NATIONAL ECONOMY 
 
MACMILLAN AND CO., LIMITED 
 
 LONDON BOMBAY CALCUTTA MADRAS 
 MELBOURNE 
 
 THE MACMILLAN COMPANY 
 
 NEW YORK BOSTON CHICAGO 
 DALLAS SAN FRANCISCO 
 
 THE MACMILLAN CO. OF CANADA, LTD. 
 
 TORONTO 
 
NATIONAL ECONOMY 
 
 AN OUTLINE 
 OF PUBLIC ADMINISTRATION 
 
 BY 
 
 HENRY HIGGS, C.B. 
 n 
 
 MACMILLAN AND CO., LIMITED 
 
 ST. MARTIN'S STREET, LONDON 
 
 1917 
 
3 27 
 
 //r 
 
 COPYRIGHT 
 
PREFACE 
 
 THE Newmarch Lectures here published were de- 
 livered at University College, London, in November 
 and December 1916. 
 
 William Newmarch devoted his life outside his 
 business of banking to Economics, Statistics, and 
 Finance. His great desire was to spread "an 
 increasing appreciation of the importance " of these 
 studies in their application to public and private 
 business ; and on his death his friends endowed 
 these memorial Lectures with that object. The 
 Lectures are not .intended to overlap the regular 
 teaching of the College, or to expound theory, but 
 rather by precept and illustration to encourage the 
 study of the social sciences as bearing upon life and 
 practice. Their propagandist character is shown 
 by the fact that they are open to the public without 
 fee or formality. 
 
 These Lectures are therefore rather a tract than 
 a treatise. Designed to attract and retain the 
 attention of listeners, they are neither as grave, 
 concise, or complete as if they had been six essays 
 
vi NATIONAL ECONOMY 
 
 of equal length destined for study in print, where 
 iteration and reiteration, anecdote and illustration, 
 may well appear to be serious defects. Many 
 requests for the publication of the Lectures have 
 reached me, especially from British officials overseas. 
 After much hesitation whether I should rewrite the 
 Lectures in a more adequate and greatly enlarged 
 form, I have decided to print them as they were 
 originally given, and to defer the publication of a 
 more serious volume. 
 
 It fell to me in 1892 to deliver the Newmarch 
 Lectures upon " The Expenditure of the Working 
 Classes in the United Kingdom," and in 1893 upon 
 " Workmen's Budgets in Europe and the United 
 States." Scientific study of Real as opposed to 
 Money Wages appeared to me then as since to be 
 a matter of prime importance. How little is still 
 understood upon this subject is shown by the ill- 
 informed and frequently mischievous homilies which 
 abound upon the economy of the labouring classes, 
 their food habits, and their supposed "prosperity" 
 and " extravagance " since the outbreak of War. 
 
 To pass from Family Budgets to the National 
 Budget, from the spending of private income to the 
 spending of public income, is but to turn from one 
 chapter to another of the Consumption of Wealth 
 the great unexplored region of economics. Genera- 
 tions of admiring readers have lingered over such 
 phrases as " The magic of property turns sands into 
 
PREFACE vii 
 
 gold." The question " Into what shall the gold be 
 turned ? " is one upon the answer to which the future 
 welfare of society largely depends. Self-interest is 
 wide-awake in the race for wealth through increased 
 production, and in the scramble for wealth in sharing 
 the produce between the agents in production. But 
 Consumption, which is the end of wealth, is little 
 influenced by competition, as we understand it in 
 the theories of production and distribution. The 
 consumption of individuals and of governments is 
 largely determined by custom, habit, fashion, and 
 imitation, somewhat unconsciously by the competition 
 of one need or aspiration with another, but depends 
 in the last resort when the line of imperious 
 necessity has been passed upon knowledge and 
 character. The first essential clearly is to know the 
 facts as they are. Statistics must be understood. 
 In the distressful period which followed the last 
 Great War, Ministers pointed to the greatly increased 
 consumption of candles as evidence that the neces- 
 saries of life were not lacking to people who could 
 afford to spend more upon comforts, if not luxuries, 
 of this kind. Joseph Hume to whose credit I am 
 glad to say something showed that the weavers, 
 cobblers, and other craftsmen were now compelled 
 to work long beyond the hours when their cottages 
 were formerly darkened for sleep. The statistics 
 used to disprove distress were in reality crushing 
 proof of its existence. 
 
viii NATIONAL ECONOMY 
 
 With the increasing tendency of Governments 
 to absorb a larger share of the national resources 
 the study of Government expenditure becomes 
 ever more important. The French humorist whose 
 political platform was " More from the Treasury 
 and less from the taxpayer " was perhaps building 
 better than he knew if Governments can achieve 
 greater results at less expense. It must, however, 
 be understood that these Lectures are not a criticism, 
 still less a description, of British administration in 
 particular. Examples have been occasionally drawn 
 from well-known features of the British system as a 
 more direct and intelligible appeal to those who 
 attended the Lectures. But although official per- 
 mission was sought and obtained for their delivery, 
 the Lectures contain no official information and have 
 no official authority. 
 
 So much interest has been taken in the references 
 to the American Commission that it may be con- 
 venient to state here that, so far as I am aware, 
 there is no European literature upon the subject. 
 The Commission's method is, after personal study of 
 a Department, to draw up a sketch of its functions, 
 organisation, and methods, to settle this descriptive 
 outline with the Department itself, and upon this 
 agreed basis of fact to build its constructive 
 suggestions. The Reports will be found in the 
 Library of the British Museum, Press Mark AS 10. 
 For copies of the Reports and Circulars of the 
 
PREFACE ix 
 
 Commission my thanks are due to Professor S. M. 
 Lindsay of Columbia University. 
 
 With the American plan may be compared the 
 recent Royal Rescript to the Prussian Diet announ- 
 cing the appointment of two experienced officials to 
 reform the Public Administration. In order to pro- 
 vide a basis for reform that will be uniform and 
 free from the influence of particular departments the 
 Commissioners are given full powers to select their 
 assistants. Both Commissioners and assistants are 
 free to disregard the instructions of their superiors. 
 The text of the Rescript is worth quoting : 
 
 " The historic construction of the State adminis- 
 tration no longer takes due account in all cases of 
 the changed economic conditions. It is in many 
 cases too complicated, and consequently demands a 
 larger personnel than will be available after the War. 
 The experiences of the War have, moreover, shown 
 that it is possible for the organisation and control of 
 the administration to be made simpler. There is 
 the further fact that public burdens will undergo an 
 extraordinary increase after the War. In these 
 circumstances I desire that the question shall be 
 seriously examined how a simplification and reduc- 
 tion of the cost of all the State administrations can 
 be brought about." 
 
CONTENTS 
 
 PAGE 
 
 NATIONAL ECONOMY AND FORMAL FINANCE . . i 
 
 National Economy : what it is and is not Parsimony 
 and Economy Importance of subject being generally 
 understood Commission on Economy and Efficiency 
 in the United States Ministers of National Economy 
 Finance and National Economy. 
 
 Financial Policy and Economics What is an Economist ? 
 Financial Administration, principles and practice 
 Finance and Statistics The state of a country and its 
 financial condition International comparisons Gross and 
 net accounts Income and expenditure accounts versus 
 receipts and payments accounts French and English 
 systems Estimates of revenue and expenditure Supple- 
 mentary estimates Closed accounts Formal financial 
 administration. 
 
 II 
 
 ECONOMICAL ORGANISATION AND BUSINESS MANAGE- 
 MENT 27 
 
 Organisation (a) Ministries, (b] Departments, (c) Bureaux 
 or Divisions of Department Personnel : grades, pay, in- 
 crements and pensions Housing, Fuel, and Light 
 Labour-saving appliances American experiences Dis- 
 cipline and driving-power Scientific experts, 
 xi 
 
xii NATIONAL ECONOMY 
 
 III 
 
 PAGE 
 
 CONTROL OF EXPENDITURE . . . 52 
 
 (i) By Departments, (2) by the Finance Ministry before 
 expenditure, (3) by Parliament, (4) by Audit, (5) by Public 
 Accounts and other Committees, (6) by Finance Inspection 
 during or after expenditure, (7) by a Commission on the 
 American model Supreme importance of exact measure- 
 ment, detailed knowledge, and scientific method. 
 
 IV 
 
 REVENUE AND ADMINISTRATION . . . .78 
 
 Direct and indirect taxation Land Tax Income Tax 
 and Taxes on Capital Customs and Excise Ad valorem 
 and specific duties Stamp duties Taxes on inheritance, 
 etc. Fees State enterprise Cost of collection Control 
 of revenue officers Fidelity guarantees. 
 
 V 
 
 FINANCIAL POLICY AND THE BUDGET . . . 101 
 
 Types of policies to be avoided Order of wants In- 
 cidence and burden of taxation Fairness of taxation- 
 Taxation for revenue only Marks of bad taxes The 
 Budget Universality and annuality Grants in aid. 
 
 VI 
 
 PUBLIC DEBT AND HAUTE FINANCE . . .124 
 
 Public debts as national burdens Criticism of current 
 views Sinking funds Reserve funds Floating debt Day- 
 to-day finance Banking and currency questions Note 
 issues The outlook for National Economy. 
 
 INDEX MS 
 
I 
 
 NATIONAL ECONOMY AND FORMAL 
 FINANCE 
 
 " NATIONAL Economy " stands in the countries of 
 Northern Europe for what we call Economics or 
 Political Economy. I do not use the words in this 
 wide sense. Just as the Select Committee on National 
 Expenditure was set up in 1902 to inquire into 
 certain aspects of Government expenditure, just as 
 the National Debt is the debt for which the Govern- 
 ment the organised, centralised power of the 
 nation is responsible, so by National Economy I 
 mean in effect Government economy, and not the 
 economy of the private citizen, either in his home 
 (Domestic Economy) or his business (Political 
 Economy). " Economy " I use in its true sense as 
 the wise management, husbandry, or administration 
 of resources. We must at the outset clear our 
 minds of any confusion between Economy and 
 Parsimony. Burke does it for us in his Letter to a 
 Noble Lord-. "Mere parsimony is not economy. 
 It is separable in theory from it ; and in fact it 
 
 i B 
 
ECONOMY 
 
 may, or it may not, be a part of economy, according 
 to circumstances. Expense, and great expense, 
 may be an essential part in true economy. If 
 parsimony were to be considered as one of the 
 kinds of that virtue, there is, however, another and a 
 higher economy. Economy is a distributive virtue, 
 and consists not in saving, but in selection. 
 Parsimony requires no providence, no sagacity, no 
 powers of combination, no comparison, no judgment. 
 Mere instinct, and that not an instinct of the noblest 
 kind, may produce this false economy in perfection. 
 The other economy has larger views. It demands a 
 discriminating judgment, and a firm, sagacious mind." 1 
 Parsimony, in short, is not a principle but a policy, 
 and like any other policy may be good, bad, or in- 
 different. Bastiat carried his dislike of Government 
 action so far as to say that the State does harm even 
 when it is doing good. The apostles of Parsimony, 
 strict adherents of this paradoxical form of Laissez- 
 faire, have gone very near the assertion that the 
 wisest use of national resources is for Government 
 not to use them at all but to leave them in the 
 pockets of the people, in which doubtful soil they 
 are alleged to fructify. On June 27, 1821, Joseph 
 Hume delivered in the House of Commons a 
 speech on retrenchment, subsequently published as 
 a pamphlet. Its most applauded passage was this : 
 " The more money that was left in the pockets of 
 
 1 Works, edition 1852, vol. v. p. 229. 
 
I FORMAL FINANCE 3 
 
 the people, the stronger would be the Government 
 and the more secure the public credit." To deprive 
 Government of all funds would thus, it seems, give 
 it a maximum of strength instead of reducing it to 
 an impotent shadow. The real question is whether 
 in any particular case the portion of social income 
 equitably taken from individuals for national invest- 
 ment promises to yield a better harvest of common 
 weal in the collective pocket. The War has created 
 a more favourable atmosphere for the programme 
 of Private Thrift, Public Expenditure 1 less in- 
 dividual gratification of futile whims and fancies, 
 more well-ordered expenditure by Government in 
 the fight against social evils, Pauperism, preventible 
 Disease, Ignorance, Intemperance, and generally in 
 the upbuilding of public utilities. National Economy, 
 then, while the deadly enemy of Waste, looks to 
 the wise management of the resources of Govern- 
 ment and not merely to abstinence, restriction, or 
 retrenchment. 
 
 How is National Economy to be promoted ? 
 " Well," says Gallio, " I am not the Government. I 
 am but a plain citizen and do not exercise myself in 
 great matters which are too high for me." Yes, 
 but it is from plain citizens that Government emanates, 
 their patrimony that it administers, and for their 
 benefit that it exists. Their opinion is something 
 
 1 "Private thrift, public expenditure that is the way to raise a 
 town or nation in the standard of civilization " (Sir O. Lodge, Modern 
 Problems, p. 167). 
 
4 NATIONAL ECONOMY I 
 
 by which Government may be assisted or may be 
 impeded, but to which it must in the long run conform 
 or disappear. It was within these walls that John 
 Austin defined Democracy as Sovereignty split into 
 fragments. The private citizen owes to his country 
 something more than his purse, something more 
 even than his heart. To serve his generation faith- 
 fully he must give it his brains, and not abdicate his 
 fraction of sovereignty. The more the average 
 citizen knows about National Economy the better 
 our National Economy will be. 
 
 If further justification for either the title or the 
 subject of these lectures is needed we may look 
 to the Government of the United States. On 
 June 25, 1910, President Taft obtained a grant 
 of 100,000 dollars "to enable the President by the 
 employment of accountants and experts from official 
 and private life to inquire into the methods of 
 transacting the public business of the executive 
 departments and other Government establishments, 
 and to recommend to Congress such legislation as 
 may be necessary to carry into effect changes found 
 to be desirable that cannot be accomplished by 
 Executive action alone." The Commission upon 
 Economy and Efficiency which was then set up, 
 composed of a few paid specialists who give 
 all their time and attention to their business, has 
 not only produced valuable Reports but has made 
 valuable reforms. I shall refer to it hereafter as the 
 
I FORMAL FINANCE 5 
 
 American Commission. It is still at work, and 
 seems in a fair way to justify its permanent existence. 
 In a Message to the two Houses of Congress on 
 January 17, 1912, President Taft transmitted a 
 report of the progress made. Here are some extracts 
 from his Message : " Real Economy is the result of 
 efficient organization. By perfecting the organization 
 the same benefits may be obtained at less expense. 
 A reduction in the total of the annual appropriations 
 is not in itself a proof of economy, since it is often 
 accompanied by a decrease in efficiency. The needs 
 of the nation may demand a large increase of 
 expenditure, yet to keep the total appropriations 
 within the expected revenue is necessary to the 
 maintenance of public credit. . . . The operations 
 of the Government affect the interest of every 
 person living within the jurisdiction of the United 
 States. ... Its activities are almost as varied as 
 those of the entire business world. . . . No exhaustive 
 inquiry has ever before been instituted concerning 
 the methods employed in the transaction of public 
 business with a view to the adoption of the practices 
 and procedure best fitted to secure the transaction 
 of such business with maximum dispatch, economy, 
 and efficiency. ... I am convinced that results 
 which are really worth while cannot be secured, or 
 at least can be secured only in small part, through 
 the prosecution at irregular intervals of special 
 inquiries bearing on particular services or features of 
 
6 NATIONAL ECONOMY I 
 
 administration. The benefits thus obtained must be 
 temporary. The problem of good administration is 
 not one that can be solved at one time. It is a 
 continuously present one." 
 
 Some European Governments have a Minister of 
 National Economy, who should save them from the 
 reproach levelled by Professor Hewins against the 
 British Government that its economic policy is too 
 departmental, by which is meant that the economic 
 aims of various Ministers are not sufficiently co- 
 ordinated. In the absence of a Minister of National 
 Economy it is the Minister of Finance who is ulti- 
 mately and vitally concerned in National Economy, 
 and perhaps the best way of dealing with our subject 
 is to consider by what principles he should be guided 
 in his policy and his administration. 
 
 First as to policy. A distinguished American 
 writer, Professor H. C. Adams, lays it down that 
 " a sound policy of public finance must rest upon a 
 thorough knowledge of political economy." 1 Observe 
 he does not say that such a knowledge is sufficient. 
 His meaning clearly is, that a policy is financially 
 unsound if it is condemned by the economist But 
 what is an economist ? It behoves me to speak 
 with respect of Joseph Hume in this place where 
 scholarships, both of which I have held, have been 
 
 1 The Science of Finance , 1898, p. 5. Prof. Bastable more guardedly 
 declares an acquaintance with economic science to be "an indispensable 
 part of the equipment of the student of finance " (Public Finance, 
 3rd ed., 1903, p. 10). 
 
I FORMAL FINANCE 7 
 
 founded in his name. But the habit of referring to 
 him as Joseph Hume the economist, because he was 
 a Member of Parliament who in season and out of 
 season urged the cutting down of estimates, is a 
 travesty of language. Neither is the economist, 
 properly so called, a doctrinaire who, equipped with 
 more or less economic theory, conceives himself to 
 have a skeleton key to all social problems, and sets 
 his logical apparatus to work to arrive rapidly and 
 triumphantly at a conclusion without troubling him- 
 self to make sure that his premisses are accurate 
 and complete. An economist who knows nothing 
 of the movements of prices, wages, unemployment, 
 pauperism, population, imports and exports, the ups 
 and downs of the Money Market, and the bank-rate 
 of discount, whose ringer is never on the pulse of 
 trade, commerce, and industry, banking and finance, 
 who never reads in the book of economic life of 
 which his studies are the mere grammar, need not 
 be taken seriously. As Professor Marshall well 
 says, in economics " nothing can be done by the 
 reason alone, and very little can be done well 
 except by the trained reason," but it must be a 
 " reason acting on observed facts." ] Contempt of 
 the facts has bred so large a contempt of the 
 economist that he is still looked upon in some 
 quarters as an ideologue, speculative and aloof, 
 harmless perhaps, useless undoubtedly, not a man 
 
 1 Principles of Economics , 2nd ed., 1891, p. 86. 
 
8 NATIONAL ECONOMY I 
 
 of the world. In fact, the true economist is a man 
 of trained reason who is pre-eminently a man of 
 the world, watching its movements with the eye 
 of a skilled observer, knowing what to look for and 
 where to look for it, and keenly anxious to discover 
 the causes and effects of economic phenomena. 
 He " palpitates with actuality." Professor Henry 
 Sidgwick once asked me what I thought of an 
 economic treatise which had recently appeared. I 
 offered some criticisms and requested his opinion. 
 " To tell the truth," he replied, " I have not read 
 it. I looked at the index, and as he did not 
 mention me I thought I need not refer to him." 
 Then, more seriously, " I should not have expected 
 to derive any profit from him, knowing that he has 
 what I call the cross-country mind ! " The cross- 
 country mind in economics is often much admired 
 by the unknowing. " How quick and clever ! " they 
 say ; " how smart and logical ! " To which you 
 may generally add, " How ill-informed, useless, and 
 misleading ! What croppers he comes ! " 
 
 It may be objected that Professor Adams's state- 
 ment is very sweeping. After all, it may be said, 
 there is no finality about Political Economy. What 
 seems the thorough knowledge of to-day may be 
 discredited to-morrow. It is, of course, true that 
 Political Economy, which is, as a science, barely a 
 century and a half old, is, like other sciences, con- 
 tinually purging itself of error. Very little learning 
 
I FORMAL FINANCE 9 
 
 is now required to criticise Ricardo's theory of 
 Value, or Malthus's principles of population, or the 
 Iron Law of Wages arrived at by a combination of 
 the two, or the Wage fund theory, or the quantity 
 theory of money. But solid conquests have been 
 made which, while they may be extended, can 
 hardly be overthrown. Above all, we distinguish 
 between theory and its application to practical 
 problems involving the unknown and the incommen- 
 surable. The economist as such is no longer in 
 danger of provoking the working man to say, " If 
 Political Economy is against us we must be against 
 Political Economy." He is an analyst whose mind, 
 cleared by economic theory, is always at work on 
 its material, a man of ideas with a special know- 
 ledge of particular facts. In Germany leading 
 economists are skilled advisers of the State, Privy 
 Councillors who are called in for active discussion. 
 
 It is this kind of economist, always exercising 
 his knowledge of how to observe the social organism, 
 who is so important in the forming of financial 
 policy. The history of finance records many 
 blunders, mostly economic, some due to lack or 
 neglect of advice, others to bad advice. The de- 
 velopment of economics has been one-sided. The 
 production of wealth in large quantities at low prices 
 with great profits has received theoretical and 
 practical attention out of all proportion to the best 
 uses of wealth, the true wants of consumers, and 
 
io NATIONAL ECONOMY i 
 
 the real needs of the nation. Financial theory has 
 followed a parallel movement. The raising of 
 revenue, taxation, and taxes overshadows considera- 
 tion of the spending of the public income. The 
 great bibliography of Financial Science of Stamm- 
 hammer, 1 with its 400 quarto pages of double 
 columns of the titles of books, contains little to 
 guide us in this direction. Of the principles of 
 taxation there is enough and to spare. Their 
 application is another matter. It is not sufficient 
 to have a plan or policy for the raising of revenue. 
 We must have behind it the organisation to make 
 our plan effective, and (the resources being but a 
 means to an end) the wisdom to apply these 
 resources to the best advantage by using the revenue 
 well. 
 
 This brings us to financial administration. Are 
 there any principles here by which we can be 
 guided ? " Surely," says Noodle, " to go about to 
 formulate principles of financial administration is 
 nothing but a piece of pretentious folly. You might 
 as well attempt to formulate principles of common 
 sense. The only sound principle I know of is to 
 decide every case upon its merits." Now Huxley, 
 who knew something of science, defined it precisely 
 as " organised common sense." The phrase that 
 every case should be decided upon its merits is a 
 platitude masquerading as sagacity. The medicine- 
 
 1 Bibliographic der Finanzwissenschaft, Jena, 1903. 
 
I FORMAL FINANCE n 
 
 man of a Zulu tribe aims at deciding every case on 
 its merits, but his knowledge is not sufficiently 
 well organised to enable him to discover what its 
 merits are. Undeterred by Noodle we w?ll consider 
 whether we can organise a little common sense 
 about financial administration. 
 
 If we suppose that a Minister of Finance is 
 fortunate enough to discover as adviser a paragon 
 to whom is vouchsafed " a thorough knowledge of 
 political economy " it does not follow that what is 
 ideally sound policy from the economic standpoint is 
 at once practicable. Discussing the Corn Law of 
 1773, " in many respects better than the ancient one, 
 but in one or two respects perhaps not quite so 
 good," Adam Smith says : " With all its imperfections, 
 however, we may perhaps say of it what was said of 
 the laws of Solon, that though not the best in itself, 
 it is the best which the interests, prejudices, and 
 temper of the times would admit of. It may perhaps 
 in due time prepare the way for a better." * It has 
 been my privilege to be well acquainted with three 
 great Ministers of Finance who were also dis- 
 tinguished economists M. Le"on Say, who liberated 
 France so successfully from the war indemnity ; Dr. 
 Pierson, in turn Professor of Economics, President of 
 the Netherlands Bank, Finance Minister and Prime 
 Minister of Holland ; and the late Lord Goschen. 
 Each of them has made contributions of lasting 
 
 1 Wealth of Nations , book iv. ch. v. 
 
12 NATIONAL ECONOMY I 
 
 value to the literature of economics and finance. 
 Each of them achieved great things in the world of 
 action, and contemplated greater, but recoiled before 
 the real or supposed difficulty of overcoming " the 
 interests, prejudices, and temper of the times." The 
 most sensitive nerve in the body politic, and the most 
 easily inflamed, is the sense of injustice. When the 
 injustice is imaginary it may be removed from the 
 path of reform in National Economy by enlighten- 
 ment a better knowledge of finance by the public, 
 a better knowledge of the public by financiers. 
 Proposals resisted and rejected in the first shock of 
 surprise as when, for example, a secretly prepared 
 Budget is sprung upon the public, might be perfectly 
 acceptable if the popular mind were properly informed 
 and prepared in advance by education in the general 
 principles of finance. 
 
 How indispensable to finance is skilled statistical 
 advice is shown at length by Giffen in chapter xi. of 
 his Statistics. 1 Let me quote from another of his 
 volumes : " Any man, it seems to be thought, can 
 handle figures, and writers who are otherwise com- 
 petent are not afraid to touch them as they would be 
 afraid to touch chemistry, or geometry, or botany, or 
 geology, or almost any science one could name." J 
 Closely parallel is the language of Jevons about 
 economics. A great many mistakes, he says, are 
 made about it by people who ought to know better. 
 
 1 1913. 2 Economic Inquiries and Studies ', 1904, vol. i. p. 284. 
 
