REVENUE FROM PUBLIC DOMAIN.
Under revenue from public domain will be considered those forms of income accruing to the State on account of, ownership of or interest in landed property. This phrase property," however, must be interpreted very broadly. All of the so-called " extractive industries " present themselves for consideration in connection with the study of revenue from public domain, and under the extractive indus tries are included fishing, mining, and agriculture.
It is not necessary to consider at length the policy of the feudal system or of early States respecting fish. In England such fish as whale and sturgeon, called " royal fish," were the property of the crown wherever taken, but it is not known that they ever formed a considerable portion of the public revenue. At present it is the general policy of nations to consign this industry in all of its branches to private enter prise. Indeed, during recent years the most civilized peoples have expended considerable sums of money in the develop ment of piscatorial culture, not with a view of making the in dustry itself a source of revenue, but for the purpose of open ing up a new source of food-supply. In some cases, as, for example, the oyster-beds of Chesapeake Bay, the State secures a revenue from the rental of the beds,. agreeing on its part to protect the beds from depredations. But this is quite excep tional. Wherever fishing preserves are maintained, whether for industry or for pleasure, they are, as a rule, the property of private persons or corporations, and as such are listed as taxable property.
40. Mineral Deposits and the Fiscal Polioy. The revenue policy respecting mineral lands cannot be so easily stated.
Not only is there considerable divergence in practice among nations in regard to mines, but there continues to be con siderable difference of opinion respecting the appropriate pol icy. Gold and silver among minerals, like the whale and sturgeon among fish, were formerly declared to be royal property, and wherever found were appropriated by the State. In this form, however, the claim of the State upon minerals has long since been abandoned.
The general argument favouring the public ownership of mines is that minerals are the free gift of nature, and should, therefore, not be made the property of any individual. Even in countries where the surface lands are assigned to indi viduals for private cultivation, it has been proposed to re serve the mineral deposits for the State. This suggestion is found in the land policy proposed by Turgot, the great Phy siocrat statesman of France. The policy which has come to prevail in the United States, however, and indeed in most countries, is to give title, in case of sale, from the surface to the centre of the earth. The argument which has led to the assignment of mineral lands as private property does not disregard the fact that minerals are a gratuitous gift of na ture, but asserts, as breaking the force of this consideration, that nature has been so bounteous in her gifts that no injury can arise to consumers as the result of such assignment. Consider, for example, the wide extent of the coal-fields in the United States, as also the great number of iron-mines and salt-wells that abound. There is nothing in the nature of the case why competition should not determine the price of these products, and, in the absence of artificial restraints, the public finds, in the many opportunities for mining, a guarantee that mineral products of this class can be had at cost. There is, therefore, no more necessity from the ethical or commercial point of view for the government to own and administer such mineral property than for it to take into its possession any other industrial enterprise. This being the case, the question as to whether or not mines shall be made the source of special income to the government comes to be a general and not a particular question.
But this line of reasoning does not apply to minerals which are localized to such an extent that they may be accounted a natural monopoly, as for example the zinc mines in the United States; nor does it apply to a mine which like the Calumet and Hecla of Northern Michigan was for a time so far superior to other copper-bearing mines as to enable it for many years to control the output and the price. A detailed study of the mining conditions of any country shows many exceptions to the assumptions of the argument for private ownership presented above.
It may be doubted, however, if the mining policy of any country has been directed by economic or ethical theories. The simple fact is that men will not enter upon the uncertain calling of a prospector unless induced thereto by the hope of great gain. This work cannot be undertaken by the govern ment on account of its speculative character, and unless the hope of unusual returns is offered to men who by nature take a pleasure in speculation the deposits of unusual minerals will forever remain undiscovered.
It thus appears that all the considerations involved in the case of mineral lands do not range themselves on the same side of the question. On the one hand it is essential, at least in a new country, to grant free play to the speculative interests of individuals in order to secure the discovery of unusual minerals or of minerals of localized deposit. On the other hand it must not be overlooked that it is an injustice to the community as well as a source of a great social danger to assign rich mineral deposits to individuals or to corporations. Mineral wealth is the gratuitous gift of nature, and it wouFd be a mistake for any government to ignore this fact.
There are two ways of harmonizing these conflicting con siderations. In the first place, the principle underlying the patent laws may be applied to legislation respecting mines. This would give to those who discover mining property a limited rather than a perpetual lease, and in this manner the mines would ultimately become a source of income to the State.
The difficulty in applying such a principle is chiefly adminis trative, for it is probable that a mine held under a limited lease would be worked in an uneconomical manner, so that upon the expiration of the lease the property would be com paratively worthless.
The second way of meeting the difficulty is through the machinery of taxation. There is much to be said in favour of the policy of assigning mineral lands to private ownership, a policy which has finally been accepted by the United States, provided it be supplemented by some form of special taxation upon mineral property. It would be out of place, however, to consider at this time the form of the tax appropriate to the situation. The general conclusion of the foregoing discussion respecting the relation of a financial pol icy to mineral property is as follows : Mines that are widely spread and easily discovered may be treated like the pro perty of ordinary industries. No special financial policy is required for minerals like coal, iron, or salt. Mines, on the other hand, which form the basis of a natural monopoly should be handed over to private enterprise for development, but they should at the same time be recognised as a fit object for special and peculiar taxation.
