RELATION OF PUBLIC EXPENDITURES TO THE CATION OF GOVERNMENTAL FUNCTIONS.
The important question which the theory of expenditure asks regarding the several lines of public service pertains to the influence of a developing civilization upon the grants de manded for the support of each service, and the discussion which follows will be with a view to some conclusion upon this point.
11. The Protective Functions of Government. The public function which deserves first place in the classifi cation of the services of the State, both by virtue of its importance and because it is historically the first to define it self with clearness, is the function of protection. The grant ing of protection was originally a very simple affair—so far, at least, as the idea is concerned; but with the passing of the centuries and the process of social evolution the protection which the State grants has taken upon itself several distinct phases. At present a classification of governmental func tions must recognise three sorts of protection which citizens receive from the State. These are as follows : First. Protection against invasion from without.
Second. Protection of life, property, reputation, etc., or, to speak comprehensively, of all those rights which pertain to man by nature, or are granted the citizen by common or by statutory law.
Third. Protection against the spread of disease, either physical or social.
(I) Military Expenditures. Expenditures for protection against foreign invasion or encroachments from without may be properly designated as national military expenditures, and in early times this form of protection was the occasion of the larger portion of grants, whether of money, energy, or labour. Indeed, so vital is this function to the existence of society that other governmental functions were originally regarded as in cidental to military service, and were on this account per formed by the military leader. With the advance of civiliza tion, however, the relative amount of this expenditure, as well as the relative importance of the military chieftain, tends to decrease. In some cases this decrease is an absolute decrease in the amount assigned to the military service; but in a large number of cases, when compared with the claims of other ser vices upon the expenditures of the nation or with the aggre gate amount which the nation has to spend (that is to say, the social income), the effect of time is to lighten the social burden of the military service.
It may seem difficult to sustain this claim in view of the expensive armies and navies which many of the modern na tions maintain. But there are two observations which must be made before the military budgets of modern peoples can be accepted as proof that protection from foreign invasion is more burdensome now than formerly.
First. In some cases the increase in military expenditures of the Imperial Government is due to the consolidation under one control of what before existed in the form of local ex penditures.
Second. Much of the expansion of military and naval budgets, of which so much is made in criticism of current politics, is due to the rapid development of naval and military science, which gives rise to the necessity of improved army equipments and of larger and more perfectly constructed battle-ships; and this is an apparent rather than a real in crease of the burden in question. Wars, if not less frequent than formerly, are of shorter duration, and are accompanied with a smaller percentage of casualties than in former times. In reality, therefore, progress in the art of offensive and de fensive warlike equipments has commuted the burden of a war from a cost estimated in labour and life to a cost estimated in money, and is, consequently, in harmony with the civilizing tendencies of the last ten centuries, as reflected in the finan cial organization of modern as compared with feudal states.
A third observation might be made in this connection which, though true, is not peculiar to the military chapter of modern budgets, namely, that, when compared with the ag gregate expenditure, or with the source of income from which all expenditures are drawn, the cost of army and navy appears to have decreased rather than increased in amount.
To return, then, to the question asked, there seems ground for concluding that the tendency of civilization is to decrease the burden which the necessity of protection against foreign invasion imposes upon the people. This should be, certainly, the normal tendency. One mark of growth in what we call civilization is the continuous appearance of new rights and the establishment of peaceful means for their adjustment. As international arbitration extends, armies and navies will be less frequently called into service, and as the moral force and individual character of the several nations becomes more marked, the support of armies for preservation of peace will become less necessary. If for a generation an opposite ten dency should be observed, it is equivalent to saying that civilization has in this particular suffered a temporary check. Our general conclusion, then, is that an absolute as well as a relative decrease may be expected in military expenses as time goes on. Some facts upon this point are presented in the fol lowing chapter.
(2) Police and Court Expenditures. The second form in which the governmental function of granting protection makes its appearance brings into prominence the civic relation of citizens; that is to say, protection to life, property, and re putation. This function gives rise to expenditures for police and for courts. The function of personal protection, while not primitive, like that of protection which organic society de mands for itself, is of very early appearance; and it is only ne cessary to contrast the state of society in which personal prowess or cunning was the only guarantee of individual safety, or of continued possession of property, with the present, when personal weakness or simplicity establishes a peculiar claim on government for protection, in order to appreciate how far this service of the State has developed. The expenditures occa sioned by this service, however, have not grown in proportion to their importance, and this for two reasons.
First. Protection to person, property, and reputation consists chiefly in maintaining a condition of safety and decency in the community, and not in taking each indi vidual consciously under the protection of government. There is no other phase of social activity where the economy of " manufacture in the gross " can be so effectively realized. The service in question is subject to what may be termed the law of diminishing expense.
Second. Of more importance, however, is the fact that among the normal results of an advancing civilization is the development of old personal rights or the birth of new ones. Now this means more than the rise of some claim on the part of any particular class of men : it consists rather in the general recognition of the justice of the claim, and in the conviction among the people at large that it should be granted. It means that man's moral nature on its social side is brought under the influence of higher ideals; or, as it is sometimes expressed, it means the development of " social ethics." But, however characterized, it is clear that in proportion as these moral concepts work their way in the community the neces sity for police enforcement of granted rights retires to the background. The reverse of this is equally true, and sug gests a criticism on the budgets of some of our American cities. An increase of expenditures for police and for courts, at a rate more rapid than is justified by the growth or the shifting of population, or by the extension of duties imposed upon them, is proof of one of two things; it shows either that government is corruptly administered, or that the laws which the police and the courts are called upon to enforce are not regarded as just by the community. That is to say, it shows that civilization is in a condition of arrested develop ment. The normal tendency is for police and court expenses to rest more and more lightly on the community as the years go by.
