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Divisions of the Science of Finance


1. Definition of the Science of Finance. The Science of Finance treats of public expenditures and public income and includes in its investigations all those varied relations neces sarily implied when considering such expenditures and in come. In its restricted sense, it pertains to the technic of treasury administration and deals with those practical ques tions that arise in connection with the management of the public purse. Regarded from the pedagogical point of view, it forms a part of that comprehensive study, the Science of Economics, and through economics it is related to the en tire group of political and social sciences. Speaking defi nitely, and with a view of grouping the problems which it in cludes, the Science of Finance undertakes an analysis of the wants of the State and of the means by which those wants may be supplied. All problems which find proper place within the domain of this study may be considered in connection with one of the two following questions : First. What are the legitimate and necessary wants of a State? Second. How may these wants be the most economically and advantageously supplied? A number of problems in public economy commonly re garded as forming a part of the Science of Finance must be excluded if the view just expressed respecting the nature of that science be accepted as correct. Such, for example, are the problems of money, currency, and banking. These have to do with the mechanism by which all financial operations are carried on, and not with the operations themselves. A sound monetary system, a safe currency, and an efficient banking organization are important for private as well as public transactions. They form a part of the conditions necessary for the transfer of values, whether such transfers be between two or more citizens or between the subjects and the State. They pertain primarily to the machinery of com merce and are properly treated as chapters in Political Econ omy, a study which may be adequately defined as the science .of industrial association.

It is necessary that the distinction here brought to light should be firmly grasped in order to guard at the outset against misapprehension respecting the scope and purpose of the Science of Finance. It is true that under certain condi tions questions of money, currency, and banking may play an important part in the financial policy of the Government. Suppose, for example, some great fiscal exigency to arise, like the advent of a war, and that the Government lack the instruments and agencies with which to make headway against fiscal wants. It is quite possible that an administration may feel obliged, as a preliminary step for collecting adequate revenue, to undertake the creation of a new system of cur rency or banking. Such was the case in the United States in 1861. It is also conceivable, though the admission is full of danger, that a government may, on account of failure of all other means of filling a depleted treasury, be forced to issue legal-tender notes which shall serve as money in commercial transactions. Under such circumstances a law which aims to create a banking system, or to provide a new medium of cir culation, becomes, for the time being, a part of the financial policy of the administration. From this, however, it does not follow that a discussion of banking principles or of the prin ciples of monetary science forms a legitimate part of the Science of Finance. The conclusions arrived at from such a discussion find their support in Political Economy, and must be accepted by the financier as part of the equipment with which he approaches the solution of any particular financial question.

Another mistaken idea respecting the Science of Finance arises from failure to distinguish between public and private financiering. The former holds in mind the service to be ren dered, the latter the profit to be derived from the service. This distinction, the recognition of which is essential to the -proper understanding of the Science of Finance, will be more fully explained in connection with the discussion of certain fiscal axioms which follows. The Science of Finance has to do with public and not with private financiering.

2. The Three Fiscal Azioms. Since the Science of Fi nance treats of the wants of the State and the means of their supply, it seems proper at the outset to inquire respecting the nature of a State. The scope of such an inquiry must be limited by its purpose, and its purpose is to discover if the State possess any universal or permanent characteristics which may be accepted as final in the formulation of financial principles, or in passing judgment upon specific financial questions. This inquiry need not be undertaken by the stu dent of finance as an original investigation, for the teachings of political philosophy furnish all the necessary information for the unfolding of his peculiar science.

Current teachings respecting the nature and function of the State point to three fundamental and universally true principles, which we venture to term fiscal axioms, each of which rests upon a fundamental and universally recognised characteristic of the State.

(t) The Patrimony of the State must not be Impaired. This axiom rests upon the fact that the life of the State is conceived to be eternal. As a matter of history, states do come to an end,—they are born, they grow, they decay, they die,—but no statesman would for a moment think it possible to present a policy adjusted to this fact, nor would the publicist in discussing a current question accept the decay of the State as a controlling consideration. Even historians when 'they describe the rise and fall of empires do so for the purpose of pointing out the cause of decay, in order that living states may avoid the errors of the past. This is the first of the many instances which will pre sent themselves as our study proceeds, in which the public and the private point of view are brought strongly into con trast. An individual is obliged to recognise the fact of death and to adjust his affairs accordingly. To take an extreme case for illustration, (and one of more frequent occurrence in Europe than in this country), a man who has no one depend ing upon him may convert his property into a life-annuity; that is to say, he may purchase with the total of his property a promise from the State, or from some responsible corpora tion, of an annual payment during life. He has no interest in the disposal of his property after death, and exchanges it for an assured living while he may live. This as a business transaction is controlled by the thought that the period in which one's patrimony may be enjoyed is limited, and, judged from the private point of view, is not necessarily bad financier ing. Such considerations, however, cannot be entertained by the public financier. He is called upon to manage the prop erty of the people whose interests endure in perpetuity. He must reason from the point of view of the State whose exist ence knows no limit; he is not, therefore, at liberty to com mute the patrimony of the State into extraordinary income for a few years, nor in any manner to dissipate public property. It is a fundamental principle of constitutional law that each legislature shall hand down to its successor all the rights and powers and jurisdictions which it received from its predeces sor; so in matters of public finance it is incumbent that each succeeding administration shall find as broad a field from which to supply its needs and as fruitful a source of supply as the administration which preceded it. This statement is so reasonable and springs so naturally from the conception that the State is a personality of perpetual life, that its mere statement must secure for it universal recognition. It pro vides the Science of Finance with the first of its fundamental or axiomatic truths, namely : A sound financial policy will not impair the patrimony of the State.

