THE FINANCIAL RELATIONS OF THE MEMBERS OF THE § 125. The foregoing discussion has, for the sake of clear ness, passed over an important factor which we shall now have to examine.
No mention has been made in the foregoing of the differences in benefit derived and in ability to pay, due to differences in the relations subsisting between the state and its constituent parts, and between the parts among themselves. These differences are especially noticeable in a great empire comprising a considerable area and a large population, with the consequent variations in wealth and needs from one locality or one civil division to another.
In point of fact, there is, strictly speaking, nothing among all the variety of public apparatus and service which serves the ends of the various parts of the nation in an equal degree ; and there is no one part of the country, no province, no town, which is exactly on an equal footing with any other part or town in point of ability to contribute to the state.
But this being so, it will be found that special problems arise out of the question : What effect should these differences in the advantages derived and in ability to pay, have on the financial relations subsisting between the nation as a whole and its various constituent parts? The variations may conceivably be as great and as many in this case as in the case of the individual's relation to the state, with respect to variations in point of individual benefit and ability.
§ 126. In the first place, as regards the different degrees of advantage derivable by different parts of the country, the differ ence is present even in the case of such establishments as appear on the face of the matter to serve only a common and undiffer entiable public purpose, which are equally of advantage to every part of the nation. So, e. g., the maintenance of a defensive armament is most certainly of greater, more pressing importance to the border provinces that arc exposed to the incursions of an aggressive foreign nation, than to the provinces lying in the interior of the empire or bordering on the territory of a peaceable people. It is likewise of greater importance to the great city, the modern industrial city of the large class, whose peace is threatened from within by the turbulence of a revolutionary pro letariat, than to the unruffled, peaceful rural commune, or the humdrum existence of a provincial town.
Passing to the opposite extreme, to that class of public estab lishments whose strictly localized character emphasizes the fact that special benefit is derivable from them by persons living in the place, we may cite the construction and care of the streets in a city, with all its attendant expenditures.
It would of course be an exaggeration to say that the streets of a town are of use to none but its inhabitants. The tendency of progressive improvement in the means of transportation and of the centralization of trade, is in fact rather toward giving the inhabitants of the whole country a share in the local advantages enjoyed by its largest cities. But the local gain is after all in this case so far predominant as to remove all doubt with respect to the equity of letting the locality defray the expense ; just as, on the other hand, the justice of a national provision for the military expenses of the country is beyond question, whatever special importance the military establishment may have for par ticular districts and localities.
§ 127. Between these two typical categories which are here contrasted with one another there is a middle ground. As an example of this middle class we may well take the collective system of highways in any country, with all its gradations and ramifications, highways and byways.
Between the great strategic railway which connects the cen ter of the country with the fortifications on the border, and the city street which serves the business and pleasure of the towns people, there is a multitude of railways and roadways of first, second, or third rank, of great waterways and their affluents, channels natural and artificial—all serving the ends of the whole community or of the neighborhood in a greater or less degree.
One of the most difficult problems in economic discussion is to determine how far the several thoroughfares of the coun try are to be treated from the point of view of the general advantage derived from them or from that of the special local advantage derived. This may seem less difficult in the case of the minor roads of an eminently local character, but it is simply an insoluble problem as regards the great highways that are of indisputable importance for the industry of the entire country, at the same time that they in a special degree serve the needs of those portions which they traverse.
This question is thrown into the shade by the practical end to be gained, so long as we occupy the happy stage of industrial development at which the receipts of such an undertaking will fully cover expenses of construction and operation. It will also not require discussion so long as there is at least a pros pect of such an equilibrium between receipts and expenditures, and so long as this prospect is a sufficient incentive to specula tive enterprises on private account, capable of taking the place of public establishments that would otherwise be necessary.
But at the very beginnings of our modern transportation system, during the early stages of the development of railways, the absence of such a probability frequently gave a very practical significance to the question whether the general advantage to be derived from a contemplated state railway would be sufficient to warrant investing the nation's funds in a road to be built through a particular province ; or whether the individual province did not derive by far the greater advantage from the new means of com munication and so ought to bear the expense.