(3) Expenditures for Protection against Social Disease. According to the classification accepted, the protection of society from the spread of social disease is a governmental function of the same sort as protection of life and property. The agencies for rendering this service are of course quite various, and many of them, at least those which influence the budget in any decided way, are of comparatively recent origin. They do, however, at the present time make a very consider able showing in the modern budget. A good illustration of the form of service falling under this category is found in the changes in prison discipline and management which have followed recent investigations in the science of penology. It is no longer the thought that a criminal should be punished because punishment is in justice demanded, but that he should be restrained for the protection of society. So far as the criminal himself is concerned, the thought of reformation, or restoring him to society as a self-respecting and self-sustain ing citizen, not only gives tone to prison management, but form to prison architecture. Crime is looked upon as a phase of social disease, and the treatment prescribed by the science of penology aims to cure that disease. This un doubtedly renders the prison service more expensive than the old method of incarceration, or the plan still followed in some parts of this country of working convicts in gangs ueten public highways, or of hiring them out for such rough work as they can be made to do. That is to say, the first invest ment is more expensive and the expenditure per criminal is greater; but it is clear, if the criminal habit can be brought under control and the transmission of criminal tendencies checked by means of well-equipped prisons, reformatories, industrial schools for neglected youths, and the like, that the first cost should be regarded as a social investment the ulti mate result of which will be to decrease the financial burden imposed upon society by the criminal class. The normal ten dency therefore, of this chapter of expenditures is that they de crease in direct proportion as the reformative policy succeeds. When it is remembered that a criminal reformed, or a man saved from becoming permanently a member of the criminal class, means the addition of a man to the ranks of producers, the investment of funds for the attainment of such results finds a double justification.
Many other illustrations of this phase of the protective functions of the State naturally suggest themselves. Sani tary regulations, for example, which aim to ward from the community the introduction of disease, or to check the spread of disease when it has once gained a foothold, or to compel the observance of cleanly and healthful living, must be re garded as protective in their nature. Asylums for the insane, and in general for all the defective classes, are also protective in character. The fact that they are approved because of the sympathy which is felt for the unfortunate does not change this fact. Poor-law regulations, the administration of so called public charities, old-age pensions (should public assist ance go so far), and other like activities on the part of the State are the occasion of expenditures properly chargeable to the governmental function which we have termed protection. Pauperism is so closely allied to crime and vice on the one hand, and to weakness, deterioration, and contagion on the other, that it, also, can be treated as a disease to be extirpated if possible, or to be localized and controlled if extirpation is impossible. Attention might be called to immigration laws as yet another illustration of this phase of protection granted through the agency of the State. But sufficient has been said to make clear the character of this service.
• It thus appears that society is exposed to a very consider able class of social diseases the control of which requires the employment of the coercive power of the State. The exercise of this control grants protection to the individual and guards society against weakness and decay. Will the expenditure for this phase of protection increase or decrease with the de velopment of civilization? The answer given above with re gard to prison administration applies in a general way to this entire class of expenditures. Assuming that no changes take place in the civic life or social structure by which the evils re ferred to are engendered, such as increased congestion of pop ulation, increased concentration of industrial power, the intro duction of undesirable foreign elements, and the like, it may be said that the normal tendency of an advancing civilization is towards the decrease of the financial burden which this phase of protection imposes. The agencies required for granting this protection are undoubtedly the occasion of large expenses at their first establishment, but in proportion as they are effective in doing what they are appointed to do, the ex pense which they occasion will tend to disappear.
The general conclusion, therefore, with regard to the pro tective functions of government is that the influence of pro gress is to lessen their financial weight. The greater increased economy of society which comes with a keener perception of personal right and a clearer apprehension of social duties, as well as the increased health and strength of society, physical as well as moral, renders the appeal to the State for protection less frequent and less imperative.
12. The Commercial Functions of Government. The second class of governmental functions is suggested by the word " service," which brings into prominence all those com mercial and semi-commercial relations that exist between a State and its subjects. We shall first characterize these ser vices so that there may be no misunderstanding respecting them, and then trace their influence upon public expenditure.
(I) Characterization of Commercial Functions. It may be said that all the functions of government are such as render services to the citizen, and that for this reason the phrase should not be used distinctive of any one class or group of public activities. In the strict use of language this may be true, but as employed in this analysis those services only are covered by the phrase which are direct in their nature and which address themselves primarily to the personal needs of the citizen as distinct from the social needs of the State. Such services exclude what the State does because essential to its own existence or to its own development, and in this regard differ from the function of protection which we have already discussed, or of the developmental functions which will come up for discussion, as suggesting the third and final class of governmental duties.
The most significant point of comparison, however, be tween the function of protection and that of rendering service to the citizen is that the latter does not, like the former, call into exercise the coercive power of the State. In the case of protection there must be uniformity of conduct on the part of officials and conformity of conduct on the part of citizens. There is neither choice nor alternative. It is not possible in the matter of protection for the relation of buyer and seller to arise between the sovereign and the subject. Protection is not offered to be accepted or rejected as the citizen may choose : it is imposed upon him whether he cares for it or not. In no other way could the " condition of security " to which reference has been made be established or maintained.