But what, it may be asked, is the patrimony of the State? This depends upon the stage of development at which a peo ple have arrived and upon the relation which at any time exists between political and industrial life. In feudal times the patrimony of a 'State consisted primarily in the royal demesne, and the fiscal axiom under consideration led to the formulation of many rules respecting the industries of agriculture, forestry, fisheries, and the like, designed to maintain the extractive industries in a flourishing con dition. These rules properly collated and classified, what ever the name by which they may be known, formed the substance of the Science of Finance for the time to which they pertain. In Germany they took the name of Kameral wissenschaft and were in fact the historical forerunner of the later science.

In modern times, and among peoples who practise the law of private property and the theory of individual rights, the patrimony of the State consists in a flourishing condition of private industries. Public revenue is not secured to any great extent from the ownership and direct management of productive property, but from taxes levied upon industries the property of citizens. The more flourishing these in dustries, the larger is the fund to which the State may appeal for public revenue, and on this account it should be the prime consideration of the financier that nothing be done which will in any way tend to impair the efficiency of private industry. A sound policy of public finance must rest upon a thorough knowledge of political economy.

To illustrate yet farther what is meant by the patrimony of the State, it may be remarked that there appears to be at the present time a tendency toward the substitution of public for private ownership in certain industries. In so far as this tendency is realized by modern governments it appears that the patrimony of the State consists in the productiveness of the industries in question. Suppose, for example, the railway, express, and telegraph industries to have been assumed by the Federal Government; or the service of supplying gas, electricity, water, and rapid transit to have been assumed by the municipalities. The source of revenue in these cases would be the profit secured by the operation of such indus tries, and these industries would then become a part of the patrimony of the State. It seems, then, that this word patri mony, which the first fiscal axiom asserts will not be im paired by the financial policy, is not a thing that is fixed, but that it changes with the ideas of political and industrial rights entertained by the people. The axiom, however, remains al ways the same, and by it the financier is precluded from enter ing upon any line of policy which shall permanently impair the sources of public revenue.

(2) Political Restraints must be Established. A second per manent characteristic of the State is that the State does not exist in and of itself, but for the purpose of perform ing certain delegated functions. It has a legal rather than a physical or a psychological existence. The important conclusion which follows from this statement is that public administration is not confined to the ordinary motives which give direction to business transactions. The State stands by itself, and, there being no possibility of comparison, it cares nothing for riches as such. The desire for profit which con trols all private transactions is foreign to its nature, and, con sequently, in all that the State does it is superior to the rules of ordinary capitalistic industry. The principle of competi tion which guarantees a just price for most commodities has no play in public affairs. All State enterprises are, or at least they may be, strict monopolies, and there is on this ac count no guarantee in the nature of the conditions under which the services are rendered that the subjects of a State will be treated in a spirit of fairness. That which the indi vidual desires in the expenditure of his income (and this desire is regarded as a fundamental right among commercial peo ples) is, that he shall pay no more for a service than its legiti mate and necessary cost, no matter whether it be rendered by the Government or by a private person. Any charge in excess of cost is conceived to be extortionate. Now, the peculiar fact to which the above-mentioned characteristic of the State points is, that there can be no commercial guarantee of fair treatment in the relations which exist between the State and the citizen. It is essential, therefore, that other means be devised for the control of those who are intrusted with the exercise of public powers. The two principles known to civilized society by which the actions of men are controlled, so far as these actions pertain to the rendering of services, are the competitive principle and the political principle. Besides these two, there are no other means of controlling the actions of men; and if conditions are such that the competitive principle cannot produce the desired results, reliance must be placed upon the political principle. The fundamental or axiomatic truth to which these considerations lead lies wholly upon the surface, and may be accepted as the second of the fiscal axioms which find their root in the permanent charac teristics of the State. It is as follows : A sound fiscal system will establish political restraints in order to insure that all services rendered by the State shall be rendered at the least possible cost.