I FORMAL FINANCE 13 
 
 " These mistakes often arise from people thinking 
 that they understand all about political economy 
 without studying it. No ordinary person of sense 
 ventures to contradict a chemist about chemistry, or 
 an astronomer about eclipses, or even a geologist 
 about rocks and fossils. But everybody has his 
 opinion, one way or another, about bad trade, or the 
 effect of high wages, or the harm of being underbid 
 by cheap labour, or any one of hundreds of questions 
 of social importance. It does not occur to such 
 people that these matters are really more difficult to 
 understand than chemistry, or astronomy, or geology, 
 and that a lifetime of study is not sufficient to enable 
 us to speak confidently about them. Yet, they who 
 have never studied political economy at all are 
 usually the most confident." 1 
 
 The whole outlook upon finance is changed by the 
 world-shaking war which dwarfs the financial problems 
 of the past into child's play. In 1879, when the 
 income tax, standing at fivepence in the pound, 
 brought in about nine millions of revenue, Sir Stafford 
 Northcote found himself confronted with a deficit of 
 slightly over two millions. Instead of increasing 
 taxation he spread over two years the repayment of 
 a temporary debt of five millions, which was falling 
 due. Mr. Goschen described this policy as " shabby, 
 flabby, and inadequate to the occasion," wanting in 
 the courage which was calculated to secure repute 
 
 1 Political Economy, 1878, p. 8. 
 
14 NATIONAL ECONOMY i 
 
 abroad and credit at home. This was widely re- 
 garded as a splenetic outburst of unreasonable 
 pedantry, and the Chancellor's refusal to take what 
 he called the " heroic " course of paying his way in the 
 year was generally approved. Who would now doubt 
 the wisdom and'-the duty of making one mouthful of 
 a sum so small relatively to our national wealth ? 
 
 The raising of moderate revenue in a very rich 
 country does not make serious demands upon the 
 skill of its financial authorities. We shall now have 
 for a long time to face the necessity for an im- 
 moderate revenue ; and the whole problems of spend- 
 ing and saving must be faced anew with all the aid 
 we can get from science economic, statistical, 
 financial, and other. The more widely these sciences 
 are diffused the easier the task will be. In the speech 
 from which I have just quoted, Mr. Goschen warned 
 the Government that when you are rowing against 
 the wind and the stream it does not improve the 
 stroke to keep your eyes upon the electioneering 
 figures on the bank. But the better informed the 
 electioneering figures are, the less is the risk of their 
 ragging the crew which is rowing a good stroke on 
 a right course. " Educate your masters " is still good 
 advice. 
 
 So much for the scope and purpose of these 
 lectures. To come to grips with our subject let us 
 imagine that you are called upon to be responsible 
 for the public finances of a country which we will 
 
I FORMAL FINANCE 15 
 
 call Urania, and that you have very little knowledge 
 either of Urania or of finance. How are you to set 
 about your business ? 
 
 To begin with, you had better learn as much as 
 you can about Urania itself its geography, history, 
 constitution, population, area, natural resources and 
 products, trade and industry, imports and exports, 
 and such facts as you will find in the Statesman's 
 Year Book and the Statistical Abstract or Annual of 
 the country. Of especial importance is the mode of 
 living of the people, their habits as to food, drink, 
 clothing, housing, etc. A few typical family budgets 
 showing the expenditure characteristic of the masses 
 of the people will give you invaluable information. 
 Having some idea of the wealth of the country you 
 pass to consider the financial condition of its 
 government, and for this purpose should glance over 
 a summary of its income and expenditure for a 
 number of years, and then examine very closely the 
 last completed account and the budget estimates for 
 the coming year. You may be struck by the fact 
 that the revenue of Urania is per head of population 
 twice as great as that of Icaria, to which it offers 
 much economic resemblance. To conclude that 
 the people of Urania must be twice as heavily 
 burdened as those of Icaria by taxation would be 
 a grave error. We will examine later the much- 
 abused phrase " burden of taxation." Note first 
 that receipts are not all revenue, and that revenue is 
 
16 NATIONAL ECONOMY i 
 
 not all taxation. It is a large assumption that these 
 two countries are fairly comparable in respect of 
 means of livelihood, and modes of living. Their 
 public accounts are, however, compiled on such 
 different principles that comparison of the totals is 
 wholly misleading. To begin with, they do not 
 cover the same ground. In Urania, certain services, 
 like railways and police, are paid for by the central 
 government, while in Icaria they are in the hands of 
 private companies and local authorities. Secondly, 
 in Urania payments are made by one government 
 department to another, while in Icaria the expense 
 is borne once for all by one department instead of 
 being shown in the accounts twice on one side and 
 once on the other, and so inflating the totals. 
 Thirdly, the Urania accounts are gross where those of 
 Icaria are net. Thus for Urania we find the whole 
 expenditure of revenue departments on one side and 
 the whole of their receipts on the other, while in 
 Icaria these expenses are paid out of receipts, and 
 the net revenue alone is shown. The one system 
 of account magnifies the figures, the other belittles 
 them. As we are not comparing like with like, a 
 comparison of the mere totals is fruitless. Inter- 
 national comparisons of finance by those who know 
 nothing of the financial systems, methods, possibly 
 even the languages of the foreign countries to which 
 they refer, are frequently most misleading. We find 
 e.g. confident comparisons of the taxation per head 
 
I FORMAL FINANCE 17 
 
 in England at the time of Napoleon and in England 
 of to-day. But the financial system has in the 
 interval been radically altered, the ambit of govern- 
 ment (including local government) greatly widened, 
 and the modes of accounting for the national ex- 
 penditure then and now are widely different, to say 
 nothing of the increased wealth of the people and 
 the altered value of money. 
 
 To return to our business. You were examining 
 the balance-sheet, in order to take your bearings, 
 when we digressed to notice that before we can 
 interpret an account we must know how it is built 
 up, and that there are many and important varia- 
 tions of construction. It is highly necessary to 
 have the national balance-sheet well drawn. What 
 is the best way to prepare it ? The gross figures are 
 clearly more informing than the net which can be 
 deduced from them. But the gross receipts are not 
 all revenue. Money paid by litigants into Court to 
 abide the event is received and held on behalf of 
 Government, but does not belong to the State, and 
 should not figure as revenue but be kept in a 
 separate statement of account. The same thing is 
 true of Savings Bank deposits or of such security 
 as the French Government requires of its collectors 
 of revenue. But let us take another example. You 
 go to the Post Office to send a telegram abroad, 
 over the ocean cable of a private company, and pay 
 a sovereign for its transmission. Of this the Post 
 
 C 
 
i8 NATIONAL ECONOMY I 
 
 Office retains perhaps a shilling for its land services, 
 and hands the balance of 1 95. to the Cable Company 
 to which it belongs. In this case, to show 1 as 
 revenue and 193. as expenditure would be as mis- 
 leading as if you were to buy a shilling article from 
 a tradesman and tender him a i note, and he 
 recorded the pound as a receipt and the 193. change 
 as an expense in his account. The operation so 
 far as he is concerned is the receipt of a shilling. 
 The Post Office is merely a conduit pipe for the 
 193., which never belonged to it and should not 
 figure as Government revenue. Similarly, an over- 
 payment, say of income tax, refunded on application 
 is properly deducted from receipts. It is indefensible 
 to speak of such transactions as " interception of 
 revenue." The money never was really revenue. 
 This is also true of money paid by one Government 
 department to another. The payment adds no more 
 to your resources than if it were shifted from one 
 pocket to another. Let us then conclude in favour 
 of gross rather than net figures, but be careful to 
 eliminate pseudo- revenue, and aim at showing in 
 our account what expenses Government has to meet 
 for its own business and what resources were at its 
 disposal for the purpose. 
 
 Another great distinction between forms of 
 account is the system of income and expenditure 
 and the system of receipts and payments. The first 
 affects to show the income and expenditure proper 
 
I FORMAL FINANCE 19 
 
 to the year. The second is content with the cash 
 record of income actually received and expenditure 
 actually incurred. Either system would be un- 
 impeachable if it could be completed by an 
 accurate statement of outstanding liabilities, con- 
 tingent receipts, debts written off, and depreciations. 
 The income and expenditure account is favoured 
 by many high authorities, for example, Adams and 
 Leroy-Beaulieu, the last of whom declares it to be 
 the only rational system. At best, however, it can 
 only approximate to its aim. Are you to apportion 
 each new telephone subscription according to the 
 number of days remaining before the 3 I st March ? 
 Are arrears of income tax to be spread over the 
 back years in which they fell due ? Are elaborate 
 depreciation accounts to be set up in respect of 
 articles purchased in the year but capable of serving 
 more than one year ? For practical working purposes 
 variations of this kind may be taken in the rough 
 to balance one another. The cash system is prompt 
 and simple ; and meticulous approximation to a more 
 or less true figure by an income and expenditure 
 account is, in public finance, dearly purchased by the 
 sacrifice of time and trouble involved and the greater 
 complexity of the result. The British system is a 
 cash system. The French adopt the other system. 
 " Even in France," says Mr. A. J. Wilson, " with 
 its carefully chosen Budget- Committees, the true 
 state of the national balance-sheet is often hard to 
 
20 NATIONAL ECONOMY i 
 
 discover. Arrears of taxes in one year overlap with 
 those of other years, credits old jostle credits new, 
 and amid the confusion the truth is smothered." l 
 With its pristine vivacity The Economist of the 2Qth 
 December 1866 expressed itself thus on the same 
 subject: "The political effect is that the French 
 nation can form no opinion about its finance. It 
 is told too much, and in too abstract a form, and 
 so knows nothing. The English Chancellor gives 
 every year a rough popular account of the general 
 state of things, and this can be broadly criticised 
 and dealt with. And it is only so that a free nation 
 can judge of its finance. If it attempts precision it 
 ensures failure." 
 
 The two methods of account are compared in 
 the Report of the Departmental Committee on 
 Accounts of Local Authorities. 2 The Committee 
 reported in favour of the income and expenditure 
 account for local authorities, adding that they would 
 still be able to close their accounts within a month 
 or two of the end of the financial year. Few 
 Governments could do this. The French Govern- 
 ment is rarely able to close its accounts in less than 
 three years. 
 
 The device of Appropriations in Aid in use in 
 this country, under which certain non- revenue 
 departments are allowed to utilise their receipts in 
 
 1 The National Budget, 1882, p. 148. 
 2 Cd. 3614 of 1907. 
 
I FORMAL FINANCE 21 
 
 place of voted moneys, is discussed in Appendices 
 to the Report of the Select Committee on National 
 Expenditure. 1 Many of the objections urged against 
 this procedure rest upon misapprehension, but Sir 
 Robert Giffen throws his weighty opinion into the 
 scale against them, on the ground that the question 
 of real interest to the student of national finance 
 is not how much Parliament is asked to vote for 
 the public services, but how much of the country's 
 resources Government administers. " Nothing is so 
 useful," he says, " as the first figures of all the gross 
 income on one side, however arising, and the gross 
 expenditure on the other side, however caused." '' 
 
 Having got your figures showing what Govern- 
 ment has paid to do its business and what resources 
 it has encashed to meet its expenses, and being 
 satisfied that there is nothing very abnormal about 
 outstanding items on either side, you have a fair 
 idea of how the year has turned out financially. 
 The situation as regards debt should next be con- 
 sidered. How has the debt moved of late years, 
 funded or permanent, and floating or temporary ? 
 If it has been increased, for what purposes was it 
 raised ? Is it new capital, productive of new 
 revenue, adding, for example, to your telephone or 
 railway system, or is it dead-weight debt ? To these 
 questions we will return. We see how we stand, 
 
 1 House of Commons Paper, 387 of 1902, pp. 212-13, 223-24. 
 2 Statistics, 1913, p. 231. 
 
22 NATIONAL ECONOMY I 
 
 and how we are moving as regards indebtedness. 
 Let us now look ahead to the coming year. 
 
 The revenue authorities will tell us how much 
 each of them expects to receive. Examine the 
 figures under each head for the last few years and 
 let your estimate be as good as you can make it. 
 The unforeseen will affect your figures. A General 
 Election will increase the Post Office receipts. Good 
 trade or bad trade, the weather, the harvests, will 
 affect your Customs, Excise, and Inland Revenue. 
 If you over-estimate your revenue and provide for ex- 
 penditure up to the hilt, you will have an unpleasant 
 awakening and a deficit to be met. If you under- 
 estimate your revenue and realise a large surplus, 
 you will be pressed to reduce taxation or to launch 
 out into new expenditure. Lord Althorp, when 
 Chancellor of the Exchequer, said that nothing 
 is so disturbing to trade as new taxation except 
 the reduction of existing taxes. When times are 
 normal, and reasonable provision is made for ex- 
 tinction of debt, a large surplus suggests to your 
 critics that you are laying an unnecessary load upon 
 the taxpayer. Mr. Goschen was attacked by Sir 
 William Harcourt on the ground that by deliberately 
 under-estimating his revenue and over-estimating 
 his expenditure he provided himself with a surplus 
 which his opponent stigmatised as " easy finance." 
 At any rate, let your estimates be sincere. You are 
 sure to have demands later on for urgent, unforeseen 
 
I FORMAL FINANCE 23 
 
 expenditure. You cannot be sure of unforeseen 
 good luck with your revenue. It is therefore 
 prudent to be on the safe side, and not over-sanguine. 
 The spending departments will estimate their 
 requirements in the light of experience, but to do 
 so they should have their expenditure classified 
 under the important main heads. The classification 
 should be as uniform and logical as possible, and 
 the figures of actual expenditure under each head 
 for several years should be scrutinised and compared. 
 If a margin is allowed on each head, the aggregate 
 over-estimate may be considerable. On the other 
 hand, to pare everything down to the quick will 
 probably result in a litter of supplementary credits. 
 Listen to a statement of Mr. Gladstone in evidence 
 before the Public Accounts Committee in 1862, 
 when he was Chancellor of the Exchequer : " I 
 look with great jealousy upon Supplementary 
 Estimates. I think that Supplementary Estimates 
 are very plausible in principle, but that in practice 
 nothing would so much tend to defeat the efficacy 
 of Parliamentary control as the easy resort to 
 Supplementary Estimates. It is absolutely necessary, 
 in my opinion, to the efficacy of Parliamentary 
 control that the House of Commons should have 
 the money transactions of the year presented to it in 
 one mass and in one account. ... If Supplement- 
 ary Estimates were easily and frequently resorted 
 to, one consequence would be that the House of 
 
24 NATIONAL ECONOMY I 
 
 Commons must in self-defence appoint a permanent 
 Finance Committee. It would alter altogether the 
 relations between the House of Commons and the 
 Executive Government so far as the control of ex- 
 penditure is concerned." 1 Later, an ex-Chancellor 
 of the Exchequer, in Opposition, described a batch 
 of Supplementary Estimates which he thought 
 showed lack of foresight, as " sloppy finance." Take 
 every precaution to provide for all your probable 
 expenditure. To estimate liberally for expenditure 
 is sound policy provided you have adequate guarantees 
 for economical administration. Avoid then, on the 
 one hand, the " easy finance " of deliberately under- 
 estimating your resources, and, on the other, the 
 " sloppy finance " of carelessly under-estimating your 
 requirements. 
 
 You have now your programme of the year's 
 finance. But all your care is in vain unless you 
 have an efficient and independent audit, watching 
 expenditure and revenue, seeing that all expenditure 
 is duly authorised, duly vouched for, and duly 
 classified, and that the receipt of revenue is properly 
 safeguarded and accounted for. At the end of the 
 year you will see how results compare with forecasts, 
 and will have explanations of the reasons for any 
 serious divergence from your estimates descending 
 to detail for each sub-head of expenditure. These 
 explanations will be serviceable when you come to 
 
 1 House of Commons Paper, 467 of 1862, Q 1571. 
 
I FORMAL FINANCE 25 
 
 examine future estimates. These three parts of 
 your machinery are of capital importance a well- 
 devised form of estimates for both revenue and 
 expenditure, a well-framed out-turn account, and a 
 competent, vigilant, fearless audit. Good financial 
 forms are good tools without which the best of 
 workmen is badly handicapped. Recognition of 
 their importance is comparatively modern. It was 
 only in 1832 that Sir James Graham as First Lord 
 of the Admiralty started classifying naval expenditure 
 under its main heads wages of seamen, victual- 
 ling of seamen, expenses of the Admiralty Office, 
 labour and dockyards, materials for building ships, 
 etc. This fruitful reform was gradually extended to 
 other departments. Our present financial system, 
 which I have described elsewhere, 1 rests in the main 
 upon an Act of 1 866, 2 which has remained practically 
 without amendment for fifty years. Its jubilee has 
 been marked by the presentation to Parliament of an 
 interesting review of its working by the Comptroller 
 and Auditor- General. 3 The Government of the 
 United States is but just beginning to construct its 
 formal financial administration upon scientific lines. 
 "The United States," says the President in the 
 Message from which I have already quoted, " is the 
 only great nation whose government is operated 
 without a Budget." 4 The American Commission 
 
 1 The Financial System of the United Kingdom, 1914. 
 
 2 29 and 30 Viet. c. 39. 3 Cd. 8337 of 1916. 
 4 The Need for a National Budget ', Washington, 1912. 
 
26 NATIONAL ECONOMY i 
 
 has published a summary of the formal finance of 
 forty different countries, and has called in the highest 
 authorities on accountancy to advise upon the ideally 
 best method of presenting the figures of the national 
 balance-sheet. It mentions as an example of the 
 character of data contained in official reports the 
 statement of receipts and disbursements for the fiscal 
 year ended June 30, 1910 a report required by 
 law, and the only statement purporting to give an 
 analysis of expenditures of the Government as a 
 whole. This shows that the expenditures for salaries 
 for the year 1910 were 132 millions out of 950 
 millions. As a matter of fact, the expenditures for 
 personal services during that year were more nearly 
 400 millions. But we will not pursue the subject 
 further. The great basic documents which show us, 
 or ought to show us, where we are, bring us only to 
 the threshold of the problem how we should set to 
 work to seek National Economy and to ensue it. 
 
II 
 
 ECONOMICAL ORGANISATION AND 
 BUSINESS MANAGEMENT 
 
 IN one of the programmes of World Politics put 
 forth by or on behalf of the German Government is 
 included a promise under German hegemony " to 
 endow Egypt with scientific administration." The 
 temptation to compare, say, Lord Cromer, as an 
 administrator, with Dr. Peters is strong, but we will 
 resist it, and note merely the suggestion that there is 
 such a thing as scientific administration, and that it is 
 a matter of great national importance. Its essentials 
 are, first, to have a clear view of what is aimed at 
 the settlement of which is art or policy, in the 
 guidance of which science may play a large part ; 
 secondly, to devise the best organised or, in other 
 words, the most scientific methods of carrying out 
 the object ; and, thirdly, to press home well-organised 
 and well-ordered arrangements to their maximum 
 effect by administrative energy and efficiency and a 
 scientific scrutiny of results. Let us first consider 
 organisation in broad outline. 
 
 27 
 
28 NATIONAL ECONOMY n 
 
 Government is a big business, and as such needs 
 to be divided into sections or departments to secure 
 the advantages, well known to every reader of the 
 Wealth of Nations, of the Division of Labour. The 
 natural line of division is by function. The functions 
 of Defence, Internal Security, Finance, Trade, Com- 
 merce, and Industry, Education, Public Health, and 
 the like are best discharged by specialisation. Matters 
 of primary national importance are assigned to 
 Ministers, who are thus enabled to bring a first-hand 
 knowledge of them to the deliberations of a Cabinet 
 or Council of Ministers. The departmental affairs of, 
 for example, the Lord Privy Seal or the Chancellor 
 of the,Duchy of Lancaster are not matters of Cabinet 
 interest, and do not in themselves qualify their 
 managers for useful contribution to Cabinet consul- 
 tation. Mr. W. H. Smith, usually regarded as a 
 good man of business, was strongly opposed to the 
 practice of giving the Post Office, any more than the 
 Customs or Inland Revenue, a separate ministerial 
 head. Similar views have been expressed as to the 
 office of First Commissioner of Works. The final 
 decision must rest upon wide political considerations 
 of what the old German universities called Polizei- 
 wissenschaft upon which many books have been 
 written, on the whole worthy of silence. Ministers 
 without portfolios are more expensive than portfolios 
 without Ministers. On the other hand, it may be 
 specially desirable to include in a Ministry Elder 
 
ii ECONOMICAL ORGANISATION 29 
 
 Statesmen or other persons of peculiar qualifications, 
 even though they have little or no departmental 
 business. The so-called London Committee upon 
 Egyptian Finance, composed of Lord Cromer, Lord 
 Welby, Sir C. Rivers- Wilson, and Sir J. Carmichael, 
 put in the forefront of their Report : " We are of 
 opinion that in so small a country as Egypt the 
 general government can adequately be carried out 
 by a Ministry composed of four members," 1 a criticism 
 perhaps justified by the then state of Egyptian 
 administration, but clearly in their view within the 
 province of financial comment. In constitutional 
 countries every Department should have a ministerial 
 representative and spokesman, not necessarily a 
 Minister to itself. How many Ministers there should 
 be, what Departments they should represent, and 
 which of them should be in the Cabinet are not 
 apart from the Ministers of cardinal importance 
 questions of principle, but must depend upon the 
 circumstances of the time in each country. 
 
 In marking out the spheres of Departments the 
 line is not always easily drawn. Should Law Schools, 
 for example, be under a Minister of Justice, Agri- 
 cultural Colleges under a Minister of Agriculture, 
 Medical Schools under a Minister of Public Health, 
 and so forth, or should all education be under a 
 Minister of Education ? In all such cases those who 
 are just on one side of the line which is drawn, do 
 
 1 Cd. 4127 of 1884, p. 2. Egypt has now seven Ministers. 
 
30 NATIONAL ECONOMY n 
 
 well to keep in touch with those on the other. Cross- 
 divisions almost inevitably tend to waste and in- 
 efficiency. The delegates of the American Commis- 
 sion who visited this country, after mentioning to me 
 their inability to discover from the public accounts 
 our total expenditure on Public Health partly by 
 voluntary effort, partly by local authorities, partly by 
 the Home Office, the Board of Trade, the Board 
 of Education, the Board of Agriculture, the Local 
 Government Board, and other Departments ex- 
 pressed curiosity whether the lack of co-ordination 
 was consistent with economy. In certain directions 
 it is clear that centralisation is necessary to avoid 
 waste. If every department employs its own archi- 
 tect, some will be insufficiently employed, the 
 advantages of wide experience will be sacrificed, 
 there will be costly variations in design, execution, 
 and fitness. If every department buys its own 
 furniture, fittings, and stationery, and arranges for 
 its own printing, idiosyncrasy will have free play, 
 expensive whims will be indulged, and a number of 
 departments purchasing in petty packets will be 
 competing against each other with narrow amateur 
 knowledge. A pooling of demands leading to 
 standardisation of requirements, contracts on a large 
 scale, and specialised skilled management, will be 
 undoubtedly more economical. Whether your 
 centralised department should be a producing or a 
 buying department whether, for example, Govern- 
 
IT ECONOMICAL ORGANISATION 31 
 
 ment should have its own printing press or put out 
 its printing to private firms must be determined on 
 the facts hie et nunc as Sir William Petty was fond 
 of saying. For all purchases of magnitude public 
 tender is desirable, not only as a safeguard against 
 corrupt dealing or favouritism, but also to give you 
 the best market conditions. It is important that 
 the conditions of tender should be sensibly drawn. 
 Awkward or irritating conditions or unusual re- 
 quirements have to be paid for directly or indirectly. 
 A standardisation of parts is an elementary necessity. 
 When your public service as a whole is well 
 mapped out into departments, the organisation of 
 each department is the next concern. Here, again, 
 function is the element to be looked to, with the 
 limitation that division must not be carried so far as 
 to leave a section insufficiently occupied. In foreign 
 post offices where the clerks are at separate guichets 
 or windows, perhaps in different parts of the building, 
 instead of at one long counter, you may find a crowd 
 of applicants at one window while the clerks at the 
 others are idle, and unable even to sell you a postage 
 stamp. Such water-tight divisions lead to waste of 
 official time. If, again, you wish to send off a letter, 
 a parcel, and a telegram, and the business is all done 
 in one room, you can go first to the section where 
 there is at the moment least waiting, and may find 
 the crowding diminished when you pass to the other 
 section. The need to go to separate rooms or 
 
32 NATIONAL ECONOMY n 
 
 buildings may easily double the loss of time to the 
 public. In every department care must also be 
 taken to ensure congruity .or uniformity of practice 
 and principle throughout bureaus or divisions. 
 
 Let us now consider the organisation of the 
 personnel. Their classification is of great financial 
 importance. The grading of professional or technical 
 officials, lawyers, doctors, architects, engineers, etc., is 
 usually in expert hands and offers no great difficulty, 
 but an insidious vice of bureaucracy is to multiply 
 classes in the clerical ranks beyond reason. A great 
 rank and file for unskilled clerical labour of copying 
 and accounts, with comparatively few non-com- 
 missioned officers supervising the groups, and still 
 fewer officials representing the brain of the army, 
 should give you a pyramidal organisation. When 
 you find beneath an Under-Secretary of State such 
 classes as directeur-ge"ne"ral, sous-directeur- general, 
 controleur, sous-contrdleur, chef de bureau, sous-chef 
 de bureau, directeur, sous-directeur, and below these 
 clerks of several classes (to say nothing of assistants 
 or adjoints to the various classes), you have distinctions 
 of clerical rank without difference in the importance 
 of functions, or without such differences as to justify 
 the numerous gradations. The small Departments 
 will be moved by amour-propre to press for these 
 honorific ranks with their accompanying pay. The 
 business organisation which you see in the great 
 commercial establishments, the manner in which the 
 
II ECONOMICAL ORGANISATION 33 
 
 banks, railway companies, insurance companies, etc., 
 band their clerical armies together, is deserving of 
 close attention and discriminating imitation. Make 
 the number of classes and the number in each class 
 as few as is consistent with efficiency. Seasonal 
 fluctuation is a fruitful source of waste, each section 
 of a department being prone to ask for the permanent 
 employment of as many men as are required at its 
 time of maximum pressure, which may be for only a 
 few weeks in the year. Where this difficulty cannot 
 be met by a reasonable amount of overtime in the 
 busy period, or by the employment of temporary 
 force, it can often be surmounted by temporary 
 transfers. Chronic overtime is to be deprecated as 
 neither economical nor efficient. 
 