In the matter of rendering service, on the other hand, the attitude of government is entirely different. It is not the life of the State but the interests of the citizen which are recog nised as the ruling consideration. The character of these interests is of no importance, the pertinent point being that the services which minister to them do not from their nature, or on account of the relation they bear to the organic life of the State, necessarily demand public administration resting on coercive power rather than private management resting on commercial inducements. This second class of governmental activities may then be characterized as the commercial or semi-commercial activities of the State.
It is manifest that commercial activities may be under taken with a view to the service rendered or for the purpose of filling the public purse. These aims are in no sense neces sarily antagonistic, although the rule according to which the rate of payment is determined when the State renders a direct service will differ in the two cases. Those activities which are likely to be undertaken for the purpose of rendering a service rather than of securing a revenue are such as address themselves to some want universally felt, and are common to all citizens irrespective of locality or situation in life. The want also must be one in the supply of which economy may be secured on account of an extended and an assured market. The State may deem it wise to create a public monopoly in the case of such service, but such a procedure is not an es sential feature of the case. In judging of the universality of any particular want the extent of the jurisdiction of the govern ment in question must of course be taken into the account. A local government may very properly enter upon a more comprehensive line of activities than the national government, since the more restricted the territory over which a govern ment has jurisdiction, the greater likelihood will there be of community of interests among its citizens. With this sug gestion the above statement may be accepted without reserva tion.
A large number of cases present themselves as illustrative of the functions undertaken by the State for the purpose of rendering services to citizens. The post-office, which in all civilized countries is carried on by government, is per haps the most universal example, and may be accepted as a type of many other services of the same class. Slightly dif ferent in character is the function assumed by many govern ments of carrying passengers, freight, and packages, of trans mitting telegraph messages, and of furnishing telephone ser vice. It is assumed by many writers that these services are similar to that of the transmission of letters; but the fact that there is no harmony in the practice of modern states respect ing these businesses suggests that they may not possess in all respects the same characteristics. While the further fact that such governments as do own and manage railways, tele graphs, and telephones regard them as a source of revenue, while letters are commonly carried at cost, renders this sug gestion highly probable. All, however, when undertaken by the State, belong to the same general class of public functions.
Another illustration of public service rendered through the agency of the State is found in workingmen's savings-banks, insurance companies, and the like, although one is scarcely justified, owing to the limited sphere in which these agencies act, in saying that they represent an accepted governmental policy among self-governing people. The questionable feature of this class of services, and the reason why one may entertain some doubt as to their ability to hold a footing among governmental functions, is, that they pertain to the interest of a class, and a class interest is not easily recog nised as a social interest. If, however, the business of bank ing and insurance is acknowledged to lie within the sphere of government, it must be classed with the commercial activi ties of the State.
Somewhat akin to these services, though entirely different in their financial character, are those acts of government slip ported in part or in whole by fees or assessments. The full discussion of these services must be postponed until the " Classification of Public Revenue " comes up for considera tion. It is sufficient for the present to note that in the class; fication of governmental functions the recording of a mort gage, the granting of a passport, the laying of a sidewalk or the paving of a street, while of interest to society as a whole, do bring into prominence the important services which the government renders to a particular citizen. These ser vices are not commercial in the sense that there can be any dis pute as to the true policy of government respecting them, but they may be so regarded in the sense that the service is direct, and can be paid for, in part at least, by him who receives the benefit. It is on this account that they are assigned to the second general class of governmental functions.
Many writers class among the commercial services of the State such undertakings as the administration of forests, of mines, of a system of irrigation, and the like; and provided the care of these agencies of public welfare is brought to a paying basis it is probable that this classification is the most natural as well as the most helpful. Mines are never under taken except for profit, but in many cases the business is brought under public control where the accruing profit is not sufficiently large to warrant the undertaking did the govern ment have no ulterior end in view. Wherever forests are of long standing, also, and especially in those countries where forest lands have not been alienated, their output is considered as a commercial product, and the forests themselves are re garded as a source of public revenue. On the other hand, where the lands have been alienated and the forest destroyed by the sale of standing timber, if the government be induced to undertake the development of the forestry system it will be on account of the general advantages accruing therefrom to society, and not for the purpose of making them the source of public revenue. The same is true of an extensive system of irrigation, the ultimate purpose of which must be to reclaim arid lands, or to render lands already under cultivation more productive. The true classification of such enterprises, there fore, depends in large measure upon the country for which the classification is made. In the United States forestry and irrigation must be regarded as ministering to the physical de velopment of a State, and on that account would be included under the third class of governmental functions which hold in mind the physical and social development of a people. In European countries, on the other hand, where the sale of timber, charcoal and ash products, and the rental of water privileges are made the occasion of specific payments from citizens, their administration must be regarded as service to be met by the payment of a price.
(2) Tendency of Expenditures for Commercial Functions. The commercial or semi-commercial activities of a State, ac cording to the foregoing analysis, include these three general categories of public functions : first, services sold to the citi zen for a price; second, services but partially covered by the price, the price being called a fee or an assessment; and, third, services which justify public expenditure on account of the social interest involved, but which in the rendering give rise to a by-product that may be placed on the market at a price. The discussion now reverts to the original question, which asks what relation these industrial or semi-industrial activities of government hold to public expenditures; and for answer ing this question each of the above-named categories must be considered by itself.