41. Surface Lands and the Fiscal Policy. Private property in land among peoples whose law of real property has been influenced by the feudal organization is universally regarded as a grant or privilege from the State. In the United States, for example, a clear title commonly bears upon its face a record of the transfer back to the original grant. Even where occupancy preceded survey and sale, as in the case of mining claims staked out by gold-hunters, it was thought necessary to legalize the customs of the miners and thus secure the occupiers in their property by a title from the State. Such being the theory of proprietorship, a comprehensive analysis of the relation of surface or agricultural lands to the fiscal sys tem may, without violence to the working hypothesis of the law of real property, start with the assumption that all lands belong to the State, and that the conditions of their use are determined entirely by expediency, or by what is regarded, all things considered, as sound policy.
Surface or agricultural lands may be made to serve as a source of income to the State in either of the three following ways : First, the government may cultivate the lands as a public industry.
Second, the government may establish a tenantry upon its lands and receive an income in the form of rent.
Third, the government may dispose of its lands and secure a revenue through taxation.
Each of the above suggestions will be considered by itself. The immediate purpose of our consideration will of course be to determine the most practicable policy for modern states; at the same time, the necessity of discovering some general principles for determining those industries naturally adapted to serve as the source of direct revenue will be held constantly in view.
(I) Shall Government Cultivate its Own Domain P—The dependence of the Science of Finance upon the principles of Political Economy will receive especial emphasis in con nection with questions of taxation, but economic analysis is hardly less pertinent in connection with the above question. As is well known, farming is an intensive and not an extensive industry. It depends for success upon the personal care of the farmer and attention to minute details. The principle of division of labour is applicable to agriculture only in a very limited degree, and, on this account, the normal ten dency of agriculture as a business is toward continually smaller holdings. The product of any particular farm con tinually must vary from year to year in order to adjust itself to the Varying demands of the market, and it requires the greatest attention and care in a progressive agricultural community to adjust the output to the needs of the community. Without indulging further in comments of this sort, it will be readily seen that the business of farm ing is not capable of an organization adapted to govern mental control. It cannot be subjected to general rules, nor can the workers be organized in an enduring and efficient industrial association. It would be necessary for government, should it undertake public farming, to make use of overseers and drivers, as was the custom in the days of slavery; and for the same reason that a high state of agricul tural development was never reached on the basis of slave labour, one is justified in asserting that agriculture under the direction of officers of the State would become an inadequate if not a stagnant industry. If this be true, it follows that the system of public agriculture would be detrimental to the highest industrial development, and this, even from the point of view of public income, to say nothing of the social interests involved, must be accepted as final against the suggestion that the government should secure a direct revenue from agricul tural lands.
It is possible the analysis of tne foregoing paragraph was not necessary to support the conclusion resting upon it. It is the general practice of modern peoples to refrain from undertaking directly the industry of farming. They have al most universally assigned such lands as they possessed to tenant farmers or sold them in fee simple to the occupiers. Austria began selling tier lands in 1818; Spain since 1811 has disposed of nearly two hundred millions of acres of land. The budget of Prussia every year contains an item of income from the sale of public lands. The land policy of France in troduced at the time of the French Revolution is familiar to all students. Some of the smaller kingdoms and principali ties in Europe still retain their public domains, but, so far as the writer is aware, no important State at present maintains the policy of purchasing lands. Beaulieu in discussing this question presents certain facts designed to measure the relative efficiency of agriculture on the part of the State, and of the system of rentals under long leases by means of which the personal interest of the cultivator is brought to the task of cultivation.
In the presence of such a comparison as the above, as suming the figures to be in any degree typical, the policy of government agriculture cannot be defended. The application of personal interest to land culture not only in creases the number of individuals which the land supports, but increases the surplus of product for sale from the land, and the revenue to the State as well.
The foregoing analysis, as also the conclusion which is -drawn from it, applies to the industry of ordinary farming.
It furnishes no argument, however, against the retention by the State of land for the purpose of maintaining a system of public forestry. This is true because a system of forestry holds in view the rendering of a general social service, and should not be judged by technical results. Care of forests has always been an object of governmental solicitude. In former times it was considered of the utmost importance that a nation should have in its possession the material with which to construct vessels, and the possession of forests was under these circumstances an element of national strength. At present the form of argument is somewhat changed, but it is equally strong. Forests are now generally regarded as exer cising a salutary influence upon the rainfall, upon the general health of the community, and as a means of mitigating in some degree the evils arising from floods and droughts. It is, therefore, a matter of general interest that a proper portion of the surface of any country should be covered with forests. The only question pertains to the best means of securing this result.