The method of meeting the expense suggested by this latter view has not been adopted. The trend toward centralization inherent in our great railway systems has led to the assumption of the financial burden, also, by the central organization. Indeed, it has even come to pass that in the course of the magnificent development of the Prussian railway system we find of late that the expense incurred for "secondary " lines (which surely are of no advantage to the national finances) is to an ever increasing extent defrayed by the national treasury. That all these things are so is evidence of the fact that there is another consideration, beside the difference in the advantages to be derived from the roads, affecting the mode of settling accounts between the com monwealth and its parts.
§ 128. Especially complicated are the relations between the various parts of the country in matters concerning poor-relief.
At least they are complicated, as a matter of fact, under that condition of things which we know as the existing situation, and with which the great efforts of modern poor-law reform are con cerned.
The same is not true of the primary type of public poor relief. This is based solely and entirely on the parish organiza tion—at first ecclesiastical, afterwards civil. In such a neighbor hood association the distress and the obligation of relieving it develop together, as it were within the widened circle of the family. So long as this type of poor-relief answers the exigences of the national organization, that is, so long as the means of the local organization suffice to meet the local demand for assistance, so long does the self-support of each local organization remain the basis of a satisfactory arrangement between the whole and its parts.
But this condition of things changes with time. The mobility that comes with modern industrial life disturbs the simple rela tion on which this arrangement is based. The genesis of poverty, as well as the obligation of relief, ceases to be comprised within the bounds of any individual commune. From being a local matter it becomes a matter of national concern. The habit of permanent inhabitancy of a given neighborhood gives place to the habit of frequent removal from place to place ; hence an incalculable shifting and migration of the laboring population and a great change in and increased variety of the causes which may reduce them to mendicancy, with the consequence that the burden of supporting the poor must in equity be apportioned over a broader field than the boundaries of the single commune. Equity demands, in an ever-increasing degree, that the nation as a whole must assume the responsibility of the public charities.
This uncertainty and the vacillation between local and national administration of poor-relief visible in the legislation of today, as well as the obstacles to a practical reform, are due simply to an inherent contradiction between this principle of equity and the well known practical difficulties in the way of administering poor relief by centralized authority.
In addition to this, it is to be said, there is also the difficulty that wherever the past still asserts its mastery and holds the social life to the old lines of neighborhood organization, its weight is cast in favor of the retention of the system of local management of poor-relief.
§ I29. The above classification of the public business has for its object the explanation of the differences between the various parts of the commonwealth with respect to benefits derived. It is undoubtedly an easier task to set forth the differences that exist between different parts of the country with respect to pecuniary ability.
Difference in pecuniary ability between different localities is a patent fact, and it would be a laborious and bootless undertak ing for anyone to maintain the contrary with respect to any country.
All the factors that have to do with the prosperity of a peo ple are here at work to produce a complicated diversity. They are such facts as the physical environment, the degree of culture of the people —as it expresses itself in their capacity for labor, their possession of property, their moral standards, their indus trial discipline and application, etc. Inasmuch as these material and cultural factors vary greatly from place to place and from one individual to. another, it is impossible to claim anything more than an approximate and relative homogeneity for any people. Immediately on passing the limits of a pretty small* area account will have to be taken of marked differences and contrasts—town and country, manufacture and agriculture, factory and handicraft.
When the discussion concerns the state of things in a large modern commonwealth— when we have to do with an aggregate made up of so heterogeneous elements as is the German Empire of today—we are confronted with very great contrasts and differences, many of them due to the presence of different stages of civilization.
It is, in itself considered, a matter for congratulation, but it is all the more significant in connection with the contrast here spoken of, that the advance of civilization Carries with it an increase of wealth and a consequent enhanced ability to meet the demands of the state. The stage of culture achieved by the various states and provinces of the German Empire is at the same time an index of their economic strength ; contrast the West and Southwest with the East and Northeast. And as, in this contrast, the divergence in economic ability is in large part a matter of difference in the length of time covered by the process of development, so likewise it is true—in spite of all its harsher incidental features—that the focus of the latest and highest industrial development is at the same time the focus of wealth.
§ 130. The development of the relation in which these diverse economic capacities stand to the commonwealth exhibits features of a character very analogous to what we find in the relation of individuals to the commonwealth.
