Home >> The-science-of-finance >> Administration Of The Tax to Voluntary Aids >> Facts Respecting Public Expenditures

Facts Respecting Public Expenditures


The theory of public expenditures submitted in the .pre ceding chapter rests primarily for its sanction upon an analysis of those motives for action and conditions for judgment that present themselves to the common observation of all. If these motives and conditions have been properly understood, and their relative importance properly apprehended, the conclu sions of the analysis cannot have gone far astray. Partly for the sake of testing these conclusions by such statistical data as it is possible to discover, and partly for the purpose of pre senting the theory in a more concrete form, but more espe cially with a view of discovering to what extent increased expenditure means an increase of burden, and in what manner the weight of the public service shifts itself from time to time, it is the design of the present chapter to submit a few facts pertaining to the inquiry in hand. Certain questions, also, capable of throwing added light upon the problem of public expenditure may suggest themselves as the investigation pro ceeds.

15. Character of Public Expenditure Prior to the Nine teenth Century. At the close of the Napoleonic wars it was the general assumption on the part of statesmen that public expenditures had reached the limit of their expansion, and it was expected that the payment of the principal and the reduc tion of the interest of public debts would permit a reduction of ordinary expenditures. " Gentlemen," exclaimed Villele, the French Minister of Finance, when the French budget reached for the first time a million francs—" gentlemen, salute these figures; you will never have an opportunity to contem plate them again." Although this sanguine view of states men and publicists has not been realized, it is easy to under stand the state of mind by which it was indulged. In the first place, it must be remembered that military expenditures, including " marine and colonial," had for three hundred years been among the chief items in the annual budgets. These three centuries had witnessed the development of nationality through the centralization of power in the hands of a personal monarch. The feudal array had given place to the standing army, and the maintenance of paid retainers had become a necessity on account of dangers to the authority of the prince from within, and to the interests of the nation from without. The period was marked by internal revolts and commercial wars. " Fully one-half of the income of European states," said Justi in um " is used by the military; in states with threatening neigbours two-thirds; in Prussia three fourths." f The military burden of Prussia during the period under consideration seems to have been up to the margin of the ability of the people to bear. Placing in comparison the two dates 1713 and 18o6, it appears that the increase in popu lation had been in the ratio of 1 to 6.69; the increase in the army meantime had been in the ratio of 1 to 6.58, and the increase in the expenditures for the army in the ratio of 1 to 6.5o. So uniform an expansion of these three factors sug gests, if it does not prove, that the army took from the people all the people had to surrender. The budgets of other Euro pean states reflect the same general fact, although in France the lavish expenditures incurred for the court display were added to the burden of military expenditures. Speaking very broadly, this regime of monarchical rule was brought to a close during the first decade of this century, and with its fall it was natural to assume that the burdens peculiar to the past would no longer be continued.

It must also be remembered in this connection that the philosophy of the early part of this century assumed to regard all government as evil, and proposed to substitute for it the principle of self-interest and voluntary association. One who believes in laissez-faire must conclude that a reasonable peo ple will narrow, so far as possible, the functions of govern ment, and that the expenditures of the State will, in conse quence, be curtailed. This was the accepted doctrine of the first years of this century, and it is not strange, the balance of power having been restored, that the statesmen of Europe expected a reduction of public expenditures.

The third fact to be held in mind is that previous to the present century land had been the chief reliance of the fiscal system. Agriculture was the principal industry of the peo ple, and it was difficult to see, in the light of its slow develop ment, what new sources of income could be opened should the government desire to expand its functions. Even Macau lay did not appreciate how rapidly national wealth was to grow.

In these three facts, then, do we find an explanation of the sanguine view with which financiers and statesmen re garded the nineteenth century at the close of the Napoleonic wars : (I) the people had gained influence in the State, and it was not foreseen that they would be as powerfully swayed by the spirit of national ambition as had been the rule of absolutism which they had overthrown; (2) the theory of social autonomy had succeeded to the practice of minute administration, and with the curtailment of public duties it was reasonable to expect a curtailment of public ex penditures; and (3) to these natural errors in judgment must be added the fact that the wonderful expansion of industrial life, and the resultant changes in the structure of society, lay beyond the horizon of the most astute observer.

18. Public Expenditures Since 1830. While it is true that the termination of the Napoleonic wars brought to a close the period in which military and court expenditures formed the most considerable item in the ordinary budget, it is also true that it marked the beginning of a new fiscal period; and, in considering the facts of public expenditures, so far as reflected in reliable data, it may be well to notice, first, the increase in national expenditures since 183o.

