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 The National Social Science Series 
 
 Edited by Frank L. McVey, Ph.D., LL.D., 
 President of the University of North Dakota 
 
 Now Ready 
 
 GOVERNMENT FINANCE IN THE UNITED 
 STATES. Carl C. Plehn, Professor of Finance in 
 the University of California 
 
 THE COST OF LIVING. Walter E. Clark, Pro- 
 fessor and Head of the Department of Political 
 Science in the College of the City of New York 
 
 TRUST AND COMPETITION. John F. Crowell, 
 Associate Editor of the Wall Street Journal 
 
 MONEY. William A. Scott, Director of the Course 
 in Commerce, and Professor of Political Economy, 
 University of Wisconsin 
 
 TAXATION. C. B. Fillebrown, President Massa- 
 chusetts Single Tax League, Author oi A B C of 
 Taxation 
 
 THE FAMILY AND SOCIETY. John M. Gilette, 
 Professor of Sociology, University of North Dakota 
 
 BANKING. William A. Scott. 
 
 THE CAUSE AND CURE OF CRIME. Charles R. 
 Henderson, late Professor of Sociology in the Uni- 
 versity of Chicago 
 
 In Preparation 
 
 PROPERTY AND SOCIETY. A. A. Bruce. 
 THE AMERICAN CITY. Henry C. Wright 
 STATISTICS. W. B. Bailey 
 BASIS OF COMMERCE. E. V. Robinson 
 WOMEN WORKERS AND SOCIETY. Annie M. 
 
 McLean 
 THE NEWSPAPER AS A SOCIAL FACTOR. 
 
 Allan D. Albert 
 THE STRUGGLE FOR LAND IN AMERICA. 
 
 Charles W. Holman 
 
 Each, Fifty Cents Net 
 
 A. C. McCLURG & CO., PUBLISHERS. CHICAGO
 
 Government Finance 
 
 IN THE UNITED STATES 
 
 BY 
 
 Carl C. Plehn, Ph.D., LL.D. 
 
 Professor of Finance in the University of California 
 
 CHICAGO 
 
 A. C. McCLURG & CO. 
 
 1915 
 
 3 ^Z.a^
 
 Copyright 
 
 A. C. McClurg & Co. 
 
 1915 
 
 Published September, 1915 
 
 Copyrighted in Great Britain 
 
 W. F. HALL PRINTING COMPANY, CHICAGO
 
 
 
 EDITOR'S PREFACE 
 
 C! 
 
 TN the publication of Dr. Plehn's book on Gov- 
 ernment Finance, The National Social Science 
 Series has presented a somewhat rounded-out 
 discussion of financial topics. Professor Scott's 
 '^j books on Money and Banking and Mr. Fille- 
 - brown's book on Taxation furnish the first three, 
 
 and Dr. Plehn's book is the fourth. 
 
 *, This book deals with government finance, not 
 
 ► in a technical way, but in broad, comprehensive 
 
 ^ manner that will furnish a guide to the reader 
 
 ' who wants to know something about the methods 
 
 pursued by governments in the collection and 
 
 expenditure of money. The reputation of the 
 
 author as an expert in the field of Public Finance 
 
 is a guarantee of its worth and value. 
 
 F. L. M.
 
 AUTHOR'S PREFACE 
 
 'T'HE aim of this little book is to describe, very 
 briefly, what the federal, state, county, town, 
 and city governments in the United States are 
 doing that requires money, how they spend the 
 money, where it comes from, and what the peo- 
 ple get for it. We have also tried to see whether 
 we are ordering our public affairs well or ill. 
 
 We find that government spending is outrun- 
 ning government income. But the things for 
 which governments are spending money seem 
 for the most part good. The increased costs 
 have, however, strained the existing revenue sys- 
 tems to the breaking point. New revenues are 
 necessary, especially for the states, and we have 
 ventured to recommend a state income tax. 
 
 Although this recommendation is our thesis 
 and runs throughout the book, we trust that it is 
 not so over-emphasized, as to spoil, for those 
 more interested in the narrative, the picture we 
 have endeavored, first of all, to draw of govern- 
 ment house-keeping in the United States. 
 
 Berkeley, California, C. C. P. 
 
 August, 1915.
 
 CONTENTS 
 
 PAGE 
 
 Chapter I. The Problem 1 
 
 Chapter II. In General on the Economics of 
 Government or the Evolution of Public 
 
 Business 6 
 
 Chapter III. The Difficulties of Stating the Cost 
 
 of Government 20 
 
 Chapter IV. Our Federal Finances 25 
 
 The History of the Cost of War .... 33 
 
 The Scope of Federal Activities .... 37 
 
 Efficiency and Economy 40 
 
 The Equation of Receipts and Expenditures 41 
 
 Federal Debt 42 
 
 The Debts of the Great Nations: Table . . 44 
 
 Chapter V. State and Local Finance, Exclusive 
 
 of Municipal 46 
 
 Examples of State Finance 51 
 
 Chapter VI. Municipal Expenditures .... 66 
 
 City Expenses 69 
 
 General Government 69 
 
 Protection to Person and Property ... 71 
 
 Highways Id 
 
 Charities l(y 
 
 Education 11 
 
 The Grovi^th of Expenses 79 
 
 Per Capita Departmental Expenses: Table . 81
 
 Contents 
 
 PAGE 
 
 The Meaning of the Averages 83 
 
 Public Service Enterprises 85 
 
 Per Capita Governmental Cost Payments 
 
 for All Purposes, 1912: Table ... 86 
 
 Municipal Outlays 93 
 
 Grand Total of All Government Costs . . 94 
 
 Chapter VII. Efficiency in Government Business 96 
 
 The Budget 97 
 
 Boards of Control 100 
 
 Efficiency in Cities 102 
 
 The Proportion of Expenditures for Differ- 
 ent Purposes 104 
 
 Chapter VIII. Public Borrowing 106 
 
 Chapter IX. The Equation of Receipts and Ex- 
 penditures 116 
 
 The Federal Government 118 
 
 Federal Receipts: Table 119 
 
 State Governments 122 
 
 Examples of State Revenue Systems . . . 123 
 Rhode Island's State Revenues, 1913 . . .124 
 
 Kentucky's Revenues, 1911 127 
 
 County and Local Revenues Other Than 
 
 Large Cities 130 
 
 Municipal Revenue 133 
 
 Conclusion 136 
 
 Tax Reform Now in Progress 140 
 
 Improved Administration 141 
 
 Separation of State from Local Taxation . 143 
 
 Classification 146 
 
 Independent State Taxes 147 
 
 References 157 
 
 Index 159
 
 GOVERNMENT FINANCE 
 IN THE UNITED STATES
 
 GOVERNMENT FINANCE IN THE 
 UNITED STATES 
 
 CHAPTER I 
 
 THE PROBLEM 
 
 T^HE great problem of government finance is 
 the wise expenditure of the public funds, to 
 ensure that they promote in the highest degree 
 the general welfare of all. 
 
 There have been many peoples, once indus- 
 trious and prosperous, who, later, becoming bur- 
 dened with taxes misspent, or with tribute car- 
 ried away by their conquerors, have sunk into 
 poverty or slavery. On the other hand, some 
 Utopians and Socialists dream of a future state 
 where all the fruits of labor are to be taken in 
 the first instance by the government, and yet 
 those same fruits are to be so wisely used on 
 the nourishment and uplift of the people that 
 a civilization indescribably perfect will arise. 
 The imperfections and weaknesses of .human 
 nature and of human beings seem ever to stand 
 in the way of any realization of such a dream. 
 Yet, does the mind reject it as a thing not among 
 the possibilities? Be that as it may, a wise order-
 
 Government Finance 
 
 ing of its public housekeeping will help much to 
 move a people over some part, it may be very 
 small indeed, of the long, long road which leads 
 from making bricks without straw under the 
 taskmasters of Pharaoh toward "the holy city, 
 new Jerusalem," the goal of the Utopians. 
 
 Today, the chief problems of taxation, or the 
 raising of revenues, are in a fair way to be 
 solved. That is, it can be asserted, with as much 
 certainty as is possible in any branch of human 
 affairs, that, given the will to do so, and the 
 knowledge of how to do so, which, unfortunately, 
 is not always present, the legislature can devise 
 laws and the administrative officers can enforce 
 them so as to bring about an equitable distribu- 
 tion of the tax burden. Dififerences of opinion 
 still exist as to the propriety of using the power 
 of taxation in a manner to alter existing condi- 
 tions, as well as to the direction in which it may 
 be desirable to alter them. But if the ideal 
 adopted be solely raising, in an equitable manner, 
 the tax revenues deemed necessary, with the 
 least possible disturbance of the position of 
 the different taxpayers one to another, the way 
 to a realization of such an ideal is known. This 
 is so, partly, because scientific study has been 
 longer directed to questions of taxation than to 
 those of public expenditure; and, also, because 
 the aims and principles involved are necessarily 
 more definite and final. 
 