With regard to the purely commercial services, like the post-office, railways, insurance, and the like, the entrance of the government into the industrial field neither increases nor decreases the financial drain upon the social income. Pro vided the standard of living maintained by the people be the same, and consequently the market for a given service as sured; provided the State and private agencies are equally efficient in the rendering of the service; and provided the same rule be adopted for determining the price of the service—the social expenditure will be unaffected, no matter how far the State proceeds with industrial functions. The question does not, therefore, pertain to the theory of public expenditures, as such. It is fundamentally a question as to the agency through which a definite portion of the social income will be expended. The above conclusion must be allowed, even though the State decide to make a particular service the source of a general income by charging a price in excess of the cost, inasmuch as all that is secured in this manner will lessen the amount to be taken from the income of citizens through taxes. The social income by which all social func tions are supported must include the earnings of public as well as of private industries.
There is one way in which the State will be likely to in crease the current payments for those services which it un dertakes beyond what they would be if the service were consigned to private control, and that is by giving greater at ; tention to social and national development than to business considerations. One of the chief arguments urged by German writers in support of government railways is that the poor districts as well as the rich districts will in this manner be pro vided with transportation facilities. Such a policy would naturally lead to a greater expenditure for the service of trans portation than if rendered by private corporations, and, in so far as this be the case, the expenditure would tend to fall under the general head of investments of capital for the pur pose of national development. It is likely, also, that the rule for determining the price of certain classes of services would be determined by social rather than commercial considera tions, as is decidedly the case in connection with postal rates, so that a rich locality might be called upon to pay more than its proportion of the aggregate cost of the service; but the aggregate cost to the community as a whole would not on this account be in any way affected, except so far as traceable to a more extensive rendering of the service in question than would otherwise be the case.
While it is doubtless true that the burden on the social income is affected in no very marked degree by the assump tion of industrial functions on the part of the State, the aggre gate expenditures of government are of course greatly in creased. This is shown in the local and national budgets of most modern peoples, especially in England and on the Con tinent. Whether or not the extension of government indus tries is " in the line of advancing civilization " is a question about which history makes no absolute reply. The facts are variously interpreted. By some the extension of industrial functions under the direction of government is termed socialis tic, and socialism is regarded as the inevitable and desirable outcome of democracy. There are others who, while agree ing to characterize this tendency as socialistic, see in it a per version of democratic concepts, and claim that the permanent tendency is toward the extension of private enterprise under voluntary association.
There is still another class of thinkers who do not consider it worth while to define socialism in the language of govern mental functions, but who assert that under present conditions certain industries can be managed by government with better general results than by private enterprise, and who assert that this is ample justification for the assumption by government of industrial functions. These thinkers do not regard any theory of social organization as important. The practice of the English-speaking people in the past seems to them emi nently sensible, that is to say, to permit social principles to emerge from discussion of particular questions rather than to undertake to decide specific cases on the line of a priori prin ciples. If Manchester desires to own street railways, let Man chester try the experiment. If the experiment is successful, other cities will probably follow its example; if not, other cities will be saved a false step.
In such a condition of uncertainty respecting current opinion as to the interpretation of the assumption by the government of industrial functions, one cannot state with any degree of confidence what the future of public expendi tures of this class is likely to be. They have increased enor mously during the past forty years, nor is there any evidence that the tendency is exhausting itself. It seems probable, when one regards the social evils wrought by corporations in certain industries of collective interests, that local govern ments at least will expand rather than contract the sphere of government administration. But whether this be true or not, the important fact for the student of finance to hold in mind is that public industries are a source of income as well as of expenditure, and that the amount of industrial expenditure is a matter of fiscal indifference. The entire question turns upon the choice of the means of satisfying certain common collective wants, and this is a question of the relative efficiency of two methods of investing a given amount of capital, and not of the relative amount of capital invested.
It is possible to answer a little more definitely with regard to the semi-commercial services paid for in part by fees and assessments and in part by general taxes. These expendi tures will undoubtedly tend to increase with the increased complexity and intensity of modern life. This is true because the demand upon government for a certified evi dence of its presence, its approval, its guarantee of right or privilege, its attestation, its voucher, its assistance in legal processes, and the like, for which fees are paid, must increase. It may be that the collective or social in terest will become so important that the attempt to assign any portion of the cost of these services to particular citizens in the form of a fee will be abandoned, but the presence of government in the varied relations of life can never be less than at present, except indeed society enter upon a period of decay.
The above conclusion is equally true of assessments. Payments for bearing in part or in whole the improvements necessary to an agreeable and healthful municipal life, such as sewers, waterworks, sidewalks, paving, and the like, are certain to increase as long as the industrial forces continue to increase urban population. In a sense assessments do not constitute a payment for public services at all, but rather an investment of private capital, since the result of the expendi ture is to raise the value of property; and the only justification of interference by government in the matter is the imperative necessity of uniform action on the part of the holders of pro perty within the municipality. For the present purpose, how ever, this distinction is of no great importance. So long as cities continue to grow, payments in the form of assessments will continue to increase.
It is not necessary to pass judgment in this connection upon payments incident to forestry, irrigation, the adminis tration of mines, and the like, since the undertaking of such services in this country would under present conditions be regarded as general rather than direct services.