Thataisperience and analysis show that private enterprise is not capable of developing an adequate system of forestry. The time intervening between planting and harvest—at least thirty years—is too long to attract private investment.
It is true that there is an increase in the value of land thus planted from year to year, so that in a sense the investor has an annual income from his investment; but the difficulty is he cannot realize upon this investment except he sell the land with the crop. For this reason, if for no other, forest culture must be undertaken by a corporation which not only repre sents the general social interest, but which enjoys a perpetual lease of life. The State is the only corporation which meets these requirements.
Although forestry may be undertaken for the general ser vice which the government may thereby render to a com munity, it may become, under proper management, a source of net income to the State through the sale of wood and tim ber, charcoal and ash products. The experience of European nations with this industry shows that it may become the source of very considerable income. In France, for example, the gross income varies from thirty-eight to forty million francs a year, while the cost of administration is from twenty five to thirty million francs. Taking the higher figures in each case, the percentage of expenses to gross income, in this country, is 75 per cent. The corresponding percentage in Hanover is from 8o to 85 per cent; in Bavaria about 5o per cent; in Prussia and Wiirtemberg 48 per cent; and in Saxony 37 per cent. Should one include in his estimate the value of land assigned to forest culture, the showing might not be such as to justify the investment. In France, for example, the net income estimated on the value of the property shows a return upon the investment of less than 2 per cent. In whatever way, then, the matter be regarded, the conclu sion remains the same. The development of a system of forestry must be classed as one of the general governmental services, and must be advocated on the ground of its social importance. The reason why the financier is obliged to con sider this industry is that incidentally it gives rise to certain commercial products the proceeds of the sale of which may support the expenses of the service. The propriety of public forestry is further shown when it is recognised that, as an industry, it may be subjected to simple rules of a general nature, and its administration may be carried on with more or less regard to the principles of military organization. In this respect it stands in marked contrast with the industry of farming.
The principal difficulty in connection with the administra tion of a public system of forestry arises on account of the fact that the products of this industry may come into com petition with similar products of private enterprises. Not all the timber can be grown upon government lands. Not all the charcoal and ash products can be furnished by the public forestry departments. These products of forest culture might also come into competition with artificial commodities that serve the same general purpose, as, for example, manufactured from straw; iron, aluminum, and the like, used for building purposes; other fuels may be substituted for charcoal; or chemicals may serve the purpose of ash products. A government cannot escape a competition with its subjects, and in the presence of such competition no government would be at liberty to administer its forestry system with a view to the high est possible net income. It is obliged to recognise the social and industrial tendencies bound up in its policy of administra tion, and to adjust the price of its commodities accordingly. In general it may be said that the price of the products of public forestry should be adjusted to the market price of goods with which they come into competition, the only ex ception to this generalization being defensible when the government finds itself in competition with a private indus try which aims to maintain an industrial monopoly, and to charge a monopoly price for its products.
The policy of European states respecting forestry shows a marked degree of uniformity. At the beginning of the present century there seems to have been a tendency on the part of governments to alienate this kind of property, a tendency which perhaps may have been one of the mistaken applications of the prevalent theories respecting individual rights. From 1791 to 1795 France disposed of nearly one half of her state forests and continued to reduce the forest area until in 1870 there remained but one-fifth of the original state holdings. Many of the German principalities also fol lowed the same policy, selling off their forest lands which had for centuries been preserved as government property. They did not, however, go so far in this direction as France.
During the past forty or fifty years the old policy respect ing state forestry has been revived, and nearly all European nations evince not only a desire to hold on to such forest property as they have, but to extend its area and efficiency, and to exercise a stricter control over the use of private forest property wherever communal interests are thereby en dangered. In France since 1870 no sales have been made, but each year shows a gradual increase in the amount of land consigned to public forestry. Since 1872 the govern ment has spent nearly 200,000,000 francs in the reforesting of dunes and devastated mountain-sides. In Prussia the policy of selling forest lands prevailed in the beginning of this cen tury, but since 1831 the opposing policy has made itself apparent. Between the years 1867 and 1895 over 22,000,000 marks were spent in increasing the forest area, and the budget for 1895 contains an item of 2,000,000 marks for the purpose of purchasing additional lands for this purpose. The in creased efficiency of forests as a source of income is shown by the fact that in 1830 the cost of administration was 61 per cent of the gross receipts; in 1870 it was 52 per cent; in 1893 it was 47 per cent. In other German states the same tendency may be noted. Bavaria shows a 4-per-cent increase in forest area, Wiirtemberg a 3-per-cent increase, since 1873. A small increase also may be noted for Baden and Saxony. In Aus tria the selling of forests continued until about 1870, but at the present time the State is the only great purchaser of forest lands. In 1886 6o,000 acres, in 1888 230,000 acres, and in 1891 211,000 acres were purchased for this purpose. Both Italy and Russia, while too poor to spend much money in this manner, have nevertheless made a start in this direction. Russia sells timber lands to the communes but not to private individuals, and has enacted a strict law under which the general forestry of the country is to be administered. The English Government has no considerable amount of forests, but this is not due to the fact that the English are averse to governmental management of forestry culture. In India, where there is a decided need of forests, the government shows great activity. Between 1882 and 1892 the reserved forests were increased from 46,213 square miles to 59,743 square miles, while the total forest area under the control of the government increased from 71,972 square miles to 114,966 square miles.