 Governments, like individuals, must first pro- 
 vide out of their incomes for certain necessities,
 
 The Problem 
 
 and if there be money over, they may spend it 
 for comforts and even for luxuries. Like indi- 
 viduals, governments have different ideas as to 
 what comforts and luxuries it is desirable to pro- 
 vide, and like individuals, also, they are not even 
 at one as to what are the necessities. 
 
 Again, conditions change from age to age, so 
 that like expenditures may not have like import- 
 ance or like effects. Viewed superficially there 
 is a possible resemblance between the free dis- 
 tribution of corn in ancient Rome and old age 
 pensions in modern England. But who would 
 be so bold as to assert that popular education and 
 a wise administration of the modern " donations " 
 may not avert from England, in this case, the 
 evils which panis circusque created in Rome, 
 and which are supposed to have contributed 
 so largely to the weakening and downfall of the 
 Roman people? The virility, energy, and pros- 
 perity of a people are dependent upon the entire 
 complex of its public and private activities, not 
 upon any one, and the private life and character 
 of the people may determine directly the success 
 or failure of the best meant public enterprises. 
 
 Economists from Adam Smith to those of to- 
 day have ever been alive to the fact that the 
 problems of "consumption," that is, those relat- 
 ing to the effect of the uses to which the fruits 
 of labor are put, are quite as important as those 
 relating to the production of wealth and its " dis- 
 tribution " or division among its users. Although 
 we have here and there a few statistical studies,
 
 Govcrmuent Finance 
 
 a few brilliant essays, many bright epigrams, and, 
 outside of these, a considerable body of homely 
 popular proverbs, we may search in vain for any- 
 thing like a " theory " or any " principles " of con- 
 sumption or of the use of wealth. Not only does 
 the extreme complexity and variety of the prob- 
 lems — in that they differ not merely from one 
 community to another, but almost for every 
 family — appall the investigator, but their ex- 
 treme mutability drives him to despair. If he 
 should solve the problem as to how much better, 
 or worse, men became when kerosene lamps took 
 the place of candles, he has to do it all over again 
 when the electric globes take the place of lamps, 
 and so on to the end. 
 
 Another phase of our problem, or, perhaps, 
 only another way of looking at it, is given fre- 
 quent expression. When we " reform," improve, 
 or partly perfect our tax system it often comes 
 about that more money can be raised with less 
 sacrifice, or less sense of sacrifice, on the part of 
 the taxpayers. Legislators are prone to seize 
 upon this new money and spend it for new pub- 
 lic activities or enterprises, some wise, others 
 wasteful. The taxpayer, who, when consenting 
 to the tax reform, had expected that if the "tax 
 dodgers " were made to pay, his own taxes would 
 be reduced is thus disappointed. He pays as 
 much as, or more than, he did before and he 
 observes that the total spent is far greater. 
 " What was the use of tax reform," he asks, 
 " if there is no guarantee of tax reduction, no
 
 The Problem 
 
 protection against increased taxes?" He then 
 demands a "tax-limit" law. 
 
 This is, of course, raising a false issue. The 
 question is not, " How much money is spent ? " 
 but, " Is it wisely spent ? " A community may 
 well "afford" to pay heavy taxes for good 
 schools, and ill " afford " to pay low taxes and 
 go without schools. But at the same time a tax- 
 limit law has great merits, for it imposes the 
 necessity for a more careful scrutiny of each 
 proposed expenditure, and its justification. A 
 government running on a deficit is more econom- 
 ical and efficient, as a rule, than one which is 
 striving to spend an unnecessary surplus. Too 
 much income may be as bad for a government as 
 too much pocket money for a rich man's son. 
 
 The problems of government expenditures are 
 a part of the general problems of consumption. 
 Although in themselves simpler than the prob- 
 lems of private consumption, because public 
 activities are relatively fewer and because they 
 are formulated after discussion and by definite 
 consent, yet they present many of the same diffi- 
 culties. It is on this account that no complete 
 theory of government expenditures can be pre- 
 sented in the following pages. For the further 
 reason that the space has been restricted by the 
 editor, the discussion will be confined to a study 
 of existing expenditures in the United States, 
 federal, state, and municipal, and even within that 
 field mainly to practical questions now pending 
 and for which some solution is sought.
 
 CHAPTER II 
 
 IN GENERAL ON THE ECONOMICS OF GOVERNMENT 
 OR THE EVOLUTION OF PUBLIC BUSINESS 
 
 'T'HERE is a popular saying which associates 
 taxes and death as two unavoidable evils 
 which afflict humanity. If there be not a brighter 
 side to taxes than this association of ideas sug- 
 gests, this book will be dismal indeed. 
 
 If, however, human life is interesting as a 
 study, then taxes, and the uses to which the pro- 
 ceeds are put, which touch so many, many sides 
 of human life, must have an interest too. From 
 birth to death we live and have our being in 
 closest contact with taxes, or with the result of 
 taxation. The roof which shelters us, the land 
 beneath us, our clothing, food, and drink are 
 taxed. With the proceeds of taxation, govern- 
 ment assures us protection for life, and oppor- 
 tunity for liberty and for the pursuit of happi- 
 ness ; it educates us, disciplines us, and molds us 
 in very many ways. 
 
 There are a few human beings in the world 
 today who pay no taxes. But these are the 
 lowest savages who have no organized com- 
 munity life, who are without true nationality and 
 without government, and who, for the most part, 
 live under conditions of dire poverty and misery. 
 The moment these savages unite their efforts or
 
 Economics of Government 
 
 their means for a common end, be it for war or 
 for the maintenance of a tribal religion, or what- 
 ever else may appeal to their primitive instincts 
 as a desirable common end, that moment they 
 begin to pay taxes ; not necessarily in money, but 
 more often, at first, in services, labor, and fight- 
 ing, in weapons, or in religious " ofiferings." 
 
 The people of highest civilization are all pay- 
 ing heavy taxes. While it cannot, of course, be 
 said that heavy taxation causes a high civiliza- 
 tion, nor, conversely, that a high civilization 
 causes, necessarily, heavy taxation, yet the two 
 always go hand in hand. The reason for this is 
 that experience has shown that very many of 
 the highest advantages of civilized life are best 
 won by common efifort through government. In 
 so far then as taxes are used to promote the 
 highest ends of the race, they are to be regarded 
 as blessings rather than evils. 
 
 There are obviously many good things which 
 men can obtain and enjoy solely by organized 
 efifort, continued through long periods of time. 
 Such organized efifort takes two forms — that of 
 public enterprise and that of private enterprise. 
 The former is conducted through political or- 
 ganization, or government, the latter through vol- 
 untary private associations. 
 
 There are some good things obtainable by or- 
 ganized efifort which the experience of ages 
 shows us can be had properly only by political 
 organization, that is, through government. These 
 ultimately require taxes. Thus, no organized
 
 8 Government Finance 
 
 government can be built up by private enterprise 
 only. Without political organization there would 
 be no one to decide what are to be the laws, and 
 no one to see that the laws are carried out. There 
 would, also, be no satisfactory means of protect- 
 ing national existence, no assurance of Having 
 together in peace and happiness, of keeping evil 
 doers from destroying life and property, or of 
 adjudicating disputes, so that they may not lead 
 to §trife. These things are so clearly and uni- 
 versally political, that whenever any of them are 
 done by private enterprise the case is regarded 
 as purely an exception to the proper and estab- 
 lished order. Thus, when, during the Revolu- 
 tionary War, the United States was too poor to 
 build an adequate navy, we entrusted the work 
 of chastising our enemies on the seas to pri- 
 vateersmen who went into the enterprise for the 
 booty they might win. But we did so with deep- 
 est misgivings and sorrow, recognizing that this 
 was a surrender of government power. 
 
 Taxes for patriotic purposes cannot be classed 
 as evils; they support what is most precious to 
 us. Those peoples who have been unable to pro- 
 tect their national life, and have fallen into the 
 power of other peoples, however comfortable, in 
 some cases, their subsequent lives may have 
 proved, have suflfered deeply from the disgrace. 
 
 Disaster, also, always overtakes those nations 
 which do not maintain order within their coun- 
 try's boundaries. 
 
