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Questionable State Expenditure


1. The tendency of state governments is to expand their func tions.

2. Offices ought not to be multiplied primarily for individual benefit.

3. Many public duties are not proper even if well performed.

4. Bank supervision.

5. The best examinations are private.

6. Public examinations are only for classes.

7. If good, why should not banks be required to pay for them? 8. Objections to requiring payment.

9. Is not the danger as great that the people will wrong the banks? 1o. Should the banks be supervised because they are corpora tions? 10. Supervision of insurance companies.

12. Such examinations are unsatisfactory.

13. Ought not the state to pay for losses attending inefficient supervision? 14. Most of the companies are well managed.

15. What should be done instead of supervision? 16. Railroad supervision.

17. Labor bureaus.

18. Their failure.

1g. Workingmen as administrators of the bureaus.

20. Danger of bestowing offices on men as representatives of classes.

21. Expenditure for a state library.

22. Inspection of mines and factories.

23. How far state supervision is justifiable.

24. Same subject.

25. It should not extend to property.

26. Maintenance of public police.

1. Many of the expenditures of State governments, we think, are on the questionable roll.' In thus extend ing their functions the motive to serve the public is not so strong in many cases as the motive to have the pub lic serve those who are employed.' 2. It will hardly be questioned, as a political theory, that offices ought not to be multiplied primarily to make places for individuals. It is true that those who fill them are benefited ; and if they receive good salaries consume more, and thereby benefit the grocer, the merchant, the transportation company and the public in general. In other words, their income is diffused among the public from whom it was taken; but it is not returned to the same persons nor in the same amounts. If public offices could be so united as to form a perpetual motion ma chine, every official obtaining a comfortable living, and every taxpayer receiving back whatever he paid as a grocer, merchant, transporter, farmer, that would be a truly ideal state of existence. Unhappily, the money drawn from taxpayers is not returned to them in such a manner. And since some receive more than others, the results of the action of the State are unequal and often unjust.

3. While many of the duties performed by State offi cials are supposed by some persons to be proper, yet, even if well performed, they are not justified, because they might be done in other ways more efficiently and at still less expense. If the defense be the employment of per sons, even they might be employed in performing the same duties privately at less cost.

4. We will begin with the expenditure for supervising banking institutions. This superintendence must be con demned for many reasons. First, it is of little worth. Experience has shown that the work, even though con ducted by capable and honest officials, cannot be thor ough. The most that can be said of bank examinations is that, if any fraud or error has been committed, it may be discovered ; also, that the possibility of discovery may have a deterring effect.

5. Experience has shown that the best examinations are those made by officials selected by their employers and having all the time they need for doing their work. This, in truth, is the only kind of examination worthy of the name.

6. Again, if such an examination were ever so effi cient, it is not justified because it is only for a class, and a small class, of the community. As the holders of bank note circulation are amply protected, and no examinations are needed to protect them, the only persons served by examinations are shareholders and depositors—two sharply defined classes. Are these two classes so impor tant and sacred as to entitle them to greater protection than others ? Is there anything about money and credit that calls for their peculiar protection? Is there, in truth, any better reason for examining banks for the benefit of these two classes than for examining the af fairs of a merchant or a railroad company or a joint stock company of any kind for the benefit of creditors? Draw a line (and it is drawn in some States) between incorporated banks and private bankers ; still, such exam inations are quite as indefensible. It is class work, in tended for a class, and a very small one, compared with the entire number of people in a State.

7. Again, if undertaken at all, why should not the institutions and persons examined pay? The State re gards an examination as a good thing, a safeguard ; if it is, why should not a bank be profoundly thankful for having the State perform this service, which, possibly, it does not know enough to have performed by a private person, and gladly pay the bill ? National banks, in deed, are obliged to pay for examinations conducted by examiners ; so are some State banks. Why should not all be required to pay ? 8. But there is a serious objection to this requirement. A bank has no intention of violating the law, makes fre quent examinations of its own, and perhaps makes them by more competent persons. And if a bank ought not to pay the State for performing a service much inferior to that performed by its own appointee, surely it ought not to be taxed for the public examination of similar insti tutions. It will be admitted that banks may go astray ; so may individuals. If a bank ought to be watched, ought not every banker? Is the danger greater when a bank is a corporation ? Certainly not ; it is lessened. Evidently the State should treat a corporation as it treats individu als—give both the same liberty to act, and punish both in the same manner when they transgress the law.