There is, in the first place, a narrow self-seeking, so extreme as to refuse even such sacrifices as are to its own immediate, pal pable advantage. We need but call to mind the examples afforded
by the later history of Germany. This history shows us that per verse spirit at the stage where it stands out in successful opposi tion to any sacrifices for the purposes of the greater whole ; the stage where the consciousness of community between parts and whole is as yet entirely absent. A short-sighted selfishness on part of the minor political bodies, which figures in national life as "particularism," and opposes every move in the interest of the common weal.
There are, of course, als8 other factors that work in the direc tion of particularism ; as, e. g., the instinctive clinging to what is customary, predilection for independent local management of public affairs, a bigoted prejudice in favor of the kind of people to whom we are most accustomed, and the like. But the dominant influence of the economic factor, which makes itself felt in all the affairs of public and of private life, renders it easily comprehen sible that the provinces which surpass the other portions of the Empire in point oi civilization, and consequently in wealth, should, for economic reasons, be reluctant to cast in their lot unreservedly with those other portions.
§ 131. History accordingly shows us different stages in this course of development.
The first and oldest is that of the unqualified assertion of par ticularism, in the form of the autonomy of the petty state. The independence of the petty commonwealth conceded nothing to the needs of the larger political organization, whereof, as viewed from the higher standpoint of the general national development, it figures as a member.
The second stage is reached when absolute particularism has yielded ground so far that the sub-state is compelled to cede some portion of its sovereignty to the national organization. It may have been compelled by a change of relative strength, or by the force of growing public opinion, or by changes in industrial life, or by a combination of these factors.
At this point the features with which we are here concerned come out in a more glaring light even than before. The struggle between the unwonted demands of the larger whole and the reluctant yielding of the traditional particularism serves to show the difficulty of the transition. Concessions of course take the place of the earlier downright refusals of national demands ; but there is an anxious balancing of accounts between the individual members of the federal whole, as regards their respective gains and sacrifices, which is significant of the great interval by which this stage of national unity is still removed from perfect union.
Hence we have not only the defective unity of the " federal state " [Bundesstaat], instead of the consolidated "unit state" [Einheitsstaat]. Within the federal state we find, moreover, "reserved rights" [Reservatrec hie] possessed by particular states ; and in addition to this there is a scrupulous calculation necessary in the adoption of every particular measure, lest it result in some advantage to another sub-state and some disadvantage to our own.
§ 132. It is a characteristic of the mature commonwealth that it has overpassed the narrowness of such a calculation of benefits.
The individual members of the federal commonwealth have come to stand in the same relation of indissoluble solidarity and uncalculating devotion to the nation as does the patriotic citizen to the state. It is not the calculation of special benefits to be derived, but the consciousness of a common benefit accruing to all parts of the nation, one with another, that is the guiding prin ciple in the apportionment of sacrifices among the various parts of the country in proportion to their ability to pay. This differ ence in point of ability does not afford ground for a correspond ing arrangement of exclusive spheres, within which the activity based on this ability is to serve the inhabitants of this particular territory alone ; on the contrary, precisely this diversity in ability to pay is a chief means by which the solidarity of the parts is to be preserved.
The more fully this solidarity is developed the more active and intimate is the giving and taking, the exchange of benefits and sacrifices, within the different parts of the nation, and the more does shrewd calculation of advantages tend to fall into disuse.
Naturally this becomes most plainly evident in the case of the great national establishments ; as, e.g., when the flourishing busi ness of the more highly developed provinces contributes the profits of its railroad traffic toward the construction of lines in the poorer provinces. And where such national or central establishments do not exist or are not available, the larger whole will even offer its support in the form of subsidies to the lesser unit to help out its insufficient resources.
The contrary happens when a section of the country possess ing resources above the common is favored by the national estab lishments beyond what falls to the share of other sections. The same equity which in the former case requires a subvention from above downwards, from the stronger to the weaker body, will in this case demand a subvention from the weaker to the stronger. In this point, also, the trend of development of the national unity seems rather to favor a broad construction of the duties of the central administration. Whereas it is rather a mark of unde veloped unity and of particularist pettiness if the normal pre dominance of the central organ of a great commonwealth is curtailed and frittered away in all manner of petty affairs.