 There are other good things which govern-
 
 Economics of Government 
 
 ment does, and which we generally agree should 
 be done by government, which are not quite so 
 essentially public or political in character. They 
 might be done by private enterprise and have 
 been so in many cases. But they are made public 
 enterprises because we desire to promote through 
 them some ends which we regard as high and 
 vital and which private enterprise is not likely to 
 protect. A conspicuous example of these is 
 afforded by the public schools. There are ex- 
 cellent private schools and it is conceivable that 
 all instruction might be left to private initiative, 
 but so long as we hold, as President Eliot ex- 
 presses it, that "we must all press on together 
 toward our national goal" — an enlightened and 
 intelligent democracy — we must also hold that 
 compulsory education in public schools at com- 
 mon cost is a proper activity of government, and 
 we must levy taxes for that purpose. 
 
 As governments improve, and demonstrate 
 their ability to do things well, we come to en- 
 trust more and more things to them. Thus, the 
 field of private enterprise is gradually curtailed 
 and that of public enterprise is gradually ex- 
 tended. The list of such things now done by 
 government is so extended that to enumerate 
 them all would be tedious. As examples, there 
 may be cited in addition to schools : ( i ) roads, 
 canals, public charities, hospitals, museums, art 
 galleries; (2) the postal service, lighting, public 
 parks, water works, and recently street car serv- 
 ice, and the provision and operation of electric
 
 lo Government Finance 
 
 plants. Government, also, regulates more and 
 more all private life and business. 
 
 Not to be confused, however, with the second 
 group above, that is, the public utilities, are 
 manufactures and the like conducted by gov- 
 ernments without the recognition of an essential 
 public purpose. Yet some ideal of public ad- 
 vantage seems to creep into every such activity. 
 Thus, the manufacture by government for profit 
 of Dresden china, of Sevres ware, or of Gobelin 
 tapestry is defended as also upholding sound 
 ideals of art. 
 
 Whenever a new enterprise is taken over into 
 this field, it is interesting to note that at first it is 
 regarded as though it were still quasi-private, 
 and it is conducted along lines very similar to 
 those along which it was conducted before, when 
 it was a purely private enterprise. But grad- 
 ually the public purpose, which must have been 
 there, if the taking over were justifiable at all, 
 comes to be more and more emphasized, and ulti- 
 mately becomes the paramount purpose. 
 
 Although governments rarely surrender any 
 activities, yet the converse of the above principle 
 is also true ; that is, that whenever a public pur- 
 pose which once existed disappears, the public 
 enterprise from which it has disappeared drops 
 back into the realm of private enterprise, and is 
 left to be cared for by private action. 
 
 Religion was one of the very earliest of public 
 activities. Yet today "the established church" 
 is a disappearing public activity. In our own
 
 Economics of Government ii 
 
 country, never having been able to agree upon 
 any one among the warring religious denomina- 
 tions, we do not feel that the support of religion 
 is a truly public function. Yet it would not be 
 very difficult to frame a strong argument that it 
 is so. This is partly recognized when churches 
 are exempted from taxation. 
 
 What then is the difference between a public 
 enterprise and a private enterprise? This ques- 
 tion is most important, for it lies at the threshold 
 of government finance. The answer may be 
 illustrated by a review of the arguments in 
 a famous controversy over an activity which is 
 still in the debatable territory between public and 
 private. Years ago when railroads were first be- 
 ing introduced, debate waxed hot in France, Ger- 
 many, Austria, and Italy, and, to a lesser extent, 
 in other countries, as to who should build, own, 
 and operate the new means of transportation. 
 Those who urged that the government should 
 own and operate railroads claimed that they 
 were " by nature " public enterprises, while the 
 other side insisted with equal vigor that they 
 were " by nature " private enterprises. This 
 point certainly should have been conclusive, if 
 there had been any means of ascertaining which 
 they were " by nature." 
 
 The one side saw in railroads primarily their 
 utility in time of war, their power to divert trade 
 and thus to build up or pull down cities and to 
 alter the ways and means of living for people in 
 many communities, and felt that they involved
 
 12 Government Finance 
 
 far reaching other possibilities and powers of 
 national extent and of political import. This side 
 also feared that in private hands railroads would 
 be a means of exploiting the public, or that they 
 might fail to give a service that would provide for 
 the well-rounded development of all parts of the 
 country and of all classes. 
 
 The other side saw in railroads primarily the 
 opportunities for the investment of private funds. 
 They emphasized the necessity for that energy 
 and push which individuals give under stimulus 
 of anticipated profit. But more than that, they 
 feared that the weakness of public administra- 
 tion with its lack of energy and all its " red 
 tape " would render the railroads failures and 
 make it difficult to secure capital. They feared 
 that locating railroads where "public policy dic- 
 tated" — even if not corruptly determined — 
 might result in neglecting service where it was 
 most needed, as demonstrated or measured by 
 the fact that it would be most profitable. 
 
 The existence today of successful railroads 
 under both systems does not aid us to settle the 
 controversy. But it does show that they are not 
 " by nature " either private or public. That there 
 are, however, public interests of a paramount 
 character involved is demonstrated by the fact 
 that even where the private railroads have been 
 most successful, government " regulation " has 
 been found necessary. 
 
 In the light of what has gone before, it appears 
 that a public enterprise is made so by the fact
 
 Economics of Government 13 
 
 that the government or the people regard the 
 common ends which may be promoted by it as of 
 paramount importance, and fear that if the en- 
 terprise were in private hands those common 
 ends would not be as fully conserved as they 
 should be. It helps to clearness of thought if we 
 recognize two groups of public activities. These 
 two classes, to be sure, blend imperceptibly into 
 one another at their margins, there being many 
 activities in a neutral territory between them, 
 but at the extremes they are perfectly distin- 
 guishable. The first consists of old established 
 governmental activities which are universally re- 
 garded as absolutely essential to the existence of 
 government, or which form its means of ex- 
 pressing itself. The second consists of these 
 which have been at times, and can, conceivably, 
 still be conducted as private activities, but which, 
 because of the recognition of a paramount pub- 
 lic purpose, have been taken over by government. 
 Some one may object that a definition of a 
 " public " enterprise, which merely says it is one 
 which is so regarded, is not very useful. He 
 may demand a definition which will enable him 
 to recognize a public enterprise without having 
 to look into the statute books to see how it is 
 regarded. Such a demand can not be met. The 
 fact is that the only test of what is a public en- 
 terprise is the crystallization of public opinion as 
 expressed in the law. And public opinion, al- 
 though guided by the ideas above illustrated, is 
 sometimes very fickle in this field.
 
 14 Government Finance 
 
 The difference between a public and a private 
 enterprise is not slight merely because it orig- 
 inates in regard or opinion. The treatment of 
 each is entirely different, the point of view from 
 which it is regarded, and, above all, the aims are 
 different. The aim of private enterprise is pri- 
 vate profit. Even when the promoters and man- 
 agers of a private enterprise, as not infrequently 
 happens, take a broad view of their duty to 
 others, profit as an aim can never be entirely lost 
 sight of. If it is, the enterprise dies. The only 
 notable exception, which may or may not be con- 
 sidered as " proving the rule," is afforded by the 
 churches. The aim of a public enterprise is not 
 profit, but public service. The books of a pri- 
 vate enterprise are kept in such a manner as to 
 show the " investment," and the current products 
 or earnings from which, after deducting costs, 
 the profits are derived. Thus a private school, 
 properly run, keeps books which show the cost 
 or value of the plant in lands and buildings and 
 in equipment, and it charges as costs not merely 
 the salaries of teachers and other employees, but 
 interest on the investment. It measures success 
 in terms of the difference between the tuition 
 fees received and all these costs. No matter how 
 much pride the management may have in the 
 high quality of the education offered, the funda- 
 mental reason for maintaining and improving the 
 quality of instruction is the desire to draw more 
 pupils and to make more money. 
 