The past sixty years possess an industrial and political character peculiarly their own. The year 1830 is recognised by students of industrial history as the beginning of that form of industrial organization which is the peculiar product of the nineteenth century, and which doubtless will be the permanent characteristic of the century upon which we are about to enter. The industrial revolution began, it is true, with the period of inventions in 176o. But invention in the domain of pro duction could never have wrought those changes which marked the revolution of modern industry had it not been for the development of modern methods of transportation. This is no place to trace the results of railways and steam naviga tion. Suffice it to say that the industrial world has been changed thereby, or ultimately will be changed, from an aggregation of local centres to a condition of national indus try. New social forces, as well as new conditions for the prosecution of industry, were introduced with steam trans portation; and the year 1830 is the year, if a single dat must be chosen, for an event that in reality spread itself over a series of years, in which the commercial world began to realize the excellence of railways and of steam navi gation, and their significance for industry and trade. It is natural to expect that so momentous an event would be re flected in public administration and in the finances of the State.

What, now, are the facts of public expenditure since 183o? So far as the more important countries are concerned, national expenditures may be traced with some degree of accuracy. Local expenditures present greater difficulties. On page 87 will be found a graphic statement of the increase in the national expenditure of European states from 1830 to 189o. The data for this diagram are taken, for the most part, from Mulhall. While it is doubtless true that this writer possesses a gift for combination and estimate that few statisticians care to imitate, a somewhat careful scrutiny warrants the conclusion that in the present case the impres sion left by the diagram is a correct one.

From the statement given it appears that public expendi, tures in Europe have increased from $955,000,000 in 1830 to $3,600,000,000 in 189o, being an increase of cent dur ing the sixty years named. It is also to be observed that the rise in the curve of increased expenditure is more marked with each succeeding decade.

The diagram shows also the per capita increase in expendi ture for European states. Beginning with a charge of less than $4 per capita in 183o, expenditures have risen to some thing over $11 per capita in 189o. It is thus evident that the increase in population has not kept pace with the increase in national expenditures, a tendency which would be empha sized if to national expenditures the cost of local government were added.

It must not be assumed that the curve in the above dia gram reflects the course of expenditures in any individual State Each government is subject to the exigencies of its own co ditions, and if studied independently will disclose a curve pe culiarly its own. It is manifestly impossible to undertake such a study in a curtailed treatise. For the purpose of a more definite impression, however, there is inserted in the next summary a statement of expenditures for a few selected nations, so far as continuity of political life and reliable statements respecting the cost of government permit. The classification was suggested by Fournier de

Flaix, in his Traite de Critique et de Statistique Con: park des Institutions Financieres, who divides modern states into three classes as introductory to the study of their repre sentative financial systems. His classification is as follows: " First, those new states where the abundance of resources 1 corresponds to the relative youth of the states themselves; such is the case in the United States, Australia, the English colonies of Africa, and the Dominion of Canada. Second, those states which by comparison are more or less ancient, as Russia and Italy, where temporary penury of resources is a serious embarrassment to the solution of financial problems and to fiscal administration. Third, those states which enjoy full prosperity, as England and Germany, which on account of their constantly expanding economic development are in a situation to accomplish numberless changes in their financial organization and administration." In the main this is an admirable classification, but for our purpose we venture to modify it in one particular. Youth or age in a nation is in itself a matter of relatively slight signi ficance. The important factor which determines the ability of a people to spare a continually increasing amount for public expenditures, or which opens up to the nation the need of new expenditures, is found in the yet undeveloped resources of the nation. Or, to express this thought in another way, a per capita expenditure must be counted as great or small ac cording to the probable growth of industry and wealth in the future. Now there are two elements that determine a nation's potential development. The first is measured by the per capita area of land, the second by the general grade of in dustrial intelligence and industrial skill; and the classification which we have adopted rests upon the possession by a people of one, or both, or neither of those elements of industrial progress. It is as follows : Class I. Those nations that possess both undeveloped re sources and a high degree of industrial intelligence, such as the United States, Australia, and in general all colonies other than those of Latin peoples.

Class II. Those nations that possess a high grade of in dustrial intelligence and no considerable amount of unde veloped resources, such as England, France, and Germany.

Class III. Those nations that possess undeveloped re sources but no considerable industrial intelligence, such as Russia and most of the colonies of Latin peoples.