 Rates of pay should be carefully compared with 
 those which prevail in the open market, with due 
 regard to the net advantages of employment. The 
 State official has assured and regular pay, privi- 
 leges of ordinary leave, sick leave, and holidays on 
 full pay, short hours, and in most cases pension 
 rights, which should all be taken into account. The 
 man in private employment is liable to short time, to 
 a temporary shutting down of the business, or to the 
 loss of employment if his master retires from business, 
 is bankrupt, or removes to another place. The civil 
 servant has no anxiety or loss on this account, and 
 has no need to insure himself against sickness or 
 unemployment by contributing to trade union or 
 
 D 
 
34 NATIONAL ECONOMY n 
 
 other funds. The distinction between skilled and 
 unskilled ranks is of great significance in the method 
 of remuneration. If you turn your eyes to the out- 
 side world you will see that, apart from general 
 changes in the labour market, an unskilled labourer 
 earns his maximum wage as soon as he is able to do 
 a man's work. Even the skilled artisan, once he has 
 completed his training, has little prospect of earning 
 more than the initial wages of a skilled workman 
 the union rate. In the professional classes experi- 
 ence, capacity, and growth of connection enable a 
 successful doctor, lawyer, engineer, or architect to 
 increase his earnings as his experience widens and as 
 his services improve in the estimation of those who 
 employ him, so that he is frequently at his maximum 
 at the time of his retirement. This cardinal dis- 
 tinction is frequently not recognised in Government 
 employment. Length of service is accompanied by 
 regular increases of pay even in the classes where 
 the value of experience quickly reaches its limit, and 
 in many cases begins to be counterbalanced by a 
 falling off in mental and physical vigour. To put it 
 shortly, salaries increase long after service ceases to 
 improve. Unnecessary expense is thus incurred on 
 the effective list and ultimately on the pension list. 
 
 In fine, your service should not have its efficiency 
 impaired by well-founded discontent with its pay as 
 compared with outside employment, while on the 
 other hand the taxpayer should have no ground for 
 
ii ECONOMICAL ORGANISATION 35 
 
 belief that public servants are generally overpaid or 
 underworked. 
 
 The advantages and disadvantages of a pension 
 system are highly debatable. The Report of the 
 American Commission upon this subject is the most 
 thorough discussion of it which has yet appeared. 1 
 In his covering Message to Congress (May 6, 1912), 
 President Taft observes that in the absence of a State 
 pension the only alternative to the summary dis- 
 charge of officials whose efficiency is impaired by 
 age, is to keep them on and to expect from them 
 work of smaller quantity and a lower grade, to the 
 detriment of economy and of good service. The so- 
 called " straight pension," such as we have in England, 
 is condemned as raising more questions than it 
 solves, and as a pure tontine in which the survivors 
 benefit at the expense of those who die in harness. 
 A compulsory contributory system is recommended, 
 the contributions with interest at 4 per cent to be 
 returned to the official or his personal representatives 
 when he dies or leaves the service. In favour of 
 the " straight pension " it may be urged that an 
 official whose experience has become very valuable 
 is deterred from yielding to temptation to accept 
 outside employment by the knowledge that he will 
 be throwing up his pension rights. On the other 
 hand, it is doubtful wisdom to insist upon retaining a 
 
 1 House Documents, vol. 117 of 1912, Washington, "Report of 
 the Commission on Economy and Efficiency upon Civil Service 
 Retirement." 
 
36 NATIONAL ECONOMY n 
 
 man who wants to go. In the rare case of default 
 in accounts, the loss of such rights gives some 
 compensation to the State. It is no doubt true in 
 general that the spectacle of old and faithful but 
 improvident servants, unable to maintain themselves 
 decently in their declining years, would have an un- 
 fortunate effect upon public opinion and upon future 
 recruiting; but acivil servant with his "small certainty" 
 of regular income is in an exceptionally favourable 
 position for making consistent provision for old age. 
 A serious objection to " straight pensions " is that 
 they increase the difficulty of ridding the service of 
 unsatisfactory officials who are qualified for pension 
 by neither age nor infirmity. The loss of pension is 
 in such cases a formidable penalty, and, failing mis- 
 conduct, there is virtually a permanent tenure, to the 
 detriment of the public interest. A contributory 
 system is unjust when the contributions are forfeited 
 in case the employe" dies or resigns before receiving 
 his pension. The complicated machinery which it 
 involves has, in any case, little justification in a 
 country where solvent insurance companies abound, 
 and still less where the State itself undertakes the 
 business of insurance or deferred annuities. 
 
 If pensions are granted they should be confined 
 to the class of officials whose value increases with 
 experience. A porter or a copyist is, as such, of 
 little more value to the State after thirty years of 
 service than after thirty weeks, and can be replaced 
 
II ECONOMICAL ORGANISATION 37 
 
 without loss of efficiency. For unskilled ranks, 
 whether in manual or in clerical labour, a full, fair 
 wage should be paid, but it need not be pensionable. 
 The important thing is to bear in mind that pay and 
 pension must be considered together. If the pay is 
 adequate in itself it is perhaps best to leave the payee 
 to make his own arrangements for future contingencies. 
 Looking round now at your organisation you 
 may find that the cadre is not encumbered by un- 
 necessary classes, that numbers diminish as classes 
 ascend fewer captains than subalterns, fewer majors 
 than captains and that the conditions of pay and 
 employment are equitable. There may still be 
 waste. The gay wisdom of Walter Bagehot offers 
 us two maxims not always acted upon. Don't 
 use razors to cut bricks, and don't set your clerks to 
 verify the ready-reckoner. Where you find a superior 
 official engaged upon wholly inferior duties the case 
 is simple. The danger of excessive cost really lurks 
 in the mixture of duties. Smith is employed on 
 first - class work and Brown on third - class work. 
 Suppose somebody to say to himself, " Brown is a 
 very good fellow and capable of better things. I 
 should like to do something for him. Let him 
 take half of Smith's work in exchange for half of 
 his own, and put him forward for first - class pay." 
 A representation that Brown is doing work of a 
 higher character, that his duties are precisely similar 
 to those of Smith who receives a higher salary, and 
 
38 NATIONAL ECONOMY n 
 
 that there is no equity in paying him at a lower 
 rate, may induce you, if you do not know the facts, 
 to sanction two first-class posts where one first and 
 one third would fairly meet the public requirements. 
 Cases in which such a mixture is deliberately made 
 may be very rare, but the cases in which such a 
 mixture already made is allowed to continue are 
 not uncommon. A superior clerk whose time is not 
 fully occupied is given some extra work of a lower 
 grade. As the staff grows the process is repeated, 
 until after a time the organisation is an unweeded 
 garden. 
 
 How injurious to efficiency as well as economy 
 this blunting of razors may be is shown in a Report 
 made in 1849 by a Treasury Commission upon the 
 staff and work of the Colonial Office. They say : 
 " The first years of official employment are those in 
 which the knowledge, the self-confidence, and the 
 aptitude for business required for the proper discharge 
 of difficult and responsible duties should be obtained ; 
 and it is much to be regretted that persons likely to 
 succeed to important situations in the public service 
 should have occupations assigned to them at this 
 critical period of life which are unimproving and 
 unsuited to their education and prospects, and as 
 such likely to give them a distaste for their profession. 
 If, after ten or fifteen years spent in incessant copying 
 and other routine work, the spirit, the mental activity, 
 and the wide extent of acquired knowledge necessary 
 
II ECONOMICAL ORGANISATION 39 
 
 for vigorous intellectual exertion in the transaction 
 of business ... are wanting, it is the fault of the 
 system, and not of the individuals who have been 
 placed in circumstances so unfavourable to them." 
 
 When he spoke of verifying the ready-reckoner, 
 Bagehot had in mind the process of check and 
 counter-check carried so far that the men who are 
 the last links in the chain never discover a mistake. 
 Governments do not insure their buildings, ships, or 
 other property. Their business is big enough to 
 enable them to spread their risks. But they are 
 prone to over -insurance in clerical and accounting 
 work. An eminent official in another country once 
 told me, probably with a touch of exaggeration, that 
 the cost of auditing certain Government railway 
 accounts was so extravagant that it would handsomely 
 pay to sweep nine-tenths of it away and " stand the 
 racket." It is a necessary concomitant of public 
 expenditure that it should be authorised, vouched 
 for, and checked ; but the multiplication of checks 
 may be easily carried to wasteful and ridiculous 
 excess. A dozen initials to a document may 
 signify only that it is correct in form. Over- 
 elaboration of this kind often creates a false security 
 by suggesting precautions which do not really exist. 
 The most subtle peculations, the most daring frauds, 
 are seldom so costly as the slow bleeding of super- 
 fluous checks. 
 
 Important questions of organisation arise in 
 
40 NATIONAL ECONOMY n 
 
 connection with the housing of the staff. In many 
 countries Government Departments occupy buildings 
 which were designed for other purposes old palaces, 
 private mansions, hotels, etc. The visitor may be 
 surprised by the waste of space, the elaborate halls 
 and staircases, or the number of corridors, passages 
 partitions, and separate rooms. Imagine an accounts 
 department of one Chief Accountant and three 
 Principal Officers each in a separate room, with 
 twenty subordinates four to a room, the senior in 
 each room receiving a supervising allowance. If 
 the staff were all in one room, the Chief in a glazed 
 enclosure, the Principal Officers on raised platforms 
 enabling each of them to supervise six or seven 
 subordinates, it might be possible to dispense with 
 the five allowances, to diminish the number of mess- 
 engers who fetch and carry between nine separate 
 rooms, to speed up the circulation of papers, to 
 economise space, fuel, artificial light, and cleaning 
 expenses, and generally to improve business while 
 reducing cost. The waste is still greater when the 
 staff is scattered into separate buildings. 
 
 If, in particular cases, the initial expenditure and 
 the temporary inconvenience involved in structural 
 rearrangements are a bar to prompt reform, you can 
 at least see that similar waste is avoided in any new 
 offices. A well-considered type or types should be 
 adopted as models for each class of your public 
 buildings ministries, barracks, hospitals, schools, 
 
II ECONOMICAL ORGANISATION 41 
 
 prisons, post offices, etc. Each type may be im- 
 proved in the light of experience, but a standard 
 should always be worked up to. There is plenty 
 of room for false economy as well as for real economy 
 in public buildings. A so-called " saving " on a new 
 building, refusal to scrap an unsuitable building, the 
 choice of a " cheap " but out-of-the-way site, may in 
 particular cases be exceedingly wasteful. On the 
 other hand, overcrowding and inadequate accommoda- 
 tion may be not only unsanitary but fatal to proper 
 organisation and efficiency. 
 
 The staff is housed, it must be equipped. The 
 old-time clerk, who mended his quill, copied a docu- 
 ment word by word, compared it with the original, 
 and fastened his letters with wax, taper, and seal, has 
 given way to the modern clerk with the steel nib, 
 the fountain pen, and the gummed envelope. The 
 copying press, the carbon paper, the typewriter, the 
 gelatine process give instantaneous mechanical copies 
 which of necessity conform to the original. Short- 
 hand has been revolutionised. The telegraph, the 
 telephone, calculating machine, addressograph, vertical 
 file, card index and loose-leaf ledger, electrical tabulat- 
 ing machine, automatic tell-tale time-keeper, and cash 
 register are saving the work of armies of clerks. In 
 all these changes Governments are prone to lag behind 
 the business world. A new device is regarded in 
 turn as a fad, an expensive toy, and a luxury, long 
 before it is recognised as a necessity. " Don't talk to 
 
42 NATIONAL ECONOMY n 
 
 me," says Nestor, " of having a shorthand secretary 
 and a telephone at my elbow. Such things may be 
 all very well for a hustling millionaire, but I like to 
 take my time over my business. I have never 
 learned to dictate my letters ; and, as for the tele- 
 phone, I would not have the thing in my room." 
 But the time of Government is, in important matters, 
 vastly more valuable than that of smaller millionaires ; 
 and if new methods enable great business to be put 
 through twice as rapidly, it is unfortunate that use 
 and wont should delay their adoption. To put it at 
 its lowest, see that your service is not wasting time 
 and money by standing in the old ways when the 
 new are better. 
 
 The American Commission furnishes ample illus- 
 tration of what can be done in this direction. In its 
 report upon handling and filing correspondence 1 
 the purely physical and recording processes, apart 
 from the preparation of drafts of letters, etc. it shows 
 how the widely different methods are reflected in 
 cost. The average cost of receiving and opening 
 mail per thousand communications runs from I dollar 
 21 cents a thousand in the Navy Department to 
 13 dollars 63 cents in the Department of Justice; 
 the average cost of recording and indexing corre- 
 spondence from 5 2 cents in the Post Office Department 
 and 8 dollars 93 cents in the Navy Department to 
 62 dollars 98 cents in the War Department ; for the 
 
 1 Circular No. 21, Washington, 1912. 
 
II ECONOMICAL ORGANISATION 43 
 
 handling of outgoing mail the averages vary from 
 5 dollars 94 cents to 69 dollars 89 cents per 1000. 
 The variations between individual offices within de- 
 partments are many times greater. So far as filing 
 is concerned, they note that in large commercial 
 corporations the trend is away from the elaborate 
 and in the direction of the simple system, and that 
 vertical flat filing has practically supplanted all other 
 systems. " Commercial concerns," they say, " surround 
 their affairs with proper safeguards, and keep suffi- 
 cient records of their business transactions to provide 
 against those embarrassments which under a reason- 
 able estimate of probabilities may occur, but they do 
 not waste their time in devising systems so elaborate as 
 to provide against every contingency which might by 
 ingenious conjecture be conceived as possible." l They 
 have converted departments, by experiment, to the 
 vertical filing system, which they recommend should 
 be made general throughout the service, and that the 
 " briefing " of correspondence, or docketing it with a 
 subject, date, etc., should be then discontinued as 
 unnecessary. The saving in salaries promised by 
 abolishing briefing alone is over 88,500 dollars a 
 year ; the saving in improved classification of records 
 by the " decimal system " at 200,000 a year. 
 
 The Secretary of War reported to the President 
 that he had requested the Commission to investigate 
 
 1 Hearings before the Sub -Committee of House Committee on 
 Appropriations, January 10 and 13, 1913, Washington, 1913. 
 
44 NATIONAL ECONOMY n 
 
 the business methods of the Adjutant - General's 
 Office in this connection. " The Commission re- 
 cognizes that the work is done promptly and 
 accurately, but finds that the cost is unnecessarily 
 high. . . . The methods of handling a large part of 
 the correspondence are antiquated and extremely 
 complicated, and they estimate that under simpler 
 and more modern methods a saving of over 300,000 
 dollars, or over 38 per cent of its appropriations, for 
 employees' salaries can be ultimately saved to the 
 Government without impairing efficiency. With the 
 essential recommendations," says the Secretary, " I 
 am in hearty concurrence, and I am glad to say 
 that most of the chiefs of the respective bureaus 
 also concur." 
 
 The Commission had, of course, in some cases to 
 overcome the element of personal habit and what its 
 Chairman describes as " the element of institutional 
 custom, which is made up of a large number of 
 personal habits that have been so attuned to each 
 other that they constitute the process or processes 
 of an office." The men of a bureau in the Navy 
 Department " nearly precipitated a riot over the 
 proposal of doing away with the practice of the office. 
 They said it would throw the office machinery and 
 all out of gear ; that they could not do business in 
 any other way with facility, and that this was the 
 best filing system in the Government. The Com- 
 mittee reported with recommendations against that 
 
ii ECONOMICAL ORGANISATION 45 
 
 bureau to the Secretary. . . . When the case was 
 presented and argued by both sides before the Acting 
 Secretary of the Navy, he said, ' That strikes me as 
 being rather novel. I would like to see some illus- 
 trations of this method/ and there were turned over 
 to him a number of cases. ... He looked over 
 quite a pile of them, and said, ' Is this what you are 
 talking about ? ' ' Yes.' Then he said, ' This strikes 
 me as being so absolutely beyond all reason, so in- 
 excusably foolish, I will issue an order without hearing 
 any more argument.' " 
 
 The strength of the Commission lies in the fact 
 of its personal local inspection of actual working 
 instead of " sending for persons, papers, and records," 
 and taking merely oral evidence. Its experience 
 is ocular and gets to bed-rock fact. The copying 
 work done by hand for Government, costing several 
 hundred thousand dollars, was reformed by an 
 educational exhibition, in the Commission's offices, of 
 labour-saving appliances specially adapted to Govern- 
 ment work. 1 1 o exhibitors participated, and over 
 16,000 officials visited the exhibition. Following 
 these demonstrations, new methods of copying were 
 introduced, which brought about a saving of over 75 
 per cent in offices where used for six months. The 
 window-envelope, which has a portion of its face 
 transparent, is the subject of a special report. It 
 eliminates the clerical operation of addressing the 
 envelope and the risk of error in copying the address. 
 
46 NATIONAL ECONOMY n 
 
 A saving of at least 250,000 dollars per annum is 
 promised from its adoption. 
 
 One further illustration must suffice. The Com- 
 mission found that after careful test the largest rail- 
 road companies and industrial corporations were 
 using the phonograph as an economical aid in the 
 preparation of correspondence. One large corporation 
 is using 150 of these dictation machines. Their use 
 was opposed by the stenographers. But the Com- 
 mission installed 16 machines in its offices, and set 
 them to work for I o weeks. Careful records were kept. 
 The weekly average of the stenographic work never 
 reached 30 words per minute, while the phonographic 
 work in one week exceeded 6 1 words per minute, with 
 a great saving in time not only to the transcriber but 
 to the dictator. They say that this " is about the 
 only labor-saving device that affects the departmental 
 head personally. It increases his efficiency and gives 
 him concentration and independence of action. All 
 the other time-saving devices are for assistants with 
 less valuable time and less demand for executive 
 promptness, privacy, and high efficiency. To save 
 the time of the person who directs others is of prime 
 importance." The Superintendent of the Rural Mails 
 Bureau at Washington, by an expenditure of less 
 than 2500 dollars on these machines, reduced his 
 staff by six persons, saving in salaries alone about 
 6000 dollars a year. Applied throughout Washing- 
 ton, and assuming the economies to be only half 
 
ii ECONOMICAL ORGANISATION 47 
 
 those effected by private employers, the saving would 
 exceed half a million dollars a year. 
 
 We cannot suppose the officials of the United 
 States Government to be wicked above all other 
 public servants, less receptive to new ideas, or less 
 anxious to secure economy and efficiency. The 
 moral is that even where the cost of labour is much 
 lower than in America, great economies may be 
 achieved by organised knowledge. Heads of depart- 
 ments are not, and ought not to be, selected because 
 of their special acquaintance with labour-saving 
 devices in clerical organisation. You do not require 
 the captain of a ship to know what is the best type 
 of marine engine, nor how the working in his engine- 
 room can be improved. What Mr. Taft describes 
 as " thorough inquiry by experts who are not charged 
 with the grinding details of official responsibility," 
 is an excellent method of securing practical reform 
 in methods throughout all administrations. The 
 methods of private business are progressive and of 
 public business conservative. National economy 
 requires that the gap should be continually closed 
 up or bridged over as rapidly as possible. 
 
 Suppose your service now equipped with up- 
 to-date appliances. The army is accoutred, but 
 it has to march. Discipline and driving power are 
 needed. Assiduity, industry, intelligence must be 
 secured, and the remedies for gross negligence and 
 serious default must be short, sharp, and decisive. 
 
48 NATIONAL ECONOMY n 
 
 Such institutions as Councils of Discipline, composed 
 of the highest functionaries, to adjudicate upon all 
 delicts, however small, however clear, are not to be 
 commended. The machinery is too cumbrous and 
 heavy to be set lightly in motion. Delays are in- 
 evitable in getting together a number of busy people. 
 Acquittals produce an awkward situation. There is 
 always the danger that in any but the most flagrant 
 and serious cases Heads of Departments may shrink 
 from trying a remedy which may seem to them 
 worse than the disease. 
 
 A fruitful source of waste in all Government 
 services is the dead -head of exemplary character. 
 Rightly or wrongly considered to be of little or no 
 use, he is practically put on the shelf for all purposes 
 except the receipt of a salary. You have decided 
 when he retires not to fill up his place. But it 
 may be many years before he is qualified for a 
 pension by ill -health or by age. Meanwhile he is 
 a burden upon the public. Like a useless machine, 
 the unserviceable official, if nothing better can be 
 done with him, should be scrapped at once, and 
 you should have power, and exercise the power, 
 to get him pensioned out of hand. " He is a very 
 nice fellow," you are told, " and it seems hard upon 
 him. One must have a little sympathy." But the 
 taxpayer, frequently worse off himself, whose money 
 you spend, whose servant you are, has the first 
 claim upon your sympathy. The man of whom, 
 
ii ECONOMICAL ORGANISATION 49 
 
 perhaps from your own fault, you are unable to 
 make anything, may desire nothing better than to 
 escape from an uncongenial atmosphere with the 
 pension which he feels he has earned to find in 
 private life a niche in which he can be of real 
 service to his generation. 
 
 Scientific administration, in the sense of a well- 
 organised arrangement for adapting means to an 
 end, clearly requires the close collaboration of men 
 of science where the need for scientific expert advice 
 arises. You may muddle along without knowing 
 that you need such advice, or you may set up a 
 Commission, or call in an expert ad hoc. But with- 
 out a properly organised scientific general staff you 
 are ill -equipped. Is it a question of developing 
 your natural resources, your agriculture, woods and 
 forests, fisheries, mines and quarries, of varying your 
 financial or commercial policy ? The accidental, 
 piecemeal treatment is a poor second-best. A 
 synthetic programme framed by the expert know- 
 ledge of those who are able to take a wide scientific 
 outlook is the first essential. It has been said that 
 a good English lawyer may not know the law, but 
 knows how to find it out. The trained scientist 
 can tell you what it is you ought to know to enable 
 you to deal with your problem, and how, if possible, 
 the knowledge is to be obtained. Examine the 
 lists of officials in various countries, and you will 
 find here and there a Government chemist, a 
 
 E 
 
50 NATIONAL ECONOMY n 
 
 Government biologist, a Government entomologist, 
 a Government statistician nowhere yet, so far as 
 I know, a Government economist. In the main, 
 the lawyer, the doctor, the engineer, and the architect 
 are the only professional officers generally recognised 
 by Governments. For other purposes an official who 
 has picked up his knowledge in the service has 
 usually been considered good enough to carry on. 
 The twentieth century will undoubtedly see a great 
 extension of specialisation in the employment of 
 Government experts. 
 
 It is hardly necessary to add that in choosing 
 candidates for the service, as in all other matters, 
 the public interest must be your sole aim. You 
 will be fortunate if you do not find in Urania any- 
 thing to complain of in the methods of selection. 
 People who would hold up their hands in horror 
 at the deliberate acceptance of inferior stores, or at 
 the purchase of commodities above their market 
 value, have sometimes less sensitive consciences 
 about the employment and the retention of the 
 services of men who, how estimable so ever they 
 may be in other capacities, are not good bargains 
 for the State. Open competition, limited com- 
 petition, selection by interviewing boards, direct 
 nomination, or pure patronage have all their 
 advocates. What intellectual attainments or train- 
 ing should be looked to for the higher staff is again 
 much debated. Proved high aptitude to assimilate 
 
ii ECONOMICAL ORGANISATION 51 
 
 dead languages, mathematics, natural science, social 
 science may satisfy you that a candidate has a mind 
 of good quality, but a great deal will depend upon 
 his training and environment after his appointment. 
 In some countries special importance is attached to 
 a grounding in economics, finance, statistics, political 
 science, constitutional law, history, and similar sub- 
 jects. Capacity for handling these topics is considered 
 to raise a strong presumption in favour of the type 
 most likely to prove useful in administration. 
 
 It will probably be generally agreed that the 
 public service should be recruited by independent 
 authority from the fittest available, that the period 
 of probation should be made a real test of suitability 
 for permanent appointment, and that when good 
 men have been obtained they should not be atrophied 
 by stagnant routine. 
 
 We have contemplated organisation briefly in 
 its static condition. We have next to consider it 
 at work. 
 
Ill 
 
 CONTROL OF EXPENDITURE 
 
 DEFERRING consideration of financial policy as to 
 the objects of expenditure, let us consider the 
 control of expenditure in its relation to economy. 
 By what measures or machinery may Government 
 ensure that expenditure is well managed, in other 
 words, that it gets value for its money ? 
 
