up, our discussion of the public economic revenue may, partly on grounds of logical arrangement partly for practical convenience, deal with (1) returns from land, including forests, (2) industrial revenue, (3) payments which either represent, or can be converted into, a capital charge, with much administrative revenue, and (4) those forms of property that yield not revenue, but utility in a less distinctly measurable form.