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The Public Economy in Its Developed Form

THE PUBLIC ECONOMY IN ITS DEVELOPED FORM.

§ 64. While we have, in what has gone before, discussed the distress incident to the national economy in process of develop ment, the question now is what is to be the outcome of this pro cess of development.

So long as the national economy has not attained the point at which it comes to be recognized by those concerned as the com mon provision out of private economies for common purposes, and comes in fact to profit by this recognition in such a manner that contributions from private resources are placed at its dis posal ; so long will it be obliged to get along with expedients for filling the gap between the idea of the state as its exists for the time being among the average of those concerned and the actual needs of the existing administration.

If we take into consideration the imperfect development of this sentiment—when sacrifices are continually demanded from the state for the furtherance of class interests, without any clear conception of where the responsibility for the public burdens incurred will fall ; when every requisition for state purposes meets with and murmuring, at the same time that factions of all sorts are expected from this same state ; when, in short, even in the midst of our own advanced and politically wide-awake age, it often looks as if everybody wanted to get something from the state, and nobody were willing to give any thing to it ;—when we take these facts into consideration we get a lively impression of what the situation was at an earlier stage, where the degree of political development attained is indicated by the fact that the state administration cared for the interests of the citizens in the same manner and with the same motive as a landlord cares for his tenants.

Hence the propriety of the choice of such means of income as should depend to the least possible extent on a sentiment of citizenship, seeing that such a sentiment had not yet reached a conscious recognition. Hence the preference for such sources of revenue as should either not require any conscious sacrifice on part of the individual for the purposes of the commonwealth, or should at least put such requisitions as were unavoidable in the familiar form of a tangible quid pro quo.

But are we, after all, today, quite past this stage of immature national consciousness, and the forms of national income corre sponding to it? By no means. The prevailing conception of the state has caused our whole system of taxation to proceed on the principle that the least possible offense must be given to the modern citi zen's irritable spirit of resistance to all public demands. It is at present held to be a mark of statesmanlike financial policy to make this realistic maxim the basis of reforms for the future as well ; while all that is habitually considered utopian in schemes for tax reform is comprised in a single idea that amounts to nothing else than a frank recognition of the duties of citizenship. This concept of the duties of citizenship, however, departs very widely from the actually prevailing public sentiment of the day.

§ 65. If the public economy is ever to reach a satisfactory basis it will have to come to this, that every public purpose must be pursued only on the condition that the sacrifices necessarily involved are accepted as a matter of course by the body of citi zens. Every public activity that may require sacrifice should be enabled to pursue its end in all serenity, without being disturbed by any questions as to the raising of the necessary funds. Or if it must be made the vehicle of a fiscal return, then that should be permitted only to such an extent as it can take place without clashing with the citizens' duty in this matter. And if it should actually come to pass at some time in the future that (at least as regards externals) the latest stage of social development shall be shunted in on the track belonging to the earliest stage, so that private property and profit, and production by private industry shall be replaced by communal property and produc tion by a national organization of industry according to the pro gramme of the socialists ; then it would follow that the fiscal aims and consequences involved—while making an end of all taxation —would be of the nature simply of an unintended by-product ; while the essential purpose of the change would be an alteration of the conditions of social life, of which the change in financial methods would be but an unavoidable concomitant.

The recognition of these facts will afford us the criterion necessary in order to a systematic criticism from the standpoint of developed national fiscal institutions as we find them. That blending of purposes and aims in our fiscal methods which has been handed down from the earlier stages of the growth of the fiscal system, and which has been infused into the current fiscal doctrine by the science of cameralistics, is to be obviated by such a knowledge of the facts as will assign to the purely fiscal ends their own independent weight, and in so doing will also relegate aims and purposes of a foreign kind to their proper place.

The task immediately before us is to trace this in detail.

§ 66. We will begin with what by tradition constitutes the first great factor in the public revenues—the Domains ; and we will give the traditional method of dealing with the problem a hearing in person.

K. H. Rau' enumerates the following reasons for and against alienating the domains.

For alienation : 1. The government is ill fitted to carry on industry. Private owners as a rule make better use of a source of income because they devote themselves to the business with greater zeal, etc., while the government is obliged to employ an expensive person nel, who are less industrious and less thrifty than men working in their own employ. Experience teaches that the domains will yield a greater net revenue in private hands.

2. The sale of the domains is a ready means of paying the public debt.

3. The possession of domains brings the government into con flict with a special class of private undertakings, which tends to make it disinclined to certain reforms of a general character, as, e. g., the abolition of special burdens on realty.