 Contrast with this the running of the public
 
 Economics of Government 15 
 
 schools. Once the bonds, if there were any, 
 which were issued to raise money for buildings, 
 have been paid, it no longer serves any practical 
 purpose, generally recognized, to keep an ac- 
 count of the investment. Hence there is usually 
 no account called the capital account, and 
 although modern accountants set up such ac- 
 counts for governments they have only a hypo- 
 thetical meaning. But far more important is the 
 fact that the main purpose of the public cost ac- 
 count is not to enable the school board, or the 
 public, to measure the profit, but to enable them 
 to find out how much they must raise. This is 
 commonly expressed as fixing the income by the 
 expenditures, a procedure which cannot very 
 well be followed by a private enterprise. Suc- 
 cess is measured not in terms of dollars and 
 cents of profit, but in accomplishment, in serv- 
 ices, in the character and efficiency of the pupils, 
 and mostly in things which can never be meas- 
 ured in money at all. In illustration of this we 
 may cite a statement of the measure of success 
 or failure of public schools from ex-President 
 Eliot of Harvard, who in his little book entitled 
 More Money for Public Schools, supports the 
 demand set forth in his title as follows : 
 
 " My first argument in support of this proposi- 
 tion is that, as a nation and, on the whole, in 
 spite of many successes, we have met with many 
 failures of various sorts in our eflforts to edu- 
 cate the whole people, and still see before us 
 many unsurmounted difficulties. It is indisput-
 
 1 6 Government Finance 
 
 able that we have experienced a profound dis- 
 appointment in the results thus far obtained from 
 a widely diffused popular education. It was a 
 stupendous undertaking at the start, and the diffi- 
 culties have increased with every generation. 
 Our forefathers expected miracles of prompt en- 
 lightenment ; and we are seriously disappointed 
 that popular education has not defended us 
 against barbarian vices like drunkenness and 
 gambling, against increase of crime and insanity, 
 and against innumerable delusions, impostures, 
 and follies. We ought to spend more public 
 money on schools, because the present expend- 
 itures do not produce all the good results which 
 were expected and may reasonably be aimed at. 
 " Lastly, the final test of the value of the edu- 
 cation given to an individual or to a nation is 
 continuous mental growth. The human body has 
 a continuous development up to the age of twen- 
 ty-five or thereabouts, should then have a long 
 period of level health and strength, and after 
 sixty may be expected to decline. There should 
 be no corresponding stages in mental develop- 
 ment. The growth of a man's mental and spirit- 
 ual powers should be continuous through life, 
 and his last years should be his best. It is this 
 continuous mental development which proves bet- 
 ter than anything else that the education received 
 in youth was effective, and that the subsequent 
 mode of life has been all along wholesome and 
 improving. If we include in this growth the de- 
 velopment of what is called character, this con-
 
 Economics of Government 17 
 
 tinuous enlargement and improvement is the 
 supreme human feHcity." 
 
 There is nothing in this that refers to profits 
 which are measurable in money. 
 
 The private school collects its revenues from 
 the parents of the children educated. But the 
 public school educates many a child whose par- 
 ents contribute little or nothing in taxes, and 
 often collects from the childless rich man enough 
 to educate a dozen or more children. It is enough 
 to say to such a rich man, " You must pay be- 
 cause we have decided that education is a com- 
 mon end. You shall pay as you are able and not 
 on the basis of any benefit directly traceable to 
 you." 
 
 A rich man may protect his own property from 
 thieves and from fire by guards, watchmen, and 
 fire extinguishing apparatus, or insurance, and a 
 poor man may have little or no property to enjoy 
 the protection afforded by the police and the fire 
 department, but neither fact is held to excuse 
 either of them from a tax for the maintenance of 
 a general police force or a fire service. 
 
 If, in the foregoing illustrations, the difference 
 between a private enterprise and a public one is 
 possibly obscured by the fact that the activities 
 considered have been public for so long a time 
 that we are no longer capable of imagining them 
 as private enterprises, then an illustration chosen 
 from a field where the two kinds of enterprises 
 can still be seen side by side may be useful. 
 When a private company supplies a city with
 
 1 8 Government Finance 
 
 water, its officers keep strict account of every 
 cent expended in the plant, and vigorously de- 
 mand that the " rates " allowed shall give them a 
 fair return upon that " investment." They can 
 collect " rates " only from water users ; no one 
 else would dream of paying. The city takes over 
 the plant and operates it. At first the city fol- 
 lows, with rare exceptions, the same old plan of 
 operation as the private company. As long as 
 there are bonds outstanding which were issued in 
 payment for the plant, some account is kept of 
 the capital investment. Costs are all carefully 
 kept track of and the management endeavors to 
 show a profit. Rates are collected only from 
 water users. But unlike the private company, 
 the profits are not the main consideration. Street 
 sprinkling, the flushing of sewers, public health, 
 and other purposes gradually assume a greater 
 importance. As time goes on, the bonds with 
 the proceeds of which the plant was purchased 
 are paid off, and with the disappearance of the 
 interest charge, the "capital" or "investment" 
 account becomes a formal matter of bookkeeping 
 of little more than historical or statistical interest. 
 Improvements are made out of the earnings, or 
 the service is improved for the same rates, or 
 the rates to users are reduced. In any event, the 
 time comes when the public water works are 
 doing their work at rates to the users which no 
 private enterprise could possibly live on. The 
 difference in rates, however, is not evidence of a 
 difference in cost. In fact, generally speaking,
 
 Economics of Government 19 
 
 public management is really more costly. The 
 difference between the rates and the true cost is 
 money which is either the proper earnings of the 
 investment in the plant, or money which comes 
 out of the general taxes. In the first case, it is 
 analogous to interest on money invested by the 
 citizens, paid to the rate payers in the form of a 
 remission in rates. In the second case, it is the 
 payment of salaries to the administrative officers 
 out of general funds not charged up to or col- 
 lected from the water-rate payers. 
 
 Such an enterprise is thus on its way to be- 
 come a purely government function. While no 
 city water works of any importance have so far 
 gone through the whole evolution, and are main- 
 tained entirely by taxes, yet by the analogy of 
 other public enterprises they will do so. The 
 most recent illustration, perhaps, of this tendency 
 is free textbooks in public schools which takes 
 the last remnant of the cost of education from 
 the parents.
 
 CHAPTER III 
 
 THE DIFFICULTIES OF STATING THE COST OF 
 GOVERNMENT 
 
 A NY figures, whether of aggregates, ratios, or 
 averages, intended to express the cost of 
 government must be used with extreme care. 
 Their interpretation is in no case easy and they 
 can be true as applying only to the limited and 
 restricted purpose for which they have been 
 compiled. 
 
 In the first place, up-to-date statistical data 
 for a complete total of all governmental expend- 
 itures in the United States are not available. 
 The Census reports on wealth, debt, and taxation, 
 while excellent, are not complete. They appear 
 only once in ten years and even then refer to 
 two or three years previous to publication. Hence, 
 some estimates must be used. Very complete data 
 for cities of over thirty thousand inhabitants are 
 frequently published by the Census Bureau. The 
 gap in the available data is mainly as to the ex- 
 penditures by small local communities. Few 
 states undertake to compile these expenditures, 
 and when they do the results are often very 
 imperfect. 
 
 A fertile source of errors, which it is hard to 
 eliminate, is the transfer of funds from one divi- 
 
 20
 
 Cost of Government 21 
 
 sion of government to another. The state often 
 collects school moneys, transfers them to the 
 counties, which in turn transfer them to the 
 school districts. If care be not taken they may 
 be counted three times. 
 
 In the second place, the word "cost" may be 
 variously interpreted. Thus we may mean by the 
 term " annual cost," the total of all expenditures, 
 whether for running expenses, new property, 
 such as buildings, parks, public utilities and the 
 like, interest on debt, payments on the principal 
 of debt, and, perhaps, other things. Or, again, 
 we may restrict it to the " cost to the taxpayers," 
 excluding all expenditures made out of earnings 
 from industries like the post-office, or the sale of 
 public lands, or from investments and the like. 
 Other limitations which might be necessary will 
 readily occur to the reader. 
 
 My own estimate of the average annual per 
 capita expenditures of all branches of govern- 
 ment in the United States, exclusive of our in- 
 sular possessions, is, for years like 191 1 or 1912, 
 not less than forty dollars and not more than 
 forty-five dollars. But I cannot claim for this 
 that it is more than an intelligent guess based 
 on long familiarity with the published reports and 
 guided by many years of experience and study. 
 There being at present no available means of 
 making an accurate estimate, this is the best that 
 we can do. 
 
 Of course this forty or forty-five dollars does 
 not mean the amount that you pay, nor that I
 
 22 Government Finance 
 
 pay, nor even what is spent through government 
 agencies upon you or me. Some men pay much 
 more and a multitude much less. Some men are 
 directly benefited by an expenditure of much 
 more than forty or forty-five dollars apiece per 
 annum ; and others, most of us, by much less 
 spent upon us directly. Indirectly, of course, as 
 the protection of government is indispensible, 
 and as we could not provide it for ourselves, un- 
 aided, we all benefit far beyond this moderate 
 amount. 
 
 While in a vague general way it is the aim and 
 theory of government to make us pay as we are 
 able, and to spend upon us in accord with our 
 needs, even that aim is never wholly realized. 
 