The importance of this truth in directing the development of the Science of Finance will be more clearly recognised when it is observed that the: State is the sole residence of co ercive power. It alone of :all organizations or associations of men has the moral and legal right to use force in the attain ment of its ends. It is of course essential for the welfare of society that the right of coercion should be lodged some where, and that certain persons should be intrusted with its exercise; but there is great danger incident to the mere exist ence and recognition of this right. The tyrannies which his torians describe have commonly arisen from the fact that the grant of coercive power, which from its very nature inheres in government, is used by governors for personal ends. The form of this tyranny changes with the successive fashions of society, but its character is always the same, namely, the em ployment of a public power in a personal manner. Now the Science of Finance assumes no priority as guardian of the liberties of the people; but so far as these liberties are en dangered by the constant encroachment of personal interest into public service, there is no domain of administration in which provision may be made against such encroachments as easily or as effectively as in that which has to do with the collection and the expenditure of public moneys. This entire subject will be more fully considered in connection with Budgetary Legislation. Sufficient has been said here to show that, because the State is naturally monopolistic and exclusive in all that it undertakes, and because it is the sole residence of coercive power, the principle of public financiering, which asserts that public service must be rendered at cost, and the axiom that political restraints must be established in order to realize this principle, are truths which lie at the basis of the Science of Finance.

(3) The Political Organization must be Recognised. A third characteristic of the State is that the State is an historical product, and as such takes upon itself various and peculiar forms. Government is a permanent fact in human society, but the working theory which underlies government is subject to constant change. It is not the same for dif ferent peoples at the same time nor for the same peoples at different times; yet at any stated period it reflects the social aspirations of the people, and conforms to the conception of individual rights and duties entertained, as also to the stage of development and condition of intelligence at which the people have arrived. It is the recognition of this fact which leads one to appreciate the third of the fiscal axioms disclosed by an analysis of the characteristics of the State, which is as follows : A successful financial system will conform to the political ideas which for the time being control society, and adjust itself to the political structure of the particular society to which it applies.

a. This fundamental truth, it will be observed, is presented in two separate statements, and it may be well in proceeding to its illustration to treat the statements in the order of their presentation. It is asserted, in the first place, that a financial system must conform to the political ideas which for the time being control society. Reference is here had to those broad, comprehensive views of individual and public rights which underlie social relations. Even a superficial study of history shows that the Roman State, for example, was actuated by po litical ideas essentially different from those of the Swiss Fede ration; that the fundamental conception of class relations, of public duties, of individual privileges, and the like, were not the same for the two peoples; and that the government of the former must have been upon an entirely different pat tern from that of the latter. Every society has what may be termed its legal framework, which conditions all forms of ac tivity, both public and private. This framework is found in the laws, or in customs more enduring than laws, by which the admitted rights of all persons, classes, or associations are definitely stated. Now it is a truism to say that financial regulations, the aim of which is to secure revenue for the support of the State, should conform to the political ideas ex pressed in the constitution of society, for the financial system is in reality the fiscal expression of the social and political aspirations of the governing class. This may be clearly com prehended if some of the more salient points of two or three financial systems which history discloses are passed in review.

Most of the ancient states were founded on conquest, and the most conspicuous feature of their society was its military organization. The theory of rights and of duties which in modern times is conceded to apply in the same manner to all men was commonly in ancient societies restricted to the re lation of freemen to freemen. No rights, social, industrial, or fiscal, were conceived to exist for a vanquished people as against the State. Revenue was largely in the form of tribute or arose from confiscation or booty. During the latter days of the Roman Empire, it will be remembered, one half of the booty went to the army, the other half to the civil govern ment. In Athens during the days of her power three-fifths of the public revenue arose from tribute. In the military organization of society the fiscal system will inevitably be military in character.

Following the fall of the ancient states a new principle of association made its appearance, and society took upon itself the form of feudalism. It will be futile to attempt to charac terize the political ideas of the Middle Ages by a single phrase; but the fact of importance for the purpose of our present illustration is that government was proprietary rather than military in its organization. In theory all landed pro perty, (and landed property constituted the bulk of all property known to the industries of the times), belonged to the king, who assigned it to his dependents in return for military ser vice, who in their turn assigned it to their dependents in re turn for labour. The king retained for royal use an amount necessary to meet the needs of himself and household, and the feudal lords did the same in their respective manors. They and their households represented the de facto govern ment, and performed all military and juridical service without making any regularly recurring demands upon the people. The State was chiefly supported out of the earnings of the property of those who represented the State, contributions from the earnings of individuals being at first of the nature of special assessments to meet special emergencies. It was a source of income which the feudal principle assigned to the State, and not the right to demand a portion of the income of citizens. One is not at liberty to assume that under such conditions no system of finance could have been developed. Both analysis and history would deny such an assumption. It is, however, correct to say that a feudal system of finance must conform to the requirements of a proprietary govern ment, and that these requirements are essentially different in their form, and in their tests of success, from those which pertain to a military society on the one hand or to a demo cratic people on the other.

