REVENUE FROM PUBLIC INDUSTRIES.
In considering public industries in their relation to public finances we shall confine ourselves to those practical ques tions that arise when the subject presents itself to the finan cier. The first, and perhaps the most important, of these questions pertains to the choice of an industry when a govern ment assumes the role of an industrial capitalist or of a busi ness undertaker.
43. Choice of Industries for Public Administration. Assuming revenue to be the object held in view, the indus try naturally selected for public administration should be simple in its organization, and the commodity or service re sulting from it should be such as is commonly regarded as a St subject of taxation. It is somewhat difficult to discover industries that meet equally well these requirements. The mining of salt as it is carried on in Saxony is perhaps as good an illustration of a public industry of this class as can be obtained, although these salt-mines are in fact a part of the public domain, and the propriety of imposing any considerable payment upon the consumers of salt is perhaps open to ques tion. Tobacco, spirits, and malt liquors are universally re garded as fit subjects for heavy payments. Their growth and manufacture, however, are not sufficiently simple to meet perfectly the requirements of a public business. It may be claimed, also, that these commodities, regarded as articles of consumption, address themselves to the tastes of those who purchase them, and should on this account admit of variety and of high specialization of peculiar qualities. This can only come as the result of experiment and venture, and on this account, unless it be assumed that the consumption of these commodities is in every way to be discouraged, the manufacture of tobacco, spirits, and malt liquors may be more properly left to private undertaking. Or, if this be too strong a conclusion, it at least is true that the superiority of public manufacture of these commodities from the point of view of revenue must be so marked as to set aside objections from the point of view of manufacture.
The financier is not at liberty, however, to determine the question of public industry solely as a question of public revenue. There are many industries which if left to pri vate enterprise would become the occasion of serious social and commercial evils, and it is manifestly proper that the thought of exercising a beneficial control over industries of an evil trend should be held in mind by the government when ever it considers the general question of public undertaking. Mention of a few industries of this class will show clearly the point in mind.
The business of coining money used in trade and com merce, while not universally a public industry, is at present generally recognised as properly assigned to the State. There is no other agency capable of securing to the commercial world a uniform standard of value. Moreover, a sound monetary system requires efficient regulations for the pre vention of counterfeiting, a task which pertains naturally to the police. Originally a seigniorage, or toll, was charged for coinage, but at present it is the common practice of corn mercial states to render this service without special compen sation. The service is acknowledged to be a governmental rather than a special service, and is mentioned in this connec tion as suggesting an industry assumed by the State because of the evils which would inevitably result from its consignment to private control. For analogous reasons the issue of paper money is also universally recognised as a prerogative of the State, although in this case it is a very common practice for governments to avail themselves of the agency of private corporations. Where money is directly issued by government, as, for example, in the case of the three hundred and forty-six millions of treasury notes now outstanding in the United States, the government receives the profit which accrues to the business of issuing notes. On the other hand, where banking institutions are made the agency for the issues of paper money the revenue derived by the State must come in the form of a tax on the basis of note circulation. In either case, however, the function of issuing notes to be used as money is acknowledged as a governmental function because of the evils that would follow its assignment to private control.
Of more significance to the question under discussion are those industries which tend naturally toward monopoly. The financier must of course rely upon the analysis of the econo mist for determining what particular lines of business are included in this category, and the reply of economic analysis to this question is that industries which are extensive in character—that is to say, which are subject to the " law of increasing returns "—tend inevitably to monopolistic condi tions. While this fact is not final in favour of public owner ship and government administration, it does indicate the di rection in which government should move in case it is regarded as wise policy to increase its direct revenue. The standard illustration of a business subject to the law of in creasing returns is the business of transportation. The rail way industry, for example, depends for success upon density of traffic rather than upon attention to details. Its expenses of operation do not increase proportionally with volume of traffic. For these reasons, as would be shown by a careful analysis of the situation, the railway industry takes upon itself the character of a monopoly, and would, on this account, be come the source of serious social, industrial, and political evils if left to its normal development. Assuming that these evils would be set aside through government ownership and ad ministration, and, further, that other evils of a different sort would not be introduced by the change, an argument can be easily framed, quite independently of financial considerations, in favour of a system of 'State railways. A similar line of argument, also, may be presented in connection with the business of transmitting news by telegraph, with the express business and others of like nature. Analogous arguments, also, though somewhat different in their state ment on account of the different social and political con ditions of the services in question, might be made with re gard to municipal railways, lighting companies, and water companies. These are all, for one cause or another, of a monopolistic character. The public enjoys no guarantee of fair treatment on account of any competition that can affect them. This of itself is adequate justification for some sort of supervision by the State, and may be urged as a reason far the assumption of these businesses by the appropriate grade of government.