No country has greater need than the United States of a comprehensive system of forestry, and no country, except it be the South American republics, has shown greater dis regard of this need. The land system of the Federal Govern ment makes no distinction between forest lands and agricul tural lands. The same laws have been followed in the survey and sale of both classes of property, and in the main the same price has been demanded. This policy has resulted in the sale of forest lands as timber property to individuals and cor porations. whose only purpose was to realize the largest amount of money possible from their purchase in the least possible time—a policy which has resulted in the destruction of most of the timber lands east of the Mississippi and north of the Ohio. In the West and the Northwest very little care has been taken to conserve the public forests. Lavish grants have been made to railway corporations for the use of such timber as they needed for the construction of their lines, and no adequate provision has been made against the destruction of forests by fire. The only encouragement to tree-culture which Congress has seen fit to make has been in connection with its general land policy. Land has been given to settlers on condition of their planting and caring for a certain number of trees, but this has amounted to nothing so far as the de velopment of a system of forestry is concerned.
Admitting the importance of a comprehensive system of forestry, the question naturally arises whether this should be done under the direction of the Federal Government or the State governments. Without discussing this question, the opinion may be ventured that the proper seat of authority for the administration of the forestry system is the State govern ments. This would obviate quite a number of difficult con stitutional questions which might embarrass the administra tion of the Federal Government owning forests within the jurisdiction of the States. From the financial point of view, also, there is much to be said in favour of such an investment by the State governments. The chief difficulty in connection with this question of forestry has been that it has never been regarded from a comprehensive point of view, and this can never be done until it is made a part of the fiscal system of the Federal Government or of the State governments. Each year that passes renders the solution of the problem more difficult. The Federal Government should at once undertake to conserve the forests which remain in its possession, and the State governments should enter upon a policy of acquiring land for the purpose of extensive tree-culture.
Closely connected with the question of forestry, and allied to it so far as social considerations are concerned, is the problem of irrigation. Many countries have no problem of this sort, the ordinary rainfall being adequate for agricultural purposes. In other countries irrigation has existed for so long a series of years that riparian rights constitute a per manent element in the valuation of landed property. The question, therefore, will be discussed in view of the conditions as they exist in the United States. It is estimated that there are seventy-four millions of acres of land that might be re claimed for cultivation by means of an adequate system of irrigation. Already certain corporations, notably the in surance companies, have invested capital with a view to meet ing this demand. In so doing, however, they seize upon the most generous sources of supply. The canals thus con structed do not form a part of a general comprehensive system of irrigation, nor are they administered with a view to the highest industrial development. Already many difficulties have arisen between users of water and the corporations which own the water-supply. Laws have been passed regu lating the price of water, and the courts have sustained these laws on the ground that irrigation companies are common carriers. A set of cases, for the most part unknown to the American courts, have arisen in connection with the private ownership of water-supply, and one who is familiar with the development of the law of riparian rights must recognise the difficulty of the problem which concerns this country in case the western territory is developed through private ownership of irrigating canals. In view, therefore, of the fact that a very considerable portion of the territory which needs irriga tion will be left destitute of a water-supply if the business of rendering this supply is intrusted to corporations, and in view of the further fact that wherever private supply through cor porations has been tried very serious difficulties have arisen as to the rights of consumers to the use of the water, it must be admitted that a strong argument is presented in favour of public ownership of ditches and canals. If such ownership be decided upon, it follows, in view of the conditions under which the industry is carried on, that the irrigation system will be made a part of the fiscal system of the State.
(2) Shall Government Lease its Domain for Cultivation —Any discussion which involves the relative merits of sys tems of land tenure must proceed along broader lines than lie strictly within the consideration of the financier. Among the marks of a good revenue system is its adaptation to the per manent trend of opinion upon social and industrial questions. If the public be convinced that a system of tenant-farming, in any of its various forms, is better than farmer proprietor ship, it is quite easy for the public treasury to adjust itself to such a conviction, and to demand its income in the form of a land rental rather than in the form of a land tax. But the trend of public opinion for centuries has been in the opposite direction. The commutation of the rentals of feudal times into modern taxes is generally conceded to have been an important step in the advance of Western civilization, it being intimately connected with the rise of private property in land and the development of a higher technic in agriculture.