 Control may be anterior, concurrent, or retro- 
 spective, internal or external. The primary responsi- 
 bility rests with the spending department, which 
 should be at pains to ensure that the credits asked 
 for are not larger than necessary, and that when 
 obtained they are well employed. But the prepara- 
 tion of the budget affords the Ministry of Finance 
 an opportunity of criticising and modifying the 
 demands of departments for the coming year. The 
 practice of hanging up new proposals until budget 
 time is intolerable in any but the smallest com- 
 munity. To ensure a maximum of prevision, the 
 settling of the budget is deferred as long as possible, 
 and if an avalanche of novel demands descends all 
 
 52 
 
m CONTROL OF EXPENDITURE 53 
 
 at once upon the Finance at its busiest moment, it 
 is impossible to afford the necessary examination 
 within the limited time available. Items may have 
 then to be accepted without adequate enquiry or 
 struck out because they are too serious to be 
 admitted until they have had due consideration. 
 Either course may be injurious to the public interest. 
 So far as possible, all new proposals should be 
 formulated in ample time for decision before the 
 Estimates are framed. The task of seeing that the 
 estimates of expenditure conform to previous 
 authority in itself requires considerable time and 
 attention, and ought not to be further complicated. 
 This principle is easily enforced so far as numbers 
 of staff, rates of pay, and new services are concerned. 
 It is inapplicable to recurrent services of fluctuating 
 expense. The provision to be made for, say, the 
 rations of prisoners must, if the scale of rations 
 remains the same, depend upon the estimated 
 number of prisoners of different categories and the 
 probable range of food prices. Even here, however, 
 there is nothing facultative. The factors are fixed. 
 Their evaluation alone is a matter of forecast. We 
 come to a different category in, for example, the 
 maintenance and upkeep of parks and gardens, 
 where, in the absence of disturbing influences such 
 as change of policy, alterations of wages, or other 
 normal costs, past experience is our main criterion. 
 Here and everywhere retrospect should take a wide 
 
54 NATIONAL ECONOMY m 
 
 sweep. "We shall want the same amount as last 
 year" is not necessarily satisfactory or conclusive. 
 Last year there may have been some special ex- 
 penditure on construction or reconstruction. Or 
 going farther back you may discover that the 
 normal level of expenditure was raised five or six 
 years ago for some non-recurrent purpose, like the 
 making of a lake, and that by inadvertence the 
 total annual credit has not been brought back to its 
 old figure. Your attention should be directed 
 especially to actual expenditure, and not merely to 
 the money provided in the Estimates. When year 
 after year a considerable proportion of the money 
 granted for some particular purposes has not been 
 used, there is a strong prima facie case for cutting 
 the provision down. 
 
 Estimates of expenditure should be logically 
 divided, complete, and sincere. To classify a few 
 leading heads of expense like salaries, travelling 
 expenses, and stores, and to lump all the rest to- 
 gether under a large sum for Depenses diverses, 
 Miscellaneous, or Contingent Expenses, is to hide 
 objects of expenditure and to make useful compari- 
 son impossible. 
 
 Provision for Public Works, in so far as it is 
 normal, is included in the ordinary estimates. Works 
 of magnitude involving considerable capital expendi- 
 ture, and extending perhaps over several years, are 
 in some countries put into an extraordinary budget, 
 
Ill CONTROL OF EXPENDITURE 55 
 
 met by loan, or by special credits which run on 
 until the work is completed or the credit exhausted. 
 These devices weaken financial control as compared 
 with the rule of providing in each year only what is 
 needed for the year, and requiring any unexpended 
 surplus to be surrendered at the end of the year. 
 The caution to be uttered here is that an eye must 
 be kept upon future commitments. Suppose that 
 twenty new buildings are asked for at a total cost 
 of 600,000. You may not feel able to afford 
 more than 200,000, but if instead of providing 
 completely for half a dozen of the most urgent cases 
 you allow the Department 100,000 for building 
 three offices and another 100,000 for starting the 
 other seventeen, you will find yourself confronted 
 next year with commitments of 400,000 for build- 
 ings already in hand, which must be pushed to 
 completion. To arrest works in progress, leaving idle 
 capital already sunk in sites, foundations, and scaffold- 
 ings, and spending money to prevent deterioration 
 or to guard the unfinished work, is bad business. 
 On a large scale where irrigation, drainage, reclama- 
 tion, afforestation, railway extensions, and similar 
 works are concerned, you may be led, for the sake 
 of a quiet life, to consent to a start being made 
 this year if only a small beginning is proposed. 
 But retribution follows later in the dilemma of 
 stopping progress or of financial overstrain. Look 
 well ahead to avoid compromising your future upon 
 
56 NATIONAL ECONOMY m 
 
 programme works beyond what is imperatively 
 necessary. 
 
 Assuming your Estimates to have been carefully 
 framed in the Departments and to have run the 
 gauntlet of Finance scrutiny, they have still in 
 constitutional countries to face Parliamentary criti- 
 cism. Such criticism, though often useful in the 
 long run, is rarely immediately effective. Its utility 
 is increased by furnishing Parliament with ample 
 information and explanations in the Estimates 
 themselves and in supplementary reports and 
 memoranda. But the most that this criticism can 
 ordinarily attain is a promise of consideration for 
 the future. It is a salutary rule of Parliamentary 
 procedure that the Estimates are not to be increased 
 on the motion of a private member. 
 
 When the Estimates of a Department have been 
 approved by Parliament they must not be exceeded 
 without authority. If the excess on some heads is 
 counterbalanced by a saving on others, the authority 
 of the Finance ministry is usually sufficient. But if 
 the total credit is exceeded, or if any considerable 
 variation of a works programme is proposed, the 
 authority of Parliament should also be obtained. 
 How is the Finance to test applications for additional 
 expenditure ? 
 
 Suppose the Ministry of the Interior writes to 
 say that, new duties having been imposed upon it by 
 Parliament or by Government, it needs more staff, 
 
Ill CONTROL OF EXPENDITURE 57 
 
 and seeks authority to employ such and such officials 
 at specified rates of pay. Beyond seeing that the 
 grading, numbers, and salaries are prima facie 
 reasonable you can offer little criticism upon this 
 proposal and can only wait and watch. But sup- 
 pose that you are asked to assent to an increased 
 staff of telegraphists for Great Pedlington. Here 
 you have statistics of the number of telegraphic 
 transactions and you may be able to say, " When the 
 staff was last put upon a proper footing you had so 
 many operators for so many transactions. The 
 work has increased by 10 per cent. Why do you 
 want to increase the staff by 1 5 per cent ? " Or 
 again, " The business to be done is about the same 
 as at Leoville. Why do you need 1 2 per cent 
 more staff here than there ? " Take a less simple 
 case. The work at a Post Office counter is of a 
 miscellaneous character, the issue and sale of Postal 
 Orders and Money Orders, Savings Bank business, 
 registration of letters, receipt of parcels, sales of 
 licences, stamps, etc. The various branches of 
 business have increased in different proportions. 
 How can you measure the necessity for extra staff? 
 The solution is to bring all the heads of business to 
 a common unit based upon the number of operations 
 of each kind which can be carried out in the same 
 period of time. The number of transactions, say, for 
 a year in each class multiplied by its appropriate 
 factor can then be summed up into an index number, 
 
58 NATIONAL ECONOMY m 
 
 by aid of which you can measure the proposal as 
 against the work and staff at the last revision and 
 against the service at other similar places or an 
 average of such places. Such an employment of 
 exact measurement wherever possible is one of the 
 criteria of scientific administration, and should, of 
 course, be applied within the Departments themselves. 
 The foot-rule can be confidently appealed to in such 
 matters as the candle-power of electric light needed 
 for the floor space of (a) rooms and (fr) corridors 
 and passages, or the floor area and air cube needed 
 for the accommodation of given numbers in offices, 
 schools, barracks, hospitals, and prisons. In the 
 examples given of the Posts and Telegraphs the 
 measurement gives only a first, though valuable, 
 approximation. At different times or in different 
 places a disturbing element may be introduced, such 
 as a difference in the number of hours during which 
 the office is kept open. But the extent to which 
 this new factor affects the comparison is often itself 
 susceptible of measurement or approximate evalua- 
 tion. Where some factors are incommensurable, you 
 should still apply precise measurement so far as it will 
 go. The residuum is more manageable and subject 
 to narrower range of erroneous estimation than an 
 unaided judgment of the problem in the lump. In 
 fine, an intelligent application of statistical test is a 
 powerful auxiliary of economical administration. 
 Take another illustration. The most fruitful 
 
m CONTROL OF EXPENDITURE 59 
 
 seed of discontent among wage-earners in the public 
 service is inequality of treatment. The work of 
 delivering letters by an urban postman is much the 
 same everywhere, but equal money wages would be 
 unfair seeing that local variations in the cost of 
 living are considerable. The rule of thumb which 
 formerly prevailed was to grade the wages according 
 to the population of the centre, rents being usually 
 higher in the larger towns. This was, however, a 
 very imperfect method of groping after equality of 
 real wages. Anomalies abounded. Aggregations 
 of population such as Plymouth and Devonport, 
 Manchester and Salford, Liverpool and Birkenhead, 
 Newcastle-upon-Tyne and Gateshead, with virtually 
 the same cost of living were separate postal entities 
 with different rates of pay. Parliament was occupied 
 with questions and debates about the exceptional 
 circumstances and claims of men at A as compared 
 with those at B. In a lecture upon Workmen's 
 Budgets to the Royal Statistical Society in May 
 1893, I ventured to suggest that the Board of Trade 
 should prepare an index number of the cost of 
 living of a typical postman's family for each town, 
 and that the wages should follow the index number. 1 
 The suggestion was some years later adopted and 
 has proved effective for its purpose of keeping real 
 wages on an even keel. 2 Gauge and standardise 
 
 1 Jour. Roy. Stat. Society, June 1893. 
 
 2 Sir Spencer Walpole, then Secretary to the Post Office, told me 
 that the logic of the proposal was unimpeachable ; but he added 
 
60 NATIONAL ECONOMY m 
 
 wherever you can. Cost accounting is the great 
 detective of waste and inefficiency. The cost of 
 the Savings Bank business in Urania is 8d. per 
 transaction. In another country it is only 4d. 
 What are their methods, and is there any reason 
 why we should not adopt them ? 
 
 Outside the Department itself, outside Parliament 
 and the Finance, comes Audit control, which is of 
 the nature of a post - mortem examination. The 
 work of audit, though it goes on from day to day, is 
 an inspection of past transactions. Was the ex- 
 penditure regular in point of form and authority, 
 supported by proof of payment, and charged to its 
 proper head in the accounts, viz. the head in which 
 it was provided for in the estimates ? Has the 
 Department kept within its grant, accounted properly 
 for any receipts, and charged its expenses within 
 the proper period of account ? Such questions 
 evidently go rather to form and regularity of pro- 
 cedure than substantive merit. They do not trench 
 upon policy on the one hand or administration on 
 the other, in the sense that they do not question 
 the wisdom of the order to spend or the adequacy 
 of the results obtained, though the Auditor-General 
 in this country will, in practice, call attention to any 
 obvious waste or extravagance which may happen 
 to come to his notice through the accounts themselves. 
 
 regretfully that he feared that it was "too scientific to be adopted in 
 our time." 
 
in CONTROL OF EXPENDITURE 61 
 
 His report to Parliament (or in most countries to 
 the Head of the State, who lays it before Parliament) 
 is the starting-point for investigation by the Finance 
 or by such a body as the Public Accounts Committee, 
 and in the last resort Government may disallow an 
 improper payment, for which the accounting officer 
 then becomes personally liable. It is essential that 
 Audit should be independent, external, and quasi- 
 judicial. The usual Continental practice is to set up 
 a Cour des Comptes, closely analogous to a High 
 Court of Justice, to examine the accounts, to summon 
 before it for oral examination the responsible officials, 
 and to give a certificate of discharge of responsibility. 
 The deterrent effect of inexorable scrutiny after the 
 event is a powerful stimulus to regularity. In Italy 
 the visa of the Cour des Comptes is required before 
 expenditure can be incurred. So far as I can form 
 an opinion, the advantages of this form of preventive 
 control are of little practical value and are out- 
 weighed by the disadvantages of complication and 
 delay. 
 
 To attempt to audit every financial transaction 
 would be ruinously expensive and dilatory. In ex- 
 ceptional cases it may be desirable to check every 
 item, but in many cases a test audit is sufficient, 
 extending, it may be, to 50 per cent, 25 per cent or 
 even less of the whole, and putting particular items 
 or different groups of items, varied from time to time, 
 under the microscope. A test of this kind must be 
 
62 NATIONAL ECONOMY m 
 
 thorough and have the element of surprise. If the 
 items of expenditure in a given period, e.g. a month, 
 are entered on a list, numbered consecutively and 
 supported by vouchers, a general order to examine 
 say items I, 5, 9, 13, etc., every month will soon 
 become known outside the Audit Office, and the 
 account can then easily be rendered in a form which 
 will protect 7 5 per cent of the entries from scrutiny. 
 To circumvent this it is sufficient to vary the order 
 each month after the accounts have come in, specify- 
 ing the numbers to be selected for audit. If the test 
 audit discloses irregularities, a closer, and possibly a 
 complete, audit of the doubtful account is indicated. 
 The besetting sin of audit is to be content with 
 surface appearances satisfying itself that the 
 vouchers are in order. It has been said that this is 
 a work almost of supererogation, seeing that it is in 
 the nature of a voucher to be in order, otherwise it 
 would not be a voucher. But the auditor must 
 clearly be satisfied of its existence, and ought now 
 and then to test its reality or he may be fobbed 
 off with what is called in France a mandat fictif 
 a voucher for some regular service like con- 
 veyance to cover what was really a purchase of 
 unauthorised furniture. A truly efficient audit 
 endeavours to go behind the voucher, to exercise 
 imagination, comparison, and special knowledge to 
 discover any prima facie irregularity which can be 
 followed up by minute investigation. The auditor 
 
in CONTROL OF EXPENDITURE 63 
 
 is not encouraged to probe administration in an 
 effort to discover such things as an excess of staff. 
 His primary function is to examine the accounts, to 
 which alone his queries are directed. This limitation 
 has led to suggestions that the auditor should have 
 a wider scope and be expected to report whether 
 money's worth is obtained for expenditure, but the 
 general consensus of opinion is that administrative 
 business of this kind is beyond his proper function, 
 and that he has enough to do in looking closely into 
 the accounts after payment. Anything like ob- 
 struction or antagonism to audit proper is not for a 
 moment to be tolerated. The feeling that audit 
 is a hostile, tactless, interfering inquisition rapidly 
 dies down under proper management. Far away and 
 long ago a prominent English official complained to 
 the British representative that his claim for travel- 
 ling expenses had been queried in respect of in- 
 sufficient detail and vouchers. " It is a gross 
 outrage ! " he exclaimed. " Do they think I am 
 trying to cheat the Government ?" "My dear fellow," 
 was the soft answer, " I often play a rubber with you, 
 which I should not do if I thought you capable of 
 cheating. But when I pass the cards for you to 
 deal I always cut them first." This appeal to the 
 rules of the game was effective. The auditor is in 
 fact a colleague and collaborator in the public service. 
 Heads of Departments should welcome his observa- 
 tions as co-operating towards the economy and 
 
64 NATIONAL ECONOMY m 
 
 regularity which it is their duty to ensure, and not 
 chafe under them as if they were a stroke of 
 gratuitous malevolence. 
 
 Here then are numerous checks upon expenditure, 
 the initial care of the Department, the examination by 
 the Treasury of the need of new credits, the con- 
 sideration of estimates by Parliament, the scrutiny 
 of the audit, the examination by Parliament of the 
 closed account. Is all this sufficient? Or is there 
 still a blind spot ? I take an extract from evidence 
 given before the Public Accounts Committee on the 
 1 9th May 1862, by Mr. Arbuthnot of the Treasury : 
 
 "In the year 1828 a Finance Committee of 
 the House of Commons was appointed, to consist 
 of 2 1 members, amongst whom were the most emi- 
 nent financial authorities of the day ; for instance, 
 Sir Henry Parnell, Chairman ; Mr. Goulburn, Mr. 
 Herries, Mr. Tierney, Lord Althorp, Mr. Hume, Lord 
 Howick (now Lord Grey), Mr. Alexander Baring, 
 Mr. Stanley (now Lord Derby), and Mr. Huskisson. 
 In page 5 of their Report there is this passage : 
 ' The Committee particularly desire to draw the 
 attention of the House to the fact, that the ancient 
 and wise control vested by our financial policy in 
 the hands of the Treasury over all the departments 
 connected with the public expenditure has been in a 
 great degree set aside. Although it is the practice 
 to lay the annual estimates before the Board of 
 Treasury, the subsequent course of expenditure is 
 
ill CONTROL OF EXPENDITURE 65 
 
 not practically restrained as it ought to be by one 
 governing and responsible power, but remains too 
 much under the separate management of the depart- 
 ments. The want of a constant check over the ex- 
 penditure, which is the consequence of the departure 
 from the old and constitutional course, has estab- 
 lished a scale of expense greatly beyond what existed 
 during the former periods of peace. Each department 
 naturally endeavours to exalt its own importance, 
 and wishes to promote its general efficiency and to 
 have everything in it complete and perfect ; hence 
 the desire to secure these objects, rather than the 
 exigency of the public service, has had too much 
 influence over a great part of the public expenditure.' 
 In page 6 there is this other passage : ' With respect 
 to the next great object to be secured, namely, the 
 establishment of an effectual control in the hands of 
 the Treasury, this is nothing more than the restora- 
 tion to the Treasury of its ancient authority. ... It is 
 expedient not only to restore this control, but to secure 
 it from being again set aside, which cannot be effected, 
 except by the House of Commons constantly enforcing 
 its application, by holding the Treasury responsible 
 for every act of expenditure in each department.' " 
 
 Observe the sweeping character of these last 
 words, quoted with approval by Mr. Arbuthnot. 
 They amount to an assertion that it is not enough 
 for the Treasury to consider how much spending 
 power should be allowed to each department, but 
 
 F 
 
66 NATIONAL ECONOMY in 
 
 that it should be held responsible for seeing that the 
 money so spent is well applied. 
 
 The Exchequer and Audit Act of 1866 embodied 
 many of the recommendations of the Committee of 
 1828. But in 1902 the House of Commons, feeling 
 that the financial control of Parliament was still 
 susceptible of improvement, appointed a Select Com- 
 mittee " to inquire whether any plan can be ad- 
 vantageously adopted for enabling the House, by 
 Select Committee or otherwise, more effectively to 
 make an examination, not involving criticisms of 
 policy, into the details of National Expenditure." 
 This Committee reported " that the examination of 
 the Estimates by the House of Commons leaves much 
 to be desired from the point of view of financial 
 scrutiny. The colour of the discussions is un- 
 avoidably partisan. Few questions are discussed 
 with adequate knowledge or settled on their financial 
 merits. 670 Members of Parliament, influenced by 
 party ties, occupied with other work and interests, 
 frequently absent from the Chamber during the 20 
 to 23 supply days, are hardly the instrument to 
 achieve a close and exhaustive examination of the 
 immense and complex estimates now annually pre- 
 sented. They cannot effectively challenge the 
 smallest item without supporting a motion hostile to 
 the Government of the day ; and divisions are nearly 
 always decided by a majority of members who have 
 not listened to the discussion." 
 
in CONTROL OF EXPENDITURE 67 
 
 The Committee recommended inter alia the 
 adoption of a proposal made to them by Mr. T. 
 Gibson Bowles, that at the beginning of each session 
 one Class of the Estimates should be referred to a 
 Select Committee for examination and report pre- 
 cedent to the votes being discussed in Committee 
 of Supply, and that such Select Committee should 
 have power to send for persons, papers, and records. 
 This recommendation was adopted in 1 9 1 2 by setting 
 up an Estimates Committee. 
 
 An Estimates Committee with power to send for 
 persons, papers, and records is evidently a more 
 efficient critic of ^Estimates than a Committee of 
 Supply. A departmental Committee or an inter- 
 departmental Committee is perhaps still better 
 equipped for coming to close quarters with its subject, 
 seeing that the members can question the expert 
 witnesses with some special knowledge and qualifica- 
 tions. But in such a process as the pruning out of 
 dead wood, a Committee can only by some happy 
 accident be really effective. Nothing short of local, 
 personal, immediate inspection is likely to get at 
 the whole facts of faulty economy. Listen to a few 
 extracts of evidence from experienced officials : " In 
 the case of inquiry by a Committee an inquiry by 
 verbal cross-examination by a body not so well 
 acquainted with the subject-matter as the persons 
 actually examined before them the power of the 
 Committee is to a certain extent limited. A clever 
 
68 NATIONAL ECONOMY m 
 
 witness, knowing his subject very very well, can, to 
 a certain extent, I will not say elude, but maintain 
 his own position against cross-examination. He is 
 more or less put upon his defence, and the attitude 
 of his mind would naturally be that of defence." * 
 "Any form of local inquiry or any form of inquiry 
 which is in touch with the actual facts ... is more 
 fruitful than a verbal inquiry unaccompanied by an 
 examination of the facts." 2 " I am more and more 
 anxious to be able to deflect my men from the 
 accounts branch of the War Office and to send them, 
 as one may say, on roving inspections locally, to 
 ascertain to what extent the local regulations are 
 observed, and to what extent, in the first place, the 
 people are conforming to such rules as they have ; 
 and in the second place, to what extent they are 
 performing their work economically. I can do much 
 more in that way than I can by any central inquiry 
 at the office itself, where, if I inquire, I am met with 
 explanations which I have not the details before me 
 sufficiently to check." * " Local inquiry would correct 
 whatever tendency to extravagance there might be 
 locally, for instance, if there were a tendency not to 
 dismiss a man who was perhaps redundant, or to 
 keep the supporting statements for expenditure in a 
 slipshod or haphazard way." 4 " You may go to the 
 head of a Department and say, Do not you think 
 
 1 Mr. (afterwards Sir F.) Marzials, Accountant-General of the War 
 Office, Q 54, House of Commons Paper 242 of 1903. 
 
 2 Ibid. Q 88. 3 Ibid. Q 29. * nidt Q 9 $ f 
 
in CONTROL OF EXPENDITURE 69 
 
 you can economise here or you can economise there ? 
 But you are bound to go by what he answers. You 
 do not know how all his staff are employed, and 
 therefore unless you have the head on your side it 
 is very difficult to effect economies in a Department." 1 
 Departmental local inspection may, up to a point, 
 be efficacious in surmounting the difficulties here 
 alluded to. But it cannot be so independent or 
 widely informed as an inspection ranging over all 
 departments, able to extend reform and modernisation 
 everywhere. Assuming an extension of the Audit 
 Office for such purposes to be ruled out, Finance 
 Inspection is one obvious alternative, and in some 
 countries is already regarded as indispensable. The 
 Finance Inspectors are the eyes and ears of their 
 Ministry. They visit Departments by surprise, ex- 
 amine their accounts, which are as full of revelation 
 to a skilled eye as a pass-book, watch their opera- 
 tions, apply special tests, compare one Department 
 with another, one method with another, work out 
 comparative costs, and get down to bottom rock. 
 They discover weaknesses which would probably 
 never be otherwise revealed. Heads of Departments 
 consulting their Assistant Secretaries, who consult 
 their Principal Clerks, who consult their subordinates 
 in a similar chain, obtain information which levitates 
 nearly from the bottom and reflects the intelligence 
 
 1 Sir E. Gorst, Financial Adviser in Egypt, House of Commons 
 Paper 387 of 1902, Q 288. 
 
70 NATIONAL ECONOMY in 
 
 of worthy officials whose outlook is very narrow, and 
 it is hardly to be expected that the question, " Can 
 we reduce our recurring expenditure ? " put in this 
 way will yield very fruitful results. Here are officials 
 who resignedly persist in an expensive course under 
 a mistaken sense of discipline. " It is very stupid, 
 but it is the Board's orders." Or, "It is necessary 
 in order to comply with the financial regulations." 
 If the facts were known it might be found either 
 that there is a misapprehension as to the intention 
 of the orders, or that the superior authority, if 
 informed, would wish to vary the instructions. It is 
 for such reasons as these that stories of Government 
 waste, ineptitude, and delay are the perpetual gossip 
 of life, and that Lord Sudeley has proposed a clearing 
 house of information within the personal knowledge 
 of private individuals as to official extravagance, the 
 information to be passed on privately or openly to 
 Government. Such a scheme would result no doubt 
 in a plentiful discovery of mares' nests as compared 
 with the reports of an expert Finance Inspector. 
 The War has already evolved the Economy Lady 
 as a private visitor. An official Economy Gentleman 
 in Government offices is at least equally thinkable. 
 It may be suggested that Heads of Departments 
 would resent his visits. Any such feeling would die 
 down as rapidly as repugnance to Audit. Hear two 
 further experts : " I think that the Treasury control 
 upon the public expenditure at present is weak, and 
 
in CONTROL OF EXPENDITURE 71 
 
 that it is owing in a great measure to a defective 
 knowledge of the actual proceedings of the depart- 
 ments." l " Do you think that the check will be best 
 vested in the Audit Office or in the Treasury, or in 
 a joint check, or in what way would you recommend ? 
 I think that it is part of the machinery of the 
 executive arrangements, and that it ought not to 
 rest with the Audit Office. I think that the Audit 
 Office, if they do their duty in looking closely into 
 the accounts after payment, have quite sufficient to 
 do ; but my opinion is that the machinery should 
 be established by the Treasury, and be under the 
 immediate inspection of an officer of high standing, 
 who shall have influence in all the departments that 
 he may visit, and carry with him the power that he 
 may have deputed to him by the Chancellor of the 
 Exchequer." 2 
 
 On the other hand, it is urged that external 
 inspection of this kind would be a mistake, that 
 economy must come from within, that you must 
 trust the man on the spot, coming down heavily 
 upon him after the event if he is found to be to 
 blame, but that there is something wrong about any 
 attempt to set an outsider to work to teach people 
 their business. Objection on the ground of inter- 
 ference may have short shrift. " I don't want the 
 
 1 Sir W. G. Anderson of the Treasury, House of Commons Paper 
 375 of 1856, Q 4184. 
 
 2 Sir R. M. Bromley, Accountant-General of the Navy, House of 
 Commons Paper 467 of 1862, Q 54. 
 
72 NATIONAL ECONOMY m 
 
 Factory Inspector intruding in my workshops," or, " I 
 don't approve of the Sanitary Inspector poking his 
 nose into my cottages," is met by the answer that 
 paramount national considerations must prevail over 
 the feelings of the employer or the property-owner. 
 The Finance Inspector is not even an outsider. He 
 is one of the national stewards looking into the 
 national business, a fellow-servant of the common 
 master. It is all very well to come down heavily 
 upon what is wrong when it is found out, but the 
 first essential is to find it out. How is the Head of 
 a Department immured in his room, with perhaps 
 an army of men scattered about the country, to 
 discover waste ? Unconscionable delays, neglect of 
 duty, serious blunders may come to light in their 
 consequences, but so long as work is promptly and 
 accurately done, nothing calls his attention to the 
 fact that officials here and there are ploughing the 
 sands. Let me interpose two anecdotes. In bygone 
 days an Empress of Russia stopped in a public park 
 to admire a rose tree, which was at once devoted to 
 Her Majesty's service and a sentry posted over it. 
 Years passed. The tree disappeared, the Empress 
 died, the park was converted to other uses. The 
 sentry remained. Day and night the relief guards and 
 their officers fulfilled their duties in the spirit of 
 men whose business it is to obey orders and not to 
 question them, until some happy accident brought 
 to light the futility of their task. Farther East an 
 
in CONTROL OF EXPENDITURE 73 
 
 account of confidential services provided annually a 
 round sum for " a Mrs. Gordon." Subordinate eye- 
 brows were raised and shoulders shrugged year by 
 year over this mysterious item, until some daring 
 investigator found the entry to be corrupt. A 
 careless copyist had perverted the original entry, 
 " Amir's garden," and the error had been perpetuated. 
 Meanwhile the garden was no more. The very 
 Amir was not. 
 
