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Public Finance, Charles F. Bastable (1855-1945)Third edition and reprinted, 1917. First edition: 1892.
Table of Contents
PrefaceIntroductionChapter 1Chapter 2Book I Public Expenditure
I.I State Economy. General ConsiderationsI.II The Cost of DefenceI.III Justice and SecurityI.IV Administrative Supervision. Poor-Relief I.V Education. ReligionI.VI Expenditure on Industry and Commerce. Constitutional and Diplomatic ExpenditureI.VII Central and Local ExpenditureI.VIII On the Classification and Guiding Maxims of Public Expenditure
Book II Public Revenue: The Economic or Quasi-Private Receipts
II.I The Forms and Classification of Public RevenueII.II The State Domain. Lands and ForestsII.III The Industrial DomainII.IV The State as Capitalist. Administrative RevenueII.V State Property.—General Considerations On Quasi-Private Revenue
Book III Public Revenue (continued): The Principles of Taxation
III.I Definition and Classification of TaxationIII.II The General Features of TaxationIII.III The Distribution of TaxationIII.IV The Tax System: Its FormsIII.V The Shifting and Incidence of TaxationIII.VI The Principles of Local TaxationIII.VII The Canons of Taxation
Book IV Public Revenue (concluded): The Several Kinds of Taxes
IV.I Taxes on LandIV.II Taxes on Capital and BusinessIV.III Personal and Wages TaxesIV.IV Taxes on Property and IncomeIV.V Taxes on Consumption: Their Classification: Direct Consumption TaxesIV.VI Internal Taxes on CommoditiesIV.VII Customs DutiesIV.VIII Taxes on Communications and ActsIV.IX Taxes on Successions
Book V The Relation of Expenditure and Receipts
V.I Introductory—State TreasuresV.II Public Indebtedness, Its Modern DevelopmentV.III The History of the English DebtV.IV History of the French Debt, Indebtedness in Other CountriesV.V The Theory of Public Credit and Public DebtsV.VI The Forms of Public DebtsV.VII The Redemption and Conversion of DebtV.VIII Local Indebtedness
Book VI Financial Administration and Control
VI.I Introductory—Historical DevelopmentVI.II The Budget—Its Preparation—The Collection of RevenueVI.III THe Vote of the Budget—Control and AuditVI.IV Administration and Control in Local Finance
Footnotes (Books I-III)Footnotes, continued (Books IV-VI)About the Book and Author 
 
CHAPTER IINTRODUCTION
§ 1.
In any society that has passed beyond the lowest stage of social development, some form of governmental organisation is found to be an essential feature. The various activities or functions of thiscontrolling body furnish the material for what are known as the 'Political Sciences'(
Staatswissenschaften
). Every governing body or 'State' requires for the due discharge of its functionsrepeated supplies of commodities and personal services, which it has to apply to the accomplishment of whatever ends it may regard as desirable. The processes involved in obtaining and using these suppliesnaturally vary much in the several stages of social advance: they are comparatively simple and direct in aprimitive community, while in a modern industrial society they present a high degree of complication, andare carried out by elaborate regulations. For all States, however—whether rude or highly developed—some provisions of the kind are necessary, and therefore the supply and application of state resourcesconstitute the subject-matter of a study which is best entitled in English, Public Finance.