The principle of association which in the course of history followed the decay of proprietary government is what may be termed the political principle. Its development goes along with philosophic democracy, constitutional government, and private property. The conception of the rights of individuals and of the place of government in society is wholly changed from that which asserted itself in feudal times. Government is now conceived to be an agency to which certain definitely prescribed functions are assigned, and, like any agency, right fully demands support adequate to the satisfactory perform ance of its assigned functions.

The chief personage in this adjustment is the citizen, in whom ultimately all rights rest, and for whom all privileges exist and all services are rendered. Private property is an essential part of this scheme of association, and it is to utter the most apparent truism to say that the financial system of a people whose ambition it is to realize the principles of political association must adjust itself to the requirements of constitu tional government and to the demands of private industry. The financier is not at liberty to idealize his historical en vironment, for by so doing he will fail to realize a workable system. In this fact the Science of Finance finds a canon of judgment by which the propositions and plans of financiers or social reformers are to be tested. The first requisite of a financial system is to secure adequate funds for government, and to secure them in such a manner as to be least burden some to the people. In order to do this the demands made by a financial system upon the citizens of the State must fit into the accepted system of political, social, and industrial rights.

b. The second part of the third financial axiom is that a financial system must adjust itself to the political structure of the particular society to which it applies. For the elucidation of this truth attention may be confined to the various forms of constitutional government which at the present time exist. All of these governments are endeavouring to realize the same general idea of political and social rights; inasmuch, how ever, as they have come to this by various paths, it is no occasion for surprise to discover marked differences in their constitutional structure. This being the case, it is the duty of the financier in any particular country to acquaint himself with the facts peculiar to his own State, and while much may be learned from a comparative study of various financial sys tems, he will do well to confine his definite proposals to meet the peculiar conditions of his own historic environment. In all discussions of financial rules and principles it is essential that this limitation of their application should be recognised.

The most pertinent comparison to which reference may be made for the purpose of illustration is found in the marked contrast which exists between the fiscal systems of the Ger man Empire and of the United States, Both of these peoples are endeavouring to realize constitutional principles. Both, also, so far as form is concerned, are Confederated Unions; yet so different is the history of these two peoples that little of a common character may be found in their respective financial systems.

By referring to American history it will be remembered that prior to the Revolutionary War the thirteen colonies sustained no important political relations between themselves. Each colony was dependent upon the mother country, and it was not until a common menace arose that they came to recognise community of interests. This appreciation of a common danger was the beginning of a national life which succeeded eventually in expressing itself in a fairly strong centralized government. At the time the independence of the colonies was formally recognised, however, so great was the fear on the part of the new States lest their political impor tance should be overshadowed by the central authority that the government created to represent national interest was but a weak and halting affair. This was the government which rested upon the Articles of Confederation, and, as is familiar to every student, it was not granted adequate authority to protect the interests of the newly established nation. The particular difficulty encountered arose on account of the re served right of the States to withhold financial aid. Accord ing to the theory adopted, the finances of the Confederation rested entirely on requisitions upon the States; the central government being, in consequence, deprived of any inde pendent source of revenue. A government without revenue can, of course, show neither independence nor strength; and in the readjustment which took place on the occasion of the adoption of the present Constitution this weakness was over come by granting to the central authority the exclusive use of customs duties as a source of revenue. With this exception, however, the States were left in undisturbed possession of an the sources of income which they had previously enjoyed. In this way it came about that the finances of the several States are not only entirely independent of each other, but are likewise independent of the Federal Government. The political theory to which the Constitution was adjusted recog nised the States as the original sovereignties, and as still re taining all sovereign powers which were not expressly granted to the Federal Government when it was established. There is, consequently, no opportunity for any credit and debit ac count between the central government and the States, nor is it possible, except by means of agreement, to attain any har mony in the financial legislation of the States themselves. It is thus observed that, on account of the peculiar history of the American people, the financial systems of their several govern ments cannot easily become a uniform and harmonious whole; they are rather an aggregation of financial systems of separate and independent sovereigns.

