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Modern Financial Science


§ 13. We shall first have to speak of Lorenz von Stein.

If we compare his Lehrbuch der Filuznzwissenschaft 5th revised edition 1884-86) with that of K. H. Rau, which it was intended in a way to replace, and which it actually did to some extent replace, the contrast is as great as could well be imag ined. No work, whether compendium or other book, can offer definitive conclusions, but it can present with approximate faith fulness the accepted body of scientific doctrines in a relatively definitive form. Herein lies the strength of Rau's work. A complete disregard, or rather an evident ignorance of the pro founder problems of the science, and therefore of all that gives charm and significance to the later developed science, brings it about that the novice accepts with a pleasing sense of security the superficial exposition which the book affords ;—an easily comprehensible classification, sensible and preferably common place truths, backed by a painstaking presentation of legislative and statistical material, together with its bearing on practical life. This is what the common sense of the learner will most kindly take to and what he can most easily grasp. He has no occasion to complain of being called on for severe mental effort.

Lorenz von Stein, on the other hand, is to be counted as the one who, more distinctly than anyone else, has written a com pendium of the opposite kind. The importance of his book lies by no means in its presenting a resume of the aggregate of pre vious investigations. Rather, he makes use of the form of the compendium as a vehicle for some bold constructive work that goes far beyond the bounds of an exposition of scientific doc trine and erects new and independent doctrines. These con structions may in some part be compared to the rockets of a pyrotechnic display, which momentarily shed a dazzling light, only to leave us in a still profounder darkness the next instant. Stein's doctrinal edifice is all the less calculated to inspire a feeling of security and habitability, since the architect himself presently replaces it with further developments, designed on still bolder lines and of a still more problematical character. Much less can his treatment of positive materials, of the literature, of legislation, of statistics, contribute to a feeling of security. These matters of detail, too, are disposed of at one bold stroke.

And still, we should be devoid of all intelligence, and be possessed of a very finical conception of the development of all science, our own included, if we entertained a doubt as to the desirability of having a Lorenz von Stein replace a K. H. Rau. Not that anything new has been erected which the new era may accept in place of the earlier structure, but a ferment has been introduced into the science which has been at work for a genera tion past, and which serves to stimulate, if not to excite, every reflecting reader of Stein's works unto this day. It is a charac teristic fact that the man's lengthening years and the successive editions of his book bring results the opposite of what we should expect of any other author under like circumstances. Instead of further establishing and reinforcing the truths attained, there is a continual extension of the structure. From the original single volume there presently develop two, and finally four. In close con nection with this is the fact of a continual widening of the scope of the work,—something of doubtful value by itself considered, and more than doubtful for the purposes of a compendium. In consequence we have in the treatment of the .subject, a signifi cant accentuation of insignificant matters, as also frequent reasser tion of what is itself quite open to question.

According to the conception of the science which I have advocated above, the profounder and more far-reaching relations subsisting between the financial system and the state by no means require that the later expositions of the Science of Finance should submerge themselves in a sea of general economic con siderations. It is rather to be accounted a mark of an over wrought propensity to systematization, which works confusion for the development of the science and especially for the purposes of a compendium of the science, if each new branch of Econom ics is sought to be built up on an independent and wide-reaching foundation, as is done by Stein when, in consonance with his gen eral dialectical method of contrasting state and society, he treats So cial Economy, Administrative Science, and the Science of Finance as distinct and separate subjects. The lucidity of this method is further obscured by employing the same concepts with a differ ent value in the different branches of the discussion ; as happens in the latest edition of the Finanzwissenschaft, where great emphasis is laid on the distinction between " Financial Consti tution " [Finanzverfassung] and " Financial Administration " [Finanzverwaltung], and this distinction is permitted to traverse at discretion the concepts of " Constitution " and " Administra tion" as commonly accepted both by Stein and others.

I shall have to refer again, at this point, to what has already been said, both of an encyclopedic and a methodological nature with respect to the relation of Law [Recht] to Economy [Wirth schaft]. It is only by reaching a clear and dispassionate com prehension of the elements entering into the inquiry that we can hold our ground against this imposing mass of fog reared out of a superabundance of stately words.