§ 133. This attitude of superiority assumed by the larger, and the largest, civil unit of the nation toward the smaller unit is also visible in the development of their formal relations to one another in fiscal matters, if it does not rather presuppose the latter.
It is a mark of low development, if not rather of an utterly abnormal condition of things, if the higher political unit is obliged to resort to the lower for its sustentation, because it does not itself as yet possess independent revenues obtained through a direct relation between itself and the private individuals.
Such is the case with a federation which is supported by the " matricular fees " [Matrikularbeitriigel of its members. Such is also the case with a union of states in which these rudimentary survivals of an earlier, less perfect unity are still present, as, e.g., the German Empire of today.
In case of a vigorously developing commonwealth, survivals of this sort are to be looked upon merely as a transient feature handed down from an earlier constitution, which will disappear as soon as the fiscal system of the new commonwealth has reached an adequate development. It is a piece of "federalism " surviving in the midst of political union, which is only waiting for the establishment of an adequate fiscal relation between the consolidated national organism and its citizens. The latter is the only method worthy of the state.
§ 134. Finally, we shall have to add a word in this place touching a factor the full development of which belongs in the discussion of taxes, namely peculiarities of fiscal technique.
Quite independently of the question of the necessities of the one civil division, and of the obligation of the other to contribute, or of the degree of development of financial balancing of accounts and adjustment of claims between the different bodies, there is a further factor which affects the problem, but which is often erroneously confounded with the other group of factors already spoken of. This is the special advantage which one political body may possess as compared with another in the levying of taxes.
In the United States of America it has happened of late (as, indeed, has also happened before) that the receipts of the Union from customs and internal revenue have produced an unavoidable surplus, contrasting curiously with the embarrassments and large deficits of the state and municipal finances of that country.' The difficulty of raising taxes in the case of the small bodies and the ease with which they are raised by the larger, suggests the existence of circumstances of a technical character connected with peculiarities attaching to the different kinds of taxes, and which therefore work an advantage to the larger as compared with the smaller political body, whether it be special legislative enactments or natural causes that place the more effective method at the disposal of the larger organization.
Something similar is to be seen in other countries. Switzerland, agreeably to the traditions of her customs administration, has hitherto been unable to develop her customs revenues to a point where the full productivity of this fiscal mechanism appears in anything like the degree attained in the United States. Still less has there, in the case of Switzerland, so far, been any ques tion of a lucrative internal tax on consumption. But in spite of all this, Switzerland offers a contrast within its own limits similar to that seen in the United States of America. Here, too, we notice during the past decade a marked ease in increasing federal revenues from import duties, and an increasing difficulty in obtaining increased receipts from other customary forms of taxation, either federal or communal ; so much so that a remedy for this technological difficulty has finally been found in diverting the advantageous means at the disposal of the federa tion into the dried-up channels of the minor civil divisions.
Or take the German Empire. In view of its great and unavoidably increasing expenditures, there has of course been no noticeable surplus to speak of. At the same time the develop ment of the means available for an effective and lucrative Imperial system of taxation has been scanty indeed. Neverthe less it is true, and certain special reforms in the tax system of the Empire have already given proof of the fact, that the greatest political organization of the German people is also the one that has at its command the most effective fiscal means and methods, and that the technical difficulties of financiering increase as we descend in the scale of the minor civil divisions.
Indeed, the widespread conviction so frequently met with in the current discussions of tax reform in the German Empire, that the municipalities are in need of some assistance at the hands of the larger civil divisions, amounts practically to the same thing. Plainly, it can not hold true that the communal divisions and municipalities are intrinsically feebler financially than the Imperial or state organizations, inasmuch as these latter are composed of the same ultimate elements as the former. When the existence of a difference of this general character is asserted (independently of any difference in wealth between particular districts, communes, etc.) it can only be on the ground that greater fiscal advantages of a technical nature are at the com mand of the larger political unit.
We therefore find that there is a relation of a fiscal character between the various civil organizations, which consists simply in the one acting as tax gatherer for the other. It is not necessarily the larger political unit which in this way acts as tax gatherer. There are also taxes with respect to which the smaller civil division performs the same service for the larger. This is a rare occurrence, however.