 To emphasize again the danger of using such 
 figures without careful regard to what they are 
 intended to cover, we may examine the data pre- 
 pared by Professor E. V. Robinson for the Min- 
 nesota Tax Commission, and bearing on the 
 " cost of government in Minnesota." So far, no 
 more careful study of such data has ever been 
 made, and the following remarks are not in crit- 
 icism, but are intended merely to illustrate the 
 difficulties of interpretation : 
 
 Professor Robinson finds, for example, that 
 the Federal Government collected on the average 
 some seven dollars per capita in various taxes in 
 191 1, and somewhat less than four dollars per 
 capita more from other sources, the total being 
 ten dollars and eighty-five cents. But the Pro- 
 fessor, being interested to know what it cost the
 
 Cost of Government 23 
 
 people of Minnesota to support the Federal Gov- 
 ernment, suggests that as Minnesota people are 
 found to be something over fifty per cent weal- 
 thier than the average for the United States, they 
 probably paid fifty per cent more per capita of 
 the federal taxes, or say ten dollars and seventy 
 cents apiece, in taxes instead of seven dollars — 
 to use his figures. It is, of course, perfectly clear 
 that there may be a difference between states as 
 to their per capita share of the federal taxes. 
 But does it necessarily follow that the rich Min- 
 nesotans, just because they are rich, smoke more 
 tobacco, drink more beer and spirits, and buy 
 more imported goods subject to tariff, on the 
 average, than do their poorer fellow citizens of 
 other states? The mere possibility of questioning 
 this, shows the difficulty of interpretation. 
 
 All along through the text these difficulties 
 have beset us. We have tried to guard against 
 misinterpretation by various devises or phrases 
 to show the limits of our data. " Gross expend- 
 itures," or " payments," is a phrase used to cover 
 everything passing out of a given treasury, in- 
 cluding transfers to other branches of govern- 
 ment, costs for commercial enterprises, interest 
 on debt, investments, and repayment of debts, 
 as well as the actual net cost of running the gov- 
 ernment. " Net cost to tax payers " is another 
 term which is used to imply the expenditures 
 stripped of investment earnings and the like. 
 
 The census bureau has set up an elaborate 
 terminology for the different class of payments to
 
 24 Government Finance 
 
 which the reader is referred for further enlight- 
 enment. We have not adopted that terminology 
 in this book because it seems to use in a limited 
 and restricted way terms used differently in com- 
 mon everyday language. We have followed the 
 Census Bureau in the use of the term " outlay," 
 which means an expenditure for acquiring land, 
 buildings, or anything of a permanent char- 
 acter. An "outlay" is in contrast to "running 
 expenses."
 
 CHAPTER IV 
 
 OUR FEDERAL FINANCES 
 
 ' I 'HE Federal Government is spending today in 
 round numbers about a billion dollars per 
 annum. A little over a hundred years ago, in the 
 year 1810, the United States Government paid 
 out in all $8,474,000, or eight-tenths of one per 
 cent of present-day spending. This latter sum 
 included $3,163,000 for interest on the public 
 debt, which had been incurred during the War 
 of Independence, so that the ordinary cost of 
 government was then $5,311,000. We have 
 chosen the year 1810 for comparison with the 
 present rather than one of the earlier years of 
 the existence of the Federal Government, because 
 the expenses of the earlier days were somewhat 
 abnormal, owing to the readjustment of the debt 
 and the necessarily large expenses involved in 
 organizing the new government. 
 
 In the year 191 1 the total payments, exclusive 
 of book-keeping items, made by Uncle Sam, were 
 $964,000,000. This $964,000,000 contained $56,- 
 500,000 of payments on the account of the public 
 debt, leaving for all other purposes the sum of 
 $907,500,000. In 1912 the aggregate was $965,- 
 000,000, less $51,000,000 for debt charges, or 
 $914,000,000 for all other purposes. The figures 
 
 25
 
 26 Government Finance 
 
 include the cost of the post-ofifice and payments 
 for the Panama Canal. Without the post-office 
 revenues and such as are incidental to public 
 services, the Federal Government is raising by 
 compulsory taxes, the true measure of the bur- 
 den on the people, between $650,000,000 and 
 $700,000,000 annually. 
 
 There are, of course, a great many more peo- 
 ple in the country now for whom these expend- 
 itures are made, than there were in 1810. Re- 
 duced to a per capita basis, the figures are: for 
 1810, $1.17, and for 191 1, $10.48. For 1914 
 they will not be far different. This comparison 
 is very striking; one might say almost startling. 
 We may not, however, jump at once to the con- 
 clusion that the burden of supporting the Federal 
 Government is nearly ten times as great for each 
 man, woman, and child as it was a hundred years 
 ago. In the first place, the purchasing power of 
 money has decreased and a dollar does not mean 
 as much in goods or in wages as it used to mean. 
 In the second place, we are better off today and 
 can afford to spend more. It would be interest- 
 ing, if it were possible, to readjust these figures 
 — $1.17 and $10.48 per capita — so as to make 
 a comparison that would be more valid. But that 
 cannot be done at all accurately, because the 
 necessary data for 1810 are not available. It is 
 not, however, a very rash guess to say that a 
 dollar today will buy less than half as much as a 
 dollar would in 1810, so the increase is certainly 
 not more than five-fold, and may be much less.
 
 Our Federal Finances 2^ 
 
 We know that in recent years the expenditures 
 have increased faster than wealth, both in the 
 aggregate and per capita. But again, the data 
 available as to the amount of wealth in 1810 are 
 not sufficiently accurate to enable us to revise the 
 figures for purposes of a precise comparison. 
 
 The fact, however, is very clear that federal 
 expenditures are growing faster than population, 
 and faster than wealth. The same is true to a 
 far greater degree of state and local expenditures 
 as we shall see later. Furthermore, this phe- 
 nomenon of growing public expense is not pe- 
 culiar to our own country, it is observed in all 
 progressive countries. 
 
 Whether this growth in government expend- 
 itures is justifiable depends, as Professor Bullock 
 has pointed out,* not on whether we can afford 
 the money, but on whether it is well spent. As 
 long ago as 1776, the people of Pennsylvania laid 
 down in their constitution the correct principle, 
 that " the purpose for which any tax is to be 
 raised ought to appear clearly to the legislature 
 to be of more service to the community than the 
 money would be, if not collected." President 
 Garfield stated another correct theory when he 
 held that " while the total sum of money ex- 
 pended from year to year must necessarily be 
 greater, the amount per capita ought, in all well- 
 regulated governments, in time of peace, to grow 
 gradually less." This latter, however, is subject 
 
 * Pol. Sci. Qiiar. xvni, p. no.
 
 28 Government Finance 
 
 to a modification, which might read " provided, 
 the government has not extended its activities in 
 some new directions and extended them wisely." 
 
 In view of this, we are interested to see what 
 all the money is spent for. For this purpose we 
 may study the expenses of 191 1 and 1912. Es- 
 pecially do we choose 191 1 because both the re- 
 ceipts and expenditures for that year have been 
 subjected to intensive study by President Taft's 
 Commission on Economy and Efficiency, and by 
 Professor E. V. Robinson for the Minnesota Tax 
 Commission (see Report of 1912), and the ac- 
 counts have been rearranged in several different 
 ways, bringing out facts not easily available for 
 other years. The conditions in these years were, 
 also, more normal and typical than those since 
 the financial depression and the outbreak of the 
 great war. 
 
 The figures presented have been roughly 
 rounded out to the nearest million or quarter of a 
 million, as being easier to remember, but the de- 
 tails if desired are available in the reports re- 
 ferred to. 
 
 A private business concern divides its expenses 
 into wages, cost of materials, cost of equipment, 
 rent, interest, debt payments, and other such com- 
 monplace classes. The President's Commission 
 on Economy and Efficiency made an analysis of 
 the "allotments" for 1912 in somewhat the same 
 way. From that we find that out of a total of $1,- 
 000,000,000 and a little over. Uncle Sam spends 
 $381,000,000 for the salaries and wages of his
 
 Our Federal Finances 29 
 
 regular officers and employees — the reader will 
 note that this is thirty-eight per cent of the whole, 
 and as *^he total happens to one thousand million, 
 all the following figures can be turned into per- 
 centages by merely pointing ofif — but he also 
 hires a good many outside people and companies 
 to work for him on contracts or otherwise, fur- 
 nishing services of many kinds, like transporta- 
 tion, heat, light, repairs, construction, printing, 
 advertising and so on, and this eats up $141,- 
 000,000. Then his supplies, equipment, and other 
 materials cost him about $118,000,000. Rent, in- 
 terest, and permanent grants, such as the $2,- 
 500,000 for agricultural colleges, cost him $35,- 
 500,000. New land, new buildings, and other 
 improvements cost him $27,400,000 in 19 12, and 
 usually cost about the same amount. It takes 
 about $77,000,000 to pay back his debts as they 
 fall due and to refund money entrusted to him 
 for various purposes. Then he pays about $160,- 
 000,000 in j)ensions of all sorts. In 1912, the 
 Panama Canal, other canals, irrigation works, 
 and the like cost about $57,000,000. But this 
 item will change. Then at the end of the list, 
 he sets down $5,000,000 for losses and contin- 
 gencies. 
 
