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The Financial Character of the Several Branches of the Administration

THE FINANCIAL CHARACTER OF THE SEVERAL BRANCHES OF THE ADMINISTRATION.

§ 185. A discussion of the fiscal demands of the several branches of national and communal administration leads unavoidably into the technicalities and details of each of these different admin istrative functions, and so out of the sphere of financial science proper and into that of what has latterly (following the exam ple of Lorenz von Stein) been called Administrative Science [Verwaltungslehre]. If, consequently, such a discussion does not properly belong in the science of finance we may surely omit it here, since the present purpose is to present in brief space and as concisely as may be, the leading features of the Science of Finance proper.

Still less do I feel myself tempted in this connection to go into the customary statistical comparisons of one time and coun try with another. Such comparisons seem to me to be much better adapted to serve as material for a yet unwritten manual on the subterfuges of statistics ; so persistent is the practice of comparing things essentially incommensurable, so constantly does this method lend support to those deplorable misconceptions that claim statistics as an infallible witness one day and treat it with ridicule the next.

What is in place at this point is a consideration of the differ ent financial character of the various branches of state and com munal administration.

On taking a survey of the aggregate of the divisions and ramifications of the administration of a modern state, we find that the various " ministries " which have the oversight of differ ent public functions for the most part look to the ministry of finance for the requisite fiscal means ; this latter standing to the other ministries in a relation similar to that of a head of a house hold towards his family. This relation of dependence on the ministry of finance, however, does not hold to the same extent for the various departments. Indeed, certain ones of them are in the fortunate position of carrying on an important administra tive work for the community without having to require any of the means for their purpose from the ministry of finance. The operation of their own branch of the administrative machinery produces the fiscal means which they need, and even much more than they need. Other branches of the administration are at least able to cover part of their expenditure by means of the receipts for the services they render. Still others, however, do nothing, or as good is nothing, towards meeting their own expenses.

It goes without saying that in this matter of a greater or less degree of financial self-sufficiency, the decisive consideration in a modern civilized state is the question of expediency and equity, as within the sphere of the particular administrative department in question. The norm is not now, as in the nature of the case it was with the undeveloped state, a crude fiscalitv, which, on account of the difficulty of finding a productive system of taxa tion, exploited every state function indiscriminately as a source of fees.

§ 186. If we take for the basis of our discussion the modern Prussian-German administration, we .find that the management of Prussian state-railways is far and away the foremost of those branches of the administration which satisfactorily perform the public service required of them and at the same time fully meet their own expenses out of the receipts from their own business.

The roads have by no means been built by the state, or taken out of the hands of the stock companies and placed in the pos session and management of the state for fiscal purposes. They have come to constitute a department of the national administra tion as a logical consequence of the universal customary right of roadway ; in virtue of which, in order to best subserve the pur poses of the public business, the control of the public highways has been withdrawn from private hands and placed in the hands of the public, for the reason that it has been found by experience that the frequent and varied points of conflict between the com mon interest in the means of communication, and the interests of private speculative enterprises, can be properly controlled only by public management. But the state is more especially urged to this position by the following considerations.

In the course of time, the state will again and again find itself obliged to take the part of such portions of the country and such lines of communication as do not promise a sufficient profit to attract private enterprise. The result is a contrast between a dividend-paying private railway system, and a deficit-bringing state railway system within the same country. This contrast can be done away only by means of a unified state system which shall include both.

In the second place, in an age which makes every improve ment in the mechanic arts serve its military purpose, the railway is indispensable to the state on strategic grounds. The state is induced to assume direct administration of the railway system not only in order to have unhampered control of the lines in case of mobilization and war, but also in order to the construction of the shortest lines and the lines most desirable for military purposes. The situation demands an expenditure in the interest of the com monwealth as a whole—a purpose for which private enterprises are not undertaken.

In the, third place, the traffic of every section of the road requires careful attention on the part of the railroad officials, whether the business of each particular section is great or small, whether it is more or less lucrative in the aggregate. The details of transportation are so varied, and the interests involved are so great and many, that the business cannot safely be made depen dent on the degree of lucrativeness. Such a careful supervision requires sacrifices ; and this fact is the reason why the interested parties demand a state railway system. This fact, that part of the business of the railroads has to be done at a sacrifice, involves the danger of class discrimination at the expense of the community, but this danger will have to be guarded against by proper precautions.

But if the administration of a state railway cheerfully assumes all these losses, and still is able to make the excess of its income not only cover its outlay, but even run up a surplus in addition, which may be applied to the expenses of other branches of the national administration ; if it can do all this without laying itself open to merited censure for discrimination ; then it may truly be said to have reached the limit of the attainable in the way of financial independence on the part of an administrative depart ment.' § 187. The case of the post-office is much the same as that of the railways.

It originated, mainly, in the government's own need of letter carriage, just as at a later date the state telegraph has often been established, at first exclusively for the government service. In the one case as in the other it is only gradually that the private business transacted has come to be of greater importance than that transacted for the state. If a means of communication is to serve the needs of the state alone, the resulting expenses will also have to be defrayed by the finances of the state. The pos sibility of covering the expenses of the government's use of the means of communication, by increasing the volume of business done by the state-owned establishment, arises only with the develop ment of a private business that will yield an income. This result has latterly been so fully attained that the payment of these expenses out of the net receipts of the post-office is taken as a matter of course.