4. Experience goes to prove that domains are by no means necessary in order to adequately meet the national expenses. For the retention of the domains : 1. Viewed from the general standpoint of state-craft, it has been customary to consider domains an essential support of an hereditary monarchy; because, as this institution has originally sprung from the possession of large landed estates, so it must continue to rest on this basis ; and because the revenue from domains is not dependent on parliamentary consent, etc.

2. The income from domains excites no dissatisfaction and no feeling of deprivation, since it is the product of an independent business carried on by the government by means of possessions that have already long been withdrawn from private owner ship.

3. It cannot be asserted that domains are invariably less well and profitably managed.

4. The income from domains must in the long run rise be cause rent rises.

5. Public loans can be more readily floated by the help of the domains, as the latter afford an acceptable collateral security to the public creditors.

6. Crown estates are of considerable service in facilitating the introduction of agricultural improvements.

§ 67. In this enumeration of the reasons offered for and against, we have tried to present, as adequately as may be, the various views usually brought forward in the chapters devoted to domains in discussions of finance. A decision of the question after the manner of the solution sought by Rau is not to our purpose, as will immediately appear from an examination of the arguments already cited. To this we will now proceed.

Either the reasons given are something already contained in our review of the historical development of finance, and so will serve only to confirm what we already know,—that the domains are part of a fiscal system which does not belong to the present ; or they are not financial reasons,—in which case they have no place in a science of finance, and equally so whether the reasons are to be accepted as valid or not—whether we regard them as estab lishing the desirability or the undesirability of domains.

To the former category belong such arguments as these : Experience teaches that domains are nowise necessary in order to adequately meet the public expenses, or, The revenue from domains excites no discontent and no feeling of deprivation, or, The sale of the domains is a ready means of paying the public debt, or, Public loans may be more readily floated by the help of the domains as the latter afford a collateral security to public creditors. Reasoning of this sort is based on nothing but an acceptance or denial of the old or of the new fiscal economy. Disconnected from this their historical relation, they cut a brilliant figure among the amazing commonplaces that make up the dis pensatory of the Cameralist. So e. g., the statement that no feeling of deprivation is excited by raising the public revenues from domains instead of from taxes is equally indisputable with the precept that the state had not best give its domains away.

Under the second category belong such reasons as the favorite objection of Smith's school to all state industry ; or the apology for domains as being a prop to an hereditary monarchy ; or the usefulness of domains for the introduction of agricultural improve ments ; or the increase of rent.

None of these considerations has any place in the science of Finance. The discussion of the importance which domains have for an hereditary monarchy belongs to the Science of Politics, and even there it can be intelligently discussed only in its histor ical connection and will probably be conceded to have little sig nificance.

The other considerations enumerated belong in Social Science —in the theory of industrial administration or among the funda mental questions respecting the limits of state and private indus try. On this ground alone can they be definitely settled.

In point of fact the recognition of this truth has latterly gained some footing in consequence of the spread of more thorough going study in Economic Science.

§ 68. In this connection it is interesting to note the very sig nificant bibliographical incident that Adolph Wagner, in the course of his researches into this, by tradition, introductory part of the Science of Finance, found himself constrained, in order to place his exposition on a satisfactory basis, to scrutinize more closely these general fundamental principles that underlie all industrial intercourse.

And as a result of these thoroughgoing researches of his, this , eminent authority in financial theory arrived at the following crit icism of Rau's method of dealing with the question.

Rau's argument, says Wagner constantly moves on the plane of the productive capacity of private and state industry, and leaves altogether untouched all other phases of the question, such as the economic question of distribution and its social consequences, or in other words the effect of the distribution of land on the life of the community. So also, his argument uniformly proceeds on the assumption, without adequate proofs, that state ownership is by nature inferior to private ownership of land, and consequently involves the assumption of an exaggeratedly general and serious economic disadvantage attaching to the retention of the domains.

Wagner then goes on to discuss the question of domains on the lines indicated by this criticism. But his discussion is not strictly in accord with the results of his criticism, in so far that he suffers the subject to retain as place within the Science of Finance instead of removing it, as I am persuaded he should, to its proper place in the theory of social and industrial policy.

Neither the question as to the relative advantage of private ownership and state ownership of the soil, nor the question as to the proper distribution of the land within an industrial community, nor the question as to the most expedient manner of alienating public lands, whether in feefarm or according to some other scheme of agrarian reform ;—none of these are questions that properly belong within the Science of Finance.