In Germany, on the other hand, different historical condi tions have produced essentially different results. Here, as in the United States, the Imperial Government was created out of a union of independent States whose rights and duties as part of the Empire are definitely stated in a written Con stitution. Under the peculiar historical conditions, however, at the time this union was effected, the jealousy existing be tween the States did not pertain to questions of revenue, and, consequently, the financial adjustments were such as com mended themselves to judgment rather than to prejudices and jealousies. Moreover, the preponderance of Prussia in the

Confederation, whose king was declared to be the hereditary head of the Empire, rendered it safe for the Imperial Govern ment to allow to the respective States certain financial rights which could not have been allowed had the States making up the Empire been equal in population and area. When, there fore, it is learned that the financial system of the German Empire is one which incorporates the theory of requisitions, which maintains a debit and credit account between the Im perial Government and the States, and in which the officers who collect the Imperial revenue are State officers, one can easily appreciate how this adjustment is natural in view of the historic conditions under which the Constitution was formed. It is considerations of this sort which lead to the assertion that a financial system must be judged in the light of its relation to the past of the nation to which it applies. A question of financial adjustment is always at last analysis a constitutional question.

As another illustration of the same thought, reference may be made to the ratio of local and central expenditure in the various governments of the world. In the United States, for instance, sixty per cent of all public expenditures are local or non-Federal expenditures, while the local expendi tures of France are less than thirty per cent of the aggregate. No fact could more clearly indicate that the administrative structure of the former is essentially different from that of the latter. Differences of this sort are familiar to the student of comparative finances, and the more extensive his investiga tions the more pronounced will be the impression that the first duty of a financier is to know his own people. The po litical and social ideas of the time are for him given factors; they are elements in the problem he undertakes to solve. It will not do for the financier to fail in his appreciation of his toric perspective, or to ignore the very narrow and limited margin of choice which at any particular time is presented to him. It is such considerations as these which lead one to assert that the third of the fiscal axioms which have been pre sented cannot be safely disregarded : A financial system must conform to the political ideas which for the time being control so ciety, and adjust itself to the political structure of the particular society to which it applies.

3. The Nature of Public Wants. A consideration of the nature of the State has led to certain fundamental truths which financiers cannot disregard. The second step in the unfold ing of our study is to inquire respecting the nature of the wants of the State, to supply which is the aim of a financial system. It is not necessary in discussing the wants of the State to enter upon any abstruse or metaphysical analysis. The meaning of the phrase lies wholly upon the surface, and suggests itself at once when it is recognised that the State must always be represented on its formal side by a govern ment, and that government stands forth in the person of the individuals who repreient it. Indeed, no error can arise should the Science of Finance conceive of the State as a cor7 poration intrusted with the performance of certain delegated functions. It comes then to be a legal personality, the same in kind, though not in the nature of its powers nor in the motives which control its conduct, as any other corporation, and its wants are of quite the same sort as those of an ordinary business concern. By conforming to such an idea our sub ject takes upon itself that simplicity and clearness essential for just conclusions. Much of the profundity of thought which many profess to discover in this science is in reality foggy thinking, and arises from the proneness of publicists to dally with metaphysical conceptions.

(I) Public Wants Are Reducible to a Demand for Money. The wants of the State vary from time to time, but, confining our analysis to peoples familiar with constitutional government and with the institution of private property, they are, as al ready remarked, the same in kind as those of a corporation intrusted with the management and development of an ex tensive business. That is to say, the State needs to own a certain quantity of land and to control a certain quantity of labour or service.

Since the principle of feudalism gave place to the principle of representative government, the amount of land which must be placed at the disposal of the State has greatly decreased. It is only necessary that the State should own, or directly control, a sufficient amount of land to serve as standing ground for the performance of its delegated functions. The land owned by modern governments is used chiefly for such purposes as building sites, forts, navy-yards, public parks, and the like; wherever an exception to this rule appears, it may be regarded as evidence that some of the old feudal forms C are yet maintained, or that society is adjusting itself. to the ideal of socialism Either of these conditions is out of har nifty with what has been characterized as the political prin ciple of association.

Not only is the amount of land required by the modern State limited to what it can directly use for governmental purposes, but in securing this land the government resorts to no unusual method of procedure. It buys its land in open market, in the same manner as a private person. It is true that in the theory of English law the titl of all land is held from the State, and that the State can exercise in its own interest the right of eminent domain; but an industrial corporation also may secure for itself the exercise of that right if it can show that the land is to be used for a public pur pose. It thus appears that the demand for land is reducible to a demand for money. Land itself has ceased to be a dis tinctive element in the financialpolicy of the State, a fact which will be more clearly seen when, in a subsequent part of this study, the policies of modern governments respecting public domain are considered.