This being the case, it may at first appear unnecessary to consider revenue from land rentals as among the possible forms of public income, or to concede to this idea the courtesy of a discussion. Against such a conclusion, however, several considerations present themselves. In the first place, there are quite a number of governments which still hold to a sys tem of public tenantry. In the second place, among the socialistic and semi-socialistic theories that to-day agitate the public mind, will be found the claim that land cannot justly be alienated by the State. It is, in the third place, conceivable that the structural changes wrought by four centuries of pri vate ownership in land have brought with them the necessity for more direct and positive governmental influence in matters pertaining to agriculture than can be accomplished through the medium of taxation. And lastly, much is to be learned of the relation of land to the public treasury by a dis cussion of the state lease system. For these reasons the policy of land rentals will be given a cursory examina tion.
At first glance, it seems that no two things could differ more widely than a society in which land is owned by the State and leased by the occupier, and a society in which the occupier is, or may become, the proprietor of the soil which he works; but a slight consideration shows that this dif ference is not so much in the nature of the two forms of holding as in the terms of the tenant's contract. Every one
knows that the price of land is its rental value capitalized at an assumed rate of interest, due allowance being made for social and speculative interests. It is a strong statement of the case, although within limits a correct one, that the occu pier who owns the land is its tenant in perpetuity, while the occupier who rents the land is its owner until the expiration of the lease.
Working into the question from this point of view, it appears that progress in the art of agriculture under a system of tenantry, so far as that depends upon the care and thrift of the occupier, will approximate the results that are observed to follow when the farmer is also proprietor, in pro portion to the length of the lease and the liberality of the contract. It is, therefore, conceivable (the probabilities of the case are not here brought into question) that as good technical results may be shown under a system of tenantry with long lease as under a system of free holding. It further appears from this comparison that the rent paid by a tenant to the State approximates a tax in proportion to the length of the lease. Under a system of annual lease the payment for land will be determined by competition and will equal the fa economic rent. That is to say, the government will take the total of the " excess profit " arising from the industry of farming, leaving to the farmer his wages as a labourer, and the interest on improvements, provided they represent an investment of his capital. The government might, it is true, leave a portion of this pure rent in the hands of the tenant and in this manner create a system of rent-sharing between itself and the tenant. According to modern fiscal theories by which the revenue of the 'State is determined according to public necessities this must be the case, since the payment by the farmer of the full economic rent to the State would result in his paying a relatively higher amount than would be paid by those engaged in commerce or manufacture. The form which this concession to equality would probably assume would be the substitution of a time lease for an annual rental. It thus becomes apparent that, in case fiscal rather than com mercial principles determine the amount of payment, no essen tial difference exists between a land tax and a land rent; and the substitution of a system of tenantry for a system of free holders, provided the tenant's lease is recognised as nego -I, tiable property, would involve no very radical change as com pared with the present system of farmer proprietorship.
What, then, it may be asked, are the considerations urged by those who favour a rental of public lands. These con siderations are not very coherent, nor do all of them pertain directly to the Science of Finance; but it may be well to pass them in rapid review.
In the first place, quite a number of detached suggestions present themselves which rest upon the assumption that better general and technical results would follow should the industry of agriculture be placed under the direction of government than if left to develop at the hands of a large number of in dependent owners. It is urged, for example, that under a tenant system the contract for occupancy might be so drawn as to check undue morselization of land. A further illustra tion is found in the suggestion that the State as a landholder would be in a position to introduce scientific methods of farming, and to so direct the cropping of land that the supply of agricultural products would meet a statistically determined demand.
These are both interesting suggestions and typical of others of the same sort that might be made. They bring into contrast the relative merits of two theories of social progress, the one of which calls upon the State to exercise direction in industrial affairs, while the other finds in the survival of the most successful among many experiments the surest path to technical progress. One who entertains the latter view cannot doubt respecting the superiority of the system of agri culture as it exists in the main in the United States. Under no other condition except that of ownership of the soil by him who works it can the spirit of venture and invention be brought to bear upon the industry of agriculture. As has been already suggested, this business embraces too many details to flourish under the influence of administrative advice. There is, for example, no determinable size for a profitable farm. This varies with the crops to be cultivated and the means of cultivation. It would be much wiser to remove the social or political influences which lead to excessive subdivi sions of land, than to enter upon an official analysis of details for determining the normal size of a holding.
So far as the second of the above suggestions is concerned, one may inquire if it is necessary for the State to assert its ownership in the land in order to bring to bear upon agriculture the results of scientific investigation. Education, technical as well as general, is among the recognised governmental func tions, and it is probable that an agricultural system which rests upon the intelligence of a large number of freeholders will realize the suggestions of scientists for the improvement in agricultural methods as rapidly as may be warranted under the circumstances. The experience of this country in the develop ment of the agricultural industry, while by no means above criticism, nevertheless furnishes ample proof of the advantages of private ownership of land. Nor is it necessary, in order to bring the influence of the State, and through the State the influence of social interests, to bear upon agriculture, that freeholders should be supplanted by leaseholders. This ques tion is a part of the comprehensive question of social organi zation, and the answer which is here given to it implies confi dence in the principle of voluntary association and a distrust of the principle of coercive association.