. Mention of industries that may be selected by the State as a source of revenue, largely on account of the evils which spring from their private management, would not be complete without reference to the manufacture and sale of spirituous and malt liquors. Assuming it to be capable of proof that the liquor problem could be solved along the line of the " Gothenburg System," few would deny the appropriateness of extending the functions of municipal government to at least the sale of intoxicants. Whether or not this would increase the revenue to the government above what is now derived from this busi ness in the form of special taxes and licenses may, however, be doubted. Indeed, it is the object of this plan for solving the problem to decrease the industry rather than to increase the revenue, and the financial interests are of such relatively slight account in the discussion of the problem that the ques tion will not claim our further attention in this treatise.
Another reason besides the one given above why indus tries subject to the law of increasing returns are well adapted to governmental administration is found in the fact that such industries are capable of a high degree of organization, and of control through general rules and comprehensive prin ciples. Their administration is analogous to the adminis tration of a military establishment, in which authority is centralized and orders are executed without question by sub ordinate officials. Such an industry is free from confusing details, so far as the rank and file of officers and employes are concerned. Moreover, the questions that present themselves to the administration are not peculiar to the conditions under which they arise, and on this account the answers to such questions will not be restricted in their application. On the contrary, it is likely that the decisions of such questions will be of such a sort that they can be promulgated in the form of general rules, and that the principles underlying them may be used as precedents for subsequent decisions. To put this in another way, the administration of industries which, for the reasons given, tend towards monopoly will naturally crystal lize itself into a body of rules, and on this account the extent of the organization or the magnitude of the operations will be no barrier to success. If, now, to these considerations there be added the fact that development in technic rests upon scientific attainment it is evident that we have discovered a class of business undertakings that adapts itself readily to the limitations of the political organization.
It is further desirable that the business selected for govern : nent ownership and administration should hold some peculiar and direct relation to the life and development of society. It should pertain to the social utilities or to the collective in terests of the people rather than to the appetites and ambitions of the individual. It is admitted that these phrases are some what loose and indefinite, but the point is that the business to which the State can with dignity and propriety address itself must be able to trace its results to the civilizing process at the time going on. It must pertain to the conditions under which people live rather than to the process of making a living. One or two illustrations will make this point clear.
The post-office, by which provision is made for the trans mission of news and for private communication, is one of the essential conditions of a highly organized society, a fact that receives ample proof by glancing at the following table, which shows the use made of postal facilities by the peoples of a few selected nations. The data are presented upon the au thority of von Neumann-Spallart in Ueberschriften der Weltwirtschaft for 188o, and although the figures pertain to a date some time past the comparison which they present is still pertinent.
Most industries known as municipal monopolies, such as water-works, lighting-works, and street railways, are of the same class. Their social or condition-making significance in vites in a peculiar manner the attention of government. It is not enough that serious abuses should be avoided in their management, but they should be administered in view of the positive social utilities which from their nature they are able to contribute. The social function of the municipal railway, for example, is to overcome the social evils that result from congested population, which, in its turn, is one of the unfor tunate characteristics of modern industrial organization. Equally significant are the social services bound up in muni cipal lighting and water-supply. To give these industries over to private gain, or to confine public control to the exact ing of a fair price for such services as the commercial interest may induce a private company to render, fails to appreciate their social or developmental significance. Railways also are not only essential to a high state of civilization, but the pecu liar means of transportation which they afford is a funda mental fact in determining the form of that civilization. These suggestions are perhaps adequate to make clear what is meant by saying that an industry which from its nature is public in character is one that contributes to the social utilities or the collective interests of a State.