9. Again, is there not equal danger that the people will wrong the banks, and each other, and are they not doing this every day ? Why, then, should not the State appoint supervisors to watch the business of individuals, to find out whether they are acting wisely and are worthy of credit ? Do not individuals often manage their af fairs badly, become bankrupt and carry down banks in their ruin? Why, then, should not the State supervise the business of merchants or manufacturers and protect them, as well as those who do business with them, from imposing on and ruining the banks? io. Again, it is said that the banks ought to be su pervised because they are the children of the State. If so, ought not all corporations, all limited partnerships, in truth, all associations ? Do they not all act under either the statute or common law? In truth, can any logical or rational line be drawn between banking and other cor porations with respect to supervision? Do not all of them deal more or less in money, give credits, contract debts, blunder, lose money, often commit frauds and fail ? And why should any line be drawn between per sons who are associated in business and those who are acting alone? If protection from loss of wealth by the supervision of human conduct is one of the great func tions of government, ought not all persons to be in cluded, whether acting in a corporate or sole capacity ? Five persons agree to unite in conducting a banking business, and they proceed forthwith, by virtue of a spe cial charter obtained for the purpose, or by the general law authorizing the formation of corporations. Five other persons engage in the same or some other business as a partnership. The rights and liabilities to each other and to the public are determined partly by statutes and partly by the common law of the State in which they conduct their business. The entire number, the ten, are acting by law, their rights and duties are determined by it. Why, then, should not all be treated alike ; super vision for all or none ? II. Is not the superintending of insurance companies quite as indefensible ? It is true that more persons are interested in their management than in banks ; policy holders far outnumber depositors and bank shareholders. Nevertheless, it is questionable whether insurance com panies should be subjected to State supervision. Let the people determine for themselves in what companies they wish to insure.

12. The same objection may be made to supervising them as has been made to bank supervision—inefficiency. Most of the companies are well managed, and would be, regardless of State oversight. On the other hand, a com pany that sets out to defraud the people generally suc ceeds, the State in its attempt at prevention simply show ing its inefficiency.

13. As the State, while exercising supervision over a company, strengthens the belief of all who do business with it that it is worthy of trust, ought not the State to make good losses which are clearly the result of ignor ance, neglect or dishonesty of its own supervising of ficer? The State has not yet done this, but it seems to be a fitting corollary from its work of supervision. On the other hand, if it is not to pay for any neglect of duty, why should the people be taxed for supporting ineffi ciency and worthlessness? For what, then, do they often pay? The luxury of having the State deceive them.

14. It is true most of the companies are well man aged, because it is their obvious interest to be so in order to secure and maintain the public confidence ; and they would be as well managed were State supervision un known.

15. What shall take the place of such supervisory work ? The remedy has long been known, only it is too infrequently applied. Ample laws exist for punishing frauds of every kind. When a company is mismanaged the officers should be made to feel the terrors of the law ; and if this were done, many of the wrongs from which people suffer would come to a speedy end. This is the most effective remedy. We all know how difficult it often is to convict an offender of this kind ; how often he escapes, or is let off with an inadequate punishment. So long as he is permitted to escape so easily, the wicked will continue in their evil ways, regardless of any super vision that may be exercised by the State. Finally, it may be added that the State should educate the people, as it is now doing, in a general way, for all the duties of life, both public and private ; and then it should require them to take care of themselves and discontinue the sys tem of baby-citizenship. To continue the work of super vision over them is to counteract, and most effectually, the work which the State now undertakes to do for them in the way of education. The State virtually says to them : "Here are schools prepared for you, enter them, and learn how to live and act. Indeed, you must do this, but if you disobey the law and do not, then we will look after you and keep you from harm. We will supervise the banks with which you do business, so that you shall not lose anything that way ; we will also look after the insurance and railway companies, the mines and fac tories, and even your food." Thus the State puts a high premium on ignorance ; its course is a paradox. Is it not quite time to remove a paradox so destructive to good citizenship? 16. Next may be considered the subject of railroad