A second consideration urged in favour of a system of public tenantry is found in the suggestion of those who as sume that ultimately land must come under some form of communal ownership, while and at the same time they recog nize the importance of private ownership in the present stage of industrial development. In order to harmonize these two interests it is proposed that all states which have the disposal of large tracts of uncultivated lands should grant them in lease for ninety-nine years, but not in fee simple. This suggestion, it will be observed, is neither general in its character nor does it involve any fundamental principle. It is of slight impor tance to European peoples and is presented as a suggestion worthy the consideration of those countries only where wild lands are being brought under cultivation. The object of this proposal is to avert strife when the time shall have arrived for making lands communal property. For the time being, it will be observed, all the advantages of private ownership are to be realized. The plan does not contemplate the exer cise of any direction by the State over agriculture on account of the fact that the title granted the occupier is a lease and not a deed. A discussion of this suggestion rests of course upon its fundamental assumption, that all land must ulti mately become public property; and, until there is a general sentiment in the community favouring this way of thinking, it is unnecessary for the practical financier to consider the suggestion.
The third suggestion in favour of leasing rather than sell ing the public domain presents itself as part of a general financial system. All governments must prepare for financial exigencies, and it is claimed that a retention of a considerable portion of the public domain would secure the means of making headway against an unusual demand for money in time of exigency. This might be done in either of two ways: the lands might be sold, or they might be used as security in the borrowing of money. The question thus raised as to the best means of providing against a fiscal exigency is one which will receive consideration in the discussion of Public Credit. If it be necessary, in order to provide against fiscal emergencies, that the State should retain proprietor ship over a considerable portion of agricultural lands, the argument in favour of the tenant system of agriculture is a strong one; but a moment's consideration will make it clear that the proposal is wholly inadequate to the end in view. In the first place, it is altogether unlikely that the land could be sold under conditions of fiscal emergency such as are assumed. Suppose, for example, that there arises an unusual demand for public revenue on account of war. Is it not cer tain that the disturbance of industrial conditions incident to war will preclude the possibility of sale except to those who might invest for the purpose of speculation? This means that the lands will be disposed of at low prices, and that the purchasers will be, in all probdbility, the most undesirable of all purchasers. In this connection, too, it should be re membered that, in order to make of this suggestion a per manent policy, the government would be obliged to repurchase lands when the exigency shall have passed. This policy, there fore, forces a sale when prices must necessarily be low and forces purchase when prices will probably be high.
It may, however, be urged that money to meet a fiscal exigency may be raised by a mortgage upon the land. This, it is true, avoids the criticism involved in the proposal Of sale, but it overlooks the fact that a public bond issued by a sovereign State is worth no more in the form of a mortgage than as a mere promise to pay. No tribunal can force the foreclosure of such a bond in case of default. This being the case, the price of a government bond will be higher if it rests on the general property of all industries than if based upon a particular property incident to a particular industry. A government which enjoys public credit so as to enable it to borrow money at all will find itself at a disadvantage if it encumber its loan policy with land mortgages. It therefore follows, whether one considers the sale of agricultural lands held under lease, or their mortgage as security for money borrowed, that the argument in favour of the retention by government of cultivated lands is incon clusive. The retention of land as a fund of value to be used in case of fiscal emergency does in a very incompetent manner what may be more easily and cheaply accomplished by the direct use of public credit.
One word further may be added respecting the general policy of leasing public lands. It is an exceedingly dangerous policy. A government which is sufficiently strong to ad minister wisely the details arising in connection with a system of land tenure will be tempted to exercise that power in a tyrannous manner. On the other hand, a popular or demo cratic government, which is the only one that could with safety to the liberty of its citizens be intrusted with the exer cise of a landlord's rights, is not strong enough to administer those rights efficiently and in harmony with a systematic plan. There is something incongruous in the idea of establishing the relation of landlord and tenant between a government and its citizens where the citizens are the govern ment. A complete analysis of the question would disclose the fact that private property in land is one of the essential conditions for the satisfactory working of popular govern ment. This is final against the lease system, except the leases be drawn for so long a period, and in such liberal terms, as practically to amount to ownership in fee simple.
Reference should be made in this connection to what is popularly known as the " single tax " theory, which from one point of view may be classed as a proposition to replace the system of free holdings by the tenant system. This plan proposes to substitute for all forms of public income an annual payment equal to the full rental value of the land. The title in the land will not on this account be disturbed, although all income arising from the land in excess of labourers' wages and interest on improvements, that is to say, the proprietor's income, will be transferred to the State. Under such condi tions no motive to own land exists, except such as arises in connection with occupancy, and the justification for classing this project as a proposition to create a tenant system with the State as a landlord is found in the fact that the amount which the land pays to the government would be determined by the competition for occupancy and not according to an estimate of public needs.
If the " single tax " theory be a project for creating State tenants in disguise, it should be judged on the basis of the broad question of public versus private ownership of land. Its acceptance would be the reversal of eight centuries of the history of the English-speaking people. This is as far as it is necessary to consider the " single tax " theory in this con nection.