Another mark of a public industry is that the interest involved pertains to all citizens without regard to location or to class. This must be the case, since, according to the governmental conception of constitutional peoples, no portion of the machinery of the State should be set in motion except the advantages to accrue therefrom are general in character. In applying this thought to the conditions of modern states there emerges a distinction of great importance. Assuming that the interest involved in a business enterprise undertaken by the government should be as extensive as the jurisdiction of the government itself, it follows that many industrial func tions may be assumed by a government of restricted jurisdic tion, or by a State of even and uniform industrial development, which are forbidden to governments of more widely extended jurisdiction or to states of a more uneven development. The line of argument thus presented might justify, for example, the advocacy of the ownership and administration of street rail ways by a municipality, while at the same time one refuses to advocate the ownership and administration of a general railway system by the central government. The interest of the municipality for rapid, safe, and cheap transit is a compact interest, a fact whch does not pertain to a national govern ment like that of the United States, with its broad territory and diverse industrial conditions. The rules for adjusting rates in local transit are in no sense complex, since they do not involve in any great degree the relative claims of com peting industries. The distinction thus brought to notice is capable of wide application, and is relied upon for the support of many conclusions in municipal finance which may not be tenable in the case of the financial system of the States on the one hand, or of the central government on the other.
A further application of the principle of public financiering requires that the government should avoid those industries which invite favouritism on the part of officials, or in which the charge of favouritism from customers will naturally arise. In England and the United States, for example, there is a division of banking functions; and while the business of issuing notes to be used as money is brought under the strict supervision of the State, the loan and discount business con tinues to be a purely private affair. This must be recognised as a sound rule where government rests on popular suffrage, because the business of lending money or of discounting com mercial paper calls for the exercise of careful discrimination. Many other applications of the principle might be referred to, but the above is adequate to show clearly what is meant by the use of the phrase in this connection.
The conclusion of the analysis, then, is that industries adapted to public control from which the financier must select in case he deems it wise to extend the direct revenue of the State must meet the three following requirements: first, they must be simple in themselves and capable of adminis tration by comprehensive rules; second, they must be indus tries in which social evils arise as a result of unregulated private administration; and third, they must involve some comprehen sive social interest. There is no single business which pre sents all of these marks of a public industry except that which has to do with the machinery of commercial exchanges. There is a sense in which all transportation industries, using that phrase in its comprehensive sense so as to include the machinery for transferring values as well as the means for transmitting news or transporting freight and persons, are from their nature public industries.
44. Special Consideration of Public Industries. Having thus gone over the ground in a general way, it may be well to speak a little more specifically respecting certain of the pos sible sources of direct revenue to the State, and in doing this we shall give our attention first to those industries which are undertaken primarily or exclusively for the purpose of secur ing revenue; second, to those which are undertaken primarily for the purpose of exercising control over them, but from which it is deemed wise at the same time to secure revenue; and third, to those industries which are undertaken pri marily for the service which the State may thereby render to its citizens, but in the administration of which the thought of revenue and control may or may not be present. The classification upon the lines thus suggested will not be the same for all peoples. The use made of it in this analysis holds primarily in mind the social, political, and industrial conditions of the United States.
(I) Industries Undertaken Primarily for Revenue. The most satisfactory illustration of an industry undertaken by the State for a purely fiscal purpose is that of the manufac ture and sale of tobacco. What is known as the tobacco monopoly was established in France by Colbert in 1674, and has been maintained by all the successive governments in France, with the exception of the governments of the Revolu tion and of the first empire until itho. Many other states, among them Austria, Switzerland, and Italy, follow in this regard the policy of France. In Germany there is a strong sentiment in favour of a tobacco monopoly, but it may be doubted if it will ever be substituted for the present system of taxation. Before arriving at any conclusion respecting the wisdom of obtaining public revenue in this manner it will be well to consider briefly the administration of a tobacco mo nopoly, and to compare it with the other methods of securing an income from the manufacture and sale of this commodity, which universally is conceded to be a fit object for heavy pay ments.