supervision. The practice in the different States greatly varies. Some of them have elaborate railroad commis sions, maintained at large expense, which undertake the work of supervision. Not only do they examine accounts, but even the physical structures of railways. They are supposed to possess the fullest knowledge concerning the business of a railway company, though in most cases they have been professional politicians. Much has been said concerning the worth of such examinations. All, of course, depends on the ability and honesty of the persons selected to do the work. Years ago, when many of the companies were in more trying positions than they are now, it was cheaper to keep commissioners passive by private arguments than to build new bridges or to lay more ties. But the actual good accomplished by many railroad commissioners has been the smallest imaginable.' 17. The industrial bureaus, as conducted in many States, are in the same questionable category. One of the vices clinging to them is, their creation and mainte nance for a class. Notwithstanding the great size and unquestioned worth of the industrial class, there is noth ing peculiar about their work calling for such especial consideration. If these bureaus existed for the collec tion of statistics relating to, or affecting all classes, and their work was still farther broadened to cover all in quiries or investigations desired by legislators to aid them in legislating, then indeed would these bureaus stand on a much stronger foundation.

18. It will not be questioned that in many, if not all cases, the object of the working class in having labor bureaus established was, through them, to find out the profits of employers. Their reason for desiring this knowledge is too evident to require statement. Yet the failure of these bureaus to collect such information has been complete. Indeed, such information from the very nature of things cannot be collected, although this is not yet fully understood by the working class. Even if employers were inclined to make correct returns, they would be distrusted.

19. In many cases the control of these bureaus has been given to workingmen, believing that they would be less inclined to oppose the existing order of things. In other words, for the same reason that ignorant men, un acquainted with the true workings of government, have been permitted to vote, because they would be less in clined to complain over their condition. For such the suffrage is a safety valve.

20. It may be questioned whether any government can long endure which bestows the franchise on an unfit class, through fear that if withheld its members may become dangerous and perhaps rebel. The sooner the better the test is made to find out whether the State can stand the lopping off of powers from such a class.

21. The next expenditure to be considered is that for a State library. There was a time when law reports were not so plentiful as they are now, and when they were needed by judges for the proper administration of justice. Under this necessity have grown up, in many States, libraries of a general character. From the very nature of things, the books can only be used by a few people ; they cannot be sent around the State, except at much cost and danger of loss. This cannot be done with safety unless adequate security is left to insure their safe return. In short, it may be said that such a library can be used only by going to the library where the books are kept. While in theory a State library is free to every person, in fact it is not free at all, because of the cost of getting to it, the loss of time, etc., precludes the use of such an institution. Clearly, then, such a department should be limited to the books required by the courts or by the various officers of the government, legislators and others for the purposes of legislation and administration, or relating to the history of the State. To preserve the history of the State is regarded by every State within its province, and to this end a State museum or library may be created and continually enlarged. Public li braries may indeed be justified by towns and cities, where those who pay the expense can profit by them, but not by the State.

22. Within a few years many of the States have undertaken the inspection of mines and factories. This service rests on a different ground from the inspection of banks and insurance companies ; it is for the preservation of life and not for the security of property. Yet mine inspection in many cases has been unsatisfactory. It is true there has been a dimunition in the loss of life and injuries, but is not this due to greater intelligence? Sci ence has taught much concerning the methods of mining, and are not the fewer accidents due to this cause rather than to the work of inspectors.

23. We have now come in sight of two principles that may serve as practical guides to determine the ap propriate limit of State supervision. First, it should not attempt the supervision of property.' Second, even su7 pervision of matters affecting the life and health of the people should not be undertaken without good reason for believing that the State can act more efficiently than the people themselves.