As a matter of fact, wherever they may occur in financial science they are rather relics of that (historically intelligible, but scientifically unsound) appendicular method of dealing with eco nomic problems that is quite at home in the old-fashioned Camer alistic Science. The umbilical cord is still unsevered that connects our science with those early beginnings in which, after the man ner of all beginnings in science, the starting point was some ques tion of tangible, pressing necessity, from which the inquiry pro ceeded only reluctantly and unconsciously to more general and profounder questions.

It is to be hoped that we have by this time reached the point at which these results of systematic thought should be accorded their true place.

And should not also the hint be taken to heart which is con tained in the fact that it is already many years since the domains belonging to the state of Prussia were removed from the jurisdic tion of the Ministry of Finance and turned over to the Depart ment of Agriculture ? Has not the course of events at this point outrun the science ? § 69. To Lorenz von Stein undeniably belongs the credit of having, by the powerful current of his speculations, initiated the necessary distinction between things essentially disparate and the separation of things connected only in time and place.

If we let Stein speak for himself, this among other things is what he has to say : The more highly 'developed the idea of administration, the more does the thought of making the state's industrial activity a source of income at all, recede into the background. Hence the financial element proper, with the advancing development of national life, tends more and more to be swallowed up in the principle of Administration, and the character of the whole matter undergoes a change. At the outset, the revenue which the state derives from its industrial enterprises is the chief con sideration, but gradually their effect on the life of the people assumes the greater importance ; so that in the nineteenth cen tury the feeling has gained predominance that the state must not hesitate to surrender all net income from these forms of activity, or even to contribute something additional in the way of supple mentary funds, in case it appears that these state activities will in this way best serve the purposes of the people's life. The application of these propositions in practical life is indicated by the maxim that the fiscal income is not to be determined simply with a view to the greatest possible net revenue, but with a view to the effect which the industrial activities in question exert on the nation's industry considered as a source of revenue. This is the economic point of view which fiscal administration must take in the management of each particular branch of state enterprise. Finally, it also follows that the entire discussion of this part of the public revenues properly belongs under the head of Home Admin istration, instead of, as formerly classed, under the head of Finance. And so we arrive at the result, which for the main purpose of our science is of the gravest consequence, that all state activity of this sort has grown to be simply an administrative function. It is true, all the three kinds of business incomes (domains, royalties, fees) are just at present at a transition stage ; a fact which further adds to the difficulty of the treatment of them. But there is no doubt that this higher function of these means of revenue is resistlessly asserting itself, and that the earlier view respecting these activities has already in many cases practically given place to the new.

So far Stein. His position, it seems to me, is in general sound. Only, I believe he should have drawn the full inference warranted by his general position ; that the Science of Finance should not permit itself to be kept waiting till "the earlier con ception shall have been replaced by the later conception in prac tical life," but that it is the office of financial science as a science to prepare the way and light the onward steps of practical admin istration by an adequate exposition of the "higher nature" of this class of sources of income..

It is precisely from one occupying a position that makes so much of systematic arrangement and treatment that we might properly demand a systematic scheme of fiscal administration, constructed on the lines of the modern idea of the state, as well as a clear exposition of the manner in which this system is in practice traversed by historical survivals from earlier stages of the state's evolution.

In direct contradiction to all this we find Stein (even in the latest edition of his work), in his first chapter, discussing the pub lic income from agricultural crown lands, from crown forests, crown mines, game preserves and fisheries, rents and reversions ; also industrial investments of state-owned capital, state banking enterprises, model establishments, public means of communica tion ; also in the same chapter, state monopolies—the post office (including the telegraph and the telephone), the coinage, the issue of paper money, the monopoly of the means of com munication and the monopoly of lotteries.

§ 70. Umpfenbach has, so far as I am aware, been the first to make a definite move in this direction.

He makes the statement in his Lehrbuch der Finanzwissen schaft:' There can be but one principle governing the procure ment of revenue, and according to this principle the public revenue figures as the correlate of the public expenditures. Since the parties concerned for whose behoof the state undertakes any industrial function, are its own citizens, it logically follows that the state's expenses should be defrayed out of their productive capacity. "The possessions of the individual members of the state constitute the basis on which a sound, all-sufficing revenue system for meeting the necessary expenses of the community may be built up." The function of the state as exchequer, when reduced to its lowest terms and stated in the form of a principle, is nothing else than the proper performance of the part of medi ator between a certain group of the wants (government activities) and a part of the industrial capacities of the members of the state. The economic capacities of the citizens constitute the "organic" source of the revenues of the state. In addition to these, Umpfenbach designates as " mechanical" sources of state revenue such sources as serve to render the exchequer inde pendent of the property held by other business undertakings, and so put it in a position to relieve the organic sources of revenue from a burden which would otherwise fall on them. All this will be intelligible only in case the adoption of a merely media tory function is, in consequence of the imperfections of the fiscal system, still attended by considerable friction. By " mechanical " sources is here meant domains and fiscal prerogatives (monopo lies).