The second requirement of the State is control over labour or service. The State stands forth in the person of public officers or employes who, giving their time to the public ser vice, must be supported at the public charge. Here, as in the case of land, political government is in bold contrast with proprietary government. In the feudal system public services were rendered by the governing classes without specific pay ment for definite service. The theory seemed to be that a definite amount of property was set aside for the use of those rendering governmental or social service. At present, how ever, the greater portion of productive property having been assigned as the property of individuals, and being used as the source of personal profit, the State is obliged to pay for the labour of those who render public service in the same manner as a private corporation. This means that the second want of the State, namely, the want of service and 4 ) labour, is for the most part reducible to a demand for money.

(2) Consideration of Gratuitous Service. While it is true that money payment for public service is the general practice among modern governments, the exceptions to this rule are sufficiently numerous and important to deserve special con sideration. The relative merits of gratuitous and coerced services on the one hand and of paid service on the other may yet be regarded as an open question, so far as a few classes of public duties are concerned. As an illustration of gratui tous service mention may be made of the custom, so common among the smaller cities of the United States, of attaching no salary to the office of mayor. Regents of State univer sities, trustees of asylums, boards of visitors of public insti tutions, and in general all who render public services of an analogous nature, place their time and skill at the disposal of the State without pecuniary compensation. Sometimes this so-called gratuitous service is in reality a coerced service, as for example in those cantons of Switzerland where citizens are obliged by law to accept office, for at least one term, if elected thereto. Yet another illustration of gratuitous service is found in the English custom of withholding salary from mem bers of Parliament.

The motives which induce men to serve the public without pay are various. In some cases it is the honour or social dis tinction attached to the office, or the satisfaction of one's ethical instincts. It is possible also that incidental benefits accrue to the holder of office, such as the expectation of po litical preferment or the control of government machinery for personal or class ends. But whatever the motive may be, provided an exception be made for boards of management of semi-philanthropic institutions, it is believed that gratuitous service is inconsistent with either efficient government or the most equable administration of public affairs. The reasons for this opinion are four, and as follows : First. The motives which impel men to render gratuitous service are not constant and persistent, and consequently re liance cannot be placed upon them for the most efficient pub lic service. Patriotism, under the impulse of strong excite ment, is capable of effecting prodigious results, but it is apt to die away with the occasion which brought it forth. While, therefore, it may be wise in times of exigency to appeal to this motive for securing service, it cannot be accepted as a basis for rendering continued service. A sense of honour and a desire for social recognition are more reliable as main springs of conduct than patriotism, but even these are not able to endure a long-continued strain. They generally come to men late in life, and their force weakens with the posses sion of the honours sought. Honour and social distinction, like patriotism, are limited to a comparatively narrow range of services. It may be conceded that ambition is more per sistent than the desire for social distinction, but a considera tion of the manner in which it works shows that it exercises greater power in the securing of an office than in the per formance of the duties of the office when secured. For this reason it cannot be accepted as an adequate basis of govern mental service. The only constant and persistent motive, the only motive which works all the days of the week and is of about the same strength throughout the years, is the purely economic motive; that is to say, the desire for income. An analysis of motives surely warrants the conclusion that the demand of the State for service may, with few exceptions, be reduced to a money demand.

Second. It is essential in a good scheme of government that a public officer should be held to strict responsibility for the manner in which he performs the function of his office, and this it is impossible to do if he renders gratuitous service to the public. He will not feel that there is anything person ally at stake in the manner in which he performs public duties, nor will the public be very stringent and exacting in its de mands upon him. If, however, an officer be paid for his ser vice so that he relies upon it for an income, the work which he performs appeals to him in the same manner as that of the physician, the merchant, or the mechanic; and the public also regards itself at liberty to hold the incumbent of an office to a high grade of efficiency. This second argument against gratuitous service may be summed up in the adage : The more business and less courtesy in public affairs, the better the government.

Third. A third consideration against gratuitous service is found in the fact that such service can never be a trained service. In so far as public service is rendered without pay, it must be rendered by men who have already secured a com petency. This means that the majority of public servants must be men of advanced years, and men who have spent the period of life commonly devoted to education in making preparation for work entirely different from that demanded by the State. Gratuitous service, therefore, means that the government must educate its officers after it has taken them into its employ, which is not only expensive in itself, but must lead to an inferior grade of service. From this it appears that the so-called gratuitous service may in the end prove to be a very expensive service. In applying this argument, how ever, one should hold in mind the administrative rather than the legislative functions of government.