§ 14. Nothing more than a brief mention can be made of Karl Um pfenbach 's Lehrbuch der Finanzwissenschaft ( 1859-60 ) , which appeared simultaneously with Stein's book. It attacks the accepted doctrines at many points, with a good deal of incisive ness' (among other things the theory of the Regalia).

In its externals, the work of Adolph Wagner connects directly with that of Rau. While Wagner was the one to whom Rau himself chose to intrust the elaboration of the sixth (post humous) edition of his Finanzwissenschaft (1870) there is none among the later generation of German economists on whom the conviction has so deeply impressed itself as on Wagner that the Science of Finance must be brought into a closer and profounder relation with general Political Economy and that this result is to be attained by means of a profounder acquaintance with the facts of economic life. The reconstruction of the science which this involves differs essentially from that attempted by Lorenz von Stein. It is not attempted to erect a spacious structure of a gen eral political-scientific character. Rather, what is sought to be effected is a thoroughgoing reorganization of the general theory of Economics, a theory which Stein did little or nothing to alter — apart from the great indirect influence which his work has exerted, but which he has not allowed to affect his own economic theory.

It was a remarkable coincidence that this conflict between the traditions of Cameralistics —the complacent self-sufficiency of cameralistic therapeutic dexterity—and the impatient onset of the new spirit, strongly charged with socialism, should come to a head within the same house. Wagner's efforts, directed solely to an elaboration and extensive emendation of Rau's work, presently led to the need—perfectly characteristic of the new epoch—of finding a new basis on which to erect a new and inde pendent science of finance. This work on the general principles (first published in 1875 ; 3. ed., 1892-95), was not entirely com pleted before Wagner's great energies were again bent on the Science of Finance in a work planned on such broad and profound lines as to unite views widely different from Rau's on general questions with what was best in Rau's work—painstaking com pilation and indefatigable application to the preparation of a compendium—and that in improved and augmented form.

To this is to be added that Schonberg's Handbuch der poll tischen Oekonomie (t 882 ; 3. enlarged edition, 189o-91), with all its numerous array of contributions, had among its collaborators no more powerful supporter than Wagner. In unselfishly lend ing his aid, in the way of exhaustive monographs on Direct 'Cf. Nati onalokonomisehe Studien , by the present writer (i886), pp. 679-72o.

Taxes and on Public Credit (as also on Credit, Banking, and Insurance), the motive was ever present of making his own treatment of finance all the more exhaustive.

In this way, when his Grundlegung is counted in as a necessary substructure to the system, Wagner's Finanzwissenschaft comes to be a work which, for volume and energy, has no rival in the literature of the subject. And it is only to be hoped that the author may be permitted soon to complete this great work, and may then return to the prosecution of the work on his Grund legung.

So far there has been made public the first part (2. ed., 1877; 3. ed., considerably enlarged and revised, 1883), con taining: the Introduction ; The Organization of Fiscal Adminis tration [ Ordnung der Finanzwirthschaft]; Fiscal Demands [Finanz bedarf]; Industrial-Fiscal Institutions [Privaterwerb]. Further, the second part (188o), containing : Fees, and the general theory of Taxation (2. enlarged ed., 189o). Of part third, which gives a history of taxation in different countries, there have (1889) appeared three instalments (1886, 1887, 1888). To judge by the elaborate treatment of the tax legislation of the principal countries which these contain, the conclusion of the work is not yet near at hand.

§ 15. The reason for not having mentioned Wilhelm Roscher's work earlier is perhaps rather a formal than an intrinsic one. It is only quite lately that the fourth and nearly the last' volume of his System der Volkswirthschaft, containing the Finanzwissen schaft, has been made public. The first was published in 1854.

Below the city of Zurich, the waters of the Sihl pour into the Limmat, but long after the two streams have united it is possible to distinguish the colors of the two currents flowing side by side in the same channel. Very similar is the case with the process of assimilation brought about by the advancing development of life and science. In Roscher's work the juxtaposition of the tra ditional, half English half cameralistic body of doctrines and the newly acquired philological-historic elements is particularly striking. The Columbus's Egg which we find in the Grundriss of 1843 (vol. i. sec. iii.) has remained to this day the egg of Columbus ; the development of what it suggests is reserved for later generations. And what yet remains to be worked out on the lines of this suggestion, as also what is unattainable in it, has been briefly indicated in the first volume of the present work.