The consequence of taking this standpoint is, for Umpfen bach, that he reverses the traditional order handed down from Cameralistic Science, and deals first with the " organic" sources of income (the levying of fees and taxation), and afterward with the "mechanical " sources (domains and monopolies).

In this manner has Umpfenbach endeavored to assert the claims of the method based on principle and syitem as against the traditional method of treatment. Only, he has failed to draw the remoter consequence which follows from the considera tions adduced above.

Domains and monopolies with him take their place after taxes in like manner as they have by tradition been placed before them. But they still stand, and they are treated quite after the fashion of Rau and the school of Sinith. Monopolies are, in Umpfenbach's vocabulary, known as Fiscal Prerogatives, and it is a step in advance on his part to have put aside the idea of the monopoly. But the new idea of fiscal prerogatives brings back our old acquaintances of the cameralistic tradition, and in the same order of logical sequence : succession prerogative, occupation prerogatives, game and fishery prerogative, mining prerogatives, salt-mine prerogatives, tobacco prerogative, bank note prerogative, lottery prerogative, etc.' § 71. We now pass to a critical discussion of monopolies ; and in pursuance of this purpose we shall take a glance at the earlier scientific discussion of this matter.

In the first place then, it was Justi who first constructed a theory of fiscal monopolies that has retained its authority in the science for a century and is still in force in practice to this day. Even he divides the aggregate of the ordinary state revenues into domains, monopolies and taxes. The character of the monopolies [regalia] he defines in the following manner : He is of opinion' that there are contained in the aggregate possessions of the state various things which are by nature wholly unadapted to become the private property of the citizens, or that may at best become such only under the constant super vision and cooperation of the supreme authority ; for this rea son the management and use of this class of things has been com mitted to the supreme authority. Now, inasmuch as these pos sessions belong to the state collectively, they have been looked upon as belonging to the supreme authority in the state—to the crown, and the rights arising out of them have been called royal prerogatives or regalia. In no other way can we arrive at a satis factory theory of this designation ; for if we were to call them "royalties" simply because they are in the hands of the sover eign authority, or because they are rights vested in the national sovereignty, we should have to admit as many "royalties" as there are different objects comprised in the government's busi ness ; as many special contrivances as are possible under the police power, so many regalia would there be : " We should have to assume a bank royalty, a fire assurance royalty, a lottery royalty, a penitentiary royalty, and no one can tell what a fine lot of other royalties." If, however, police establishments are to be excepted from the class of royalties, we shall have to assign some intelli gible reason why these things are not to be called by that name just as much as any other prerogative belonging to the supreme authority which is classed as a royalty.

Justi's conception of royalties is accordingly as follows : Royalties are such rights over property not adapted for private ownership as are vested in the supreme authority in order that they may be managed for the best interest of the community, and may at the same time, as a subordinate end, also yield a rev enue. He admits no regalia fisci whatever, if this term be taken to designate such royalties as exist for the sole purpose of yield ing a revenue. This latter can never be the chief object of any royalties, since in the case of each and every one of them, the prosperity of the state must be an object of immediate con sideration. The result might, in practice, be very detrimental to the general well-being of the state, if revenue were made the chief end in the case of tolls and duties, of the post-office, of mines, of salt and coinage monopolies. Justi insists that the right of the sovereign authority to levy taxes on its subjects is not to be classed as regalia, in the sense in which he uses that word ; since in the case of every regalium by means of which a contribution is levied on the subject, it is necessary that a trans action should take place affording occasion for the collec tion of a contribution. This transaction is absent in the case of taxes, their basis being rather an immediate obligation resting on the subject to meet the necessary expenses of the state.

An effort is here made to reach an expurgated conception of royalties, and the expurgation consists in bringing the common welfare into the foreground in place of the fiscality which pushed itself forward so persistently in the actual course of things in the past. In its struggle for the development of the exchequer, the practice of earlier times made use of a particular mixture of the most diverse public institutions for purposes of income alone, being pushed by the necessity of disguising the tax whose real character none dared to let the subjects see. Then, presently, the later age of improvement came to appreciate the abuses of this fiscal management, though not the causes of it, and believed itself to have done its duty in having brought the " public good" into the foreground. As a matter of fact, nothing but a closer scru tiny of the historically operative causes tending in the one direc tion and the other could avail to bring out the relation in which the state establishments classed as royalties stood, either to the finances or to the public good. The extreme radical character of Justi's criticism is visible not only in his condemnation of court fees in favor of a gratuitous administration of justice, but quite as much in his indiscriminate confounding together of "tolls and imposts, salt-tax and seigniorage."