13. The Developmental Functions of the Government. Those lines of public activity which, according to the analysis here adopted, comprise the third and final class of govern mental functions, are such as spring from a desire on the part of society to attain higher forms of social life. The aspira tion of individuals, although necessary to this end,. is not adequate for its realization; it is equally important that so ciety in its organized capacity should enter upon a series of orderly changes under the direction of a definite programme of social development. The theory upon which such a pro gramme rests is supplied by modern science and modern philosophy, and assumes that it is possible for the State to de termine, in a large degree, the conditions under which men live, and in this manner to make intelligent selection of the influences by which they are surrounded. Thus the struc ture of society and, in a measure, the character of the citizen lie within the choice of those who formulate and execute laws. To make use of the language of modern philosophy, society is a conscious organism capable of determining its own en vironment, and consequently of directing its own growth. It is this thought which warrants the acceptance of the phrase developmental functions of government as giving adequate ex pression to that comprehensive line of public duties by which the conditions of life are determined, so far as they are de pendent upon law and administration.
It may be suggested by the critic that all functions of government minister to social and individual development, and on this account that it is improper to set aside any definite group of functions as developmental in character. In a sense this is true. The protection of life and property, for example, affords conditions which invite healthful activity on the part of citizens; but the protective functions of the State are ad dressed primarily to the evils of society, and are efficient in proportion as they repress the perverted inclination of indi viduals or destroy the unpropitious conditions in society. The developmental functions, on the other hand, recognise the good in human nature and the useful in society, and are successful in proportion as they lead to the growth of what is good and the fruitage of what is useful. Both classes of public duties are necessary to social development, but the one being repressive in its nature, while the other undertakes a process of cultivation, there seems to be a clear difference be tween them—a difference which is most significant when con sidered in its relation to the natural law of public expendi tures.
It will be of assistance in tracing the influence of the de velopmental functions of government upon public expendi tures to analyze a little more closely the forms of activity which they embrace. Of these there are at least five suffi ciently distinct to warrant separate consideration. They are as follows : z. The function of public education.
3. The function of creating and maintaining those legal and administrative conditions in which private business enter prises will be conducted in a just and equitable manner.
4. The function of public investigation, by which society may come to a knowledge of itself, and furnish to the adminis trator and to the public at large such information as is neces sary to guarantee the normal working of the principles of popular government and of voluntary association.
5. The function of developing the physical basis of the State in so far as that cannot be judiciously accomplished by private enterprise.
(I) Expenditures for Education. It is not necessary to con sider at length the educational functions of the State in order to set forth the familiar arguments by which all civilized na tions have been led to make more or less ample provision for public instruction. It is sufficient for our present purpose to observe that the institution of public instruction is one of the many results of the general recognition of solidarity in social interests. It is the natural unfolding of the theory of social relations which asserts that the cultivation of the individual is of greater relative importance to society than to the individual himself. This truth may be illustrated from any branch or phase of education whatever, whether it be a common-school education, industrial or trade education, professional or tech nical education, art education, or what is called the higher general education. In every instance an analysis of the social results shows that the benefit of an education to the individual is proportionally less than its advantage to the other members of the community. The physician, for example, would secure relatively as large an income and enjoy as marked social dis tinction on the basis of a less perfect as of a more perfect preparation for his profession, provided only he has acquired, according to his talent, the average or customary education of his class. Except for the scientific interest he may feel in the discovery of new truths, he has nothing to gain by raising the general level of professional practice. They who take the physic, and not they who give it, are in a position to appre ciate most keenly the importance of high attainments in the medical profession. The line of reasoning involved in this illustration applies equally well to any phase of education, and makes clear the truth that the effective demand for profes sional or personal excellence is a social and not an individual demand; and it is on this account that the true significance of an educational system, its relation to the progress of civilization, and the duty of government respecting it cannot be appreciated except it be considered from a social or col lective point of view.
The fact that education is a matter of public concern is, however, scarcely adequate to justify its support at public ex pense. Why should not he who receives instruction pay its cost, or, if such a plan for any reason be regarded as untenable, why should not exclusive reliance be placed on private endow ment? These questions must be answered before the natural law of public expenditure for educational purposes can be discovered.
The reason why education cannot be consigned to enterprise is that the commercial expression of the social de mand for individual excellence, that is to say, the willingness to pay for expert services, is not adequate to guarantee the \ needed supply. This is true, because it requires either ex perience or imagination to appreciate the worth of trained service, and until universally appreciated the pecuniary in ducements accruing will not warrant the investment of time and money in its attainment on the part of him who practises a profession. Now the public at large cannot have expe rience with a quality or grade of attainment until it becomes the common possession of the class or profession that makes use of it, and the imagination which calls it into existence is not spontaneous, but imitative, so far as the mass of the popu lation is concerned. It is essential, therefore, if orderly pro gress is to be secured in the arts and the sciences, throughrendering universal the exceptional attainments of individuals, that the State, availing itself of the judgment of experts, should have a directing voice in all matters pertaining to education.
That the State should provide the means of education as well as prescribe the grade of attainments for those who pur pose to render social service is equally conclusive, although the reasons which may be assigned for such a conclusion are not so simple of statement. It is a pertinent fact, though not final in the argument, that all great education systems have been developed under the influence of a social necessity ex pressed with more or less clearness through the medium of the State. Confining our attention, however, to those peoples who aim to realize democratic ideals, it is essential for the modern State to support public instruction, because there is no other way to guard against the fading of its own ideals through the rise of an aristocracy of learning. It is natural that institutions that look to the wealthy for further endow ment should be influenced in their administration by the in terests of the wealthy class; it is natural, also, that the charge for instruction in such institutions should conform somewhat to the cost of rendering it : both of these results follow as a matter of course from the introduction of commercial prin t ciples into education, and it requires no great insight to per ceive that the final result of exclusive reliance upon private lbenefactions for any phase or grade of education will be that the instruction provided will not only reflect the interests of a class, but will be confined to a class. This is no place to dis cuss the far-reaching consequences of such tendencies. To say that they are not in harmony with the ideal of democratic civilization is to express but mildly a great truth. A State which aims to perpetuate democracy cannot decline to make ample provision at public expense for all phases and forms of education. In no other way can a system of public instruc tion, which is by far the most potent agency in shaping civilization, be brought to the support of democracy.