Fourth. The final thought against gratuitous service per tains primarily to legislative functions, and springs from the fact that, by excluding from the service of the State all who have not acquired a competency, the danger is incurred of placing the machinery of government at the disposal of the wealthy classes. This suggests the principal argument for the payment of members of Parliament in England. It is claimed that failure to make pecuniary compensation for the services of legislators excludes the labour interest from any representation in the law-making body, since they who clearly understand that interest cannot afford to give their time to legislative functions. Speaking generally, though there are of course many exceptions to this rule, one who is anxious to serve the public gratuitously in any important place of honour and trust comes justly under the suspicion of desiring the office for personal ends. From all these considerations it might easily come about that gratuitous service would be gratuitous in name only. The rule that public service should be a paid service admits of few exceptions.

(3) Consideration of Coerced Service. So far as coerced service is concerned, there is a pretty well-defined practice among modern peoples. The existence of the State is con ceived to be of more worth than any of tRe personal rights of citizens, and, provided political necessities warrant extreme measures, the State is at liberty to exercise its power of co ercion, even to the extent of demanding that a subject place his life in jeopardy for the life of the State; and it depends entirely upon the military policy whether reliance is placed upon a volunteer service with the reserved right of draft in case of emergency, or whether a labour tax is im posed upon a people for the support of a permanent standing army. In either case, however, no invidious discrimination is allowed as between citizens. The coercion of military service must be according to some general law.

Germany presents a good illustration of a military or ganization based upon the exercise of coercive power. All male citizens, with some few exceptions which need not here be mentioned, are obliged to serve three years in the standing army and to remain for twelve years longer as a part of the army reserve. That is to say, Germany imposes a special labour tax for the purpose of procuring military service, and consequently is exempt from the necessity of imposing as large a money tax for the support of the army as would .otherwise be the case. The merit of this system, regarded from a financial point of view, depends very largely upon the relative burdens of a labour tax on the one hand and a money tax on the other, as well as upon the incidental benefits which accrue from the two plans of military organization.

The other system of procuring military service is through money payments to volunteers. This system is followed notably by England and the United States. In ordinary times those who enter the army do so because they find here a profession or calling which is suitable to their tastes. In the United States, where the volunteer system is applied most ,extremely, a military emergency is met through an appeal to patriotism or by the use of the draft. It is true that all en listed men are placed upon the pay-rolls of the army, but, with the exception of those who are induced to enlist in times of peace, this pay cannot be regarded as a fair compensation for the service rendered. Those who enlist through patriotism are rendering a partially gratuitous service to the State, while the service of drafted men is a coerced service. It seems, then, so far as military organization is concerned, that the State is obliged to rely more or less upon its sovereign power of coercion. From an economic point of view there is little question that the labour tax, as practised by Germany, rests more heavily upon the industries of the people than a cor responding money tax. It is equally certain that the con siderations of military efficiency would lead to an acceptance of the German system. The extent, therefore, to which it is wise for a people to rely upon an exercise of coercive power in the maintenance of its military system depends upon the relative importance of industrial and military excellence, and this in its turn is very largely a matter of geographical situa tion and political conditions.

The conclusion to which this consideration leads is, that military service presents something of an exception to the rule that the demand for labour by the State is reducible to a money demand.

Another illustration of coerced service is found in the prac tice by many States of calling upon individuals to devote a certain number of days to work on the public high ways. This is called the "soad tax," and is, in form at least, a labour tax, although it may be commuted into a money payment. Experience shows this procedure to work badly in every way. No systematic improvements are possible under it, since each man insists on paying his tax to the public by working upon the roads adjacent to his own property, and, like all community work, it is rendered without care and with out responsibility. For working out the tax those days are selected which cannot be used for any other purpose, and the uniformly bad condition of the country roads in many parts of the United States is an evidence of the inadequacy . of coerced service in the maintenance of highways.

A third illustration of coerced service is found in the jury system as practised in the United States. A small per-diem payment, it is true, is allowed to jurors, but the universal desire to escape this service shows the payment to be no in ducement. From the nature of the case, however, it is essen tial that courts should be granted the liberty of enforcing this service, since it would be impossible otherwise to carry on the jury system.

In conclusion, it may be said that, with the few exceptions named, and others allied to these in principle, the demand of a State for labour or service is, like the demand for land, re ducible to a money demand; and our investigation may pro ceed on the assumption that what the State wants for the satisfactory performance of its duties is control over an adequate money supply.

4. General Divisions of the Science of Pinanee. It re mains for us to consifler in this introductory chapter the nature and scope of the specific class of questions which claim the attention of the Science of Finance. As was remarked in connection with the definition of this science, all questions which find proper place in finance pertain either to the deter mination of the legitimate and necessary fiscal wants of a State, or to the manner in which those wants may be the most economically and justly supplied. Our science divides itself into two parts, along the lines thus marked out. Part I concerns itself with Principles of Financial Legislation and Administration, and will be treated under the two heads of Public Expenditures, and Budgets and Financial Organiza tion.