Later times have, as to this particular point, gradually over come the confusion. But, after all, Justi's example was followed for a long time ; not without transitional stages it is true, for which the Klarung prepared the way even while temporarily lead ing farther away from the truth at the outset.

§ 72. Ludwig Heinrich von Jacob, the theoretical writer on Finance, may be taken as exemplifying this latter fact. His Staatsfinanzwissenschaft (i821) takes a position with respect to the regalia which may be characterized in the following propo sitions.

If the state surrenders all industries to free competition, says Jacob,' it will (1) result in increased production, since free com petition yields the same product at a less cost ; (2) the state is freed from all special interest in industry, and so loses the false motive it otherwise has to restrict competition or to favor monop olies, etc. For these reasons we are constrained to discounte nance all income from monopolistic industries owned by the state.

If there are certain monopolies which the public good requires should be managed by the state, then these should at all events be administered, not as sources of revenue, but rather as institu tions of public utility. In that case, however, it would very soon appear that private enterprise could much more advantageously undertake their management and that the state could in this latter case exercise a much better and more thorough supervision of them than if it undertook to manage them directly. Such state industries as are administered as monopolies by the state simply for the sake of gain are under all circumstances detri mental to the national prosperity, and are accordingly to be put aside. In conformity with this opinion, Jacob is of opinion that the postal service would gain very greatly both in point of cheap ness and of public convenience if it were left in private hands (under government control). But even while the postal monopoly is retained, the state should cover no surplus into its exchequer from the post-office revenues, since it would serve the public utility to better purpose to lower postal rates to the necessary extent and so still further facilitate communication, or else apply the surplus to improve the postal service.

Malchus (1830), indeed, opposes Jacob's position, and in his Handbuch der Finanzwissenschaft and Finanzverwaltung' he brings the results of his experience as administrator and financier in the government of Wurtemberg to bear against the abstract dogmat ism of the dominant school of his time. The view that in case the royalties were surrendered to private enterprise the state would be able to raise as large, or even a larger sum by taxing them, rests on an arbitrary assumption which is contradicted by experience. Malchus cites, among other instances, the example of the French tobacco monopoly of 1810 and its fiscal results, as contrasted with the scanty revenue and the oppressive character of the French tobacco tax of 1804-1809. But when he goes on to defend the postal revenue against Jacob by classing it under a separate category (it is not to be regarded as a tax but only as compensa tion for special services and benefits) he succeeds only so far as to make this dubious means of defense do service in bridging the chasm and carrying him over to " the general principle that the Post is in its nature and essential character not adapted to become a source of revenue, but is to be looked on simply as an institution established for purposes of the national economy (1. e., for economic purposes) and is devoted to a class of services which the government is in duty bound to undertake, even though the income from the service should not cover the expenses." § 73. How nearly the position of K. H. Rau coincides with that of the old-fashioned Cameralists comes out with striking distinctness in his manner of dealing with the royalties, in his Lehrbuch der Finanswissenschaft (5th ed. 1864). Not only is the formal classification of state revenues the same as that of Justi, but the topsy-turvy lumping together of undigested facts con cerning the royalties also recurs quite in the manner of Justi's discussion. Mining royalty, salt royalty, game royalty, tobacco royalty, postal royalty, etc. The only difference is that the toll royalty is thrown out of this promiscuous assemblage and is replaced by the telegraph and railway royalties, which have been discovered and added to the list. If anyone today enter tains any doubts as to whether our science has made progress these late years, let him come face to face with the spiritual equanimity that goes with this manner of thinking, and if he has learned any part of what would qualify him to pass an opinion on the present position of the science, he will be affected by this juxtaposition of coinage royalty, tobacco royalty, postal royalty, precisely as a musical ear is affected by a succession of false notes. If kindred spirits exist who feel themselves at home in Rau's range of ideas, they are welcome to it ; they probably have their own reasons. At the same time these purely sub jective sentiments can in no way prevent the latest popular izer of Rau's Science of Finance from deserving the credit of having done a scientific piece of work, in that he paused before that wooden structure and sought to lay a deeper foundation before going on.

Rau was quite right in thinking that the Science of Finance is authorized, regardless of what the public law may recognize under the head of regalia, to proceed according to its own principles. But he does not carry out his position to its legitimate conclu sion. He restricts this privilege of the science so far as to retain the regalia as a branch of the public revenues. In achieving an historic sense of the polity in which the royalties properly belong there was also achieved the scientific dissolution of this idea for the purposes of our time.