But the financial results attained are much greater than this fact alone would indicate. As density of population and the facilities for communication increase, as the occasions for exchange of letters for business, social and domestic purposes multiply, the volume of the business of letter carriage becomes so great as to reduce the cost of carriage to a minimum. It results from the very nature of the means of communication— and this is especially true of the letter post—that a maximum volume of business results in a minimum cost ; this result being attained by the full utilization of a consolidated plant.

A very great effort to meet the wishes of the letter-writing public, in the way of cheap and expeditious service, such as has been made on all hands during the last few decades, and such as has been the practice in England for half a century past, has always resulted very satisfactorily for the finances, and has even yielded a very large net revenue (as is especially the case in England).

The financial surplus of the Post-office' includes not only the gratuitous transmission of official correspondence. It would be much greater if it were not that provision has to be made for the transmission of private matter other than letters—business which is less profitable than the carriage of letters, and even, by its nature, or rather in consequence of the demands of the public, has to be transacted at a loss. Not to mention things of less importance, we may safely count the transmission of parcels through the German Imperial Post-office as matters stood at that time, as being a branch of the postal business carried on at a loss, certainly this will hold true if, as is proper, the unpaid ser vices of the railroads be counted in in the costs. The ques tion as to this brunch of the postal service relates mainly to the parcels rates, which are by no means unchangeable, and which are, in fact, quite different abroad from what they are in Ger many. Indeed, until lately, the government has been quite will ing to surrender this part of the business to private enterprise, as involving a loss to the state. But the carriage of passengers by the German (Swiss) post is, in consequence of the modern devel opment of the road system and traffic, almost inevitably a losing business. It is, in certain countries, a function traditionally devolving on the state and undertaken in the interest of the public ; whereas most of the great civilized nations (England, France, United States of America) are strangers to the system, and leave the business to private enterprise, to the disadvantage of travelers and the benefit of the postal revenues.

We shall come later on to the discussion of the nature and extent of the surplus revenues (and deficits) of the postal ser vice, as well as of the like facts with respect to the revenues of the railway business. For the present it is sufficient to note that here, again, we have to do with a branch of the administration which, while performing a function of great importance to the state and to private parties alike, is still able to take a position of independence of the ministry of finance.

The telegraph business is, on a small scale, in much the same position as the postal service. It is another instance of a

public function which is undertaken by the state in order to satisfy its own need of telegraphic communication, as well as to meet the demands of the public, and is carried on without requir ing any financial support from the national treasury.

§ 188. Quite different is the case, as regards its financial position, of a branch of the means of communication, which is old in point of development, but new in point of financial man agement, viz., the public highways.

The abolition of the turnpike tolls' that were formerly (and still are in many cases of survival) collected, has left the public roads and their maintenance entirely dependent on financial means which they cannot themselves directly procure. This is the necessary reverse of a view which advocates making all the means of communication gratuitous. This is not the place for discussion of this point ; we can here only call attention to the fact.

This is also not the place for a discussion, though it is the place for an articulate enumeration, of those other branches of administration which, at the stage of culture we occupy, seldom produce an income, and therefore regularly draw on the general finances.

Most important of these are the expenditures for military pur poses. For reasons already indicated, military expenditures can, in the nature of the case, never be placed on a financially independent, self-supporting basis. The great and costly public services for which these expenditures are incurred cannot be paid for by the piece. They constitute an indivisible and intangible whole whose cost can be defrayed only by contributions from the whole body of citizens as such,— that is to say, by taxation.' Such is the case, at any rate, in every civilized community. It is otherwise in the crude beginnings of national growth, when war is a plundering foray, when it is held disgraceful to acquire by the sweat of one's brow what may be got by violence. With civilized peoples it is only in exceptional cases that war can be made to cover its own cost, by means of a war indemnity extorted from a conquered enemy—as, e.g., the payment of the five mil liards by France to Germany after the war of 1870-71. More over, in the first place, this favorable outcome depends on a conjunction of circumstances : the indemnity is of course a one sided affair, and throws a double burden on the defeated nation; it can also be exacted only in case of a very decisive conclusion of the struggle, as in a different case each of the parties to the fight would let the matter rest with the expenses already incurred ; also the conquered enemy must be wealthy enough to be able to pay such an indemnity. In the second place, the war indemnity cannot be looked on as a means of covering the expenses annually incurred for military purposes, for the reason that these expenditures are, at the best, incurred as a means of postponing or preventing war ; so that the ideal to be hoped for, according to this view, is to make it as nearly impossible as may be to exact any war indemnity.

We are aware how great are the efforts made in our own commonwealth in this direction, and we must be prepared to expect that the heaviest demands on the national finances will continue to be for this purpose.

§ 189. As is the case with the preparations for defense, so also with the administration of justice ; it serves its purpose most effectively when it succeeds in obviating litigation. It is for the resulting unapportionable atmosphere of peace and security that the citizens have mainly cause to show themselves grateful.