 For all this money what do the people get? 
 First, we may set down the services of the gov- 
 ernment in its general branches — the legislative 
 and executive departments. Congress costs 
 about $7,000,000 a year, just by itself. If you 
 wish to add to that the cost of congressional com-
 
 30 Government Finance 
 
 missions, the cost of public printing, the con- 
 gressional library, and some other like items, the 
 total swells to over $13,500,000. But as much of 
 the printing done at the Public Printing Office, 
 amounting in all to $5,500,000, is done for other 
 officers and departments, and the library is much 
 used by others than congressmen, it is, perhaps, 
 proper to " knock off " about $3,500,000, and say 
 that congress costs about $10,000,000. This, 
 standing alone, looks like a large sum, although 
 it is only one per cent of the whole cost of the 
 government. But it must be remembered that we 
 follow the democratic theory of paying the mem- 
 bers of Congress and the Senate for their serv- 
 ices, and repay their traveling expenses, and that 
 we let them have all necessary clerical help. As 
 these expenses are much in the public eye and 
 are the frequent subject of debate between the 
 majority and the minority in Congress itself, we 
 may, perhaps, assume that they are justifiable and 
 are not far away from what is reasonable for 
 our form of government. It is less than $19,000 
 per member, each year. 
 
 The President and his immediate office force 
 cost about $200,000. This is certainly very mod- 
 est, and compared with the amounts paid for 
 crowned heads by European countries looks nig- 
 gardly. Great Britain spends about $3,000,000 
 for the support of the " crown." But differences 
 in ideals and duties vitiate the comparison. The 
 President is aided in his work by the Civil Serv- 
 ice Commission, which costs $270,000, and from
 
 Our Federal Finances 31 
 
 time to time by special commissions. In 191 1, 
 these cost $250,000, but they are not necessarily 
 permanent. 
 
 It has been traditional to state the rest of the 
 expenditures by departments corresponding to the 
 various cabinet officers. But this does not lead 
 to clearness, because the apportionment of duties 
 among the departments is somewhat haphazard 
 and arbitrary, and because it throws together 
 things we would like to look at separately. There 
 are, however, three executive departments which 
 we might consider separately as such. The first 
 is the Treasury Department, which for purely 
 central and supervisory work costs about $24,- 
 000,000. That is, two and four-tenths per cent of 
 all our expenses are for collecting taxes and other 
 revenues, and taking care of the money. About 
 $15,000,000 of this is for collecting revenues 
 alone. The rest goes for keeping accounts, audit 
 and control, and for supervising the officers in 
 charge of the mint, of all money issues, of the 
 national banks, of public health, of life-saving, 
 and of other activities given separately below. 
 
 The second is the Interior Department, which 
 stripped of its special bureaus, whose activities 
 we want to study separately, costs about $3,- 
 800,000. This is the " overhead charge " for 
 supervising a multitude of important activities, 
 including the Land Office, Office of Indian Af- 
 fairs, Bureau of Pensions, Patent Office, Bureau 
 of Education, Geological Survey, Reclamation 
 Service, and Bureau of Mines. The third is Pub-
 
 32 Government Finance 
 
 lie Buildings, technically under the Treasury De- 
 partment. With $16,250,000 worth of new build- 
 ings going up, and with the supervision of this 
 work, together with the care of other buildings, 
 this office costs $20,800,000. 
 
 The total of all these overhead expenses, omit- 
 ting $16,250,000 for new buildings and including 
 Congress and the executive departments, is 
 $43,000,000. 
 
 Leaving now the old departmental arrange- 
 ment, let us make a group of certain activities 
 which we may call those relating to the " protec- 
 tion of life and property." The largest of these 
 is a sub-group relating to the " preservation of 
 peace and order," including national defense and 
 the courts. The army cost, in 191 1, about $119,- 
 000,000, the navy, $117,400,000, and foreign af- 
 fairs, $2,400,000 ; a total of nearly $239,000,000. 
 This is nearly a quarter of all our expenses. It 
 is a steadily growing cost. As far back as 1789, 
 Adam Smith observed that defense " grows more 
 and more expensive as society advances in civili- 
 zation." Statistics of public expenditures for de- 
 fense the world over show that this statement is 
 as true today as when it was first written. 
 
 But these are not the only items of expense 
 attributable to war, i. e., to wars past and to the 
 desire to prevent war, or to be ready for wars to 
 come. In 191 1, and still today, there were two 
 other items traceable mainly to the same general 
 cause. These were for pensions and the care of 
 old soldiers, a total of $163,100,000 and for debt
 
 Our Federal Finances 33 
 
 charges, $56,500,000. The total is the staggering 
 sum of $459,000,000, or not much short of half 
 of all federal expenses. Broadly speaking, we 
 are paying $5.00 for each man, woman and child, 
 each year, for the cost of war in times of peace. 
 
 The History of the Cost of War 
 
 We may digress for a moment and look back 
 over the history of the cost of wars in this coun- 
 try. The Revolutionary War left us with a debt 
 of approximately $80,000,000, which was but a 
 small part of the cost of that significant struggle. 
 In 1800, the army was costing $2,500,000 an- 
 nually, the navy $3,500,000, and interest on the 
 debt, mainly a result of war, $3,400,000. This is 
 in all $9,400,000 for war out of a total of only 
 $10,800,000. It left but little for other purposes, 
 and kept the government poor. Nothing but the 
 proceeds from the sale of public lands, which be- 
 gan to come in soon after this, saved the Federal 
 Government. 
 
 The War of 1812 occasioned a new debt of 
 some $80,000,000, besides leading to heavy taxes. 
 It also laid the foundation of the soldiers' pen- 
 sion system, which began in 1818. By 1820, out 
 of $18,300,000 expended for all purposes, $15,- 
 400,000 or $1.60 per capita went for war charges. 
 This was a heavy burden in that day and genera- 
 tion. Again, the Mexican War created a debt of 
 nearly $50,000,000 with accom])anying other 
 costs. So that by 1850, although the military
 
 34 Government Finance 
 
 charges had dropped from $35,800,000 in 1847, 
 to $9,600,000, yet the aggregate annual war 
 charges, exclusive of the expenses of looking 
 after the Indians, were $19,500,000. However, 
 this was the lightest war burden we have ever 
 borne, because, with the growth of population, it 
 was only eighty- four cents per capita. 
 
 It has been estimated that the Civil War cost 
 the Federal Government $6,190,000,000 all told, 
 exclusive of pensions, since 1880. By 1870, the 
 annual cost to the Federal Government alone of 
 wars past and preparedness for war was no less 
 than $233,500,000. This was the heaviest burden 
 we have borne, amounting to $6.00 per head. It 
 then fell steadily until the Spanish War, which, 
 including the campaign in China and the restora- 
 tion of peace in the Philippines, raised the annual 
 expenditures for the army and navy alone from 
 an average of $82,000,000 per annum (based on 
 the four years 1894-97) to an average of $210,- 
 000,000 (based on 1898-1901). It also increased 
 the soldiers' pensions and, although to a rela- 
 tively small extent, added to the debt charges. 
 We have had " a hard row to hoe " in becoming 
 an independent and consolidated nation. 
 
 Returning from our digression to the present- 
 day costs of the Federal Government, our next 
 item is $9,500,000 for the Department of Justice 
 and the courts. Thus all together, keeping the 
 peace and settling disputes, costs the Federal 
 Government about $248,300,000 annually.
 