The present tobacco monopoly in France was established and organized by an Act of December 29, 1810, and, although extended and revised by subsequent Acts, remains in its general features the same as when established. This mo nopoly extends to cultivation, manufacture, and sale. The first step in working out the programme is for the proper officers to estimate the amount of tobacco of French growth which will be needed during the year under consideration. The monopoly is permitted to purchase foreign tobaccoes for the purpose of mixture or of manufacture, but is obliged to procure not less than one-fifteenth of its supply of raw tobacco from the home-grown product. As a matter of fact nearly one-third of the tobacco consumed in France is of home growth. The amount of tobacco to be grown is appor tioned to the several tobacco-growing provinces, and any one who desires to cultivate this crop must give notice of his intention to the moire of the commune before the 1st of March, and a permit will be granted for such cultivation; but the aggregate of these permits must not exceed the amount ap portioned to the province. The growing crop is placed under careful supervision in order to make sure that no tobacco is taken for private use or disposed of at private sale. The price to be paid for the crop is determined at the time the assignment for cultivation is made, so that the grower knows before he plants the crop the price he is to receive. For the collection of the crop the government has established a suffi cient number of warehouses, so that the grower need not transport his product more than twenty-five kilometres. Such, in brief, are the conditions under which tobacco is grown.
The manufacture of tobacco is likewise a close monopoly. The State owns nineteen manufactories, which give employ ment to sixteen or seventeen hundred workmen. The process of manufacture does not of course differ from that of a privately administered industry. It is claimed by French writers that State manufacture guarantees a pure article and of good quality; but quality is of course a matter of taste. Indeed, it is possible, the use of tobacco being an acquired habit, that the taste of a people can be cultivated to whatever grade of commodity the govern ment sees fit to furnish, a consideration which is commonly omitted when the French tobacco monopoly is discussed by American writers. The sale of tobacco is carried on by many agents. It may take place in the first instance at the manu factories themselves, or it may be through the means of cer tain intermediaries. The retail dealers are named by the pre fect of the commune where the sales amount to ten thousand francs or less, and by the Minister of Finance if the proceeds exceed ten thousand francs. These permits to sell are ac
corded by preference to persons to whom the State is in some way indebted, as wounded soldiers or the widows and daugh ters of soldiers. In this manner it gives to these persons suitable occupation and partially relieves the pension-rolls.
Since the tobacco monopoly is advocated as a means of raising revenue, the student of finance is led to inquire what amount of tobacco is consumed and what amount of money is secured to the State from this consumption. Kaufmann in his treatise upon French finances gives a table which shows in detail the operations of this monopoly from 1811 to 1877. During this period the excess of receipts over ex penditures amounted to 6,362,964,765 francs. At the present time the net proceeds range between 320,000p00 and 400,000,000 francs a year. The general expenses of manu facture and sale amount to about 20 per cent of the gross proceeds, thus giving to the State a profit of 8o per cent upon sales.
It is with some difficulty that this method of securing revenue from the manufacture and sale of tobacco is com pared with the policy of other countries. In England, where the net income from the tobacco tax amounts to between £9,000,000 and flo,000,000 a year, the growth of tobacco and its manufacture are strictly prohibited, and the government secures its revenue by imposing a duty upon its importation. It does not require any special machinery for the collection of the tax, inasmuch as the duty on tobacco comes to be a part of the general revenue system. The insular position of England renders enforcement of regulations relative to manu facture comparatively easy, and so marked are the fiscal ad vantages that no serious complaint is heard respecting the prohibition of growth or manufacture within the country.
The position of the United States with regard to this in dustry is different from that of either England or France, since this country is a grower of tobacco for export. The policy adopted is to impose an excise upon the manufacture of tobacco, and to collect that tax from the sale of revenue stamps. No package can be offered for sale without the attachment of such a stamp. Both the growth of the raw material and its manufacture are recognised as private indus tries. In addition to the stamp duty a license tax is charged for the privilege of exposing tobaccoes for sale. The amount accruing to the Federal Government on account of this tax is about $3o,000,000 a year. The stamp duties together with the license fees are a part of the general scheme of internal revenue. Besides these taxes there is imposed a customs duty upon imported tobaccoes. The prime Object of this duty is to act as a compensation for the excise duty imposed upon tobaccoes manufactured within the country. But the duty becomes a source of considerable revenue on account of the fact that other grades of tobacco than those of home growth are used by the manufacturers for mixing with domestic to baccoes and are demanded by many consumers. In both England and the United States, therefore, it appears that there is nothing peculiar in the method of securing revenue from tobacco. The tobacco tax is a part of the general tax ing scheme.
