Objects and Principles of Taxation 1

§ 4. The enlarging sphere of the state.

A mere police state would leave to private initiative the provision of every kind of economic agency not needed for political govern ment. The state might, for example, even leave the provision of roads and bridges to private individuals or to companies, permitting them to charge tolls to obtain a return on their investment. Whenever a toll-road is made public and a toll bridge becomes free, and the state maintains the roads, it is becoming less strictly a mere police state. Reacting from the ideal of the police state, which was most highly praised in the first half of the nineteenth century, the functions of government have been extending in many directions in the last half century. More and more, economic functions are performed through the agency of government. If we think of an act as done by the government for private citizens, we call it paternalism; but if we think of an act as done by citizens collectively for themselves, as the best way to get these things done, we may call it, in a broad sense, socialism, (mean ing not a political party, but a principle of social action).

Government is in one aspect a direct good to its citizens. In return for its collective cost, men collectively get the enjoy ment of social organization, markedly in contrast with the uncertain ties and hazards of primitive communities. But government becomes also a mode of social investment, an indirect agent, a productive enterprise. Wealth applied through it secures in some cases a greater product than is possible by individual action.

But when the government undertakes these various tasks the expense falls unequally on individuals and affects differ ently their incomes. When free schools take the place of private schools, the law compels every one to contribute to education. To many individuals it is a matter of indifference whether they pay tuition or taxes, but the wealthy bachelor sometimes grumbles when forced to help in educating the day-laborer's family. The average result of a certain social policy may be right, but individuals diverge from the average and thus have constantly a motive to attempt to change the limits of governmental action. Happily, the subject is not always viewed with selfish eyes. The ethical and patriotic thought is not, "How will this affect my interests?" but, "How will it affect the general interests?" But, as the ques tion of value is always involved, men are usually found favor ing or opposing the industrial and social activity of the state according as it affects their own incomes. Thus the deter

mination of the sphere of the state is in large part an economic question.

§ 5. Industrial revenues of governments. The costs of government at any stage are met in varying degrees in one of three ways: (1) from industrial sources, (2) by borrowing and thus creating a public debt, (3) from taxation.

Receipts from industrial sources in the broad sense in clude all rents from wealth owned, interest on loans made, and proceeds of sales from enterprises conducted, by the government. In feudal times, these were mostly obtained in the form of rents from the private domains of kings and nobles. In many early and medieval states these sources of receipts were adequate to the need of government ; then they decreased in many countries, both relatively and absolutely, because of the sale of publicly owned wealth (lands and mines), and with the recent extension of the functions of gov ernment have again increased very rapidly. Now industrial revenues come not only from the rents of forests, mines, docks, lands, and buildings, but from profits in the operation of in dustrial enterprises, such as waterworks, railways, mines, and factories, and from interest on funds deposited in banks or otherwise invested. At present the industrial revenues of the aggregate governments of the United States (national, state, and municipal) amount to about a fifth of all revenue re ceipts. Since the middle of the nineteenth century the num ber and variety of the industrial enterprises undertaken by governments has been steadily increasing, and this increase has been most marked in the cities. The change in this respect in the United States, great as it has been, has pro ceeded more slowly than in the European countries.

In 1913 the receipts of this nature (earnings of departments and of public service enterprises) were nearly $500,000,000. The larger part of this sum comes to the national government ($288,000,000), mostly from the post-office department. Most of the remainder comes to the minor divisions ($176,000,000), and but little to the states. The total "earnings" (this means here receipts, not profits) of public service enterprises in incorporated places were $120,000,000. Revenues obtained by the sale of goods are prices, such as water rates, or (if paid for the performance by an official for a service to legalize an act, as recording deeds, issuing licenses, etc.) are fees (frequently constituting the income, in lieu of salary, of the official, but sometimes paid into the public treasury).