 Our Federal Finances 35 
 
 We come now to three sets of activities, most 
 of which are either new, or comparatively recent 
 expansions of old, activities. These are :(i) the 
 public health, (2) the provisions for public 
 safety, (3) the regulation of industry, commerce, 
 and the like. The first costs $5,600,000, the sec- 
 ond $8,000,000, the third, $4,500,000, together, 
 $18,100,000. Under the first are looking after 
 health and sanitation and the inspection of foods 
 and drugs — the latter alone costing over $3,- 
 700,000. These two are growing expenditures 
 and mark a new idea as to government respon- 
 sibilities and duties. It seems probable that these 
 activities will increase in importance and cost. 
 Steamboat inspection and the light-house and 
 life-saving provisions in the second group are 
 older than any others in these three groups and 
 have probably reached their full growth, at least 
 in proportion to population. But those among the 
 third, namely the Immigration Service, the Bureau 
 of Labor, the Bureau of Corporations, and the 
 Interstate Commerce Commission, are growing 
 rapidly. One activity only, namely the supervi- 
 sion of national banks, here included, has reached 
 its full growth, that is in proportion to popula- 
 tion. But here comes the Federal Reserve Bank 
 System with new costs. Like the supervision of 
 health and foods, these activities seem very likely 
 to expand and to cost more each year. But after 
 all, $18,000,000 for health, safety, and earnings is 
 not large against $250,000,000 for national de- 
 fense.
 
 36 Government Finance 
 
 Public works, including, besides the " rivers 
 and harbors" — that perennial subject for con- 
 gressional strife, which cost, in 191 1, at low ebb, 
 about $8,500,000 — irrigation works, inland 
 canals, and other items, but excluding the Pan- 
 ama Canal ($37,000,000 in 191 1), cost $18,- 
 500,000. Direct aids to industry through the 
 agricultural and fishery services, the patent of- 
 fice and the like, and trade promotion by the 
 consular service and other agencies, cost $11,- 
 000,000. On scientific research and publication 
 the Federal Government spends $12,250,000, on 
 education only $5,700,000, on parks $355,000. 
 Our wards, the Indians, cost $6,500,000. Alto- 
 gether, the activities above listed cost about $1 16,- 
 600,000, including the Panama Canal, or $79,- 
 600,000 without the canal. Less than eighty- 
 seven cents per capita for promoting efficiency is 
 not large against $5.00 for war. 
 
 We have included in our grand total the cost 
 of the post-office, which runs to nearly $240,- 
 000,000. There is a sense in which this is not a 
 cost or burden of the government. It is not paid 
 for by taxes or other compulsory revenues. The 
 users get a direct return, worth more to them than 
 the cost, and the income approximately equals 
 the expenses. But it is inextricably interwoven 
 with all government activities, causes Congress 
 and the executive offices work, and is operated 
 on broad lines, looking to the public welfare in 
 general and not to money profits ; that is, it is 
 treated as an essential public service. On a par
 
 Our Federal Finances 37 
 
 with this is the postal savings bank which so far 
 costs but little — $57,000. 
 
 Other public services of importance are the 
 forestry service, costing $5,500,000, the adminis- 
 tration of the public lands, $4,000,000, the issu- 
 ance of money, $4,600,000. 
 
 This shows $9,500,000 for forestry and public 
 lands, which is little enough, but stands out in 
 startling contrast with only $4,500,000 for indus- 
 try, commerce, and labor. We spend more than 
 twice as much on inanimate nature as we do on 
 live men. 
 
 The territories and the District of Columbia 
 cost $11,500,000, about three-fourths of which is: 
 offset by receipts of local revenues. Included in 
 the grand total are also some $33,000,000 of 
 technical, or bookkeeping expenditures, repre- 
 senting the return of trust funds and the like 
 which are also offset by receipts, not taxes. 
 
 Finally comes the interest on the public debt, 
 $21,300,000 and debt payment, $35,200,000, a 
 total of $56,600,000. 
 
 There are three questions as to federal financial 
 policy and tendencies which are interesting. The 
 first is the scope of federal activities ; the second, 
 the efficiency and economy of service ; the third, 
 how the equation between receipts and expenses 
 is attained. 
 
 The Scope of Federal Activities 
 
 The Constitution and the logic of federal gov- 
 ernment, in general, necessitate that the exec-
 
 38 Government Finance 
 
 utive, legislative, and judicial departments shall 
 be maintained, and place all matters relating to 
 foreign affairs and war, except internal dissen- 
 sions within a state, in the hands of the Federal 
 Government. For similar reasons, coinage and 
 money, the post-office, the light-house service, 
 patents and copyrights, the census, and at least 
 the prevention of interference by the states with 
 the freedom of interstate commerce are essen- 
 tially federal functions. As vast tracts of land 
 were donated to the United States, the land office 
 is also essential. 
 
 Every other function now exercised by the 
 Federal Government is an invasion of the sphere 
 of action originally reserved for the states. This 
 invasion rests technically on the right to regulate 
 interstate affairs, and requires in every case a 
 straining of the meaning of the Constitution. 
 There is, however, today, very little tendency to 
 reassert the doctrine of state rights or to resent 
 this expansion of federal activities. The sole 
 question is, Which can do these things best, the 
 separate commonwealths or the Federal Govern- 
 ment, or a combination of both in cooperation? 
 The judgment, in general, is that the Federal 
 Government does them best. Most of the states, 
 especially those once most wedded to the doc- 
 trine of state rights seem content to sit back and 
 let the Federal Government do all it can and will. 
 Some few of the most advanced and best gov- 
 erned states, not content with what the Federal 
 Government is doing in these lines, duplicate
 
 Our Federal Finances 39 
 
 these activities or carry them farther than the 
 Federal Government goes. When this happens, 
 there are some clashes of jurisdiction, as in the 
 matter of rate fixing for railroad fares and 
 freights, and some duplication of expense. More 
 often there is an effort to divide the field of 
 the work, and occasionally direct cooperation. 
 Among the most important activities thus dupli- 
 cated may be mentioned : health and sanitation ; 
 food and drug inspection ; immigration service ; 
 labor bureaus ; control of corporations ; com- 
 merce, especially the railroad commissions ; every 
 line of public work, including irrigation and 
 drainage, highways, inland canals, rivers and 
 harbors ; the fishery service ; agriculture ; trade 
 promotion; weights and measures; reHef of vet- 
 erans ; and forestry. 
 
 A certain amount of duplication between the 
 national and state governments is unavoidable 
 for two reasons. The first is the constitutional 
 inhibition, which prevents the states from inter- 
 fering with each other's affairs, and hence the 
 necessity for some central authority to care for 
 such matters as overlap. The second is the prac- 
 tical one of funds. As the benefits are often 
 local, the Federal Government does not seem jus- 
 tified in doing it all. Where a clear line, mark- 
 ing off internal state interests from interstate, can 
 be drawn, internal interests are left to the states. 
 But there is a decided need for more cooperation 
 in avoiding duplication of expense and effort. 
 
 Aside from the post-office, the Federal Gov-
 
 40 Government Finance 
 
 ernment conducts no public industry. Possibly 
 the Panama Canal may be regarded as such, but 
 it is hardly an invasion of the sphere of private 
 industry. Someone may wish to add the Federal 
 Reserve Banks to the list. Others may add the 
 offering of marine insurance against war risks. 
 If so, I should raise no serious objection. Every 
 little while, however, some project for federal 
 industries is raised. Notable is the recent pro- 
 posal of the Postmaster General to acquire the 
 telegraph system, and again the ship purchase 
 bill considered by Congress in 1915. It is 
 more than doubtful whether either of these 
 activities will become a permanent part of the 
 business of the Federal Government, but if they 
 do they may lead rapidly to other extensions. 
 
 Efficiency and Economy 
 
 The questions of efficiency and economy being 
 in the main common to all branches of govern- 
 ment — federal, state, and local — we may defer 
 the main discussion of this matter to another 
 chapter. So far as particular questions relating 
 solely to the efficiency and economy of the Fed- 
 eral Government arise, they arise from the his- 
 torical development of the different functions 
 and offices, which has resulted in a somewhat 
 haphazard and arbitrary grouping. Some de- 
 partments embrace services very diverse in char- 
 acter, making control and supervision difficult. 
 Some bureaus are maintained separately, whose
 
 Our Federal Finances 41 
 
 duties and work could be transferred entirely to 
 other bureaus, or they could be combined with 
 other bureaus. Many local offices are continued, 
 the need for which has largely passed away. The 
 chief difficulty of effecting these changes is the 
 question of patronage, but the natural inertia of 
 government and the impossibility of establishing 
 a permanent policy, when there are frequent 
 changes in the administration, add to the diffi- 
 culty. 
 