Should one confine his discussion to purely fiscal con siderations it would seem that the French method of obtain ing revenue from tobacco is preferable to either the English or the American method; that is to say, more money is col lected from the industry, and a monopoly does not seem to impinge upon the prejudices of the people. Such a plan, however, would scarcely be possible in the United States; for, to say nothing of the broad extent of territory and sparse population to which the monopoly must be adjusted, this country does not possess a peasantry of such docile character as that of the Latin-speaking peoples; nor does it have such a considerable number of dependents in whose hands the sale of tobacco could be placed with economy and confidence. The controlling consideration, however, from the point of view of finance would seem to be that, for the United States at least, a tobacco monopoly would 'be strange to the established and familiar fiscal practices of the people, and on this account would require a separate organiza tion and the drafting of unusual rules of administration. There are many advantages in securing revenue from tobacco by methods followed in other branches of the revenue system.
Other commodities there are besides tobacco which have been made the subject of government monopoly. Thus salt has been a favourite article for monopolization. In Rome the salt monopoly was introduced during the early years of the republic, although the purpose of this seems to have been primarily to protect the consumer rather than to secure a revenue. One of the curious features of the salt monopoly presents itself in the practice of Prussia during the eighteenth century. There was no adequate means of preventing the purchase of foreign salt by the consumer, and, in order to protect revenue, the government determined the amount of salt which each taxpayer ought to consume, and at the close of the year a fine was collected for such portion of the amount as was shown by the public accounts not to have been pur chased. This " salt conscription " was not abolished until 1816. Without entering into any extended consideration of this subject, it is sufficient to say that the general trend of fiscal reform during the nineteenth century has been to ward the substitution of taxation of salt for the maintenance of a salt monopoly, except in the case of mines owned by the government regarded as a part of the public domain, or in the event of the abandonment of salt as a proper object of taxation.
Another form of monopoly made the basis of public revenue by European states is the public lottery. This has been practised in the past even more than at the present time. According to Cohn, the lottery made its appearance as a fiscal expedient in Florence in the year 1530, and in 1539 Francis I. gave permission for the establishment of a lottery on condition of the payment of a bonus to the king. Perhaps the best organized of European lotteries is that of Prussia. In the estimates of the year 1889.-90 the sum of 8,287,50o marks was set down as the probable income from the lotteries. The revenue accruing to the State arises from a deduction of 13.75 per cent from all prizes, together with a deduction of 2 per cent for the lottery coljectors. The purchasers of the tickets pay also 5 per cent as a stamp duty, together with a clerk's fee. In England the lottery was abolished in 1826 and in France in 1836. The question is subject to constant discussion in Prussia, but thus far the lottery system has been successfully defended. The ques tion whether or not a lottery should be established is not a fiscal question; its decision turns upon the moral sense of the community respecting this species of gambling.
It is a significant fact that so few purely fiscal monopolies exist at the present time. In the sixteenth century, before taxation was well established, it was a common practice for sovereigns to obtain revenue from royalties upon monopolies. Especially in England under Queen Elizabeth was this fiscal expedient resorted to. Partly on account of the manifest evils of exclusive privileges of all sorts, and partly as a result of the liberal philosophy of the eighteenth century, State fiscal monopolies, either direct or indirect, have been almost en tirely abandoned, the tobacco monopoly being the only one of any considerable importance which has held its own. It is believed that this trend of events merits approval. The pre sumption of modern political philosophy lies against public industries or legal monopolies for revenue and revenue only.