*1
 The importance of the subject hardly requires much insistence. The collection of funds for state purposesand the use of the resources so obtained are such vital parts of the political organisation, that they arealmost certain to receive attention from all who are interested in political and social inquiries. But, if demanded, abundant evidence is at hand. The citizen of any civilised country need only reflect for a fewminutes in order to satisfy himself of the number and importance of the actions of the state on its financialside. His letters are carried by a state agency which claims a monopoly, and in some instances realises alarge profit for the general revenue. The commodities that supply his table are in many cases taxed tocreate a fund for the payment of public services. Either his income or property or some of their elementsis sure to be subjected to a charge of greater or less amount, and several of the most ordinary avocationsare only open to him on obtaining a costly licence for permission to engage in them. Nor do the claims of the State cease here. In addition to the central body, the local authorities have to be considered. If theperson of our supposition be the inhabitant of a town, his house may be lighted by public agency, while itis highly probable that for one of the first necessaries of life—water—he is dependent on his municipality.There is little need for further working out of details. The way in which the purely financial agencies of theState—and still more those which have some connexion with finance—affect the members of the societyin their everyday existence, is being ever illustrated afresh by the ordinary course of social life.The importance of a subject is of itself a strong plea for its scientific study, but in the present case morespecial arguments may be urged. There is in finance, as in all matters depending in some degree onhuman will, the possibility of choosing between different courses, some of which are likely to prove better than others; and for the formation of a correct judgment as to the relative merits of the lines of action opento the State, careful examination of the conditions affecting the phenomena is indispensable. Suchexamination is, however, only possible by scientific study, or rather it is that study. More particularly is thistrue at present in consequence of the great expansion of the functions of the State, which is partly due to—and which in turn increases—the complicated structure of modern societies. The effects of state actionin a primitive community are far more easily followed; the forms both of revenue and expenditure arereducible to a few simple kinds, directed by rude or partially developed agencies. The modern State, evenwhen it allows an amount of individual liberty unknown in any former period, is obliged to employcomplicated machinery for the regulation and management of its outlay and receipts. The results,moreover, are not so readily perceived; numerous interests and classes are affected by any change in thecourse of public expenditure or by readjustments of taxation. The many indirect results of financialprocesses must be considered before we can either understand their operation or fairly judge their merits;but to trace the action of economic forces in their effects on the highly developed systems of modernindustrial societies is a task of considerable difficulty, not to be accomplished without the aid of generalprinciples and careful reference to former experience. The case for a scientific study of finance is sostrong that it does not require much vindication, and the value of critical investigations has been alreadyproved by the results obtained.
§ 2.
The scope of our subject has now been indicated in a general way, but for clearness of thought and inconsequence of the differing views of many writers of authority we must determine it more precisely. Stateexpenditure and state revenue at once occur to the mind as the two great heads of inquiry, standingopposed to each other as Production and Consumption, or Supply and Demand do in economic science.Closer examination shows that this simple grouping does not exhaust the field of investigation. Problemsof revenue and of expenditure are, indeed, the most important. Adam Smith, who was, at least for England, the founder of the scientific study of public finance, as of political economy in general, devotedseparate chapters of his Fifth Book to 'The Expenses of the Sovereign' and 'The Revenues of theSovereign'; but by the nature of the subject he found himself forced to add a third section, in which therelation between expenditure and receipts is examined. He knew that many ancient and mediævalsovereigns had accumulated treasures; it was apparent that most modern governments had heaped updebts—a process that has been carried much further since his day; and it followed that an inquiry into thebalance between state incomings and outgoings was an essential, as well as difficult, part of publicfinance.
 
Nor is this the only addition. The phenomena to be dealt with do not admit of being conveniently groupedunder Adam Smith's three heads. This difficulty is at once felt on calling to mind that the expenditure andrevenue under consideration are
state
expenditure and
state
revenue. We must examine, not merely theprocesses, but also the mechanism by which those processes are carried on. For the collection andapplication of wealth by the State legislative and administrative action is needed. The right of votingsupplies and supervising expenditure—'the power of the purse'—is one of the leading privileges of arepresentative body; it is also the most effectual safeguard of constitutional rights. Methods of administrative control seriously affect the working of the national finances, and are deserving of attentivestudy. No financial treatise can be complete unless it considers the problems of 'the budget' and 'financialadministration' (
Finanzverwaltung 
), and such has in late years been the almost invariable practice.
*2
 In one respect the scope of public finance has been curtailed by some of its ablest expounders. Frenchwriters, more especially M. P. Leroy-Beaulieu, have refused to regard the problems of public expenditureas a part of their subject. The reason for this limitation is said to be the difficulty of scientificallydetermining the proper amount of state outlay, as that must depend on the functions assigned to theState. 'This kind of inquiry,' says M. Leroy-Beaulieu, 'does not in my opinion belong to the science of finance..... A State has wants: it does not belong to us at present to know what they are, and what theyought to be, but how it is possible to satisfy them in the amplest manner with the least loss and sacrificeto individuals. If you engage a builder to build you a house, it is not his business to inquire if the building istoo large for your income or your social position; what does concern him is to build the house in questionwith the utmost possible solidity, convenience and beauty, at the lowest cost to the owner. In like manner,a writer on finance can sincerely lament that States spend too much; but his real task lies in showing howa State can obtain supplies, while treating the interests of individuals with due tenderness and respecting justice.'