(3) Shall Government Dispose of its Domain by Sale?— It is not necessary to discuss this question at length. The considerations urged against direct farming by the State and against a system of tenantry are considerations in favour of a system of ownership by the occupiers of land. The con clusion that the State should dispose of its domain to citizens, with the exceptions cited above of forestry, irriga tion, and other like public services, carries with it the idea that landed property should be made a source of derivative rather than of direct revenue; that is to say, it should be recognised in formulating a scheme of taxation. The further discussion, therefore, of the position occupied by agricultural lands in the general fiscal system will be postponed until we come to consider the general principles of taxation. Our conclusion at this point is that the revenue from real property should be in the form of a tax and not in the form of a price or a rent.
42. Land Policy of the United States. It may be in teresting in this connection to sketch briefly the land policy of the United States. At the close of the Revolutionary War a serious embarrassment to the establishment of a central government was found in the conflicting claims of the newly created States to the lands ceded by the Treaty of Ghent. The original grants to the colonies were made at a time when little was known of the extent of the North American con tinent, and it is not strange, in view of the loose language of those grants, that the same tracts should have been claimed by two or more States. Moreover, some of the colonies held title to large tracts of land, while the holdings of others were small and explicitly defined. Maryland, for example, had no claim upon lands west of the Alleghenies. After con siderable discussion it became evident that no just settlement of boundaries was possible, and, inasmuch as all had con tributed in blood and treasure to securing the cession from Great Britain, the opinion finally prevailed that, in order to perpetuate the Union, it was essential that each colony should grant to the central government such rights as it might hold in Western lands. Omitting mention of minor exceptions, this was ultimately accomplished, and in this manner the Federal Government came into possession of an immense domain.
To the lands thus ceded by England were added the Louisiana Purchase in 1803, the Spanish cession in 1819, the annexation of Texas in 1845,t the first Mexican Purchase in 1848, the Gadsden Purchase in 1853, and the Russian cession in 18674 This gave to the United States an area of 2,970,000 § square miles of territory. The title of the Federal Govern ment has never been questioned, and the title of the individual or the corporation holding from the Federal Government is superior to attack.
(I) The Original Idea Respecting Land. The first idea held by American statesmen respecting the public lands was that they should be made the basis of public financiering. Being a joint inheritance to all the people, it seemed proper that they should be used as a fund of wealth for the advantage of the people. It was expected that taxes would be less by vir tue of this property. Ample evidence supporting this state ment may be found in the expressions of the time, and in the writings, the speeches, and the proposals of early statesmen. In 1790 Alexander Hamilton wrote as follows to the House of Representatives in response to the request for a plan for the disposal of the public lands : " That in the formation of the plans for the disposal of the vacant land of the United States there appear to be two leading objects of consideration : one, the facility of advantageous sales according to the proper course of purchases; the other, the accommodation of indi viduals now inhabiting the western country, or who may here after migrate thither. The former, as an operation of finance, claims primary attention; the latter is important as it relates to the satisfaction of the inhabitants of the western country." That public lands were used in the satisfaction of public ob ligations is shown by the fact that settlements with the army were in part effected by means of land-script, and in 1795 it was provided by law that the net proceeds of the sales of land should constitute a portion of the sinking fund for the re demption of the public debt. The financial character of the western lands policy is further suggested by the terms of sale, which were such as to induce the purchase of large tracts of land by land companies rather than the purchase of small tracts by actual settlers. The original price was two dollars an acre, which might be paid by instalments. The result of this policy was to encourage land speculation; it did not, however, succeed in securing any considerable funds for the public treasury, and the practice of granting credits brought with it confusion in public accounts and serious loss to the public treasury. The idea that the public lands could in a direct manner be made the basis of a financial policy, because a source of considerable revenue, was gradually aban doned, and by 1820 it was succeeded by what may be termed the second and permanent policy respecting public lands.
(2) Use of Land for Development of the Nation. The idea which has controlled the administration of the Land De • partment of the United States since 182o seems to have been that the public domains should be placed in the hands of the occupier in allotments appropriate for cultivation. In this manner it was thought to encourage the agricultural industry and to lead to the development of national improvements. Sale for credit was abandoned, and the price was reduced to one dollar and a quarter an acre. The policy of preemption, also, had by 1830 taken definite shape. Preemption may be defined as a " premium in favour of a consideration for mak ing permanent settlements and a home." The idea that the land belonged to the people and should be reserved for the occupier became stronger as the years went by. In 1852 it was recognised as one of the political questions of the day, and the Free-soil Democracy placed the following plank in its platform : " That the public lands of the United States. belong to the people and should not be sold to individuals. nor granted to corporations, but should be held as a sacred: trust for the benefit of the people, and should be granted in limited quantities free of cost to the landless settlers." Congress never went so far as to attempt the extreme realization of this general policy. But when one considers the many ways by which land could be secured—by the Homestead Act, the Tree-claim Act, and other Acts of the same sort—it must be recognised that for a series of years land was practically free to the settler. The idea of land as a basis of fiscal operations thus gave place to the idea that land was the basis of industrial development. The amount of money which the government has secured from the sale of its public lands has been very small as compared with its total expenditures. Thus the aggregate income of the Federal Government during the first century of its life was $11,684,208,247, while the aggregate income from the sale of public lands during the same period was $276,476,106, or less than two and one-half per cent of the total.