Class IV. Those nations that possess neither undeveloped resources nor industrial intelligence of the first rank, such as Italy, Spain, Greece, and Austria-Hungary.

Now it is clear that the same amount of per capita expendi ture, or the same rate of increase in the per capita expendi ture, cannot bear the same relative significance for all peoples. As the burden of what government expends at any particular time is measured against the social income, so the burden of a constantly increasing expenditure must be measured against the promise of a future industrial development.

In view of what is known of the industrial and political history of the nations whose expenditures are included in the above summary, there are quite a number of comments which present themselves for expression. Consider the ease with which the United States raised her ordinary expenditures from $63,000,000 in 186o to $309,000,000 in 187o. Australia shows even greater alas t ic ity in the expansion of expendi tures. The cost of government at the present time means relatively less to these peoples than to any other peoples of the world, for not only do they have ample means to meet present expenditures, but they have both skill and natural resources for development in the future. This potential fiscal ability is a dangerous possession, for it invites carelessness in the control of public affairs; but it should also be remem bered that it contains great promise.

Turning now to the second class of governments, it is evident that financial expansion in England was prior to the period covered by the above summary. This is true in in dustry as well as in finance, and it is at least possible that national expenditure in England since 183o foreshadows what will prove to be the course of national expenditure in other countries. It is probable that the weight of national expendi tures rests as lightly in England as in any other country. Even the per capita expenditure has not greatly increased. Germany seems to have taken upon herself new life since the establishment of the Empire. France, too, shows wonderful industrial attainments, but, owing to a slow increase in popu lation, appears to labour more heavily under her increased expenditures than either of the other nations with which she . is classed.

Little can be said of Russia, except that her financial strength lies in her immense population and her undeveloped natural resources. An analysis of her budget would show that the claims of the civilizing interests upon her annual expendi ture are less than for most of the other nations of Europe. Of her aggregate expenditures 29.54 per cent is for the support of her debt, 25.44 per cent for public defence, while 3.8o per cent only is devoted to education and art. Her ambitions are pri marily military, and when the character of her southeastern neighbours are held in mind it may be doubted if her budgets will show any considerable increase in expenditure for what we have termed the " developmental functions " until by her conquests she meets with a people as civilized as herself. To suggest what would be the effect upon European budgets of the completion of the scheme of conquest which seems to be the destiny of Russia would be an unwarranted indulgence in speculation. One may, however, venture to assert that it would bring about a decided change in the ratio of military and non-military expenditures. The chief obstacle at the present time to the reduction of expenditures for the army and navy in Europe, and to the consequent expansion of that class of expenditures designed to raise the grade of common living, is found in the military ambition of Russia. ld that ambition be exhausted by the accomplishment of its aim, or could it be weakened by the growth of commercial interests/ among her people, the financial situation of Europe would be greatly relieved.

The above consideration leads naturally to a characteriza tion of the financial situation of such countries as Italy, Spain, and Austria. These peoples have neither undeveloped resources, as is the case in Australia, nor do they possess a high grade of industrial and commercial activity, as is the case in England, but the expenditures which they are called upon to meet are nevertheless constantly increasing. By virtue of their intelligence they should rank with the beg kV industrial peoples of Europe, but by virtue of their " tem porary penury," to quote Fournier de Flaix, their ability to establish a rational scheme of expenditures is seriously em barrassed. They need to invest large sums for the develop ment of such resources as they possess and for the industrial education of their people; they find themselves obliged to acknowledge military expenditures as relatively more impor tant, and to drain the earnings of their citizens for an un profitable investment of the nation's capital. These are the peoples who feel most seriously the burden of increasing ex penditures, since for them it means delay in reforms which they regard as important, and in the attainment of a higher plane of living by their people.

These observations have perhaps been sufficiently ex tended to impress upon the reader the fact that while there may be a fundamental social law reflected in public expendi tures, the conditions under which that law asserts itself are so various that the significance of a given amount of expendi ture or of a given tendency in expenditures must be peculiar/ for any particular nation studied. Our further investigation will confine itself for the most part to those nations that have fairly ample resources at their command.

17. Publics Expenditures and Wealth. No statement of the tendency in public expenditures is complete that fails to compare the increase in expenditures with the increase of wealth. It is not possible to arrive at a satisfactory estimate of wealth for any considerable number of people. The state ments that follow are confined to the United States, Great and France. Since the dates for which reliable esti mates of wealth may be obtained are not the same for each nation, no attempt is made at a single uniform statement

industrial, increase, expenditure, nations and people