It must be remembered that the natural law of public ex penditures, which it is the purpose of this analysis to discover, assumes the permanency of popular government. It assumes also an efficient democratic sentiment which stands not alone for equality of opportunity, but for a high plane of individual attainment and a high grade of social development. This be ing the case, education will inevitably demand a continually increasing share of social expenditures, and in proportion as the antagonism between private endowment for education and the ideal of modern civilization is apprehended will the source of this expenditure be the contribution of the people to the treasury of the State, rather than the gifts of the fortuitous wealthy. A continual increase in the educational budget, therefore, must be expected as a natural result of social de velopment, and may be accepted as a normal expression of a healthful society.
(2) Expenditures for Public Recreation. The line of reason ing presented above applies with slight modification to public recreation. What is commonly termed recreation is in part educational—a remark which applies to music, the drama, art and art museums, books and public libraries; in part it is designed to give rest and refreshment—as is true of public parks and public gardens; in part it is designed to bring out the nobility of life by enabling the individual to associate with what is dignified and satisfying—as, for example, beautiful streets and worthy buildings. The suggestions to which a consideration of public recreation gives rise have indeed a broad outlook. Their point of view is that of the collective interests of society; their ideal, the purpose to make life a thing of worth. One is not, of course, at liberty in a practical treatise to rest important conclusions upon a forecast of the future; but the opinion may perhaps be ventured that government is coming more and more under the influence of the consciousness of collective interests; and that as one re sult of such a tendency, an increase in the expenditures of the State for public recreation (that word being used in its com prehensive sense) may confidently be expected for years to come. Especially is this likely to be observed in the budgets of municipal governments.
(3) Expenditures for maintaining Equitable Conditions for the Prosecution of Private Business. Among the concessions made by economic theory during the last thirty years is the recognition of the necessity of prescribing the conditions under which contracts may be concluded and voluntary as sociation established. While industries remained small, be fore factories were established, and before a world's market had been created by the use of steam in transportation, the arguments in favour of unrestricted and unregulated com petition were fairly conclusive; but since the Industrial Revolution has modified class relations and shifted the centre of industrial power, the evils that follow the attempt to make an absolute separation between state and industry are so manifest as to compel the recognition of industrial functions on the part of government, in addition to the function of en forcing contracts and protecting property. The conservative expression of the sentiment thus engendered, which acknow ledges the inadequacy of the theory of non-interference, is found in a demand for the extension of the sovereign power of the State in two directions : first, in determining the plane of competition where competition may safely be allowed; and, second, by substituting the control of quasi-judicial tribunals for the control of commercial forces in those industries in which competition is observed to work badly. The former leads to a long line of legislative acts technically known as " Factory Acts," the latter leads to the establishment of public " Commissions." It is the purpose of both of these agencies of the State to realize in industry the ethical ideals approved by the social conscience. Factory legislation depends for its efficiency on the exercise of police supervision. The service of mining in spectors or factory inspectors is, for example, in its nature a police service, and the general conclusion arrived at respecting the natural law of expenditures for protective governmental functions applies in the main to this class of public duties; that is to say, the expense of the service tends to decrease in proportion as the service is effectively rendered. There is, however, in the case of those functions of government which aim to determine the plane of competition this peculiarity : the ideal of society as to what constitutes justice tends ever to a more refined conception of industrial ethics, and on this account the successful administration of a law which has fixed a certain plan of industrial activity prepares the way for fresh legislation by which the quality of business conduct is ap proximated yet more closely to the ideal of justice. This means that expenditures for the administration of factory laws, provided they are successfully administered, will make clear the necessity for yet further legislation of the same sort, and in consequence become the occasion of constantly increasing ex penditures. Such is the law of expenditure for those govern mental functions which aim to realize in business life a plane of business conduct approved by the moral sense of the com munity.
The same conclusion follows from a consideration of the conditions that render commissions a necessary part of the machinery of those modern states which hesitate to own and manage such industries as from their nature are superior to the satisfactory working of competition. To avoid misunder standing, it may be said by way of illustration, that the busi ness of inland transportation is typical of the class of indus tries referred to. Many are the evils, political, social, and in dustrial, which result from consigning this industry to the control of competition, and it is now universally recognised, that railways must either be owned or controlled by the i government. It would be out of place to consider here the arguments for public control rather than government owner ship; it may, however, be remarked that if the former policy be approved by public opinion, as is the case in the United States at the present time, it follows that commissions must be established with adequate power and ample means.
But the necessity of commissions does not stop with the railway industry. Modern industrial life tends continually towards the crystallization of larger capitals in many lines of industry. The monopoly problem presents itself under many forms, and, with the continued differentiation which marks the business life of the day, it may be expected that new phases of that problem will continually present themselves. Now what is known as the " commission idea," according to which the government claims the right of representation on the board of management of a business enterprise for the purpose of guarding the interests of the public in its administration, must be granted a development pari passu with the development of the dangers to which those interests are exposed on ac count of the growth of large industries; and from this it follows that as long as industrial development tends to the • concentration of capital, so long will the government be obliged •to extend this domain of its activity for the purpose of guard ing society against the evils sure to arise from the crystalliza tion of industrial power, and of directing the power thus generated to the service of the State. This means that the expenditure of government for the control of monopolies must continue to increase so long as industrial society continues to develop along the lines it has followed during the last half century.