(3) Use of Land for Educational and Railway Grants. While it is true that the land policy of the United States since 182o has been shaped almost entirely by the interests of the settlers, it is also true that this great property has been used as a fund for the encourageNent of education and the develop ment of commerce. By the ordinance of 1775 it was pro vided that section number sixteen of each township should be reserved for the support of schools, that is to say, 64o acres out of every township, or an amount of land equal to one thirty-sixth of the entire area. This provision was reenacted in 1787 and has continued in force from that time to the present. Since 1848 section number thirty-six was also granted for public-school purposes, making 128o acres out of each township, or one-eighteenth of the aggregate area devoted to this purpose.
In 1787 provision was made also for university education by granting to each State an amount of land not less than two townships. It is upon this grant that the State universities of the Western States rest; and although in many cases the land has been dissipated by unwise administration, it never theless remains true that this provision is responsible for the establishment and, in large measure, for the perpetuation and success of university public education. In 1866 what is known as the Morrill Bill was passed for the establishment of agricultural and industrial education. By this Act an amount of land was granted to each State equal to 30,000 acres for each senator and representative. It is upon the basis of this law that the agricultural colleges rest. The amount of land granted for common-school purposes has been 67,893,919 acres. The amount of land granted by the Federal Govern ment for the support of State universities has been 1,165,520 acres, for agricultural colleges 9,600,000 acres. This is one way in which the Federal Government has performed its trust of administrating the fund of wealth ceded to it by the original States.
Public lands have also been freely used for the encourage ment of inland transportation. During the period in which the State governments were endeavouring to provide canals and railways, many bills were introduced into Congress for the transfer of the proceeds of the public lands to the several States; but with the failure of this experiment, and the con sequent rise of private corporations, this thought seems to have been dropped from view. The assistance rendered by the Federal Government in the development of means of trans portation has been through the granting of public lands to private corporations. The amount of land appropriated for canals has been 4424,073 acres; the amount appropriated for wagon-roads has been 1,301,040 acres; and the amount granted for railroads has been 215,000,000 acres. This does not mean that these amounts have been actually transferred with a clear title to individuals and corporations, since in most cases grants were made upon condition that the im provement in question should be completed within a certain specified time. The policy of making grants for railways was discontinued in 1880, since which time the idea that public domains should be reserved for settlement may be accepted as the established land policy of the United States.
The manner in which grants were made to canals and rail ways shows that the government did not lose sight entirely of its own fiscal interest in the public domain. Almost the practice has been followed of granting alter nate sections for a given distance on either side of the public highway. The first important grant for railroads was by the Act of September 20, 1850, which gave to the State of Illinois alternate sections of land for six sections in width on either side of the road or its branches.t The third section of this Act provided that the lands of the United States within the grant limits should not be sold for less than $2.50 an acre, the object of this provision being that the government might recoup itself for the lands granted by the increased value of the lands which it retained.
In concluding this brief sketch of the land policy of the United States it may be remarked that the original policy was one which could not, from the nature of the case, succeed.
Land does not become a source of revenue until it is brought under cultivation. It has no value and can give rise to no proceeds until it is demanded for occupation. A speculator's money makes poor public income. Even from the point of view of fiscal advantage to the State the policy of sale at low prices to actual settlers is capable of defence. This is the policy which has resulted in the creation of that immense property now the basis of taxation. Out of the aggregate value of tangible property in the United States in 1890, which according to the United States Census estimate amounted to $65,037,091,197, real estate with the improvements thereon amounted to $39,544,544,333, and the valuation of railroads and equipment, including $389,357,289 for street railways, is given as $8,685,407,323. This value is the result of a cen tury of industrial progress. Without the land to serve as a basis of industry it would have been impossible; without the land policy it would have been delayed. There is no way of making land a source of public income so quickly as by its sale for actual settlement. The fact that the Federal Govern ment which owns the lands does not use them as the basis for its fiscal system, but grants this source of revenue to the States and minor civil divisions, is no consideration against the po licy adopted. To urge this would be to take a contracted view of the situation. The government of these United States includes the State and local governments as well as the Federal Government, and the successful adjustment of the finances of the State and local civil divisions is of as great importance to the Federal Government as to the local govern ments themselves. The land came originally from the States; it has been returned to the States by the policy which the Federal Government has adopted. It is quite possible that the grants for public improvements were at one time made in too reckless a manner, but when one appreciates that the problem that presented itself to Congress during the first century of the nation's life was the settlement and cultivation of a vast area of wild lands, the use which has been made of the public domain cannot be severely criticised. It at least has the merit of having brought about the desired result.