(2) Industries in which Revenue is Incidental—While it is true that modern peoples do not look with favour upon public industries regarded solely as a means of procuring revenue, it is also true that the budgets of modern states, and more especially of municipal governments, show a decided increase in this class of revenue. As already remarked, however, the industries from which this revenue accrues are such as de mand the attention of government for other than fiscal reasons. The controlling consideration is not revenue, but is found rather in the social evils that follow private manage ment, or in the social advantages that follow public manage ment; and the argument seems to be that, inasmuch as the industry must be placed under some form of governmental control, the financier may as well take advantage of the situa tion and secure from it a portion of the needed revenue.
The character of the industries to which this consideration applies has also been determined, but it may now be added that, with few exceptions, these industries pertain to the busi ness of transportation. To make this statement true, how ever, it is necessary to use the word transportation in a broad and comprehensive sense, so as to include the delivery of values and the transmission of intelligence as well as the transportation of persons, goods, commodities, or power. The lines of business thus embraced are the following: i. Transfer of values : (I) Coinage; (2) Issue of notes; (3) Banks of issue; (4) Banks of exchange.
2. Transmission of intelligence: (t) Post-office; (2) Tele graph; (3) Telephone.
3. Transmission of commodities and power : (I) Irriga tion and power canals; (2) Muncipal water-works; (3) Muni cipal lighting companies; (4) Electric-power companies.
4. Transportation of goods and persons : (t) Commercial railways; (2) Water transportation companies; (3) Municipal railways; (4) Express companies.
It is not claimed that the decision respecting the public administration of one of these industries carries with it a like decision for all the others. Transportation by water, for example, does not seem to be attended by the same evils arising on account of discriminations in rates as railway trans portation. The telephone industry, so at least it has been claimed, is a monopoly because of the patents upon which it rests, and of the organization which during the continuance of those patents it has created, not because of its character as an industry. If it be true, as has been argued in the courts, that an increase in the volume of the telephone business be yond a certain point necessitates a corresponding increase in expenses, this fact excludes the telephone industry from the class of industries industrially monopolistic. We must, how ever, in this treatise avoid such technical discussion, and content ourselves with pointing out the line of analysis by which an industry which invites public control may be dis covered.
A further distinction also must be allowed. In the prac tice of modern states some of the industries named above are carried on at an expense to the State, as, for example, the coinage of money; for some of them the government aims to impose such charges as will just cover operating ex penses, as is the case in the United States with the transmis sion of letters; while other industries there are from which the government aims to secure a net income available for general expenditures, as, for example, commercial and muni cipal railways. The principle according to Which this line is drawn is not an industrial but a social principle. The character of the service rather than the character of the busi ness determines whether it shall be freely rendered or charged with its own operating expenses, or made the source of a net revenue. The administrative rules which give expression to this principle may vary from time to time, as also for different peoples, but the principle itself abides. The statesman must recognise in it the controlling consideration in formulating a policy for the administration of public industries.
A third generalization may be submitted in this connec tion. A business which, from its industrial character, or in view of the social services which it renders, might perhaps be intrusted to private administration, may be brought under the administration of the State by virtue of the relation which it holds to other industries. It is natural, for example, that the transmission of intelligence by wire should follow the rule adopted by the transmission of intelligence by letter. The post-office and the telegraph play into each other's hands in such a way that the two businesses ought to be merged into one. Such at least is the opinion of the great majority of the nations. Another illustration of the same point is furnished by the relation which exists between commercial railways and the express business. Where the former are under the manage ment of the government the business of the latter is divided between the freight department of the railways and the post office department. Where the former are owned and adminis tered by private corporations the express business likewise is a private industry. Other illustrations might be given were the point a difficult one to understand.