In his estimate of the royalties for the financial purposes of the modern state, Rau does not greatly diverge from the position of his predecessors, Jacob and Malchus ; although he agrees with Jacob as to the line of thought (that is to say, with him he lies under the spell of the individualistic school of Smith), still, in consequence of his innate attitude of moderation, he is favorably inclined to existing institutions and so approaches the practical position of the experienced financier, Malchus. Nevertheless, in proportion as existing usage and institutions are made the standard and guide of scientific thought, the science degenerates into a mere reflex of existing facts and falls short of its true office.

Rau's definition of Royalties is cautious, but it is also corre spondingly superficial : "A prerogative of the national authority with respect to an occupation which would, in the absence of special legal enactment, belong among the ordinary means of livelihood of the citizen" (sec. 166).

He goes on to say : Only a few occupations may properly be subject to a royalty ; otherwise the enterprise of the people would be unduly encroached upon. Individual undertakers are, as a rule, able to obtain greater results and to reduce expenses to a lower figure (sec. 168). The continued retention of a royalty is proper ( I ) as regards a given industry, if by exception it is capable of being managed as economically by the government as by individual enterprise ; (2) with respect to the profits of a monopoly, if it conforms to the requirements of a good tax, that is to say, if it neither interferes with the production of goods nor narrows the chances of acquiring a livelihood, and if, further, the net income so obtained is not obtainable by means of taxation ; (3) from other considerations of statecraft (sec. 169).

In the succeeding discussion of particular royalties, Rau adopts not the indifferently tolerable classification here indicated, but the genuine cameralistic one (sec. 171): The objects of a royalty are ( ) industries that deal with the land (mining, salt works, game, etc.) ; (2) manufactures (coinage, tobacco manu facture, gunpowder and, once more, salt); (3) trade (again salt) ; (4) services which afford immediate profit or pleasure (freight and express [Fortschaffungsgewerbe], post, telegraph, railways ; also lotteries).

In view of the party-colored character of his presentation I may, or rather I must spare myself the hopeless task of search ing for a consistent point of view in Rau's discussion of royalties.

§ 74. J. G. Hoffmann has a clearer insight into the historical character of the royalties than does Rau. Since the constitution of modern states has undergone a substantial change, says he,' there is no longer any reason for regarding any contributions toward the public expenditure as of a nature different from other taxes merely because the government secures their payment by reserving to itself exclusively the trade in the commodities on which the tax is levied. The royalties now surviving are, how ever, anything but a form of taxation ; they are not kept up for the sake of the revenue flowing from them ; the revenue being, on the contrary, simply incidental to certain kinds of business which the government has reserved to itself for the reason that the unhindered pursuit of the occupations in question by the subjects would jeopardize their own interests,—as, for example, in the case of the letter-post, coinage, ownership of rivers.

Twenty years later we are told by Umpfenbach : It is high time the hobgoblin of royalties that has haunted the Science of Finance for so long were laid.

However, Umpfenbach's changing the style and title of the royalties into "fiscal prerogatives" is not of itself sufficient to achieve this result.

Lorenz von Stein' sets out with the curious assumption that it is the task of modern financial science to subject the concept of royalties to such a revision as will give it a new lease of life. Neither the ground of this assumption nor the results of his efforts in this direction are readily discernible.

The Royalty and the fact of Regality are in Stein's opinion two categories which are not contained in the abstract notion of the state, but are the historical outcome of the gradual develop ment of an independent administration on part of the state. Hence it comes that these words have had different meanings at different times, as also that their meaning is not fixed even today. But what has given them their standing in the theory of adminis tration is, after all, the concept of the state's industrial sovereignty. What serves to bring them within the jurisdiction of financial science is the fact that in them the industrial sovereignty takes form in independent establishments belonging to the State, with state-owned capital and state management, and that these state establishments are also in part capable of yielding to the state a revenue, based on their industrial service and collected in the form of fees paid for their use.

There is no proof whatever offered to show why "the notion of the industrial sovereignty of the state" is connected in any peculiar manner with "the idea of royalty" ; or why, if the idea of royalty is to be conserved at all by a process of dialectical permutation, it is the State's industrial sovereignty alone that is to be permanently connected with that idea.