*3
English writers have gone further in this direction, and, by disregarding all forms of Staterevenue except that derived from taxation, have replaced the broader treatment of Adam Smith and theGermans by treatises on 'Taxation' and 'Public Debts.'
*4
 It nevertheless seems clear that the question of expenditure is just as much a financial problem as that of revenue. Neither in theory nor in practice is it advisable to separate them completely. The greatest financeministers have made their reputations as much by judicious control of outlay as by wise reforms in respectto revenue,
*5
while for theoretical discussion the principles and facts of expenditure are of considerableinterest. M. Leroy-Beaulieu's suggested parallel of the builder is not in point, since the practical statesmanis the only person to whom the illustration would apply, and he evidently does not act in conformity with it;the scientific student is only limited in his inquiries by the nature of the material that he is investigating.One admission may indeed be made. Questions of expenditure do not allow of quite as precise treatmentas those referring to taxation, some parts of the latter subject permitting the use of lengtheneddeductions. This test of fitness for exact investigation would, however, exclude other large parts of thesubject—
e.g.
'the public domain'—which are nevertheless discussed by all recent writers, M. Leroy-Beaulieu included. For a complete inquiry into the theory of finance some consideration of the conditionsgoverning State outlay is indispensable—
e.g.
the increase of military expenditure in European States, itscauses and limits, cannot be left wholly unnoticed by any thorough student of public finance. Such aninquiry is more especially needed owing to the fact that expenditure and revenue are connected. Publicoutlay is not something unchangeable and determined, to be met 'with the least loss and sacrifice toindividuals.' Expenditure that would be legitimate in a lightly taxed State would be blameworthy in one thatis heavily taxed. The aim of the statesman is not simply to distribute loss and reduce it to a minimum; it israther to procure the maximum of advantage to the community, and to so balance expenditure andrevenue as to attain that result.The principal difficulty in the scientific examination of public expenditure is found when attempting to limitthe mode of treatment. Some writers enter into discussions as to the legitimacy of certain state functions,and their relative urgency. Others simply state the forms and facts of public outlay, leaving further inquiryto the political theorist. In the present work, in accordance with the precedent set by Adam Smith, theseveral items of expenditure will be treated on a positive basis, and at the same time the considerationsnaturally arising from their existence, and the financial questions that they suggest will be noticed, thoughno complete examination of state functions will be attempted. Whatever theoretical questions may beraised, such seems to be the course that convenience suggests, and is one to which the subject naturallylends itself. Our object is to elucidate the principles of public finance; and the admission or exclusion of any special topic, as well as the extent of treatment in each case, must be determined solely by referenceto that end.
*6
 
§ 3.
Theoretical writers on finance, especially in Germany, have very fully considered the relations of their subject to cognate branches of knowledge,
i.e.
to the various social and political sciences, and have inparticular laid stress on the ties that bind it to economics.
*7
In its origin financial science was a product of economic study. It appears either as a special section, or as the main subject of the older treatises of Political Economy, 'when considered as a branch of the science of a statesman or legislator,' to quoteAdam Smith's phrase. In another aspect it may be regarded as belonging to administration, and as suchformed a large part of the 'Chamber Science' (
Cameralwissenschaft 
) which was in Germany the precursor of scientific economics. The undue limitation of the scope of finance by English writers has led to itsinclusion under the title of 'taxation' in the various systematic expositions of political economy,
*8
and themore enlarged view taken by German writers has not prevented a similar result in that country, for sincethe time of K. H. Rau, political economy has been regarded as comprising, in addition to the generaltheory, the economics of special industries, economic legislation and administration, as well as public
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