Roscher's System der Finanzwissenschaft, ein Hand-und Lesebuch far Geschaftsmanner and Studirende (1886) has, just as was the case with the precedingh third part of his course in Political Economy, met so widespread a demand that a second edition was necessary immediately after its first appearance. Yet Roscher thinks necessary in his preface to offer an apology for his "venture," inasmuch as the works of Lorenz von Stein, Adolph Wagner, and Leroy-Beaulieu were already "in posses sion of the literary market." From the standpoint of the literary market this apology would be manifestly uncalled for if it were true that this work—as contrasted with the earlier works named above—had carried the germ contained in the his torical method out to an adequate development.

But unfortunately that is not the case. Precisely as in the other volumes of the course, or perhaps even more distinctly, we here again meet with the old subdivision and method of treatment, in much the form in which it was handed down from the Cameralists. In the one case, just as in the other, the peculiar features of the work are to be found mainly in the notes —peculiarities lying not in the multitude of citations which are drawn from first, second and third hand sources quite after the traditional method of the compendium, but in the attractive method of treatment, which brings a great mass of polyhistoric material to bear on the cameralistic maxims. When employed in this direction Roscher's talent is at its best ; whereas, when his great industry is applied to the new ideas and problems of the science his efforts, though worthy of respectful attention, are not always valuable for their results.

It is to be mentioned, among the good features of this book, that it is of such a character as to render it accessible even to the most moderately gifted intellect. And this office, of a text book for beginners, it will probably continue to perform for some time to come.

§ 16. It is not only as a part of our duty of enumeration of eminent services rendered the science that we have to call atten tion to particular monographic works, as well as to the compen diums ; it is also a characteristic fact in the development of any energetically progressive science, and especially as regards the latest methods of research employed in our science, that a con tinually greater volume and variety of work will assume this form.

Mention is to be made, in the first place, of certain works which, both as regards date and as regards spirit and point of view, belong to the earlier period. Such are the painstaking writings of K. G. Kries, which penetrate deeper into the funda mental principles of taxation than his predecessors had done ; as instance his discussions of the tax on land (Vorschlage zur Regelung der Grundsteuer in Preussen (1855), as also his papers, of the same date, treating of the English local taxes, the New York property tax, the Prussian income tax (Zeitschnft fir die gesanunte Staatswissenscluzft, 1855). These labors have been con

tinued in a like spirit and with similar industry and insight, but unfortunately in a very inaccessible form, by F. J. Neu mann (Die progressive Einkommensteuer in Staats- und Gemeinde luzushalt, in the Schrtften des Vereins fur Sozialpolitik, 1874 ; also several unfinished papers in various scientific journals ; and finally, Die Steuer und das offentliche Interesse, 1887).

The later years of the development of our science have brought forth chiefly works of an historical character. Partic ular mention is to be made of Gustav Schmoller's investigations in Prussian financial history (Die Epochen der Preussischen Finanz politik, 1877 ; Studien fiber die wirthschaftliche Politik Friedrichs des Grossen and Preussen fiberhaupt von 1680-1786, in Schmoller's Jahrbuch fir Gesetzgebung, Verwaltung und Volkswirthschaft im Deutschen Reiche, 1884 to 1887). Further is to be mentioned Gustav Schoenberg's Finanzverhaltnisse der Stadt Basel im vier zehnten und fiinfzehnten Jahrhundert (1879). Also the yet unfinished work of Karl Buecher, of which one bulky volume has already been published ; Die Bevolkerung von Frankfurt am Main im vierzehnten and fiinfzehnten Jahrhundert ; Sozialstatistische Studien (1886), the second and third volumes of which, still to be published, are to discuss more particularly the finance-historical material contained in the Bede books of the archives of Frankfort.