The normal law of public expenditures, therefore, for the support of factory legislation, or public commissions, these phrases being accepted as typical of the class of expenditures in question, is that such expenditures will continue to increase until industrial development has run its course, or until by some great upheaval in society the character of government itself shall have been changed.
(4) Expenditures for Public Investigation. Many reasons might be assigned why public investigation is to be classed among the developmental functions of government. Not only is a knowledge of conditions and tendencies, which can alone be obtained through careful statistical research, necessary to a rational programme of social progress, but at the present juncture in social evolution an extended use of statistical in quiry and of the right of investigation on the part of ad ministrative boards is essential to the realization of either of the two theories of government which present themselves for approval. Reference is here made to the theory of collective management of monopolistic industries on the one hand, and to the theory of governmental control over monopolis tic industries on the other. The former is sometimes termed socialism; the latter, new individualism. It is not intended to consider the function of public investigation or of statistical inquiry from the point of view of State socialism farther than to remark, that any political adjustment which relies upon the arbitrary adjudication of State officials, rather than upon the spontaneous activity of individuals, for attaining social progress must bring into prominence a universal system of industrial accounts. One of the chief activities of a socialistic government would be to keep the books of the social industries. In so far as socialism is realized, therefore, an increased expenditure for the collection, the classification, and the compilation of facts' must be expected.
The function of public investigation is not less important, though it may perhaps be applied in fewer lines of industry, where it is the purpose to solve the modern monopoly and labor problems in harmony with the theory of personal liberty as developed by the English-speaking peoples. A word of explanation may be necessary to make this clear. According to English political philosophy an extreme expression of the doctrine of industrial liberty would restrict the functions of the State to the protection of life and property and to the en forcement of contracts, reliance being placed upon commercial forces or, as it is termed, the principle of competition to guarantee reasonable prices and equitable treatment to the public. The evolution of great industries, however, has shown that this theory presents but one side of a complete pro gramme of social development. There are some industries which are not subject to the satisfactory control of competi tion, and upon these the State must impose judicial or ad ministrative restraints. Whether these restraints should be judicial or administrative depends upon the nature of the in dustry; but in either case a full and complete knowledge of the facts pertaining to the business, and to the conditions under which the business is carried on, are essential for effec tive control. It may be expected, therefore, as industrial so ciety becomes more and more complex through the differen tiation of industrial functions, that new questions will arise for adjudication and new bureaus of administration estab lished; and it needs no argument to prove that an extension of public investigation will be a necessary accompaniment of this tendency.
For the purpose of making this point clear, reference may be made to the reliance of the Interstate Commerce Commis sion upon statistical investigation. The chief purpose of the law which created this Commission was to abolish the prac tice of discrimination. With this end in view a special tribunal was created, clothed with the power to investigate cases of discrimination and to secure from the courts summary pro cedure for the purpose of causing such discrimination to cease. Now it would be idle to suppose that five commis sioners could exercise police surveillance over six or seven hundred railway corporations having in their employ upwards of nine hundred thousand men. Reliance must be placed for the execution of the law upon the willingness of shippers against whom the railways have discriminated to bring their complaints to the Commission. But this they will not do ex cept there be some certainty of quick redress. Shippers who suffer the evils of high rates while their competitors enjoy low rates will prefer to carry their complaint to the managers of the railways and extort from them like privileges for them selves. This suggestion leads to the following conclusion : that, as a condition requisite to the execution of the Inter state Commerce Act, it is essential that the accounting system of the railways should be organized as a unit and placed under the control of the Commission, and that the Commission should in this manner have access at first hand to all the facts in any case which may possibly arise. This means that the success of the Interstate Commerce Commission relies very largely upon the development of its statistical service, since in no other way can the act become self-executory, that is to say, rest for its guarantee of execution upon the interests of aggrieved parties. The reasoning employed in the above illustration is equally applicable to all cases where it is sought to guard the public against the evils of monopolies, great in dustries, trusts, and the like, through judicial or administra tive control.
From another point of view, also, does the function of public investigation present itself as of continually increasing importance. The theory of society which relies upon the spontaneous activity of individuals for progress, except in . those industries which are by nature monopolistic, appeals to the principle of competition for securing commercial equity and justice. The chief obstacle to the realization of this theory is found in the uncertainty which surrounds business trans actions. This being the case, no government which aims to apply the theory of laissez-faire to non-monopolistic indus tries can evade the necessity of making large expenditures for the purpose of collecting, compiling, and publishing those commercial facts which are essential to safe business calcula tions. As publicity is essential to the spontaneous execution of those laws which aim to control monopolistic industries, so also is publicity necessary to provide the conditions in which the competitive theory may work satisfactorily for industries that do not tend toward monopolistic organization. From whatever point of view, then, one considers the future, whether that of socialism, of governmental control over monopolies, or competitive control over non-monopolistic industries, the student arrives at the same conclusion with regard to the law of public expenditures. Governments must continually in crease the amount of money placed at the disposal of their statistical service. The function of public investigation is one which must expand with the development of society. The principle of publicity is a most important principle for the realization of voluntary association. An increase in the ex penditures for statistical investigation is not only a result of social development, but in its turn comes to be a cause of further development; and the opinion may be ventured that no class of expenditure, excepting only that incurred for public education, is of more vital importance to the interests of the State.