24. Inspection laws, therefore, relating to the safety and healthfulness of mines, railroads, factories, food and the like, the prevention of diseases, the preservation of water supplies from pollution, are within the proper province of a State when it can execute them efficiently. The cities, for example, have regulations for the storage of explosive's. The State makes regulations concerning the management of trains to prevent accidents, and, when these are not respected, doubtless it would have a right to attend to their proper execution.

25. To interfere with one's action respecting con tracts for property is quite another thing. Not only have the people a right to make them, but the State ought not to interfere or exercise any supervision over persons in making or executing them. Between a bank and a de positor a contract exists, as much so as between the in surer and insured. A State should not hinder him in ex ercising this right, nor be responsible for his failure to exercise proper discretion or judgment. So, too, in trans porting freight and passengers, this is done by contract, and the freedom of individuals should not be abridged. The State unquestionably has a right to interfere, inspect and supervise so far as this may be needful to secure in dividuals from physical injury. But so long as com panies are acting properly and not abusing their privi leges, or so long as a State cannot interfere effectively, it should let them alone. If this limit of State supervision is sound, States are justified in inspecting the physical structure of railroads and providing for the safety of passengers, their convenience and comfort, whenever they are neglected. In recent times, however, State super vision has been less needful, because transportation com panies, in their rivalry to get business, are doing so much for the care and comfort of their passengers that there is little occasion for State interference.

26. Lastly, a word may be said concerning the en actment and administration of laws for the maintenance of public police. This is a general term intended to in clude many of the new functions undertaken by a State, for example, the regulation of grain eleN ators. Laws relating to them were passed a few years ago by the Legislatures of Illinois and New York ; their legality was questioned, but sustained as falling within the general police powers of the State. It may be said in condemna tion of such legislation that it is not well defined, and that, until it is, ought not to be undertaken.° 27. All such laws require the expenditure of money to execute them. Every law has a money side, not al ways clearly seen, yet existing. All public police regu lations are of this character. Besides the general grounds on which such legislation should be watched, it tends to debase the people, to draw the State down to a lower level. These are quite sufficient grounds for restricting such legislation within narrower limits.

'The contrary view has been expressed by G. K. Holmes in a very interesting article on State Control of Corporations and Industry in Massachusetts, 5 Polit. Science, Q. 411. He says: "The experience of Massachusetts in this matter points out a Reid for State action which promises to render further steps toward social industrialism unnecessary. This State is regulat ing corporations and industry on a large scale, and with much success. The results indicate that for the most effective super vision of the evils arising from the improper management of corporations and monopolies, with the least encroachment upon the liberty of the individual, the best means is to be found in the extension and perfection of the system here employed. I refer to various boards of commissioners which the State has created, with large discretionary powers, for the purpose of se curing from corporations compliance with legal requirements. There are railroad commissioners, insurance commissioners, savings bank commissioners, gas and electric light commission ers, an inspector of gas meters and illuminating gas, a commis sioner of foreign mortgage corporations, a board of arbitration and conciliation, factory and public building inspectors, and a commissioner of corporations.

'Concerning the rapid increase of State expenditure, see the valuable reports of J. H. Roberts from 1894 to 1899, Controller of New York. Also Franklin Smith's article on Excessive Taxa tion in Appleton's Popular Science Monthly, April, 1900, p. 645. Also the excellent and needful message of Gov. Odell, of New York, January, 1901.

'The right of the State to regulate the charges of transpor tation companies should fhey attempt to get more than their charters, or the laws under which they exist, prescribe, is not questioned. On that subject see F. C. Clark's article, State Railroad Commissions, and How They May Be Made Effective, 6 Pub, of Am. Economic Assn. 189.

The Mass. reports are a marked exception.

`The constitutional right to extend supervision over proper ty is not questioned, but only the expediency of exercising the right.

'Compulsory pilotage laws have often caused strong adverse criticism. For a consideration of the subject see House report, No. 848, 54 Cong., 1 Sess.

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