In addition to historical research, very efficient service has also been rendered the science of finance by statistics. In some directions official sources have been of great service. So, for example, the work of Ernst Engel, in his Zeitschrift des Kinzie. preussischen statistischen Bureaus; likewise the related work of Herrfurth in Prussian communal statistics ; likewise the work carried on at the instance of the International Statistical Con gress. The prospective arrival of a hitherto remote ideal seems to be promised in the announcement by K. Buecher of a presenta tion of the rich materials in the Frankfort archives, treated by a method which is to unite the statistical with the historical.

§ 17. As it always happens that the most notable currents in the development of any special science find expression in the journals, so it also happens in this case that the exuberant growth of German political economy is most immediately reflected in our periodical publications. And it is accordingly also true that the special branch of the science of which the present volume treats, just at present manifests its vitality in this way in an especial degree.

It is not only that the journals occupied with economic and political science generally give evidence of a developing activity (Jahrbiicher fiir Nationalekonomie und Statistik, edited by Johannes Conrad ; Jahrbuch fiir Gesetzgebung, Verwaltung und Volkswirthschaft im Deutschen Reich, edited by Gustav Schmoller ; Zeitschri f t fiir die gesammte Staatswissenscluzft, edited by Albert Schffle ; Schnften des Vereins fir Sozialpolitik : Staats- und Sozialwissenschaftliche For schungen, edited by Gustav Schmoller). As indicative of the con siderable division of labor already attained, we have, in the Finanz Archiv, a special journal devoted to Financial Science, edited by Georg Schanz (beginning with 1884), and we have further, in the Annalen des Deutschen Reiches fair Gesetzgebung, Verwaltung and Sta tistik, a progressive compilation in the form of a periodical, which is at the same time occupied with a variety of materials bearing on matters of taxation and tariffs, and which also admits scientific dis cussions. While the work of this last named journal is in the nature of the case confined to the legislative and adrriinistrative affairs of the German Empire, at the same time that it gives some attention to matters of a different character lying within the same geographical area, the Finanz-Archiv on the other hand aims to give a continuous and comprehensive view of the financial affairs of all countries of importance, from a general point of view or through discussion of special problems.

Valuable auxiliaries are also the periodically published man uals that give in condensed form the statistical data of finance from year to year. Such is the Genealogische Hofkalender of Gotha, with its well-known Di plomatisch-statistisches Jahrbuch. So also, latterly, the Statistisches Jahrbuch fair das Deutsche Reich, published by the Statistical Bureau of the German Empire, in imitation of the Statistical Abstract of the United Kingdom dating back a generation earlier. This gives in a brief form a comprehensive view of the more important political and financial data of Germany.

§ 18. It holds true even in a more eminent degree with respect to the Science of Finance than with respect to the general science of Political Economy that the literature of other countries at the present time ranks below that of Germany. This is owing to the antecedents of the science in Germany. Cameralistic Science has afforded a broader area of cultivation for the subject, and this breadth has been cultivated, under the guidance of the later scientific movement, with great historical and philosophical depth.

It is well known that during the period of its prime, and the period following its prime—from Adam Smith to the close of John Stuart Mill's activity, that is, for fully one hundred years — English political economy treated the science of finance as nothing better than a scanty appendage. It is a significant fact that no work worth mentioning on the science of finance has yet (1889) been published in the English language (though some considerable contributions have been made financial history, as, e. g., by Sinclair, and later by Dowell 2 . In this respect, too, the latest phase of the development of economic science in Eng land serves to give greater promise.' .The restless activity of the Americans, their gratifying participation in the development of the science in Germany, which speaks so well both for them and for it, will no doubt in due course of time bring forth good fruit, as it has indeed already yielded some excellent things. This is evidenced more particularly by the new scientific journals that are now published at so many of the American seats of learning. So we have the Political Science Quarterly (published by the faculty of political science in Columbia College, New York, beginning with 1886) devoted to the political sciences generally, but also occupying itself at the same time with topics of an economic and financial character. Also the Publications of the American Economic Association, which likewise date back to the year 1886. Also the Quarterly Journal of Economics (published for Harvard University, beginning with 1886).