(5) Expenditures for the Development of the Physical Basis of the State. The last of the developmental functions of government, according to the classification here adopted, pertains to the development of the fiscal conditions of the State. There is here included all those lines of activity which call for an investment of public capital and which are com monly included under the general phrase " public works." Adopting the conservative view, such investigation would in cluded the appropriation of public moneys for works of un doubted advantage to society at large, but to which private capital will not be attracted on account of the uncertainty of profit or the long time covered by the investment before any profit may be realized. Forestry, irrigation, the dredging of rivers, and building of canals, docks, lighthouses, and the like, are illustrations of the investments in question. It is only necessary to mention what is embraced in this class of govern mental functions to warrant the conclusion that the expendi tures which they entail will tend to increase with the growth of society. Density of population, increase of wealth, and advance in the mechanical arts will induce each succeeding generation to contribute more largely to that class of invest ment which gives a return in the form of public utility, rather than in the form of private income. Without further analysis, therefore, it may be concluded that the function of developing the fiscal basis of the State, in so far as that cannot be accom plished by private enterprise, will, like the other developmental functions of government, tend to increase rather than de crease its demands upon the public treasury.
14. Conclusion. It is possible to summarize the results of the foregoing analysis and present them as a general conclusion upon the subject, and in doing so the division of the functions of government into Protective, Commercial, and Developmental will be observed.
The protective functions of the State tend to deCrease in their claims upon the social income. This is true because the protective functions of government minister to social develop ment by repressing the unpropitious forces in society, thus giving the propitious forces an opportunity to operate. They work in the same direction as the developmental functions of the State, but by a reverse process. The success of the re pressive activities of the State tends to curtail the necessity of their exercise, so that in proportion as ample expenditure for the protective functions is granted where there is need of their exercise, will society subsequently be relieved from the necessity of appropriations for this service. The practical con clusion from such a law of expenditure is, that a government cannot afford to hesitate respecting this service. As protec tion is the primitive function of government, so it is relatively more important than any of the duties of later development. The increase in appropriations for other functions may, and in a healthfully progressive state will, arise in part from the savings which accrue on account of the success attending the performance of the protective functions.
In order, however, to properly apprehend this part of the law of expenditure for progressive peoples, it is necessary to make three observations respecting it : (a) The law applies more strictly to the exercise of " police power " than to the exercise of the military power, for the reason that the former is exercised under the jurisdiction of a single system of jurisprudence, while the latter implies con troversy between several nations which may or may not con form in the order of their thinking to a common ideal of jus tice and liberty. In the one case, controversy invites the development of social ethics through a refinement of personal rights; in the other case, nothing is decided as the result of the controversy except the relative strength of armies and navies. For this reason, while it is possible to speak with some degree of assurance respecting the normal trend of po lice and court expenditures, the financier is not at liberty to speak with any great degree of certainty respecting the trend of military expenditures.
(b) The second observation pertains to the statistics of expenditure rather than to the law of expenditure. In con sidering the appropriations for protective service from year to year, it must be recognised that a part of the expenditures charged to current expenses in the ordinary accounts of na tions is in reality an investment of capital. It is as true of public as of private administration that expenses may be cur tailed by the employment of costly machinery. This remark applies to all the protective functions of the State.
(c) It must also be held in mind that the protective func tions of government so modify the nature of the service which they render from year to year that, should the services of policemen to-day be compared with those of fifty years ago, marked change in the nature of those duties would be ob served. It would not of course be correct to say that the law of expenditure for police service must be confined to services of exactly the same sort; but at the same time it must be ad mitted that social development has occasioned an expansion of the functions imposed upon the police power, and that the statistics of expenditure for this service must be interpreted in the light of these constantly expanding functions. With these observations, all of which are gleaned from the pre ceding analysis, no misconception can arise from the state ment that public expenditures for protective functions of the State tend to decrease as society develops.
Our conclusion respecting the commercial expenditures of the State is that they have nothing to do with the theory of public expenditures. So far, however, as they are general in character it is probable that they will increase rather than decrease with social development.
The law of expenditures for the developmental functions of the State is that they tend constantly to increase with an increase of social intelligence and with the _progress of social differentiation. Their peculiarity stands forth most clearly when placed in comparison with the expenditures demanded by the exercise of the protective functions. Success in the administration of the protective service tends to decrease the amount demanded for that service in subsequent years; suc cess in administration of a developmental service, on the other hand, results in an increased demand for services of the same class. The only observation which it is necessary to make lest the student misapprehend this generalization is that the " police power " is used by modern peoples as the agency through which many of the developmental functions of the State are carried out. The police service is broader than po lice protection; and much of the expenditure incurred for maintaining what is technically known as the protective agen cies should be charged in strict accounting to the develop mental functions of government.
The general law of public expenditure for progressive peo ples, then, is as follows : Public expenditures tend constantly to increase, but this tendency does not apply in like manner to all governmental functions. Expenditures for protection exhibit a tendency to decrease in proportion as the protective service of the State succeeds; expenditures for developmental functions tend constantly to increase. This being the case, the test of successful fiscal administration, so far as expendi tures are concerned, is not found in the aggregate amount placed at the disposal of government (although this, as we have seen, is also subject to a social law), but in the relative amounts which from time to time are assigned to the several chapters of the budget. As a rule, a possible exception being made for military expenditures, the older the protective func tion the less will be the percentage of-aggregate expenditure assigned to it, while the newer the developmental function the greater will be the relative demand which it makes for the funds to be placed at its disposal.