Stein goes on to conclude : " Royalties are, therefore, only to be considered as a particular, definite portion of the fiscal revenues of the state. They are an outgrowth of that industrial sovereignty in virtue of which the state, as the organ of the common interest, not only undertakes the performance of certain special services by means of its own capital and under its own immediate direction, but also obtains an income in the form of a business profit. The form under which this income is received is the fee ; its rate, however, is not fixed by the fiscal standard of the highest possible net income, but is in part regulated by the requirements of the general industrial development and the principles of political economy ; or the net income may even disappear entirely." Adolph Wagner' is at one with Stein to the extent that he divides the royalties of Rau into two great classes : those in which the form of a royalty is adopted simply as a convenient method of taxation ; and those which primarily are made to serve an " administrative " purpose. In matters of detail Wagner's criticism is the more searching and thorough, in that he differs from Stein in recognizing that the Royalty as it occurs in the lottery is also nothing but a form of taxation.

On the other hand, Wagner discards the definition of Royalty set up by Stein, and sums up the revenues classed under that head partly under " fees " (post, telegraph, coinage), partly under " quasi-private " [priv atwirthsciuzftlic he] revenues (railways). In this way he argues from the position introduced by Rau and Hoffmann that the fiscal royalty is an historico-legal conception which serves no purpose in the modern public economy or in modern financial science.' What this conclusion of Wagner's leaves as matter for discus sion is his view of the so-called " quasi-private receipts " and "fees." 75. The foregoing attempt at indicating what efforts have already been made toward placing the developed exchequer in its true theoretical position, as opposed to the narrow views of the past, could not well be avoided if we are to reach a clear conception of what the problem before us is. The aim is to establish a clear distinction between the administrative office and the fiscal office of the modern state (see sec. 65 above).

Let us now, with this in mind, examine the position of royalties in the scheme of the traditional Science of Finance ; and in order to deal with the matter in its integrity as it stood while yet untouched by criticism, we shall select for examination the view of Rau (it recurs, by the way, in a very similar form in Roscher).

Rau classifies royalties on two different principles : ( ) according to their degree of adaptation to the purposes of the modern state ; (2) according to the group of industries in which they belong. The latter classification has the merit of a com plete naiveté, in that it presents the historical data of the earlier state in a simple mechanical order for the purpose of discussing them according to the principle of adaptation laid down in the former canon of classification.

It is worthy of remark how the material at this point bursts the thin shell of the " royalty" as of its own motion.

The discussion of the salt royalty (sec. 186) develops into a comparison of the system of salt taxation employed by different states. The tobacco royalty is treated in the same way ; although, as being the most important example of the "indus trial and commercial royalties," it is treated of in another place in company with the gunpowder royalty, and then again in com pany with the brandy royalty, which, by the way, is not treated in the same fashion, apparently for the reason that it is not so obtrusive a fact as the tobacco royalty. As a consequence of this method the chapter on taxation of spirits goes over into the theory of taxation (sec. 438 et seg.), as is also the case with a fraction of the discussion of the tobacco tax.

The need which finds expression in this unwieldy manner in Rau's discussion has now more and more come to receive the recognition which was expressed in J. G. Hoffmann's words : " Since the constitution of modern states has undergone a sub stantial modification, there is no longer any reason for regarding contributions toward the public expenses as of a nature different from other taxes simply because the government secures their payment by reserving to itself exclusively the trade in the com modities on which the tax is levied." Lorenz von Stein, Adolph Wagner, H. von Scheel (simply to mention the names of recognized manuals) are agreed on this point. Umpfenbach and Roscher, it is true, still occupy Rau's standpoint.

§ 76. The multiplicity of the earlier royalties cited by Rau : mining royalty, game and fisheries royalty, coinage royalty, postal royalty, railway royalty, water royalty, gambling royalty, are, in Rau's treatment, still slumbering under the crepuscular light of Cameralistics where fiscal and administrative aims are nextricably entangled. Stein's new formulation sets forth the form under which the greater part of these royalties have retained a semblance of continued theoretical existence down to the present. A defensible theoretical existence they do not possess.

While advanced criticism has come to recogniie the Royalty in some cases as simply a form of taxation and has accordingly relegated these cases of royalties to their proper class, the remain ing cases fall into line under the head of Administration. The coinage royalty has no more to do with finance than has the crown supervision of weights and measures. It is to be noted as a matter of fact in the history of finance that the debasement of the coinage has been seized upon as a royalty, and that a Russian czar once established a lucrative monopoly of measures to be employed in trade. Modern science treats these matters as questions of administration.' The traditional royalty is in the eyes of modern science solely an administrative fact, and when fiscal considerations in the modern state begin, the concept of royalty as such ends. The question of paper currency finds its place in the theory of the public credit, the question of royalty involved possessing but a secondary importance, or none at all.