Gratifying as have been the results of the influence exerted by German science on American students, the painstaking indus try which it has inspired in Italian students has been no less so. The latter country has the advantage of a longer period of pre paratory growth and a great number of universities and schools. Hence the presence, for a long time past, and more particularly recently, of an exuberant literary productivity. But the most characteristic feature of the new science in the new Italy is, after all, its leaning on the German school. There is a very general familiarity with the German language (a knowledge of which the younger generation of Italian scholars acquire by residence in Germany) which they are accustomed to read and write, while they also eagerly study German publications. Hence a faithful adoption of the German method and assimilation of the German point of view. The outcome of this frank acceptance of the best result obtained elsewhere will be, in this case as in so many others, the ultimate attainment of an independent standing. Just as we find that in modern German art a thorough-going deterioration, or rather extinction of all true taste, has given place to norms borrowed from other ages and other peoples, and that the taste so regenerated is working itself clear and express ing itself in creations of its own,—so also will the science of Italy, through its unreserved acceptance of foreign norms, one day find itself rewarded with splendid achievements.

It is a notable fact that at the same point of time with the appearance of the above-mentioned North American journals a similar, but more comprehensive organ of our science has made its appearance in Italy, the Giornale degli Economisti (edited by Alberto Zorli), in which Carlo Ferraris, a disciple of Wagner, takes a specially active part.

§ 19. We know what a peculiar position France holds in the development of Political Economy. It has already been reviewed under the head of the History of Political Economy, from the earliest school of the Physiocrats down to the time of the Social ists and the later scientific movement.

As regards the science of finance, however, certain peculiar circumstances, outside of the general science of Political Econ omy, have had their influence.

While their general Economic Science, and with it their financial speculations, are yet confined, in that country as in England, within the limitations imposed by the old school, the situation is, after all, quite different from what it is in the latter country. France is and has been possessed of a large and well educated class of administrative officials, to whom the country owes a financial literature of like character with that dealing with the other branches of her administrative system.

It is true, this literature occupies a middle ground between compilation and science proper (I may refer to what has already been said of the relation of Law and of Administrative Law to our science). Still it is to be recognized as a fairly effective preparatory work for the establishment of a vital relation between the science and the affairs of practical life ; and in any case it is a great advance over the wide chasm that exists in England.

So far as a real French economist has applied himself to the treatment of the Science of Finance (as Leroy-Beaulieu has lat terly done> the result has been a combination of the facts offered by this financial administration with the theoretical views peculiar to the old school, in which matters of fact have at times so far asserted themselves as to bring into consonance with this ortho doxy financial institutions which economists of the same faith in England or Germany hold to be entirely incompatible with it (such as the tobacco monopoly).

And conversely, the French economists, in harmony with the body of legislative enactments and all the dominant political parties far out towards the left, are for the most part inclined to condemn those kinds of tax legislation which orthodoxy in England and Germany has long ago given in its adherence to, and they have reached unanimity on this matter from the standpoint of this same school. The income tax may be cited as an example.

The common ground in all these contradictions is a habit of thought which shows a narrowness that is incapable of passing the boundaries of their own country—the lack of such a reason ing faculty as would find its way through the data of practical life and arrive at a general truth. Or it is the inexpensive pro fundity of the "practical man," who carries his point on the ground that what exists here and now is and must be all right.

Of the literature which I have thus characterized the follow ing works may well be particularly mentioned : Esquirou de Parieu, Traite des impots, considerls sous le rapport historique, iconomique et politique en France et €1 l'Itranger (2nd edition, 1866, 4 vols.).

Paul Leroy-Beaulieu, Trait/ de la science des finances (1877, 4th edition, 1888, 2 vols.).

Ame, Etudes sur les tarits de douanes et sur les tarits de com merce (1876, 2 vols.).

Vuatrin et A. Batbie, Lois administratives franfaises; premiere parties organisation administrative; seconde part*: matieres adminis tratives—finances, travaux publics ( 1876 ).

Dictionnaire des Finances; publii sous la direction de Leon Say par L. Foyot et A. Lanjalley (began to appear in 1887; now nearly finished).

An idea of the great volume of this class of literature may be got from Baron von Reitzenstein's paper on " Indirekte Verbrauchsabgaben der Gemeinden" (Conrad's Jahrbiicher frir Nationalokonomie and Statistik, 1884 ; Neue Folge, vols. viii. and ix.), and from Wagner's chapters on French taxation in the third volume of his Science of Finance (1889).

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