 In these particular cases little harm was done, 
 but examples abound of costly survivals of obsolete 
 services in foreign civil administration which Audit 
 is powerless to touch. Authority none the less 
 venerable because ancient exists for the payment. 
 A receipt vouches for the expenditure. Everything 
 is in formal order. But the dead wood is not 
 pruned out. There is no value for the money. 
 
 Far more dangerous than oversights of this kind 
 are works of supererogation. A competent official 
 may call attention to the fact that special accounts 
 or records have survived their raison d'etre^ but he 
 may refrain from offering criticism upon unduly 
 complicated or laborious and therefore expensive 
 methods. In an obituary notice of Lord Welby, 
 one of his admirers records with gusto a favourite 
 story of the great man. A young clerk came to 
 him one day with a suggestion for reform. " Do 
 you know," asked Welby, " how So-and-so made his 
 fortune ? " " No," said the junior, eager to learn. 
 
74 NATIONAL ECONOMY m 
 
 " By minding his own business ! " was the answer. 
 History does not record whether the clerk was per- 
 sistent enough to ask, " And what is our business ? " 
 but a worse answer could hardly be given to a 
 zealous subordinate. Imagine him hereafter, con- 
 vinced that business could with great advantage 
 be short-circuited. If he is too timorous to risk 
 another snub, or too prudent to compromise his own 
 future, he will keep silence rather than run the risk 
 of being thought tactless, pushing, meddlesome, and 
 opinionative. " He criticises my arrangements to- 
 day," thinks his chief ; " he will criticise me to-morrow. 
 I do not trust him." " I cannot recommend him 
 for promotion because I do not trust him," is a bar 
 behind which the fairest-minded Minister can hardly 
 penetrate. 
 
 Such cases, it may be hoped, are less likely to 
 occur than those in which there is an ignorance of 
 better methods, and this is the strongest of all 
 reasons against leaving economy to departmental 
 initiative. A Finance Inspector asks, " Is not a 
 good deal of this work unnecessary ? " " We have 
 always done it this way," he is told, "and do not 
 know of a better." " But," he replies, " if you go 
 and see such and such a department you will find 
 that they have a much simpler and better plan." 
 The worst are thus brought up to the level of the 
 best. Ignorance is the mother of timidity. An 
 old-time official, now deceased, who had an Asiatic 
 
in CONTROL OF EXPENDITURE 75 
 
 dislike of change, extinguished one after the other 
 suggestions, since adopted, with a formula of which 
 he was the proud inventor : " Even if this were 
 possible, which is not probable, it would not be 
 practicable." When you can point to the accom- 
 plished fact of successful experience, you can blast 
 away this form of obstruction. 
 
 The American Commission is an admirable 
 example of the value of this searchlight function of 
 independent expert scrutiny. Even the Finance 
 Inspector is subdued to what he works in. He 
 may succeed in bringing the backward departments 
 up to the level of the best, but the American 
 Commission brings in a whiff of intelligence from 
 the outside world, and is able to suggest methods 
 better than the best prevalent in the public service. 
 Here you have five experts concentrating their 
 brains upon the problems of general economy. They 
 go round to see for themselves, pick up informa- 
 tion with the power and flexibility of an elephant's 
 trunk, and bring everything possible to the test of 
 cost accounting, the ton mile, the passenger mile, 
 the cost per 1000 transactions, and the like. But 
 over and beyond this they study outside methods 
 and have the benefit of outside suggestions. I can 
 hardly doubt that their proposals for the better utilis- 
 ation of waste are stimulated in this way. They 
 report, for example, that instead of destroying the 
 paper currency of Government in the old-fashioned 
 
;6 NATIONAL ECONOMY m 
 
 way, the paper should be " de-inked and defibered " 
 by modern processes and used again. The result 
 is a saving of 100,000 dollars a year as compared 
 with the old maceration. Valuable information is 
 often forthcoming from within the service, especially 
 when it refers to the waste of other Departments. 
 The newly-appointed head of a Statistical Depart- 
 ment abroad asked why the bill for electric light 
 was so heavy. He was told that it seemed to be 
 normal, about the same every year since the light 
 was installed. " But," he said, glancing at his lamp, 
 " since these metallic filaments were introduced the 
 current should be less." " I am afraid," said his 
 clerk, " that yours is the only lamp of that type. 
 It appears that there is a large stock of carbon 
 lamps, and we are told that they must be used up 
 before any change is made." " In my study at 
 home," says Jones, " I am as warm as I am here 
 where the old-fashioned grate burns three times the 
 fuel I use in my own room, which is equally large. 
 But the Public Works tell me they only put modern 
 grates in at new offices or where the old grate is 
 worn out, so I suppose this will go on for another 
 generation." Conscious as they are of each other's 
 defects, officials are full of information valuable to the 
 independent visitor. But it comes out remorselessly 
 under the hand of the statistician. The American 
 Commission found that the Supervising Architect of 
 the Treasury, operating some 700 or 800 buildings, 
 
in CONTROL OF EXPENDITURE 77 
 
 had no data on the economy of their management 
 nothing to show the lighting cost per hundred square 
 feet of floor space used, or the heating cost per 
 hundred cubic feet of enclosed heated space, or the 
 cost of cleaning the buildings. When the figures 
 were compiled and sent in the Commission found a 
 variation that ran as high as 1000 per cent between 
 different buildings. 
 
 In this great organon of exact measurement you 
 have the really scientific instrument of controlling 
 expenditure. Estimates, predictions, opinions, assur- 
 ances, impressions are one thing ; sizing-up results 
 is quite another. Provided this instrument is skil- 
 fully employed it matters little whether it is in the 
 hands of a special department of the Audit Office, 
 or the Finance, or a small separate body of experts 
 like the American Commission. But its skilful em- 
 ployment demands special qualities, minute know- 
 ledge based upon personal local inspection, a wide 
 outlook, and scientific method. Correspondence, 
 examination of witnesses by Committees, and other 
 time-honoured devices will without it fall far short 
 of such results as it is possible to attain and fair 
 to expect. 
 
IV 
 REVENUE AND ADMINISTRATION 
 
 REVENUE brings us into close relation with National 
 Economy in its Continental sense of Economics Pure 
 and Applied. This is particularly true of Taxation 
 and its incidence. I propose now to offer some 
 general considerations upon various forms of revenue, 
 with special reference to administration. 
 
 Direct taxation may be broadly defined as taxa- 
 tion which cannot, like indirect taxation, be passed 
 on in whole or in part to other persons. An 
 importer of tea, for example, pays customs duty 
 upon it, but gets back the duty from the merchants 
 to whom he sells his cargo. These recoup them- 
 selves in turn from the retailer, who recovers the 
 tax from his customer, the final consumer. An 
 indirect tax thus strikes, as it were, a glancing blow, 
 while the direct tax, which cannot be shifted, strikes 
 where it falls. A land tax falls upon the landowner 
 upon whom it is first imposed, and a new land tax 
 may be regarded as a pro tanto confiscation of real 
 estate by the Government. What is called a land 
 
 78 
 
iv REVENUE AND ADMINISTRATION 79 
 
 tax is, however, in some cases a rental, the whole 
 land having originally belonged to the State, which 
 gave up its occupation in return for a perpetual 
 charge. In Egypt, where agricultural land is freed 
 from taxation if it receives no water from Govern- 
 ment, or pays a reduced tax if it gets less than an 
 adequate supply, the tax partakes also of the 
 character of a water rate. But in all countries the 
 tax, if of ancient date, is very seldom a burden upon 
 the present owner or occupier, the land having 
 changed hands subject to taxation, and the tax 
 charge having been taken into account by successive 
 purchasers precisely as if it were a mortgage or tithe 
 rent charge. A convenient method of considering 
 in general the incidence of taxation is to seek who 
 would profit by its reduction or abolition. But 
 in the case of the land tax such relief would be 
 a mere present to the actual owner, the burden 
 having fallen entirely upon an ancient predecessor, 
 by whom the shock was absorbed. A land tax in 
 the nature of a settlement, in countries where the 
 land is fully occupied, varies very little in its yield 
 from year to year. Population, wealth, and the 
 needs of Government may increase, but the land 
 revenue does not progress. You can reckon with 
 some certainty upon getting it in, but it has the 
 drawback of being inelastic. 
 
 Income Tax is now a feature of most financial 
 systems, and in some of them is supplemented by 
 
8o NATIONAL ECONOMY iv 
 
 a tax upon capital. You may turn for examples 
 to Holland, in which the two are combined, or to 
 the general property tax in the United States, or 
 to our own Estate Duties. Taxes upon income and 
 capital give you valuable information as to the 
 amount and distribution of the wealth of the country, 
 are capable of variation without upsetting trade or 
 commerce, like new taxes on commodities, and are 
 elastic as well as direct. If the wealth of the 
 country receives an unexpected set-back, and you 
 have a bad year of revenue from income or capital, 
 the wind has been tempered to the shorn lamb, 
 which is not the case where taxation is imposed 
 upon staple foodstuffs, and hits the poorest classes 
 not only relatively but absolutely harder than the 
 wealthier classes. 
 
 The Income Tax in this country, once described 
 by Mr. Gladstone as " not a tax but a system of 
 taxation," has since become vastly more complicated. 
 It is now progressively graduated, distinguishes 
 between earned and unearned income, a super tax is 
 grafted upon it, new abatements, allowances, and 
 exemptions are conceded, and what is known abroad 
 as " administrative law " with regard to it has 
 received considerable development. You are familiar 
 with Adam Smith's doctrine that one of the canons 
 of good taxation is certainty. " The time of pay- 
 ment, the manner of payment, the quantity to be 
 paid, ought all to be clear and plain to the contri- 
 
iv REVENUE AND ADMINISTRATION 81 
 
 butor, and to every other person. ... A very con- 
 siderable degree of inequality, it appears, I believe, 
 from the experience of all nations, is not near so great 
 an evil as a very small degree of uncertainty." 1 What 
 Bentham said of law in general is particularly true of 
 tax law : it should be cognoscible. In the tangle of 
 legislation by reference and the maze of decided cases 
 the British income taxpayer is frequently involved 
 in more than " a very small degree of uncertainty." 
 See to it that your taxpayers in Urania do not suffer 
 aggravated irritation by unnecessary doubt as to 
 " the quantity to be paid " a doubt which consumes 
 much valuable time and adds to the trouble and 
 expense both of the taxpayer and of the revenue 
 department. 
 
 Such indirect taxes as Customs and Excise are 
 more expensive to the consumer than appears on 
 the surface. Apart from the cost of the revenue 
 departments, the time and trouble of those who pay 
 the duties must be taken into account, and allowance 
 must be made for the fact that the duties have a 
 snowball tendency to increase as they pass along. 
 The importer must pay the duty in cash before he 
 can clear his goods. Ready money is a valuable 
 commodity, and in an active business where it can 
 be rapidly turned over expects a high return of 
 interest. The importer sells his goods, say, on a 
 three months' bill. He will calculate his profit over 
 
 1 Wealth of Nations, book v. ch. ii. 
 
 G 
 
82 NATIONAL ECONOMY iv 
 
 all prime cost, duty, expenses of bonding and 
 clearing, and the risk of bad debts considerably 
 exceeding the prime cost. The process is repeated 
 from hand to hand, perhaps finally by a retailer whose 
 bills are rendered monthly. The ultimate charge 
 in respect of customs, falling upon the consumer, 
 may thus be appreciably higher than the original 
 duty. The Financial Reform Association in the 
 height of its activities drew a formidable indict- 
 ment against indirect taxation on such grounds as 
 these. It also alleged that among other evils 
 customs duties tended to give a monopoly of the 
 import trade to wealthy traders, who could afford to 
 find sufficient cash to clear whole waggon-loads at a 
 time instead of being at the expense of carting away 
 goods in driblets. The statement was frequently 
 made in Parliament that less than 50 per cent of 
 the charges made to the public in consequence of 
 the customs duties and formalities found its way into 
 the Exchequer. The immediate rise in price when 
 customs duties are increased, or the immediate fall 
 when the duty is repealed, frequently exceeds this 
 percentage. 
 
 Specific duties which have no regard to quality 
 penalise the consumers of cheaper varieties, as when 
 cigars worth only 7 shillings per 100 pay the same 
 duty per Ib. as those worth 7. On the other hand, 
 ad valorem duties are troublesome and expensive to 
 collect. Numerous and highly paid experts must 
 
iv REVENUE AND ADMINISTRATION 83 
 
 be employed. Extra safeguards against fraud and 
 collusion are required e.g. a consular certificate, for 
 which a fee must be paid, in the country of origin. 
 Energy is expended in discussion and appeal. The 
 power of pre-emption the right of the Customs to 
 purchase at declared price or something below it 
 and the power to take payment of the duty in kind 
 may alike, if exercised, saddle Government with a 
 collection of miscellaneous articles of which it is ill 
 fitted to dispose. In many cases the object is in- 
 divisible without destruction or loss of value. You 
 do not want to take a fraction of a motor car, a 
 piano, or a work of art, or an odd piece from a set of 
 china or furniture which has little value by itself 
 and impairs the value of what is left. A palliative 
 for the arbitrary action of valuers and a safeguard 
 against corruption and deception is found in so-called 
 tariffs of value, settled by agreement between the 
 Customs authorities and representative traders. In 
 the textile trades, for example, a list is prepared of 
 perhaps a hundred varieties of piece goods, running 
 into such detail as the number of threads per square 
 foot. Each article on the list is priced, and the list 
 holds good for valuation until the Customs or the 
 trade denounces it. A meeting is then held with a 
 view to settling a new schedule. A glance at the 
 Statistical Abstract of any of the principal countries 
 shows how wide and varied are the categories of 
 imports. A score of schedules will cover but a 
 
84 NATIONAL ECONOMY iv 
 
 small part of the ground. As recently as 1841 there 
 were over 1200 heads in the Book of Rates in the 
 British Customs, and Free Trade admittedly brought 
 about a great simplification of accounts in business 
 as well as in administration. An all-round ad 
 valorem tariff would be vastly more complicated than 
 anything of which we have had experience. The 
 idea that such a tariff, if uniform, would " treat every- 
 body alike," and be equally fair (or equally unfair) to 
 all enterprise, need not be seriously considered. The 
 schedule system of valuation is applicable only to 
 articles which admit of standardisation. In effect 
 it substitutes for the ad valorem duty a number of 
 temporary specific duties upon different types of a 
 commodity. 
 
 Indirect taxes like the Customs and ^Excise are 
 elastic in the sense that they reflect the greater or 
 less activity of trade so long as the rates remain 
 unchanged. It was, however, in a different sense 
 that Mr. Gladstone used the phrase " the elasticity of 
 the Exchequer," which enabled him in certain cases 
 to secure a greater revenue by reducing duties, the 
 increase in consumption following upon a lower price 
 more than compensating for the lower rate of duty. 
 Conversely Swift observed that " in the language of 
 the Custom House two and two do not make four," 
 or, in other words, doubling a duty may yield much 
 less than double the revenue. These taxes are also 
 elastic in the sense that if low or moderate in 
 
iv REVENUE AND ADMINISTRATION 85 
 
 amount they can usually be raised in emergency to 
 yield a higher return. 
 
 Stamp duties are duties collected by means of 
 stamps, and their distinctive mark is thus a matter 
 of administrative practice. Where the stamps are 
 affixed by the public the collection may almost be 
 called automatic, as in the case of cheques, bills of 
 exchange, contract notes, and deeds which have no 
 legal validity until properly stamped. Where the 
 stamps must be affixed by officials they are a 
 valuable safeguard against peculation, and greatly 
 simplify accounting. Suppose that each passport 
 requires to bear a shilling stamp, and that you 
 supply the official in charge with a hundred stamps. 
 All that is needed is to see that he has always in 
 hand a hundred shillings in stamps or money or 
 both combined. As his stock of stamps dwindles 
 his cash increases, until he replenishes his stamps 
 by using cash in hand to buy a fresh supply from 
 a superior official. It is unnecessary for him to 
 keep any cash account of each transaction, and 
 impossible for him to make mistakes at the expense 
 of the revenue. Licences have the same advantage, 
 each licence having a face value for which the issuing 
 officer is responsible. 
 
 Mr. Gladstone, in many respects a bold financier 
 so bold that he once proposed the abolition of 
 the Income Tax was very timorous of meddling 
 with stamp duties, which touch the habits and life 
 
86 NATIONAL ECONOMY iv 
 
 of the people. Professor Jevons's monograph on 
 the Match Tax l a masterly essay on Taxation 
 which you will do well to read criticises the receipt 
 stamp, which was then separate from the postage 
 stamp, as costing a great deal more to the country 
 than it yielded to the Exchequer, owing to the fact 
 that persons had often to make a long journey to 
 obtain a stamp in order to give a valid discharge. 
 Since that time the ordinary penny postage stamp 
 has been made available for inland revenue purposes. 
 A tax upon inheritance in the form of probate, 
 legacy, succession, or estate duties is justified, as 
 Jevons said of the receipt stamp, by the fact that 
 the recipient is at the moment in a position to 
 contribute to the State something out of what he 
 receives, which in the case of inheritance is some- 
 what of a windfall. The more remote the consan- 
 guinity the greater is the degree of luck or good 
 fortune, and proposals have often been made that 
 when the next of kin is far removed in blood the 
 estate should wholly escheat to the public. Godin, in 
 his Solutions Societies, goes so far as to recommend 
 the total abolition of the power of bequest and the 
 right of succession, the State becoming the universal 
 heir. Only so, it is urged, can equality of oppor- 
 tunity be offered to the next generation. But even 
 if such a scheme were not frustated by donationes 
 inter vtvos, there is the important consideration that 
 
 1 Reprinted in his Principles of Economics, 1905. 
 
iv REVENUE AND ADMINISTRATION 87 
 
 the freedom of testation is a great stimulus to 
 exertion and saving. The output of wealth might 
 be seriously checked, and dissipation by consumption 
 take the place of accumulation, if it were known 
 that a man's surviving family could derive no special 
 benefit from his savings. The argument against 
 Estate Duties, that being a tax upon capital they 
 weaken the productive powers of the nation, is valid 
 only if the State fails to employ its resources as 
 productively as the individual. The usual assumption 
 that this must be so is not necessarily true. A tax 
 upon capital does not destroy the national capital, 
 but redistributes it. Whether in new hands it is 
 more or less efficient depends upon circumstances 
 about which it is well not to dogmatise. 
 
 Licences or permits are a source of revenue the 
 amount of which is usually determined by a balance 
 of considerations. Their incidence is generally direct, 
 in the sense that the licensee cannot pass on the 
 charge to a third party, but they may in addition 
 have a repercussion more or less serious upon other 
 persons. Dog licences and gun licences may, if 
 considerable, restrict the business of those who sell 
 dogs and firearms. A licence to keep a male servant 
 might conceivably be high enough to diminish the 
 demand for men-servants to such a point as to 
 depress their wages. Licences to carry on a par- 
 ticular trade, e.g. an auctioneer's licence, might be 
 screwed up until the ranks of the auctioneers were 
 
88 NATIONAL ECONOMY iv 
 
 thinned, or they might agree to raise their scale 
 o charges, in which case, if business was not 
 deterred, the incidence would be indirect. But 
 even in the first case, assuming that the scale of 
 charges remained unaltered, and that the auctioneer 
 recouped himself for the tax by profits on business 
 which would have gone to a squeezed-out competitor, 
 the public has a smaller choice of auctioneers, pos- 
 sibly a smaller choice of days for their auction, 
 and may therefore be more or less affected by the 
 tax. In such a case as the fee for permission to 
 occupy a public place, to set tables and chairs on 
 the pavement outside a cafe, regard may be paid 
 to the commodity of customers, to the discommodity 
 of pedestrians, to the pecuniary advantage of the 
 shopkeeper, and to other considerations. Licences 
 which may be withdrawn in case of misconduct are 
 useful as measures of police. 
 
 A licence to use armorial bearings a direct tax 
 of the simplest character is one of the few examples 
 of what Mill regarded as the best of imposts, a tax 
 upon vanity. John Locke considered taxes upon 
 foreign lace and French wines as coming within 
 the same category, on the ground that the higher 
 their price the greater was their attraction to persons 
 who desired to make a display of wealth. But 
 vanity is a sensitive plant, and the principle is of 
 little working value to the financier. In fixing the 
 amount of such taxes regard need only be paid 
 
iv REVENUE AND ADMINISTRATION 89 
 
 to fiscal considerations, that the yield of revenue 
 should be a maximum. 
 
 I have referred briefly and by way of illustration 
 to the difference between direct and indirect taxa- 
 tion, because really direct taxation has the practical 
 advantage that you know out of whose pocket it 
 comes, even though in particular cases it may cause 
 inconvenience and expense to third parties. But 
 a general discussion of the incidence of taxation 
 belongs to economics and financial science rather 
 than to administration ; and I must refer you to 
 the textbooks, especially to Professor Seligman's 
 Incidence and Shifting of Taxation^- for a full con- 
 sideration of the subject. 
 
 When we come to the category of fees we find 
 certain services rendered by the State to specific 
 individuals in return for a special payment. If 
 I go to Somerset House to search for a will and 
 ask to be provided with a copy of it, the general 
 taxpayer ought not to be charged with the expense 
 of meeting my requirements in which he is not 
 interested. On the other hand, it would be un- 
 conscionable to tax or penalise me by requiring from 
 me a much larger sum than is required to recoup 
 the Government for the special expense to which it 
 is put. Professor Plehn 2 illustrates the nature of 
 fees by reference to the usages of clubs in which 
 
 1 2nd ed., New York, 1899. 
 2 Introduction to the Science of Finance, New York, 1909. 
 
90 NATIONAL ECONOMY iv 
 
 members who pay an annual subscription are entitled 
 to certain general privileges, but those who put the 
 club to special expense by requiring the services of 
 a golf-caddie or a ball-boy at tennis, are required 
 to make a special payment to indemnify the club for 
 its extra expense. It follows that fees, properly so 
 called, add little to the net resources of Government, 
 being usually set off by the cost of the service in 
 return for which they are collected. Bentham was 
 of opinion that judicature fees should be abolished, 
 on the ground that the duty of the State is to 
 enounce the law in an intelligible form, and that 
 private citizens ought not to be mulcted in fees in 
 the process of discovering what the law really is. 
 But many civil lawsuits are a mere matter of hard 
 swearing, and do nothing to elucidate the law. On 
 the whole it seems fair that civil litigants should 
 bear the cost of composing their disputes, but the 
 administration of justice should not be turned into a 
 revenue department by recovering more than the cost 
 of its proceedings. Criminal justice is undoubtedly 
 a fair charge upon society in general. 
 
 The direct and indirect cost of administering civil 
 justice has an important bearing upon National 
 Economy. Egypt, so long a prey to international 
 jealousies, is a striking example. There is much 
 truth in the Persian proverb that the delay of justice 
 is worse than its denial, and when English mer- 
 chants find that legal proceedings are as technical, 
 
iv REVENUE AND ADMINISTRATION 91 
 
 interminable, and costly as in the old Chancery 
 Courts, and the issue vastly more uncertain, it can 
 hardly be wondered at that they are shy of business 
 in a country which appears otherwise to offer an 
 admirable field for enterprise and the investment 
 of capital. It cannot be said that the Mixed 
 Tribunals of Egypt are underpaid or undermanned. 
 But to allow commercial suits to fall grievously into 
 arrear through financial parsimony in respect of the 
 number of judges would be a grave offence against 
 National Economy. This is one of those cases in 
 which, as Burke said, the road to economy lies not 
 through retrenchment but through expense. 
 