At the same time the mechanism of the administration of justice is of such a nature as to make it not only possible but also just and expedient to collect individual payment from indi viduals who are served by it. In the administration of the law there are continually arising. special expenses to the government, at the same time that special benefits often accrue to the indi vidual concerned in the particular case in question, and these are properly to be paid for in fees. This happens in actions under the civil law, bdth in cases of litigation and in case of decisions rendered at the instance of interested parties [freiwillige Gerichts barkeit], as also in criminal actions. The abolition of such spe cial payments has been demanded for more than a hundred years past by the reaction against the " fiscality " of the earlier administration of justice, but such a change would be fraught with great danger, especially as regards civil actions. The courts would be crowded with a multitude of petty disputes ; as indeed they already are, to some extent, in spite of the quite considerable costs involved.

The expenses of the Prussian administration of justice for the fiscal year 1888-89 amounted to 86 million marks, besides 2.25 millions non-recurring [einmaligen] expenses ; while the receipts were 48.5o million marks, 47 millions of which was derived from court fees.

In the related branch, the police administration, it is more difficult to procure any appreciable part of the necessary funds from the receipts coming in to the department. The administra tion of the Prussian Ministry of the Interior [Ministerium des Innern] for the year 1888-89 involved an expenditure of 43.50 million marks-23.5o millions for police and gendarmerie, 9.5o millions for penal institutions (besides 1.75 millions for jails, defrayed by the department of justice), nine millions for the general expenses of the department. The receipts amounted to not four millions, for the most part derived from the labor of penal institutions, together with 1.25 millions derived from the labor of persons under the management of the department of justice.

§ 190. Coming now to the subject of public education, it appears that here, for several reasons, the figures of the finance report fall far short of being a satisfactory indication of the state of the case. For one thing, the greatest single item of expend iture for public instruction, that for the elementary schools • [ Volksschulen], is borne by the communes, the state bearing a hand in it only to the extent of (quite considerable) supple mentary contributions to the communal expenses. Further, the remaining branches of the school system, the upper grades and especially the higher institutions [Hochschulen] are to some extent provided for by endowments, so that here, too, the demand on the national administration frequently goes only to the extent of a supplementary contribution of funds.

It is further to be noted in this connection that, under the influence of a progressive social-political bent of public opinion, the whole question of pecuniary provision for education is in a state of flux. The method of defraying the cost of schools by means of individual payment from those attending the schools (a method by no means impracticable, by itself considered, simply on technical grounds) is more and more giving way before the latest views (as expressed in state constitutions and school laws), so that the public schools are becoming a con stantly increasing fiscal burden on state and commune. This result is to a considerable extent due to enhanced demands in the way of the number of schools, the character of the school houses, the wages of teachers, etc. During the fifteen years 1871-86 the cost of maintenance of the public schools of Prussia has risen from 55.6 million marks to 116.6 millions.' The sup plementary funds contributed by the state for the same years increased from hardly three million marks to fourteen millions; whereas the receipts from tuition are but slightly greater in 1886 than in 1871 (10.9 millions in 1886 as against 10.5 millions in 1871). Even this payment is, according to the proposals of the central government, to be gradually done away.

As concerns the higher branches of public instruction, if the various items of expenditure under that head, given in the Prussian fiscal estimates for the year 1888-89, are summed up, the total that of the army and navy no adequate idea of the expenses is got by taking into account only the ordinary expenditures and leaving the non-recurring [einmalige] expenditures out of con sideration. Just as in the case of the military expenditures this latter class of expenses are far from being really " non-recurring." They constantly recur ; only their periodicity is not as easily made to conform to the limitations of the fiscal year as that of the so-called ordinary expenses.

More particularly, the universities and the technological schools, with their ceaseless demands in the way of new scientific and medical equipment, very closely resemble the progressive demands for military equipment, in that in the one case as in the other the advance of science and of the arts based on natural science constantly demand new appliances to replace the old before they have been worn out. There are of course also other causes at work to bring about a like result, due to a general devel opment in the requirements of life, in the way of taste, sanita tion, etc.

As regards the question of the financial standing of the various branches of public instruction, it is to be said that the high-schools resemble the elementary schools [Volksschulen] to the extent that only a moderate part of their expense is covered by receipts from fees. The aggregate expenditure of the Prussian univer sities for 1888-89 amount to 9.5o million marks, of which sum only 1.20 million is obtained from the receipts of the business.

It is otherwise with the secondary schools' [hohere Lehran stalten], that is to say, gymnasia, Realschulen, etc., which, with an aggregate expenditure of 28 million marks, defray nearly one half their expenses out of their own receipts.

§ 191. The above account does not exhaust the subject of the public finances ; still less can it be said that we have adequately disposed of the great multitude of communal' expenses.' That, however, has not been our object. It has rather been to point out what is the varying significance, as to kind and volume, of the chief varieties of public expenditure. In order to this, the main types of public administration have been brought under review, and in the case of a majority of them it has been found that some provision has to be made for meeting their expenses from resources that are not to be had within their own domain.

The discussion next following will be occupied with the nature of these fiscal resources.

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