Under Part II will be found an analysis of the Source of Public Revenue, which leads to a separate consideration of Public Property, Taxation, and Public Credit.

A study of the source of public revenue comes naturally into the Science of Finance. Indeed, most English writers have contented themselves with a consideration of this part of the subject, and have commonly entitled their treatises Taxation, Taxation and the Funding System,t and the like. It may be a little more difficult to perceive with clear ness the steps by which the theories of expenditure, the con siderations of budgets and budgetary legislation, and the rules and principles of financial organization are brought into the domain of this science; or, if the mind easily admits a con sideration of these questions, the limit to which they may be properly carried is not so easily determined. For this reason it may be well to explain somewhat in detail these lines of in vestigation and the manner in which they are introduced.

A slight knowledge of public affairs makes it evident that a person or a party intrusted with the exercise of govern mental power is subjected to certain peculiar temptations that present themselves in connection with financial administra tion. There is, in the first place, great danger that the government will demand money for the purpose of perform ing services which may be performed better and more cheaply by individuals. Such a demand would result in an unwar ranted increase of public revenue. Closely allied with this is the danger that excessive demands for money may be made by government for purposes which are approved. This is no evidence of corruption on the part of legislators, nor does it imply that they intentionally make excessive demands. It is evidence rather of carelessness, or of ignorance of the con sequences bound up in a given vote. It is an inevitable result of the transaction of business by a large body of men. The remedy open to the citizen against wrongs of this class, ex cept in case of constitutional or legal provisions which limit the amount of taxation, is the political remedy. He is at liberty to cast his vote against the party representing the government guilty of an undue demand for money, and, in order that he may exercise this political remedy wisely, it is essential that the general principles of public expendi ture should be clearly understood. How far is a govern ment justified in encroaching upon the income of citizens for the purpose of the public service? What relation has pub lic expenditure to the stage at which a people have arrived in their social, political, and industrial development? Are there any fundamental principles of expenditure which may be used as canons of judgment? What in general are the facts of public expenditure? What have been the move ments in the past and what are the tendencies at present These and other questions of like sort must receive considera tion before one can judge correctly what proportion of the actual income of a nation may be legitimately demanded by the government. It seems, therefore, that because of the temptation to over-expenditure on 'the part of the government —which history declares to be an ever-present temptation,— and since the only method of guarding against undue demand for revenue lies in an enlightened public sentiment, an analysis of Public Expenditure finds easily and naturally a place in the Science of Finance.

There is also that the methods adopted for raising the necessary funds will not be in harmony with the demands of sound economy, and that the revenue system will in conse quence disturb the orderly industrial development of the na tion. The second fiscal axiom would in this manner be dis regarded, for such a revenue system would tend to impair the patrimony of the State. The dangers here brought to view are such as are incident in the passage of money bills. They cannot be controlled to any great extent by statutory enactment. Much, however, can be done to avert the dan gers thus brought to light if the legislative body, before taking up any specific question of expenditure, lay down such rules of parliamentary procedure as will insure adequate study of all financial measures and render ignorance on the part of any legislator respecting the consequences which follow upon his vote a political crime. In this manner the danger of ill advised financial legislation will be lessened. A consideration of such parliamentary rules constitutes that chapter in the Science of Finance which passes under the name of Budgets, and the propriety of including budgetary legislation in this study is thus rendered apparent.

The third danger to which the public is exposed in connec tion with administration is found in the fact that money properly appropriated may be lavishly expended. No mention need be made of the temptation to theft always pre sented to men in control of large expenditures, nor of the fact that the accounting departments of government must provide means of detecting such an offence. As in the case of appropriations, the chief danger lies in the carelessness of public servants, and in the desire of men intrusted with office to magnify their personal importance by increasing the amount of money placed at their disposal. It is the weaknesses of officials rather than their criminal inclina tions. That result in lavish expenditures, and it should be the aim of a well-organized financial administration to pro vide for the sure exposure and quick punishment of an in judicious or careless use of public funds. In no other manner can the fundamental requisite of a sound financial system be realized, namely, that a service rendered by government should be rendered at cost.

From the foregoing analysis we arrive at the following conclusions : A theory of Public Expenditures finds place in the of Finance because of the danger to which the public is ex posed that the administration will make excessive and un necessary demands upon the incomes of citizens.

Budgets and Budgetary Legislation are included in this investigation because established parliamentary methods are essential to an intelligent vote upon financial questions.

A consideration of Financial Organization is necessary to a comprehensive investigation into public finances because established rules of procedure and an appropriate administra tive organization are necessary for the successful execution of fiscal laws. In a comprehensive treatise this might pro perly be made the subject of an independent investigation; in this essay, however, it is presented as the concluding chapter of budgets and budgetary legislation.

public, service, government, financial and political