 When the State engages in quasi -commercial 
 enterprise, the charge which it makes for its services 
 is variously spoken of as a fee, a toll, a price, or a 
 rate. The American writers favour the word " rates " 
 in this connection ; but though we sometimes speak 
 of postage rates, telegraph rates, and railway rates, 
 we usually understand by " rates " the sinews of local 
 finance. I shall therefore use the word " tariff " to 
 describe the scale of charges of a commercial 
 character. The question what enterprises should be 
 undertaken by the State is one of expediency or 
 utility. Whether railways, for example, should be 
 nationalised may depend largely upon geographical 
 considerations. A country like England or the 
 United States may have less reason for taking 
 railways into the hands of Government than a 
 
92 NATIONAL ECONOMY iv 
 
 country which may need to regard railways primarily 
 from the point of military strategy. It will per- 
 haps be generally agreed that when the balance 
 of advantage is otherwise fairly equal there is a 
 presumption against adding to the burden of the 
 Government Atlas a task which can be as well per- 
 formed or very nearly as well performed by private 
 enterprise. The presumption is greatly increased 
 when public administration generally is ill-organised 
 or ill-conducted. 
 
 Assuming that on grounds of policy the business 
 of the Post Office, the Telegraphs, the Telephones, 
 or the Railways is nationalised, what principle 
 should be followed in fixing the tariff of charges ? 
 Ought the enterprise to be carried on at a profit and 
 so made a Revenue Department, or ought it to be 
 conducted on the basis of paying its mere cost or 
 even something less ? Professor Adams takes the 
 view that no profit should be made ; but it is difficult 
 to accept this principle if the service is one from 
 which taxation might properly be extracted if it 
 were in private hands. There is no reason why the 
 State should sell china, or medals, or matches, 
 saltpetre, gunpowder, etc., at cost price, or why a 
 Government monopoly of alcohol or tobacco should 
 not yield a substantial surplus. The consumption of 
 such commodities does not need to be stimulated in 
 the interests of the national well-being. When there 
 is a good case for a tax there will usually be sound 
 
IV REVENUE AND ADMINISTRATION 93 
 
 reasons for a profit which, though it may be classed 
 as non-tax revenue, is equivalent to taxation in so 
 far as it is a true profit. Here we come to an 
 important consideration. The annual surplus of the 
 British Post Office has often been criticised as an 
 undesirable tax upon communications. But how 
 much of the surplus is really profit ? To compare 
 the Post Office Revenue with the Post Office Vote is 
 very misleading. There is on the one hand unpaid 
 service rendered by the Post Office to other Depart- 
 ments. On the other come services rendered with- 
 out charge to the Post Office. The capital sunk in 
 the business is enormous. Land, buildings, furniture 
 and fittings, mail-carts, motor vans, cycles, pillar- 
 boxes, innumerable articles of longer life than a 
 year, would justify a commercial concern in charging 
 considerable sums for interest and depreciation 
 before declaring a profit. If the Post Office were 
 capitalised as a going concern, interest paid on the 
 capital, provision made for a pension fund, and 
 income tax charged on the net profit, the resulting 
 surplus with the present tariffs and present manage- 
 ment would probably be a very small matter. In 
 Government as in municipal enterprises an apparent 
 profit often vanishes under scrutiny. The fact 
 that Government enterprise is carried on at a loss 
 does not necessarily prove either that it ought 
 not to be undertaken or that the tariff should be 
 raised. High considerations of social utility may 
 
94 NATIONAL ECONOMY iv 
 
 make it desirable that certain services should be 
 rendered by Government at less than cost price or 
 even gratuitously, a charge falling upon the general 
 public revenue in return for the general interest 
 promoted. The free supply of glycerinated lymph 
 for vaccination purposes is a case in point. 
 
 Whether Government lands should be cultivated 
 by the State on its own account, let out to farmers, 
 or sold is discussed at length by Professor Adams 
 in his work on Finance, to which you may refer. 
 In general, the sale of such lands is sound policy 
 except in so far as they may be needed, say, by the 
 Ministry of Agriculture as Experimental Farms or 
 required for other than revenue purposes. For a 
 lively description of administrative blundering in 
 farming under bureaucracy you may consult Sir 
 D. M. Wallace's Egypt and the Egyptian Question^ 
 1883. 
 
 Cost of collection is of the very first importance 
 in revenue matters. Discussion is frequently vitiated 
 by the erroneous assumption that the whole cost of 
 a revenue department is incurred for fiscal purposes. 
 This is seldom true. The Customs generally collect 
 statistics of imports and exports of all kinds, whether 
 liable to duty or not ; and if all Customs duties 
 were abolished, some organisation would be needed 
 to secure this important information. The figures 
 of immigrants and emigrants, of the movements of 
 shipping, certain police duties, like the seizure of 
 
iv REVENUE AND ADMINISTRATION 95 
 
 prohibited imports, copyright books, etc., quarantine 
 duties, offences against the Merchandise Marks Acts, 
 and similar matters, are often left in the hands of 
 the Customs, and the true cost of the collection of 
 revenue is thus obscured. Similar observations are 
 true of the Excise and Inland Revenue Departments, 
 and even of the Post Office. 
 
 During the Napoleonic wars even hair powder 
 was taxed, but the tax was repealed when the 
 expense of getting it in was found to exceed the 
 yield to the Exchequer. Some years ago the charge 
 made by the Post Office for redirecting letters 
 and packets was abolished. It was explained to 
 Parliament that the machinery of accounting for 
 each redirected article as it passed from hand to 
 hand was expensive, and that so many charged 
 articles, especially those sent by the halfpenny 
 post, were refused by the addressees, that their return 
 untaxed to the sender was a further gratuitous 
 burden. A net gain of revenue was promised as 
 a result of the repeal of the charge. 
 
 A striking example of unwise taxation was the old 
 salt tax in Italy. Thirty years ago I was compelled 
 to spend some days in Brindisi. British residents 
 advised me to take my bread only in the form of 
 toast. The salt tax was such a burden that bread was 
 usually made with sea-water dipped surreptitiously 
 from the unsavoury harbour. Fines were imposed 
 upon those who were discovered taking water from 
 
96 NATIONAL ECONOMY iv 
 
 the sea. Preventive officers patrolled the beach, 
 knocking off with poles the incrustations of salt 
 crystals evaporated at low tide, and throwing chemi- 
 cals into the pools to denature the salt. A glance 
 at the map of Italy gives a terrifying idea of the cost 
 of such measures along the seaboard. Add to this 
 the inconvenience and expense of obtaining salt in 
 a regular manner from the comparatively few official 
 depots which were alone allowed to sell it, the 
 limitations upon individual purchases to prevent 
 retailing, and other troublesome regulations, and 
 you have a total of time wasted and money spent 
 in appalling excess of the benefit secured to Govern- 
 ment by the salt revenue. 
 
 This may suffice as illustrative comment upon 
 the ways in which administrative considerations 
 affect the forms of Revenue. I pass to con- 
 sider the administration of revenue departments 
 from the point of view of control. Reference has 
 already been made to the control exercised by 
 stamps. When revenue is collected in cash the 
 machinery of collection should be simplified and 
 perfected as much as possible and loopholes for 
 fraud carefully stopped. A valuable check is 
 afforded by comparative statistics. When a falling- 
 off cannot be accounted for it should be localised 
 and examined by expert inspection, and if no other 
 solution is forthcoming a transfer of officers may be 
 tried with advantage. Test inspection intelligently 
 
IV REVENUE AND ADMINISTRATION 97 
 
 carried out is indispensable even where no suspicion 
 exists. A fraud upon the revenue, when it comes 
 to light, should always be searchingly inquired into, 
 how small soever it may be, and whether the money 
 is recovered or not. It may under the microscope 
 reveal the existence of a danger against which further 
 precautions may be necessary. 
 
 Collectors of revenue should be required to remit 
 promptly and closely to Government the sums 
 which they receive. Apart from the risk of leaving 
 unnecessary balances in their hands it is wasteful 
 to have your funds lying stagnant in a great 
 number of little pools throughout the country, while 
 you are perhaps paying interest upon a temporary 
 overdraft or short loan, which might have been ob- 
 viated or diminished if the money in the pools had 
 been placed in your central reservoir. Departments 
 which require working balances or till money are 
 often great offenders in this respect. If every Post 
 Office retains in hand a larger sum than it reason- 
 ably requires, the cumulative effect is considerable. 
 The tendency of officials to be unduly timorous in 
 this respect is in general very marked. In their 
 anxiety to be on the safe side against emergencies 
 they provide an unnecessarily large margin of safety, 
 and the over-insurance which results is wasteful. 
 The man whose pride is to " take no risks " is 
 often very expensive. " Why have you so large a 
 cash balance ?" asks the Inspector. " To-morrow is 
 
 H 
 
98 NATIONAL ECONOMY iv 
 
 market-day," says the Postmaster, " and I may be 
 called upon to cash a large number of Postal Orders." 
 The Inspector turns over the record. " Out of the 
 last twenty market-days," he observes, " you have 
 issued Postal Orders for a larger amount than you 
 paid on eighteen occasions. On the other two days 
 the difference against you did not exceed 5. If 
 you have no better reason to urge you should remit 
 200 immediately." When experience has driven 
 out fear permanent improvement may be expected. 
 
 Accounts and forms prescribed by the Finance 
 Department as necessary and sufficient for recording 
 receipts are frequently supplemented in individual 
 offices by numbers of additional books, forms, and 
 private memoranda. " Why are all these records 
 kept up ? " asks the Inspector. " I do it for my 
 own satisfaction," says the beaming official, who 
 thinks an excess of zeal venial if not laudable. It 
 is pointed out to him that excess of labour is excess 
 of cost, and that waste of energy must be repressed. 
 A few searching questions may wake up a lifeless 
 routine and induce it to visualise the facts behind 
 the forms. A good inspector of revenue will set 
 his imagination to work, put himself in the place 
 of the collector, and consider how he could dupe 
 the revenue or be duped by the taxpayer. With 
 specialised and widespread experience he should be 
 fruitful in suggestion for improving the machinery 
 of collection. 
 
iv REVENUE AND ADMINISTRATION 99 
 
 To require officials who are responsible for cash 
 to give bond or security is a generally discredited 
 practice. If two men pass the same examination 
 and receive the same salary, but one is employed on 
 clerical work while the other is made a cashier, it is 
 unequal treatment to compel him to pay premiums 
 to a guarantee insurance company without any 
 compensating emoluments. If, on the other hand, 
 you pay special allowances to guaranteed clerks you 
 are paying an insurance against risks which you had 
 better spread and carry direct. Officials who form 
 a mutual society for such insurance may avoid the 
 contribution of profits to a private company, but 
 they are less secure against incompetence, default, 
 and insolvency in their own little society. The 
 fact that in a country like ours responsibility for 
 money usually rests with pensionable officials, who 
 are of some standing and seniority when the amounts 
 are considerable, gives you, as already mentioned, 
 some protection, since fraud will involve a loss of 
 pension rights to that extent an additional de- 
 terrent, or in the last resort a set-off against what 
 you lose. The actuarial value of a man's pension 
 may be many times the amount of his defalcation. 
 
 The French Government requires its collectors 
 of revenue to deposit security upon which interest 
 at 3 per cent is allowed, in effect, as M. Leroy- 
 Beaulieu points out, a forced loan of great magni- 
 tude, now exceeding 20 millions sterling, at a 
 
ioo NATIONAL ECONOMY iv 
 
 low rate of interest. So long as the ranks of the 
 collectors are not depleted Government is not em- 
 barrassed by the necessity of returning the money, 
 the newcomer replacing, or more than replacing, 
 what is paid out to his predecessor or his representa- 
 tives. But apart from the fact that, as already 
 mentioned, Government pays in increased salaries 
 for this form of security, its choice of capable and 
 trustworthy revenue officers is limited by insistence 
 upon ability to deposit the large security required. 
 
 To sum up, without going so far as to say that 
 in revenue matters " whate'er is best administered is 
 best," it is important to notice that administrative 
 costs and difficulties play a large part in deciding 
 the merits and demerits of different forms of revenue. 
 A revenue which costs as much to collect as it 
 brings in adds nothing to the resources of govern- 
 ment. The expenditure of part of the wealth of 
 the country in this way (unless it is justified by 
 other than fiscal reasons) merely supports a parasitic 
 activity. Both on that ground and because of its 
 useless interference with the taxpayer it is contrary 
 to sound economy. 
 
FINANCIAL POLICY AND THE BUDGET 
 
 WE come to policy, and especially to the framing 
 of a Budget. By what principles should you be 
 actuated as an administrator anxious to make the 
 best possible use of the national resources ? I shall 
 repeat little of what is to be found in the textbooks, 
 not because it is unimportant, but because you can 
 read it at your leisure. 
 
 Let us take this from Bacon's Essay Of Great 
 Place : "In the discharge of thy place set before 
 thee the best examples ; for imitation is a globe of 
 precepts. And after a time set before thee thine 
 own example, and examine thyself strictly whether 
 thou didst not best at first. Neglect not also the 
 examples of those that have carried themselves 
 ill in the same place ; not to set off thyself by tax- 
 ing their memory, but to direct thyself what to 
 avoid." Following this advice, let us make the 
 round of a little gallery of fancy portraits. 
 
 Everybody knows the fable of the painter who 
 attempted to produce a picture of exquisite beauty 
 
 101 
 
102 NATIONAL ECONOMY v 
 
 by a -tcirip'csite ' fne*hoJ., selecting a beautiful brow 
 from one model, a nose from another, a mouth from 
 a third, and so on, until he had achieved a monstrous 
 incongruity. If I select and combine a number of 
 ugly features you will not expect the result to be 
 either pleasing or lifelike, or imagine that there is 
 a particular original for any one of the types. 
 
 The first is labelled The Everlasting No. His 
 policy was to keep a still tongue and a tight fist, to 
 give his negative decisions but not his reasons, to 
 say, " Why can't you leave it alone ? " and not to 
 wait for an answer. If it be true that the man who 
 never makes mistakes never makes anything, it is 
 equally true that the man who never makes any- 
 thing is himself Mistake incarnate. When, in addi- 
 tion, his aim is to promote not-doing and not-making, 
 to lie in cold obstruction, stifling the energies of 
 others and arresting progress, his service to his 
 country is grave disservice. Yet this was esteemed 
 by taxpayers, as they buttoned up their trouser 
 pockets, a strong man. He certainly used strong 
 language, having perhaps heard the dictum of Thiers 
 that a certain ferocity is indispensable to a Minister 
 of Finance. In truth such a minister must be firm 
 and valiant, wise and just ; but ferocity is no more 
 an indispensable attribute in him than in a judge of 
 the High Court. As we look at his portrait we 
 remember the words of Burke : " No providence, no 
 sagacity, no power of combination, no comparison, 
 
v FINANCIAL POLICY & THE BUDGET 103 
 
 no judgment. Mere instinct, and that not an 
 instinct of the noblest kind." A well-trained parrot 
 can give you an Everlasting No, and even garnish 
 it with expletives. 
 
 The second portrait is The Everlasting Not Yet. 
 It was his boast to have an open mind. The prose 
 vignettes in which Montyon l sketched Finance 
 Ministers of France include the story of one who 
 entered office before the Revolution, full of zeal and 
 good intentions. He collected suggestions for reform, 
 and was enthusiastic over each. But he invited a 
 second opinion, which usually asserted its superiority 
 by differing in detail or in principle. Rallying for 
 the moment to this opinion he sought a third, or 
 referred back to the previous author, and so on ad 
 infinitum. Always agreeing with the latest opinion 
 but never decided, he settled nothing, and bequeathed 
 to his successor cupboards full of memoranda and 
 counter-memoranda, a host of unsettled questions, 
 nothing achieved. The man we are now considering 
 was wont to say, " If we must have a change let it 
 be as small as possible." He preferred to turn a 
 question rather than to solve it, to patch it up with 
 makeshifts, to tie it up with a bit of string, to establish 
 what he called a modus vivendi. He appointed 
 many Committees of Enquiry and Commissions, 
 whose long and costly labours were generally set 
 
 1 Particularity et observations sur les ministres des finances de France 
 ks plus ctlebres de 1690 a 1791, par le baron de Montyon. Paris, 1812. 
 
104 NATIONAL ECONOMY v 
 
 aside on the lines of his French prototype after 
 reference to other Committees or individuals. St. 
 Augustine confesses that in his unregenerate youth 
 he was accustomed to pray, " O Lord ! convert me ! 
 But not yet." The subject of our study was often 
 forced to confess himself convinced in principle. But, 
 as Bismarck once blurted out, when you say that 
 you agree to a thing in principle you mean that you 
 have not the slightest intention of carrying it out 
 in practice. Golden opportunities were lost. The 
 cobbler's and tinker's work was always giving way 
 and falling to pieces. The rustic waiting open- 
 mouthed for the river to flow by was not more 
 ludicrous than our paltering type waiting open- 
 minded for the stream of arguments, facts, and new 
 developments to run dry. The outside world under- 
 stood him to be a paragon of discretion, " very 
 diplomatic." Those who suffered under him and 
 after him could not be found to rise up and call 
 him blessed. 
 
 Our next portrait is an antithesis, and its title is 
 Something Must be Done. Unlike the man whose 
 mind was always open but never made up, he closed 
 his mind with a premature snap. When anything 
 went wrong he snatched at an expedient without due 
 consideration of the problem and its causes, and 
 treated the symptoms of the disease instead of dealing 
 with its foundations. His work was built upon the 
 sands and little of it remains. His fussy activity 
 
v FINANCIAL POLICY & THE BUDGET 105 
 
 was mistaken for keenness and energy, and the 
 public judged him charitably as a good man and a 
 busy worker, for whom circumstances had been too 
 hard and to whom fate had been unkind. 
 
 We have next The Practical Man, whose motto 
 was to mind his own business and to decide every 
 case on its merits. He had the virtues of his kind, 
 was early at his office and late took rest, eating the 
 bread of carefulness, revelling in countless dossiers, 
 floundering ceaselesslyin aquagmireof forms, accounts, 
 papers, and precedents, but with no time to think. 
 " Might we not," asked one of his colleagues, " do 
 well to find out how they solve this problem in 
 neighbouring countries? " " We have quite enough to 
 do," was the tart reply, " to attend to our own affairs, 
 without troubling ourselves about foreign countries, 
 from whom we have nothing to learn." His clear 
 but shallow minutes, his beautiful penmanship, his 
 undoubted assiduity, filled his minor clerks with 
 admiration, and the opinion spread that here at last 
 was a great man. In fact, to use a vivid Americanism, 
 he was so much too small for his place that he 
 " rattled in his boots." In the language of Huxley, 
 the god of his idolatry was rule of thumb, and he 
 regarded science as speculative rubbish. " The able 
 theorist," he said, " is a man for whom I have no 
 use, of whom indeed I have a profound distrust." 
 To decide every case on its merits was with him 
 a mere glorification of the empirical, the merits 
 
io6 NATIONAL ECONOMY v 
 
 usually consisting of the resemblance to decided 
 cases which had happened to come under his notice 
 and been made the narrow basis of unconscious 
 induction. And so he jogged along in a humdrum 
 routine, minding his own business in blinkers so 
 narrow that he would have conducted any commercial 
 establishment to speedy ruin. How unpractical The 
 Practical Man was when it came to the pinch you 
 may see from a portrait limned by the master-hand 
 of Burke, and this time a reality. 
 
 In his great speech on American Taxation, when 
 he comes to refer to George Grenville, the author of 
 the ill-starred Stamp Act, who had been his friend 
 in private life, Burke pays a tribute to his masculine 
 understanding, his stout and resolute heart, and his 
 undissipated and unwearied application to business, 
 but goes on to say, " Sir, if such a man fall into 
 errors it must be from defects not intrinsical ; they 
 must be rather sought in the particular habits of his 
 life, which though they do not alter the groundwork 
 of character yet tinge it with their own hue. He 
 was bred in a profession. He was bred to the law, 
 which is, in my opinion, one of the first and noblest 
 of human sciences ; l a science which does more to 
 quicken and invigorate the understanding than all 
 the other kinds of learning put together ; but it is 
 not apt, except in persons very happily born, to open 
 
 1 Burke, the son of a solicitor, was himself entered at the Middle 
 Temple, and kept his terms, but was never called to the Bar. 
 
v FINANCIAL POLICY & THE BUDGET 107 
 
 and to liberalise the mind exactly in the same pro- 
 portion. Passing from that study he did not go 
 very largely into the world but plunged into business ; 
 I mean into the business of office and the limited 
 and fixed methods and forms established there. 
 Much knowledge is to be had undoubtedly in that 
 line, and there is no knowledge which is not valuable. 
 But it may be truly said that men too much 
 conversant in office are rarely minds of remarkable 
 enlargement. The habits of office are apt to give 
 them a turn to think the substance of business not 
 to be much more important than the forms in which 
 it is conducted. These forms are adapted to 
 ordinary occasions ; and therefore persons who are 
 nurtured in office do admirably well as long as things 
 go in their common order : but when the high roads 
 are broken up, and the waters out, when a new and 
 troubled scene is opened, and the file affords no 
 precedent, then it is that a greater knowledge of 
 mankind and a far more extensive comprehension 
 of things is requisite than ever office gave, or than 
 office can ever give." * 
 
 The next of our portraits is entitled The Magni- 
 ficent, but the candid call it The Spendthrift and 
 the unfeeling The Bankrupt. The original of this 
 picture believed that Government should spend its 
 money " like a gentleman," by which he meant like 
 a lavish and improvident prodigal. Pretentious and 
 
 1 Speech on American Taxation, April 19, 1774. 
 
io8 NATIONAL ECONOMY v 
 
 costly buildings, parks, and gardens, magnificent 
 roads leading nowhere in particular, unbridled luxury 
 in objects of secondary or tertiary importance, 
 saddled his successors with an empty treasury, a 
 heritage of debt, and with untouched problems of 
 primary necessity from which there was no escape. 
 In modern democracies this type is stifled in its 
 infancy. The taxpayer is up in arms. But in 
 Eastern countries under autocratic government this 
 safeguard is lacking. There are those who say 
 that the popularity of Ismail in Egypt was enhanced 
 rather than undermined by his extravagance. To 
 commit waste upon the inheritance, to play ducks 
 and drakes with the public money, may dazzle the 
 onlookers for a moment like a soaring rocket, but 
 it has the rocket's fate. The diligence required of 
 a Finance Minister is not that he should be as 
 careful of the public money as he is of his own, or 
 even as a prudent man is of his own, but the higher 
 degree of diligence due from a prudent man in 
 dealing with other people's money. 
 
 Only one picture more, The Self-seeker, so 
 hideous that I should like to turn its face to the 
 wall, but " to direct thyself what to avoid " it is well 
 to look at it fixedly. Professor Graham Wallas 
 says : " An English cabinet minister once told me 
 that he could separate the statesmen whom he had 
 known into those whose vision of the future con- 
 sisted of themselves and their * careers,' and those 
 
v FINANCIAL POLICY & THE BUDGET 109 
 
 whose vision consisted of the results on their fellow- 
 men of the policy for which they were working." ] 
 The same thing might be said of permanent 
 administrators ; but in neither case is there a 
 pure dichotomy. The shades of self-seeking may 
 vary from nothing up to everything, and may be 
 combined with a greater or less strain of public 
 spirit. But when this deadly virus is present in 
 the smallest degree whatever National Economy is 
 endangered. Our particular subject was eaten up 
 by this horrible worm of " How will it affect me ? " 
 The general verdict upon him is that he never 
 lifted a finger to help anybody but himself, fawning 
 upon those from whom he had something to hope, 
 arrogant to those from whom he had nothing to 
 fear, taking no real interest in the country, not 
 wishing to know the people or anything about them, 
 but anxious merely to "know the right people." What- 
 ever else a financier may know or not know, the first 
 essential is that he should know his own people. 
 To shut out the light, to close his eyes, not even to 
 wish to see the patient for whom he prescribes or 
 the body politic upon which he operates, is dangerous 
 madness. In its less acute form the malady is still 
 serious. The crabbing of a man of whose abilities 
 you are jealous, the pecking of the ugly duckling, 
 may gravely mutilate the efficiency of the public 
 service. 
 
 1 The Great Society , London, 1914, p. 163 n. 
 
no NATIONAL ECONOMY v 
 
 It is time to emerge from this museum of morbid 
 pathology. The half-dozen types are but a few 
 selected specimens. What may we learn from 
 them ? That the sovereign need is knowledge, 
 knowledge, knowledge, at the back of action, wise, 
 prompt, and energetic. Where there is no know- 
 ledge energy may merely run amok or be as sterile 
 as the activity of the squirrel in a wheel, or paralysed 
 into nerveless, halting, irresolute temporising. Where 
 there is no energy the fruits of the tree of know- 
 ledge lie unused and rotting upon the ground. To 
 give knowledge its effect we must organise it, make 
 it scientific, fit the parts of the machine together, 
 and make it work. 
 