(3) Industries Undertaken Primarily for Service. In this category there falls a considerable number of public under takings, but the subject is so closely interwoven with the general theory of governmental functions that it can with difficulty be separated for purpose of financial discussion. The most important of these services, whether regarded from the point of view of social significance or from that of the amount of money which it demands, is that of education. In Michigan from 6o to 70 per cent of local taxes is for the support of the public schools. There is here no thought of a special service, and there is no effort made to assign the cost to the individuals who receive the benefit. Only in the case of students who reside outside the district taxed for support of the schools is there any thought of a tuition charge. This at least is the general practice in the United States so far as common-school education is concerned. With the higher grades of education the custom is not uniform. In some communities a charge is made for students who enter the high schools, or, if not for all students, for such of them as select to follow the less frequented branches of instruction. Latin and Greek, for example, are sometimes made the sub ject of a special charge, on the ground that their study is a personal and not a general concern. The State universities, also, in one way or another, secure payment from the students who attend them, and thus relieve, in part, the public treasury from the full maintenance of this grade of education. The principle that runs through all this is easily determined: what is conceived to be of general interest is paid for out of taxes; what is conceived to be of personal interest is paid for by the individual; what is conceived to be of mixed interest is supported by contribution from both the public and the private purse. The discussion forces its way back to the character of the service; the financial organization can easily adjust itself to whatever view prevails respecting the service.
What we have said of education is true of a considerable class of public undertakings, and no new principle would emerge as compensation for our labour were we to consider each of these in detail. The truth seems to be that industries undertaken for service possess no financial character when regarded from the point of view of income. If the financier is to have any voice respecting them it must be because these services are the occasion of expenditures to be met out of the proceeds of general taxes. As a topic for discussion in the theory of expenditures they are most significant, but they possess no independent standing in a theory of income. The revenue to which they give rise, in case any charges are preferred, must be justified as an exception to the rule that general services should be assigned for their support to the proceeds of general taxes.
Certain industries undertaken for service differ in one particular from education, which we have accepted as in the main typical of this class. Reference is here had to those undertakings, such as forestry, that give rise to a by-product that may be sold; or to those, such as irrigation, that neces sitate a commercial transaction in order that the service may be performed equitably as between citizens. In those cases there must be a price, and the question of revenue comes to be a matter of direct fiscal importance. The fiscal interests in such undertakings, or, better, the limitation upon the fiscal interest imposed by other considerations, will emerge as we consider the theory of public charges.
45. Theory of Charges for Public Industries. In discuss ing this question the student must bear in mind that the charge for a public service is neither a tax nor a competitive price. Nor can it be regarded as a combination of a tax and a price. It is rather a charge made in view of the purpose for which the industry in question is undertaken, and must be determined by all those considerations that present them selves under the phrase " public utility." So divergent are the conditions under which industries are assumed by the State that charges may vary in their character all the way from a fee, the object of which is to facilitate some branch of the administration, to a price that imposes all that the service or traffic is able to bear. Indeed, the question of price for a public service plays over the entire gamut of social and political considerations, ranging from the conception of a gratuity to that of a charge designed to destroy certain activities regarded as socially injurious. The outlook from this question presents a philosophy of its own, but in this elementary treatise it will not be possible to grant it the con sideration which either its interest or its importance demands. We shall content ourselves with presenting in outline a theory of public charges.
The three classes of public industries recognised by our analysis are those undertaken for revenue, those in which revenue is incidental, and those undertaken for service. To each of these classes of industries there pertains a rule for the adjustment of prices.
Rule for Revenue-Bearing Industries. So far as industries undertaken for revenue are concerned, as, for example, the tobacco monopoly, the rule to be followed is that of a monopolistic adjustment of the price, and the actual price charged will be the maximum commercial price modi fied by such social considerations as pertain to the case. Greater difficulty inheres in the selection of an industry to be made the source of revenue than to the adjustment of charges after the industry is selected, for the adjustment of charges is largely a matter of experiment, and must be determined in view of the recorded results of a range of prices over a series of years. In the application of this rule, how ever, many of the considerations which control the assess ment of taxes must be acknowledged as pertinent in the arrangement of a schedule of prices. Tobacco, for example, is of many grades, and each grade may be regarded as as signed to a definite class of incomes. Now as in the case of income taxes the rate of payment many vary for the several grades of income, so in the adjustment of prices some re gard may be had to the ratio of the price to the size of the income from which it is likely to be paid. But in practice this consideration cannot be pressed very far, since the higher range of payments be easily evaded by those for whom they are intended through the purchase by them of goods of inferior quality. Theoretically, however, it is necessary to recognise that the rule of charging what the traffic will bear may be modified by considerations of public utility.