Then there are the great establishments for purposes of inter course, of recent origin or but recently developed into their pres ent gigantic dimensions —post, telegraph, railways. The erec tion of establishments of this class into a royalty is, aside from other considerations, also questionable on this ground, that the invariable mark of this concept —the exclusiveness of the state establishment—is not, according to modern conceptions, an essential feature of the matter at all. The essential point to which the railway policy of modern Prussia is directed is quite distinct from the question of an exclusive state monopoly of the railways. This latter point is in fact not the object of any-body's efforts in connection with our railway policy. The reservation of a state power of grant and concession to private railway enterprise is a practice common to all civilized countries, and rests on sufficient, though certainly not financial grounds. But it this reservation is to be counted as an example of royalty, then we might fairly count every case of grant or concession to any industrial undertaking as a case of royalty. In so doing we should in point of fact openly revert to the habits of thought of past centuries.

In the case of the letter-post the fact of a royalty is a matter of history. How far it is essential to a public postal service today is doubtful, to say the least.

The element of peculiar strength in these great establishments is to be sought in quite another direction. It is their organiza tion and magnitude that gives unity and strength to these under takings, and thereby secures the best service at the lowest cost ; and it is this fact of the importance of the result to be secured that makes the undertaking worthy the attention of, or rather an unavoidable duty incumbent upon the commonwealth itself. If there are today, or for a number of years to come, a few roads in Prussian territory remaining in private hands, that is a matter of very slight consequence as compared with the great central question of a state railway policy. If the laws of the Empire have left room beside the Imperial Post for that local letter carriage which has of late been trying its fortune, that is by com parison a trifling incident when contrasted with the unquestioned importance which the Imperial Post-Office possesses today, inde pendently of any exclusive monopoly that may belong to it.

§ 77. Meanwhile there remains an undissolved residuum in the case of these non-fiscal establishments. It is an undeniable fact that they do after all—not necessarily, but in an incidental way, and occasionally to a great extent—yield a financial sur plus ; which gives them theoretically such a claim to be incorpo rated in the theory of the public revenue as cannot be rejected.

In this respect the case of the letter-post is especially in point. In earlier times, in consonance with the generally unde veloped economy of the state, this fiscal element occupies the foreground. Even the good intention of administering the Post office for the common advantage is hindered by the external cir cumstances of the situation. The lower the stage of develop ment in point of density of population, roads, intercourse, enterprise, culture, etc., the greater are the expenses and the less are the receipts of the postal service. Compare Russia and Eng land even at the present day. But as soon as these conditioning circumstances reach a vigorous development the whole situation changes. Even a very considerable degree of regard for " public utility " may be compatible with a fiscal surplus that is quite commensurate with the results obtained by the exclusively fiscal methods of administration, and it may even surpass them in this respect. When we come to look more closely into the essential character of this " public utility " in respect of its economic and financial value,' it will appear that in this case an important administrative function has attached to it, as it were involuntarily, an effective contrivance for the levying of a tax, such as to require that the post-office be taken up in connection with the theory of taxation.

Leroy-Beaulieu, the French writer on finance, in his Traite de la Science des Finances (1877), has duly conformed to this requirement. We here find a separate chapter' set apart for the consideration of Droits sur les Correspondances et sur les Transports, and the letter-post is the chief topic treated Having taken this point of view it will not be much of a strain for us to treat the surplus yielded by the state railways after the analogy of that from the post-office. And if our French authority ranks the taxation of freight on French and English railways with the taxation on correspondence in the form of a postal net surplus revenue—as I believe he properly should ; then we may with even better reason class the net revenue of the state railway system with the net revenue yielded by the postal service.

The like holds true of all similar state establishments.

§ 78. The terms " Administration" and " Finance " used for purposes of contrast and distinction, as well as the entire course of thought contained in the present chapter, will find their full justification only as an outcome of the discussion in the succeed ing chapter on the various kinds of payments which are employed in the public economy.

In this way only will the real significance cf the different methods of arrangement and treatment become apparent, whether the discussion deals with the question of the so-called quasi private or "business" sources of income on the one hand, or with taxes and fees on the other. In this way only will it become clear that, and with what propriety, post, telegraph, rail ways are managed according to maxims which are termed busi ness principles, and that it is inherently necessary that they should always be managed according to these principles, without our taking any other standpoint with regard to the matter than that of public utility. This of itself will make it clear that all branches of the public administration, whether they yield a sur plus or leave a deficit, are comprehended in the great complex of giving and receiving services, in which the just balance in any particular case depends on the form of compensation which the beneficiaries of the service may see fit to establish.

royalty, science, royalties, domains and fiscal