 What sort of knowledge do you need to frame 
 your Budget ? " In order to comprehend the effects 
 of taxation," says Bastable, " it is indispensable to 
 have full statistics as to the distribution of wealth 
 among classes and among localities," 1 to which may 
 be added that it is equally indispensable to under- 
 stand them when you get them. But we should be 
 puzzled to name a country in which such statistics 
 have been compiled. Anyhow, we must do the 
 best we can in this direction. You must know the 
 economic capacity of your people before you can 
 frame any sound opinion of what they can afford 
 to spend, either individually or collectively. Your 
 resources, actual and potential, impose a limit within 
 
 1 Public Finance, 3rd ed., 1903, p. n. 
 
v FINANCIAL POLICY & THE BUDGET in 
 
 which the needs of communities as of individuals 
 must be brought. With one eye upon this limit 
 you proceed to consider your needs. The pages of 
 philosophers refer now and then to a natural order 
 of wants, but little has been done to establish such 
 an order even for individuals and still less for 
 governments. A germ of the subject is found in 
 the text, " Is not the life more than meat, and the 
 body than raiment ? " This does not carry us very 
 far, but far enough to perceive that the lives of the 
 people are a primordial concern, and that the 
 recently stimulated interest in infant mortality is 
 a condemnation of past indifference. Consider the 
 mere economic waste involved in the fact that of 
 every three children born in Egypt to-day only two 
 survive as long as twelve months. 
 
 The wants of a country will develop with its 
 civilisation, which J. S. Mill defined as " progressive 
 desire." In a savage state desires are few and 
 simple. As it advances, what were formerly luxuries 
 become necessaries, which " the custom of the 
 country," in the language of Adam Smith, 1 " renders 
 it indecent for creditable people, even of the lowest 
 order, to be without. A linen shirt, for example, 
 is, strictly speaking, not a necessary of life. The 
 Greeks and Romans lived, I suppose, very comfort- 
 ably, though they had no linen. But in the present 
 times, through the greater part of Europe, a credit- 
 
 1 Wealth of Nations, bk, v, ch. ii. pt. ii. art. iv. 
 
112 NATIONAL ECONOMY v 
 
 able day-labourer would be ashamed to appear in 
 public without a linen shirt, the want of which 
 would be supposed to denote that disgraceful degree 
 of poverty which, it is presumed, nobody can well 
 fall into without extreme bad conduct. Custom, in 
 the same manner, has rendered leather shoes a 
 necessary of life in England. The poorest credit- 
 able person of either sex would be ashamed to 
 appear in public without them. In Scotland, custom 
 has rendered them a necessary of life to the lowest 
 order of men ; but not to the same order of women, 
 who may, without any discredit, walk about bare- 
 footed. In France, they are necessaries neither to 
 men nor to women ; the lowest rank of both sexes 
 appearing there publicly, without any discredit, 
 sometimes in wooden shoes, and sometimes bare- 
 footed." l Precisely similar is the growth of what 
 are considered to be necessary government functions. 
 In the Government of Zululand you do not concern 
 yourself about schools and colleges, art galleries and 
 museums, which it would be " indecent " for any 
 creditable Government in Europe to be without. 
 When Voltaire said that the superfluous is the truly 
 necessary, he meant that if we are content merely 
 to gratify the primitive needs we do not rise above 
 primitive barbarism. 
 
 Self-preservation, and all that it includes, comes 
 
 1 In Mexico pearls and diamonds used to be at least as much 
 necessaries of life as shoes and stockings, according to the anonymous 
 author of Essays on Social Subjects, 2nd series, 1865, p. 123. 
 
v FINANCIAL POLICY & THE BUDGET 113 
 
 undoubtedly in the forefront of national necessities, 
 security from the enemy without and within the 
 gates. I will not detain you by repeating Mon- 
 tesquieu's fable of the people who relapsed into 
 poverty and anarchy because contracts were not 
 observed or enforced and the cement of commercial 
 relations fell away. Arms, Justice, Police, and 
 Public Health we may accept without question as 
 claimants upon Government attention. The order 
 of priority of other claimants must depend largely 
 upon particular considerations, the degree of civilisa- 
 tion, the special characteristics or peculiar require- 
 ments, and the resources of the community. In 
 one country irrigation may take a high place. In 
 another it may come very low down the list. But 
 in every country at a given period there are greater 
 or less degrees of urgency in the demands upon 
 Government. The delicacy of adjustment lies in 
 the fact that we have to aim at maximum utility. 
 There may be exceptional cases of " all in all or 
 not at all," but, in general, with each dose of satis- 
 faction doled out to a particular claimant the 
 urgency of his claims becomes less acute, until we 
 reach a point when, long before he is satiated, it is 
 economical to give some relief to the next on the 
 list, and so on successively. 
 
 Easy finance will not look beyond the sum total 
 of the demands of departments for the needs of the 
 year. Wise Government takes a wider and longer 
 
ii 4 NATIONAL ECONOMY v 
 
 view. Let us assume that, having satisfied yourself 
 that the estimates of expenditure cannot be reduced 
 without injury by eliminating waste, you have de- 
 cided to provide certain sums for certain purposes, 
 new and old. How is the necessary revenue to be 
 raised ? Possibly the estimated revenue on the 
 existing basis of taxation may suffice, and then 
 easy finance will leave things alone. But it may 
 well be that the existing basis of taxation is un- 
 satisfactory, and the need for reform may be strong 
 enough to override the presumption against change. 
 Take a look round at your whole revenue system. 
 Complaints may be rife that this or that particular 
 tax is unequal in its incidence. 
 
 Whoe'er expects a perfect tax to see, 
 Expects what ne'er has been nor e'er will be. 
 
 A class which bears more than its share under one 
 head may bear less on another. What is to be 
 aimed at is fairness on the whole. To secure it on 
 each item is impossible. 
 
 Upon the question, What is fairness in taxation ? I 
 would again refer you to the textbooks. The great 
 criterion of what may be demanded from individuals 
 for the common good is ability to pay, coupled 
 with the ideal of minimum disutility. Just as you 
 want the maximum utility in expenditure so you 
 should aim at the minimum disutility in taxation. 1 
 
 1 Prof. J. S. Nicholson, Political Economy -, London, 1909, iii, 
 
v FINANCIAL POLICY & THE BUDGET 115 
 
 It is not practicable to graduate any but direct 
 taxation, like taxes on income or property. On the 
 other hand, taxation under certain heads may, in 
 its nature, fall only upon the well-to-do. It is now 
 generally agreed that the higher a taxpayer rises 
 in the scale of wealth the greater should be the 
 percentage of his means contributed to the State. 
 Except in the direst necessity, like a crucial war, 
 taxation should not impair the sources of revenue, 
 or sacrifice future to present finance. It is bad 
 policy to kill the goose that lays the golden eggs 
 unless the goose *is one of those depraved birds 
 which eat their own eggs, in which case, if its eggs 
 cannot be trapped, killing is all it is fit for. 
 
 Given a tolerable idea of the wealth of the 
 country, of its distribution by classes and localities, 
 and a careful estimate of the incidence of taxation 
 upon the various ranks of society, you are able to 
 form an opinion of the fairness of existing pressure. 
 Where it is unduly heavy you will endeavour to 
 rectify the inequality. Taxation may conceivably 
 be so high, on the whole, that it is grinding, oppres- 
 sive, striking at the roots of energy, impoverishing 
 the country and lowering the standard of living. 
 Even where this is not the case it may be unjustly 
 distributed, and finally it may be so ill -conceived 
 or badly administered that it is wasteful, cost- 
 ing the country, one way and another, a great 
 deal more than it brings in to the Exchequer. 
 
n6 NATIONAL ECONOMY v 
 
 All these defects call for reform. The principle 
 stated by Arthur Young, which still finds some 
 advocates, that the ideal system of taxation presses 
 lightly upon several points and heavily on none, 
 has no practical value. " Heavily on none " is 
 excellent if the needs of Government can be met ; 
 but a multitude of petty taxes is, in the final 
 analysis, unduly irritating, burdensome, and ex- 
 pensive, and a society would be strangely constituted 
 in which a revenue so raised did not overtax the 
 poorer classes. 
 
 What is the burden of taxation ? Not the 
 whole revenue of the State, which includes many 
 receipts from other sources. Not the whole yield 
 of taxation in the gross and before deducting costs 
 of collection, for some taxation so called, like the 
 land tax, is, as we have already seen, no burden 
 upon many (if not all) of those who now pay it. 
 Suppose I pay 100 a year to Government, am I 
 to regard this as my burden ? Only by an abuse 
 of language. In return I receive from the State, 
 directly and indirectly, services which are probably 
 so valuable to me that in a country like England 
 few citizens, after providing for what is strictly 
 necessary, spend their free income upon objects of 
 greater social utility than those for which the State 
 revenue is intended. If I buy a loaf from the baker 
 I do not complain that the payment is a burden. 
 I get my money's worth, and therefore make the 
 
v FINANCIAL POLICY & THE BUDGET 117 
 
 exchange cheerfully, preferring the loaf to the 
 money. In return for my taxes I get the services 
 of the State, the Army and Navy, the Education 
 Department, and the other organs of government, 
 without all which income, property, perhaps life 
 itself, might be denied me. The crucial test for 
 the critic of Government activity is whether the 
 money taken from taxpayers by the State to be 
 expended for their benefit is more wisely expended, 
 in the broadest sense, than if it had been left with 
 the taxpayer. In countries where soldiers are con- 
 scripted for the supreme need of National Defence, 
 the right of the State to call up annually such 
 income as it really needs for the general benefit 
 can hardly provoke question. Where there is on the 
 whole a clear gain in utility, the extension of State 
 functions or State action needs no further defence. 
 
 You may of course say, " What I am compelled 
 to pay is no less a burden because I get something 
 in return." In a sense, if you like, the burden is a 
 burden, but not in a sense which justifies complaint 
 or appeal for compassion if you get an adequate 
 return. 
 
 How far is Finance to be regarded as an engine 
 of police or an instrument for advancing social 
 equality ? Proposals are sometimes made to tax out 
 of existence what are regarded as nuisances, and if no 
 better mode of abating them can be found, taxation 
 may be desirable. If the tax were completely successful 
 
ii8 NATIONAL ECONOMY v 
 
 it would yield no revenue, and would offer no fiscal 
 attraction to a Minister of Finance. It may, if 
 partially successful, repress the general use of a 
 dangerous commodity like a very heavy duty upon 
 morphia or cocaine or may lessen the eyesore of 
 public advertisements, and may at the same time 
 yield some revenue. Even if the importation or 
 consumption of a drug like hashish were strictly 
 prohibited, the Finance Department must be charged 
 through the Customs and the Coast Guard with the 
 repression of smuggling. The various departments 
 of Government are, in fact, like the fingers of a hand, 
 and must help each other when required. There is 
 no general presumption in favour of keeping Finance 
 in a watertight compartment. The arguments against 
 using the taxing power to correct the unequal dis- 
 tribution of wealth by taking away from the rich 
 to benefit the poor are discussed by Mill. To strike 
 off the heads of the tall poppies is not in itself a 
 wise economic policy. The conclusion at which 
 Mill arrives in condemnation of the general principle 
 is too absolute to be defended where the taxation is 
 justified not on vindictive grounds or on abstract 
 principles of social justice but on the concrete ground 
 of a net gain of social utility. That it can be so 
 justified in many cases hardly admits of a doubt. 
 
 The maxim of " taxation for revenue only " is one 
 which we never have seen, and are less and less 
 likely to see, strictly applied. Into the controversy 
 
v FINANCIAL POLICY & THE BUDGET 119 
 
 between Free Trade and Unfree Trade I do not 
 purpose to enter. If it is argued, on one side, that 
 under Free Trade you will have a greater total of 
 national wealth, and, on the other, objected that this 
 is not the aim of your national policy, but that your 
 ideal can only be attained by forgoing some material 
 advantage, the question to be settled is whether you 
 are paying too dear for your whistle or whether it is 
 more serviceable to you than its cost, a question 
 upon which economics and statistics cast a powerful 
 light. I wish rather to confine attention to practical 
 administrative questions than to dogmatise about the 
 economic side of financial policy. 
 
 Assuming, then, that it is decided to increase taxa- 
 tion, that the increase will not be unduly onerous or 
 wasting in its effects, and that you have before you 
 alternative proposals, all of them consonant with 
 fairness, what practical considerations are to be 
 borne in mind ? Jevons enumerates ten reasons why 
 a tax may be bad " because it is subject to 
 
 1. Fraudulent evasion. 
 
 2. Non-fraudulent evasion. 
 
 3. Costliness of collection, as regards the 
 
 Government. 
 
 4. Costliness to the public in money. 
 
 5. Loss of time and trouble on the part of the 
 
 public. 
 
 6. Interference with home trade. 
 
 7. Interference with foreign trade. 
 
120 NATIONAL ECONOMY v 
 
 8. Unpopularity. 
 
 9. Incidental objections. 
 
 I o. Inadequacy of returns." ] 
 
 " Taxation," he adds, " is not a subject in which 
 principle alone can guide us ; though a high place 
 must be given to principle, all the circumstances 
 must be taken into account." 2 
 
 Except in direct taxation the incidence of new 
 taxes is often difficult to estimate. A knowledge 
 of family budgets is one of the first requisites for 
 judging the effect of customs and excise duties ; a 
 knowledge of the habits of the people and the 
 methods and practices of traders or others affected 
 by stamp duties is needed before you can estimate 
 the fiscal and non-fiscal results of stamp duties, and 
 so on. Each problem must be attacked separately. 
 Economics and statistics are sharp dissecting tools 
 which, properly applied, will go a long way in leading 
 you to a conclusion. Knowledge may first step in 
 and try her hand at a solution, but Wisdom must 
 finally decide, and it may sometimes happen that in 
 her judgment the imponderables prevail. 
 
 For the technique of the Budget you may refer 
 to the excellent work of M. Ren Stourm. 3 Hold 
 fast to two principles Annuality and Universality. 
 The revolving year gives you a unit of time in which 
 the produce of the land and labour of the country 
 
 1 Principles oj Economics t 1905, p. 211. 2 Id. p. 213. 
 
 3 Le Budget, sixieme edition, Paris, 1909. 
 
v FINANCIAL POLICY & THE BUDGET 121 
 
 comes full circle. A shorter period would give results 
 affected by greater fluctuations. A longer period 
 not only adds to the difficulty of prevision, but in 
 constitutional countries limits the control of the 
 popular representatives. For this reason the German 
 Reichstag rejected Bismarck's proposal for biennial 
 budgets. The blurring over of the line between 
 annual budgets by heel-taps, the carrying over of 
 unexpended credits from one year to another, are 
 practices to be avoided. 
 
 By the universality of the Budget is meant the 
 bringing of all revenue and all expenditure into one 
 general Budget. The old device of an ordinary and 
 an extraordinary Budget, the one providing for 
 normal recurring expenditure and the other for 
 exceptional expenditure which it is hoped will not 
 recur, is now generally discredited. It survives in 
 Russia, and in war time is not likely to be abandoned. 
 But in times of peace the exceptional is always with 
 us. Nothing is gained and something is lost by 
 the failure to present the estimates of the year 
 " in one mass and in one account." In time of 
 war our device of a Vote of Credit offers an alterna- 
 tive open to discussion to an extraordinary Budget 
 as a method of dealing with really extraordinary 
 emergencies. 
 
 A word may be added as to Grants in Aid. 
 When you spend your money directly through Govern- 
 ment agents you are responsible for seeing that you 
 
122 NATIONAL ECONOMY v 
 
 get your money's worth. But it may be desirable 
 to subsidise local authorities, learned societies, or 
 private institutions by a donation or subscription 
 over the expenditure of which you have no direct 
 control. In all such cases you should reserve the 
 right to satisfy yourself ex post facto that the grant 
 has been wisely used and that its continuance is 
 justified by its efficiency before renewing it. Mr. 
 Sidney Webb's Grants in Aid 1 will make clear to you 
 the great importance of this subject. 
 
 What shall I say more ? A hundred lectures 
 would hardly suffice to examine exhaustively the 
 subject of the Budget, even in its administrative 
 aspects. I have contented myself with indicating 
 the spirit in which it should be framed. Let me 
 add a word as to the spirit in which it should be 
 received. The Budget looms very large in sight of 
 the average citizen. Budget night is for him the 
 occasion of a great and interesting speech in the 
 House of Commons, when proposals for new ex- 
 penditure are justified by disclosing the outline of 
 new policy. But his main interest is centred in the 
 questions, What changes are there to be in taxation ? 
 And how will they affect me ? Yet a Budget, 
 properly considered, is not a mere matter of how 
 new revenue is to be raised. It is a balance-sheet 
 of estimated revenue and expenditure, and "good 
 finance," according to Mr. Gladstone, " consists more 
 
 1 Grants in Aid: a Criticism and a Proposal, 1911. 
 
v FINANCIAL POLICY & THE BUDGET 123 
 
 in the spending than in the collecting of revenue." l 
 Why the revenue received differs from the revenue 
 expected, why the expenditure actually incurred 
 diverges from the estimate, whether the expenditure 
 can be reduced without impairing efficiency are ques- 
 tions of the highest importance. Is an extra penny / 
 put on the income tax in times of peace ? Every- 
 body is interested. Can the extra penny be avoided 
 by an economy of two millions ? Who knows ? And 
 yet, as Mr. Taft says, the question affects the interest 
 of every person living within the jurisdiction of the 
 country. If the evolution of financial history teaches 
 us anything, it is that the needs of Government have 
 increased, are increasing, and are likely to increase. 
 The problems of the future of growing insistence 
 are how far and in what form are the resources of 
 the country to be absorbed by Government, to what 
 purposes and in what manner can these resources be 
 best applied in the interests of National Economy ? 
 The answers will not come from earthworms burrow- 
 ing in their material with no power of elevating 
 themselves above it, nor from philosophers in the 
 clouds who see the map of the country but are too 
 remote to see its workers. Knowledge of detail 
 must be organised, systematised, shot through with 
 the organic filaments of science and philosophy be- 
 fore the constructive intellect is sufficiently illumin- 
 ated to find or build the most excellent way. 
 
 1 Sir A. West, Recollections of Mr. Gladstone, ii. 309. 
 
VI 
 PUBLIC DEBT AND HAUTE FINANCE 
 
 WE come now to the melancholy subject of debt 
 
 and 
 
 that eternal lack of pence 
 That vexes public men. 
 
 The public debts of the Great Powers of Europe 
 will vex both public and private men for many 
 years to come, though high authorities seek to 
 comfort us by assurances that a National Debt, so 
 long as it is held within the country, is not a 
 national burden ; that whether we meet our necessary 
 national requirements by creating debt or by in- 
 creasing taxation is, in the long run, all the same 
 to posterity ; and even that an increase of National 
 Debt is a blessing in disguise, a safe security for 
 home investors, a socialisation of national capital, 
 and a stimulus to increased productiveness and 
 thrift on the part of the taxpayer. 
 
 One of our leading writers on finance holds that 
 a foreign loan for other than reproductive purposes 
 " leaves both the nation and the individual per- 
 
 124 
 
vi PUBLIC DEBT & HAUTE FINANCE 125 
 
 manently poorer, and with a continuous burden to 
 meet in the shape of interest and sinking fund 
 until the loan has been redeemed. Loans raised 
 at home have an essentially different effect. The 
 interest on them is raised from the taxpayers and 
 paid back to the taxpayers, and the nation, as a 
 whole, is none the poorer." l From The Economist 
 of July 29, 1916, I take the following: "The 
 interest on our War debt should not be subtracted 
 from the amount that we were able to save before 
 the War. It will be gathered from the taxpayers 
 and paid to the holders of our debt in so far as our 
 debt is raised at home, and the cost of collection 
 and distribution of this sum will be the only charge 
 on the income of the nation as a whole." 
 
 Another well-known authority, one of the editors 
 of The Statist, says : " The effect of the great debt 
 the country was now creating would merely be to 
 transfer spending power from the whole community 
 to the people who subscribed the loans. . . . Imagine 
 the amount of new capital that would be available 
 after the War when instead of 5 millions of Consol 
 dividends they might have quarterly nearly 50 
 millions of Government interest. Beyond that 
 there would be a sinking fund for the redemption 
 of our huge debt. It would be impossible to allow 
 a debt of from 3000 millions to 4000 millions to 
 be unredeemed. They must have a big sinking 
 
 1 Hartley Withers, International Finance , 1916, p. 174, 
 
126 NATIONAL ECONOMY vi 
 
 fund, and that sinking fund would be the contribu- 
 tion of the nation in its collective capacity to the 
 capital of the country." 1 
 
 If all this is true, the philosopher's stone of 
 finance is at your hand. You may raise new loans 
 within the country with a light heart, and need 
 have little anxiety about the rate of interest or the 
 extinction of debt, old or new. 
 
 These arguments tacitly assume that if Govern- 
 ment had not been compelled to make the expendi- 
 ture which has driven it into the loan market, the 
 home investor would have derived no profit from 
 his capital. They regard the charge upon the 
 taxpayer to meet the interest on the new debt as 
 compensated by the gain to the fundholder, or tax- 
 eater as Cobbett called him. But the fundholder 
 may gain little or nothing in money income from 
 investing his capital in Government debt instead of 
 in something else. He may even from patriotic 
 motives deliberately incur a loss by diverting his 
 old capital, or directing his new capital, into this 
 particular channel. If we assume that every citizen 
 is equally wealthy, equally taxed, and subscribes 
 equally to a Government loan, the dividend which 
 he receives will be precisely counterbalanced by 
 his share of the increased charge for interest, or 
 more than counterbalanced if a charge is also made 
 
 1 Sir G. Paish, " War Finance," in Journal of the Royal Statistical 
 Society, May 1916, pp. 298-99. 
 
vi PUBLIC DEBT & HAUTE FINANCE 127 
 
 for management and sinking fund or amortisation 
 of the loan. So far as his annual balance-sheet is 
 concerned, he is no better off than if Government 
 had commandeered the capital he subscribed, with 
 a promise of ultimate restoration, but without interest. 
 He will have lost the use of his capital without any 
 monetary compensation. What he really gets in 
 return is the service which Government renders to 
 him and the country with the money which it has 
 borrowed. 
 
 Here we get to the true criterion. If the loan 
 is for other than reproductive purposes Mr. Withers 
 admits that " it leaves both the nation and the 
 individual permanently poorer," provided it is raised 
 abroad. But a domestic loan for the same purposes 
 will have the same result. A foreign loan has, on 
 the one hand, the inconvenience attendant upon 
 sending coupons and dividend warrants to a foreign 
 creditor, and may have some slight effect upon the 
 foreign exchanges. But on the other hand must be 
 set off the original influence and convenience of the 
 influx of capital from abroad, avoiding the disturbance 
 of the home money market, and freeing a correspond- 
 ing amount of home capital to go about its business 
 in other ways, possibly even for counterbalancing 
 investment abroad, instead of being called up by 
 the State. 
 
 If a National Debt is not a national burden so 
 long as the dividends are distributed within the 
 
128 NATIONAL ECONOMY vi 
 
 country, it is difficult to see how taxation can be 
 a charge on the national income so long as its 
 proceeds are spent within the country, or how the 
 nation can become permanently poorer by extrava- 
 gance upon its home services. The fact is that 
 geography has very little to do with these questions. 
 The point to be looked to is, what does the tax- 
 payer get for his money ? In the case of debt, what 
 use was made of the principal upon which he is 
 required to pay interest? 
 
 The argument that borrowing casts no greater 
 burden upon posterity than taxation is as specious 
 as it is dangerous. Government is suddenly obliged 
 to absorb an increased amount of the capital of the 
 country. It is maintained that to take it all at 
 once imposes upon the country a load mathematic- 
 ally equal to spreading it over a term of years. 
 This mechanical view, that it is a mere matter of 
 distribution in time, takes no account of the psycho- 
 logical effect of taxation and its reactions. Increased 
 taxation within limits may stimulate frugality, may 
 even involve pinch and privation, and may be an 
 incentive to greater energy in production. A spring 
 reacts the more strongly as the pressure upon it 
 increases, provided always that we do not break the 
 spring. It would indeed be deplorable if the tax- 
 payer believed that present sacrifice and extra effort 
 will not make things easier for those who come after 
 him, that a spurt now will so take it out of him 
 
VI PUBLIC DEBT & HAUTE FINANCE 129 
 
 that the race will be just as long in the end, and 
 that it is unnecessarily cruel to bear heavily upon 
 him now by taxation when it would have done 
 equally well to spread the burden over a number of 
 years. 
 
 The last argument that a National Debt is a 
 blessing in disguise is a sophistry so often advanced 
 and refuted, especially in the first half of the last 
 century, that it is sufficient to refer you to the histories 
 of economic theory. The same crisis which calls for 
 a great increase of debt may stir a new spirit within 
 a nation, and this renaissance may be a blessing 
 without disguise. But neither the spirit nor the 
 strength born of it is the result of debt. Imagine a 
 profligate tyrant wasting the national resources by 
 senseless, selfish extravagance, or by wanton and 
 unsuccessful aggression upon a peaceful neighbour, 
 piling up an internal debt which has left no wrack 
 of national benefit. By what reasons will you 
 persuade the taxpayer that the debt is something 
 for which he should be thankful ? If a domestic 
 National Debt has all the advantages claimed for it, 
 the short cut to Utopia is to go on increasing it at 
 whatever rate of interest is sufficient to attract new 
 lenders, which is absurd. 
 
 In discussing whether a loan is or is not reproduc- 
 tive, it is well to ask reproductive of what ? For 
 Governments as for individuals it is good business 
 to borrow for purposes which yield a clear, immediate, 
 
 K 
 
130 NATIONAL ECONOMY vi 
 
 and permanent financial profit, in which case the 
 effect of the loan is not to burden but to relieve, not 
 to impoverish but to enrich. It is seldom, however, 
 that such clear cases occur in practice as a justifica- 
 tion for increasing National Debt. It may be that 
 large schemes of land reclamation or afforestation 
 may hold out an excellent prospect of proving in 
 the long run successful operations, even from the 
 purely commercial aspect. Or again, Government 
 investment may ultimately promote public welfare 
 so effectually that the revenue of Government may 
 indirectly be appreciably enhanced. But the end 
 and aim of economy is to maximise utility and not 
 wealth. National expenditure, whether out of taxes 
 or out of loans, is justified by a clear gain of utility, 
 securing for the community something which it 
 prizes more than the wealth by which it is purchased. 
 If you spend a round sum for a surgical operation 
 which saves your life, you will hardly be pleased with 
 the suggestion that the expenditure was not " repro- 
 ductive." All that a man hath will he give for his 
 life ; and where honour is dearer than life, nations, 
 like individuals, will deem wealth well lost in safe- 
 guarding their existence or keeping their honour 
 untarnished. In such extremes the " nicely-calculated 
 less or more " is very little considered. 
 
 Where, however, the borrowing is facultative, you 
 should remember that the utility of wealth varies with 
 its abundance. An extra sovereign has great utility 
 
vi PUBLIC DEBT & HAUTE FINANCE 131 
 
 for a beggar but little for a millionaire. It follows 
 that you are not necessarily justified in embarking 
 upon new expenditure, either by taxation or by 
 borrowing, merely on the ground that there will be 
 an undoubted gross return in national welfare. The 
 state of the country and its national finances may 
 make the amount involved so valuable to you for 
 other purposes that the disutility of the cost may 
 outweigh the utility of the return. The vital juices of 
 the body politic must not be exhausted by spending 
 or borrowing beyond what it is able to secrete. This 
 limit is relative to the society concerned. Many 
 writers consider that not more than one-sixth or 
 one-seventh of the national income of a country can 
 be absorbed by Government (central and local) with- 
 out seriously impairing the development of wealth. 
 Such assertions are worth very little. The question, 
 What does Government give back? is vital. A tenth 
 of the national income might be an almost impos- 
 sible demand to make of a very poor community, 
 two-tenths might be relatively light in a very wealthy 
 country which has plenty to spare. When the 
 standard of living is lowered the danger-point has 
 been reached or passed. 
 
 A word of warning may be useful as regards 
 borrowing to acquire or extend State monopolies. 
 The purely commercial factors may not be all- 
 important. They may not even dominate the 
 decision. But so far as they go, it is important to 
 
 K 2 
 
132 NATIONAL ECONOMY vi 
 
 remember that the so-called profit may involve an 
 element of taxation or compulsory contribution 
 through price if your tariff rates now or in the 
 future are higher than the rates which would have 
 been charged by private enterprise for an equally 
 good service. In all cases where the gain to the 
 revenue is problematical, you must consider not only 
 whether you can afford the expense and whether it 
 is " worth while," but whether it is the " best worth 
 while." Additional debt, in so far as it involves 
 additional net charge upon future revenue, weakens 
 your credit and your power to borrow at a low rate 
 in the future. An expansion of public debt, like 
 an expansion of private credit, tends to increase 
 prices. Abnormal situations may require excep- 
 tional treatment, but in general it is wise to carry 
 taxation as far as it can safely go before spread- 
 ing charges over future years. " Keep out of debt," 
 " Keep down your debt," are wise ideals. To borrow 
 for purposes which are unproductive of revenue, or 
 whose utility is so evanescent that future genera- 
 tions will have to support an interest charge without 
 any benefit from the loan, is to impair the situation 
 of posterity, which will have its own burdens to bear 
 and ought not to be weighed down by the dead hand 
 of improvident ancestors. Remember that a debt 
 charge cannot be cut down in bad times. When 
 you are in urgent need of retrenchment, your freedom 
 of action is circumscribed by fixed charges of this 
 
vi PUBLIC DEBT & HAUTE FINANCE 133 
 
 kind. Finally, large Government borrowings, by 
 increasing the cost of capital needed for private 
 enterprise, and by creating a large class of rentiers 
 whose dividends enable them, if they so please, to 
 live in idleness, militate against the maximising of 
 national resources and tend to diminish the share of 
 the more active agents in production. 
 
 If a big debt is administratively a bad thing, its 
 reduction is an administrative virtue. It may be 
 called for in common fairness, as when you borrow to 
 purchase or extend a telephone or railway system. 
 As time goes on, the material purchased out of the 
 loan can no longer be repaired, but needs to be 
 scrapped and renewed. If the loan has not by this 
 time been extinguished, the taxpayer of the future 
 will be paying interest upon the cost of plant which 
 no longer exists. In all such cases a sinking fund 
 should be set up to wipe out the principal when the 
 life of the plant has come to an end. Sales of 
 Government land or other national capital should 
 always be carried to a sinking fund. Otherwise the 
 present will profit at the expense of the future. 
 Windfalls, such as escheated estates and surpluses 
 on the year's working, are naturally added to the 
 systematic provision made for reducing the permanent 
 debt. If, however, in spite of your wholesome horror 
 of new debt, you are unable to maintain your sinking 
 fund without borrowing, it is futile to borrow with 
 one hand to pay back with another. When the 
 
134 NATIONAL ECONOMY vi 
 
 only alternative to new borrowing is to suspend the 
 sinking fund in part or in whole, you may face 
 criticism with confidence. 
 
 A special reserve fund for such a purpose as to 
 guarantee the convertibility of a Government note 
 issue needs no explanation, but the existence of a 
 general reserve fund side by side with a national 
 debt may appear anomalous. Where the credit of 
 Government is very good, its freedom of borrowing 
 unshackled, and its power to raise promptly a con- 
 siderable loan is undoubted, such a reserve is seldom 
 necessary. Apart, however, from a war-chest, circum- 
 stances may make it very desirable that Government 
 should have liquid resources immediately available to 
 meet an urgent necessity when experience shows that 
 it may at any moment be confronted with sudden 
 calamity such as volcanic eruption, earthquake, 
 drought, famine, flood, pestilence, or hurricane. The 
 example which most readily occurs to us is that of 
 Egypt, whose prosperity is bound up with the flood 
 of the Nile. A bad Nile may mean widespread 
 barrenness, a much -reduced Government revenue, 
 expensive relief to avoid starvation, and difficulty in 
 meeting the claims of foreign creditors. A very high 
 flood threatening the sweeping away of river banks, 
 villages, crops, cattle, and even inhabitants, is also 
 to be feared. In the past a new loan required the 
 assent of the Turkish Government, which it was not 
 practical politics to seek. A reserve fund was there- 
 
vi PUBLIC DEBT & HAUTE FINANCE 135 
 
 fore maintained as a form of insurance. Thanks to 
 this fund, the Government was able to weather with- 
 out extraneous assistance the crisis of 1913, when it 
 encountered the lowest Nile ever recorded a disaster 
 attenuated but not completely counteracted by such 
 great works as the Assuan dam. 
 
 Floating or temporary debt is usually debt which 
 Government hopes to extinguish before it becomes 
 necessary to crystallise it into an addition to the 
 permanent debt. The British Income Tax is not 
 except at the source collected until the last quarter 
 of the financial year. In agricultural countries 
 Governments find it expedient to defer the collection 
 of the bulk of their taxation until after the harvest. 
 It follows that in the early months of the year ex- 
 penditure outruns the revenue, and Government then 
 resorts to temporary borrowing, which it discharges 
 towards the end of the financial year. As it is usually 
 able to borrow much more cheaply than the private 
 citizen, such expedients are, on the whole, of great 
 national convenience. It may, however, happen in 
 emergencies that Government is driven by stress of 
 circumstances to go on adding to its temporary debt 
 by short tacks of borrowing until the amount of float- 
 ing debt is so large, and the prospect of its early 
 redemption so unfavourable, that a suitable moment 
 must be sought for funding part or whole of the 
 temporary debt into a permanent loan. If the debt 
 is one which Government expects to be able to pay 
 
-136 NATIONAL ECONOMY vi 
 
 off in a short time, say three, five, or seven years, it 
 may issue short-term securities like Exchequer Bonds. 
 If it is hoped to pay off the debt in a still shorter 
 time, say within the year, Treasury Bills for three or 
 six months are suitable. If the amount is compara- 
 tively small and the period very short, an overdraft 
 at the bank may be arranged. I need not detain you 
 by an account of the various forms of floating debt 
 You will find in the Life of Walter Bagehot the story 
 of his suggestion of the idea of Treasury Bills, the 
 opposition of the Treasury to the idea, its ultimate 
 adoption and triumph. Treasury Bills are the most 
 successful device yet discovered for floating debt of 
 short currency. Even Consols fluctuate in value. 
 Within a comparatively brief period they have lost 
 about half their value. But a Treasury Bill or promise 
 of the British Government to pay a sum certain at a 
 fixed date a few months hence in return for an 
 immediate advance of a smaller amount is, humanly 
 speaking, risk-free. The short currency of the Bill 
 is an added inducement to the investor who dislikes 
 tying up his money inconveniently, and the Bill 
 normally appreciates in value from day to day until 
 maturity. By inviting tenders for such Bills, Govern- 
 ment gets the best market price for them. The 
 necessity of renewing them from time to time gives 
 some extra trouble, and is attended with some uncer- 
 tainty owing to the fluctuations of the Money Market, 
 but these are comparatively insignificant drawbacks. 
 
vi PUBLIC DEBT & HAUTE FINANCE 137 
 
 Professor Bastable observes that : " As a general 
 principle of finance it is unquestionable that the 
 floating debt should be kept within the narrowest 
 limits possible. ... A growth of floating charges is 
 at best a mark of weakness in the treatment of the State 
 liabilities. . . . The great evil of a floating debt is its 
 uncertainty. To be open to the risk of a sudden 
 demand for payment is to be in the position of a 
 banker without the securities with which he provides 
 himself; and it is precisely in times of commercial 
 difficulties that the call is most likely to be made." He 
 adds that " it might indeed be suggested that the float- 
 ing obligations should never exceed a year's interest 
 on the funded debt, but when the latter is very small 
 this rule could hardly be applied, and that of keeping 
 the temporary charges under one-fourth of the annual 
 revenue might be substituted." ] We need not suppose 
 that this is a condemnation of present financial policy. 
 Inter arma silent leges, and before a state of war the 
 financial philosopher must bow. But in any event, a 
 mechanical limitation of this kind, or the belief that 
 a growth of floating charges is a mark of weakness, 
 is of doubtful validity. 
 
 The task of seeing that you have in hand sufficient 
 funds to meet your expenditure from day to day 
 is facilitated by centralising your payments in the 
 hands of a Paymaster-General, or, if the country is 
 very large, of District Treasuries, as in India, and of 
 
 1 Public Finance, 3rd edition, 1903, pp. 694-95. 
 
138 NATIONAL ECONOMY vi 
 
 keeping your paying centres in adequate funds for 
 the purpose. To pack your funds into watertight 
 compartments is bad economy. Separate accounts 
 are one thing and separate funds another, as you 
 may see on reflecting upon the position of the 
 banker who has a large number of separate accounts 
 but pools his money into one fund. Keep all your 
 funds in one purse. How it should radiate from that 
 central source is a matter of formal financial adminis- 
 tration upon which you will find ample information 
 in the " Report of the American Commission on 
 Efficiency and Economy," l and especially in the 
 great library of financial literature issued by the 
 American Monetary Commission. 
 
 The relations of Government to banking and 
 currency questions can only be glanced at. To 
 provide the country with sound currency is the duty 
 and high prerogative of Government, and without 
 going so far as to endorse the theory of Macleod that 
 Credit is Currency, it is undoubted that a laissez- 
 faire policy of unregulated credit would be fraught 
 with danger to the community. The note-issue, if 
 not in Government hands, must be under strict 
 Government control. Before the War our smallest 
 note south of the Tweed was for 5. The restric- 
 tions upon issue were as inelastic as cast-iron, and 
 as ancient as 1 844. The criticisms of Ernest Seyd, 
 the proposals of Mr. Goschen, the practice of other 
 
 1 The Need for a National Budget, Washington, 1912. 
 
vi PUBLIC DEBT & HAUTE FINANCE 139 
 
 countries failed to shake us out of the rut. In this 
 respect, as in others, the War has stirred new ideas. 
 The great question whether the gold standard is now 
 hopelessly antiquated, whether as a measure of value 
 it is not discredited by expanding and contracting to 
 an alarming extent with widespread injury to the 
 community, and whether, by international agreement, 
 an index-number should be used to compensate its 
 variations, is exciting serious attention, especially in 
 the United States. You may refer to the writings 
 of Professor Irving Fisher to appreciate the signifi- 
 cance and the actuality of this problem. In questions 
 of currency and credit we approach very near to 
 pure economic theory, but a thorough knowledge of 
 history and a fair acquaintance with business practice 
 are essential concomitants of sanity in these matters. 
 You may remember that at the head of Comte's ideal 
 Government was a triumvirate of bankers, bankers 
 being placed by their occupation in a favourable 
 situation for observing the movements of the great 
 wheel of commerce. To fail to obtain the opinions 
 of the business community, representative of banking, 
 city, and Stock Exchange experience, before carrying 
 out measures which affect them, and through them 
 the country at large, is unthinkable ; but it is well, 
 indeed, when you are able to weigh their opinions 
 and arguments (by no means unanimous) in the scale 
 of an enlightened and unbiassed judgment, and to 
 distinguish between the view which looks to the 
 
140 NATIONAL ECONOMY vi 
 
 ripples and the waves and the view which takes 
 account of the slow but inexorable tides. High 
 finance, though it has a theatrical glamour from the 
 magnitude of its operations, rests upon the same 
 simple foundations of organised common sense as 
 smaller business. Public credit does not differ in 
 theory from private credit. There is no esoteric 
 mystery about it. Yet the wayfaring man, ready 
 with an opinion upon political questions of great 
 difficulty and complexity, veils his eyes before the 
 problems of public finance which closely affect him, 
 as though they were beyond his intelligence and 
 must be left to experts to decide. 
 
 These lectures have been mainly concerned with 
 elementary notions of financial administration in 
 general, but I will ask you, in. conclusion, to consider 
 briefly the financial outlook, the coming problems 
 of national economy. The French Minister of 
 Finance, in a speech to the Senate on the I5th Sep- 
 tember last, said : " The Finance Minister after 
 the War will have very heavy burdens. He will 
 have a task almost as difficult as that of the Minister 
 who holds office during the War." The task of 
 clearing up, even after a successful war, is very 
 expensive. War pensions and war debt will, as 
 M. Ribot points out, be heavy charges. Sir Robert 
 Giffen was seldom able to conceal his impatience 
 when a few years ago people spoke of " bloated 
 armaments " and " oppressive " taxation for military 
 
vi PUBLIC DEBT & HAUTE FINANCE 141 
 
 and naval purposes. He maintained that such 
 language was a mere survival of political complaint 
 after the struggle with Napoleon, that it argued an 
 absence of any sense of proportion between our 
 financial strength, our needs, and our burden. In 
 his somewhat whimsical way he once told me that 
 five minutes' extra work every day throughout the 
 country would pay for the Army and Navy com- 
 bined. Time will show on what scale our future 
 measures of defence will be deemed necessary. The 
 arts of peace threaten, perhaps, further inroads 
 upon Government expenditure than the arts of war. 
 Already in 1912 Sir O. Lodge was writing : " Our 
 National Government is for all good purposes 
 miserably poor. I fear there is sad waste some- 
 where, and that before the taxes can be judiciously 
 raised the sources of waste must be discovered and 
 checked. You have fine public servants who are 
 trying to do their best with an ancient and very 
 cumbrous and over - centralised machine ; much 
 revenue has to be spent in various unprofitable 
 ways, wars and other, but in every good and noble 
 direction of expenditure the country is miserably 
 poor. Where it is economical it should be lavish, 
 and where it is lavish it should be economical. 
 That is an exaggeration, but there is a kind of 
 truth underlying it. Our national economy in 
 higher education is having disastrous results, it is 
 a real danger to the Nation. While other nations 
 
142 NATIONAL ECONOMY vi 
 
 are investing millions of public money on higher 
 education and research, we prefer to keep the money 
 in our pockets in order to spend it privately, and 
 the result is that while the State is poor the 
 individual is rich." J 
 
 Look at it as we may, tenderness for the tax- 
 payer's pocket becomes by imperious necessity less 
 and less marked. The necessary burden must be 
 borne. Bad finance may aggravate it. The best 
 finance cannot by any ingenuity of readjustment 
 conjure it away. The strength of the country to 
 bear it is variously estimated. In his Financial 
 Chapters of the War? Mr. A. D. Noyes says that 
 nothing has occurred to drive England's commerce 
 from the seas, that however much her accumulated 
 store of capital may be reduced by the prodigious 
 waste of war the proportionate reductions in the 
 case of her European competitors will have been 
 vastly greater, and that the United States with 
 the developing of its own resources certain to 
 absorb the greater part of its own accruing capital 
 cannot for years to come be fitted economically 
 for the world's central money market. He adds 
 that England's primacy has been an outgrowth of 
 her financial system's long unchallenged soundness, 
 of her position as the workshop for other nations, 
 of the fact that her productive facilities and her 
 accumulated capital have for centuries exceeded her 
 
 1 Modern Problems, p. 168. 2 New York, 1916, p. 212. 
 
vi PUBLIC DEBT & HAUTE FINANCE 143 
 
 home requirements, of her free trade with all the 
 outside world, and of the world-wide predominance 
 of her merchant fleet. 
 
 The wealth of Government is conditioned by 
 the wealth of the nation. The wealth of the nation 
 depends upon natural resources and upon mental, 
 moral, and physical activities, which are, to say the 
 least, not likely to be slackened after it has passed 
 through the fire of its present trial. However laud- 
 able it may be for Government to aspire to be a 
 providence to the country, we must remember that 
 it has neither the omniscience nor the other attributes 
 of Providence. What it can do is to see that it 
 is a wise and faithful steward in the management 
 of the national economy. And what the average 
 citizen can do is, by taking an intelligent interest in 
 public administration, to stimulate and encourage 
 all that makes for the most efficient use of our 
 national resources. To repeat the phrase of my 
 first lecture, the more we all know about National 
 Economy, the better our National Economy will be. 
 How we are to know more of National Economy 
 is another of the problems of the future. Contrast 
 the teaching of our old Universities with those of 
 America or Germany. In the Middle Ages a 
 Professor of Medicine dealt single - handed with 
 medical studies and delivered a few lectures every 
 term upon such subjects as the humours of the 
 body. A medical student to-day has lectures on 
 
144 NATIONAL ECONOMY vi 
 
 Anatomy, Physiology, Materia Medica, Chemistry, 
 Botany, Biology, Gynaecology, and the rest. In 
 other countries a whole Faculty, embracing a dozen 
 professors, is at work upon the Theory, History, 
 and Literature of Economics, Statistics, Banking, 
 Currency, Finance, Political Science, Administration, 
 Accountancy, and the rest, and so gets down below 
 the broad generalities to the vitalising of knowledge. 
 In too many of our centres of learning all this is 
 left to a solitary Professor of Political Economy. 
 The University of London is honourably distinguished 
 in its organisation of the study of social sciences, 
 and bids fair to stand in the front rank in this 
 respect. 
 
 Early in the last century a French writer, who 
 ought to have known better, published a little book 
 entitled Political Economy in one Lesson. Do not 
 suppose that six lectures like these can teach you 
 much upon a subject so vast as National Economy. 
 It is enough for my present object if they arouse 
 your interest. Their purpose, like that of the hors 
 cFcetivre, is not to satisfy appetite but to stimulate it. 
 
INDEX 
 
 Accounts, systems of, 16, 18 
 
 Adams, 6, 8, 19, 92, 94 
 
 Ad valorem duties, 82 
 
 Althorp, 22 
 
 American Commission on Econ- 
 omy and Efficiency, 4, 25, 30, 
 35. 42, 75, 76, 77, 138 
 
 American Monetary Commission, 
 
 138 
 
 Anderson, 71 n. 
 Appropriations in Aid, 20 
 Arbuthnot, 64, 65 
 Armorial bearings, 88 
 Audit, 24, 39, 60-64, 73, 77 
 Augustine, St., 104 
 Austin, 4 
 
 Bacon, 101 
 Bagehot, 37, 39, 136 
 Bastable, 6 ;/., no, 137 
 Bastiat, 2 
 
 Beaulieu, Leroy-, 19 
 Bentham, 81, 90 
 Bismarck, 104, 121 
 Bowles, T. Gibson, 67 
 Bromley, 71 n. 
 Budget, 52, 101 
 Burke, I, 91, 102, 106 
 
 Carmichael, 29 
 Cobbett, 126 
 Collection, cost of, 94 
 Comte, 139 
 Copying work, 45 
 
 Cost accounting, 60, 69, 75 
 Cour des Comptes, 6 1 
 Cromer, 27, 29 
 Customs, 8 1 
 
 Debt, public, 124 
 
 Debt, temporary or floating, 135 
 
 Discipline, 46 
 
 Economist, what he is and is not, 
 6 
 
 Economy defined, I ; distinguished 
 from Parsimony, I, 5 
 
 Envelopes, window-, 45 
 
 Equipment, 41 
 
 Estimates, 22, 23, 53 ; supple- 
 mentary, 23 
 
 Estimates Committee, 67 
 
 Excise, 8 1 
 
 Expenditure, control of, 52 
 
 Fairness in taxation, 114 
 Family budgets, vi, 15, 59, I2O 
 Fees, 89 
 
 Financial Reform Association, 82 
 Fisher, Irving, 139 
 
 Giffen, 12, 21, 140 
 
 Gladstone, 23, 80, 84, 85, 122 
 
 Godin, 8 1 
 
 Gorst, 69 n. 
 
 Goschen, n, 13, 14, 22, 138 
 
 Graham, 25 
 
 Grenville, 106 
 
146 
 
 NATIONAL ECONOMY 
 
 Grants-in-aid, 121 
 
 Harcourt, 22 
 Hewins, 6 
 Housing of staff, 40 
 Hume, Joseph, vii, 2, 6 
 Huxley, 10, 105 
 
 Income Tax, 79, 135 
 Inheritance, Taxes on, 86 
 Inspection, 67, 96 
 Insurance by Government, 39 
 
 Jevons, 12, 86, 119 
 Justice, 90, 113 
 
 Land Tax, 78 
 Licences, 85, 87 
 Locke, John, 88 
 Lodge, 3, 141 
 
 Macleod, 138 
 Malthus, 9 
 Marshall, 7 
 Marzials, 68 n. 
 
 Measurement of results, 57, 77 
 Mill, J. S., 88, ill, 118 
 Montesquieu, 113: 
 Montyon, 103 
 
 Newmarch, v 
 Nicholson, 114 n. 
 Northcote, 13 
 Noyes, 142 
 
 Organisation, 27 
 Overtime, 33 
 
 Paish, 126 n. 
 
 Parliament, 56, 64 
 
 Parsimony versus Economy, I, 2 
 
 Pay of officials, 33 
 
 Pensions, 34, 35, 48, 99 
 
 Personnel, 32 
 
 Peters, 27 
 
 Petty, 31 
 
 Phonograph, 46 
 
 Pierson, 1 1 
 
 Plehn, 89 
 
 Public Accounts Committee, 23, 
 
 61, 64 
 Public tender, 31 
 
 Recruiting of staff, 50 
 
 Reserve fund, 134 
 
 Revenue, gross and net, 16 ; inter- 
 ception of, 1 8 ; revenue and 
 administration, 78 
 
 Ribot, 140 
 
 Ricardo, 9 
 
 Rivers-Wilson, 29 
 
 Salt tax in Italy, 95 
 
 Say, Leon, u 
 
 Scientific administration, 27, 49, 
 
 no 
 
 Security bonds, 99 
 Seligman, 89 
 Seyd, 138 
 Sidgwick, 8 
 Sinking funds, 133 
 Smith, Adam, n, 80, in 
 Smith, W. H., 28 
 Specific duties, 82 
 Stammhammer, 10 
 Stamps and stamp duties, 85, 96, 
 
 120 
 
 Statistics, 12, 58, 76, 96, no, 
 
 119, 120 
 
 Stourm, 1 20 
 Sudeley, 70 
 
 Supererogation, 39, 73, 98 
 Swift, 84 
 
 Taft, President, 4, 5, 35, 47, 123 
 
 Taxation, burden of, 15, 116; 
 direct and indirect, 78 ; fairness 
 and incidence, 89, 114 
 
 Tender, public, 31 
 
 Thiers, 102 
 
 Treasury, 64, 70 
 
 Treasury Bills, 136 
 
INDEX 
 
 147 
 
 Vertical filing, 43 
 Voltaire, 112 
 Votes of Credit, 121 
 
 Wallace, Sir D. M., 94 
 Wallas, Graham, 108 
 Walpole, 59 n. 
 
 Webb, 122 
 Welby, 29, 73 
 Wilson, 19 
 
 Window-envelopes, 45 
 Withers, 125 ., 127 
 
 Young, 116 
 
 THE END 
 
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