 The Equation of Receipts and Expenditures 
 
 As a general principle, governments decide 
 first what they have to spend and then adjust 
 their revenues thereto. There have been times in 
 the history of this country when this policy has 
 been followed by the Federal Government. This 
 is regularly the case in time of war. Otherwise, 
 it has been the case only in the so-called free 
 trade periods, or at rare intervals, when the tra- 
 ditional ex})enditures have exceeded the revenues. 
 The trouble has been that a large part of the 
 revenues have been fixed by the prevailing policy 
 as to the tariff. That policy, once fixed, deter- 
 mines a large part of the revenues for a period 
 of years. In like manner, the internal revenue 
 taxes, especially the indirect taxes on tobacco, 
 beer, and spirits, are changed only at considerable 
 intervals. Both of these sources of revenue are 
 of such a character that their yield cannot be 
 accurately forecast. Until the income tax was es- 
 tablished, there had been no " elastic " element
 
 42 Government Finance 
 
 in the tax system, and so great apparently is the 
 reluctance to develop that tax, that, even since 
 its installation, new needs have been met by nev^^ 
 taxes rather than by an adjustment of its rates. 
 The result of this has been that, at times, the 
 Federal Government has, to too large an extent, 
 adjusted its spending to its revenues, and conse- 
 quently there have been years of extravagance 
 and waste. Unfortunately, in government 
 finance, waste is not easily stopped when lean 
 years come. Pensions granted directly by Con- 
 gress under the old rule of "you help me and 
 I'll help you" run on long after the pension sys- 
 tem has been reduced to the comparatively ex- 
 cellent order in which it is today. The way to a 
 remedy of these conditions by affording Congress 
 a better means of scrutinizing expenditures is 
 opened by the so-called budget system, which will 
 be considered in another place. 
 
 Federal Debt 
 
 The debt of the Federal Government is com- 
 paratively small. The interest-bearing debt is 
 less than $1,000,000,000, that is, less than one 
 year's expenses. On top of that, we owe $375r 
 000,000, surreptitiously borrowed from the peo- 
 ple without interest in the guise of circulating 
 notes, which there is, unfortunately, no disposi- 
 tion at present to repay. If we deduct cash on 
 hand, however, we have a net debt but a little 
 over the $1,000,000,000 above given; $720,-
 
 Our Federal Finances 43 
 
 000,000 of this bears interest at only two per 
 cent, at which rate it is, perhaps, better to let the 
 debt stand than to take the money away from 
 the people by taxes in order to pay it. This 
 serves, moreover, as the basis for our national 
 banking system. Disregarding the paper money, 
 deducting cash on hand and regarding the two 
 per cent bonds as burdenless because of the serv- 
 ices they perform, we might say, without great 
 impropriety, that Uncle Sam is very nearly out 
 of debt. At all events the debt constitutes a 
 burden scarcely felt. Nevertheless, the interest 
 charge is $22,900,000, a sum worth considering. 
 Comparison with other countries as to debts 
 should be made against population and public 
 revenues. Accurate comparisons are not possible 
 because of difference in the forms and functions 
 of governments. One federal government or 
 union of states may be very compact, the subor- 
 dinate states having little to do, while another 
 may be loose, all real activity vesting in the 
 states. In the latter case the debts may be state 
 debts, not federal. A country which owns and 
 operates its railroads and other industries is 
 likely to owe more than one which does not, 
 and it can carry the debt more easily. In some 
 countries, like our own, the burden of debt is 
 local. To unravel the intricacies, and to obtain 
 figures which would be strictly comparable, is a 
 task so enormous that no one has ever under- 
 taken it. Accounts also differ from country to 
 country. The following table is therefore nec- 
 essarily rough :
 
 44 
 
 Government Finance 
 
 O K 
 
 bo O 
 be 
 
 CS 
 
 bO 
 O 
 
 O 
 
 
 2 !3 
 
 •O ^ t: 
 
 •c 
 
 •O -rj 1 
 
 «J S G (U 3 
 
 
 
 
 'o 'o 
 
 "o "b o o o o 
 
 *-t-l M-t 
 
 M-t M-) M-l *+-t MH M-t 
 
 H < '^ « 
 
 (TJ 0\ 
 
 1-1 I-; ro t^ 00 q 
 
 ro ^ 
 
 oi -"t -^ oi r^ ►-; 
 
 ^ 
 
 O O 
 
 O O Q O O O 
 O O O O O Q 
 
 o o o o_^ o__ q^ 
 
 <U in 
 
 ° 8 
 
 
 rri i-T 
 
 oo" ^ di " (5 lo 
 
 H b 
 
 NO 'i- 
 
 00 ^ 00 CN) CS r^ 
 
 3 2 
 
 C^ rn 
 
 00 00 1-1 TT C) 00 
 
 gS 
 
 
 
 
 vd" vo 
 
 NO fO >-i t^ On (N« 
 
 m 00 
 
 -1 O (^ O 1-1 C< 
 
 < 
 
 " " 
 
 (N 1-1 C>4 >-. 
 
 c« 
 
 8 9 
 
 O O O O O O 
 O O Q Q O O 
 O O O O^ O O 
 
 
 *f ^f 
 
 t^ o d CO in o 
 
 " o 
 
 t^ O ro fO q o 
 
 o q_ <N q 00 o 
 
 LO VO 
 
 
 
 OO of of -^00 o" 
 NO 1-1 0\ t^ 1-1 o 
 
 w_^ On 
 
 ro lO 0) NO On 0_^ 
 of i-<" i-T 
 
 
 W- 
 
 
 
 1-. 
 
 
 
 
 P. B 
 
 lo r^ 
 
 O tT On lO NO lO 
 
 q\ 00 
 
 l^ 00 t>. 1- rr lO 
 
 X3 ,« 
 
 lO Os 
 
 u=i On OO 00 r-^ 6 
 
 r^ lo 
 
 t^ t^ 0) 0) t^ w 
 
 <u U 
 
 <«• '^ 
 
 
 
 Q 
 
 
 
 1 
 
 c 
 
 o o 
 
 O O O O O O 
 
 o 
 
 o o 
 
 o o o o o o 
 
 '^ 
 
 o o 
 
 0,000 
 
 a! 
 
 8 8 
 
 8 |8 8 §1 
 
 
 
 
 o 
 
 On cK 
 
 rf 0-) 0< O »0 -"J- 
 
 CLh 
 
 rr c^ 
 
 NO ro ID NO ■<3- ON 
 
 
 Q O 
 Q O 
 
 Q O O O Q Q 
 5 O O Q O O 
 
 o o o 5 o o 
 
 •o 
 
 6 q_ 
 
 
 
 
 <u 
 
 o" "^ 
 
 o c 
 
 h t^ 00 00 o 
 
 
 o t^ 
 
 0) C 
 
 On 00 1-1 O 
 
 1- ^ 
 
 O NO^ 
 
 0^ NC 
 
 On ^ 00 O 
 
 O i> 
 
 of r<0 
 uo OO 
 
 CO NO i-T CO lo o 
 1-1 O t to 00 o 
 
 t^ 0) 
 
 On t^ 0) ir, rf o 
 
 
 
 
 fO NO 
 
 TT 0< w -rr CO "I 1 
 
 
 <<9- 
 
 
 1 
 
 
 
 <U 
 
 
 
 
 E • 
 
 c 
 
 3 
 
 c 
 
 'S, 
 S 
 W 
 
 
 
 
 C rt 
 
 O 
 
 U 
 
 .2 4J § 
 
 
 rt -o T3 1 
 
 U U ™ 
 
 13 
 
 C -r? ^ <U 1 
 
 
 t;; G 
 
 G 
 
 G > 
 t-i 
 
 1 rt 
 
 »— 
 
 ^c^ 
 
 II,
 
 Our Federal Finances 45 
 
 This table should be used with great caution. 
 Thus for example, the German debt and revenues 
 include the money borrowed for and to be paid 
 for by the state railroads. To that extent it is 
 offset. The debt of the United Kingdom is heav- 
 ier than appears for it was incurred for services 
 to the whole empire and yet bears on the rev- 
 enues of the British Islands only. England has 
 very heavy local debts in addition to these shown, 
 while France has very small local debts. The 
 states of the German Empire perform functions 
 which in England are performed by the Im- 
 perial Government, in part, and in part by the 
 colonies. The debt of Russia looms large in the 
 aggregate, but compared with natural resources 
 and territory is probably less burdensome than 
 that of Japan. The debt of France is probably 
 mostly held at home, while that of the other 
 countries is scattered. A multitude of other 
 considerations affect almost every comparison 
 which might be attempted. 
 
 A safe conclusion is that the debt of the 
 United States is very light, and that of England 
 and France very heavy indeed. At the same 
 time the common idea that all European public 
 debts are so enormous as to be utterly beyond re- 
 payment is clearly in error. France, the worst 
 case, could pay her debt in fifty years by adding 
 only $3.00 per capita to her annual taxes. A fur- 
 ther discussion of other public debts will be 
 found in another chapter.
 
 CHAPTER V 
 
 STATE AND LOCAL FINANCE, EXCLUSIVE OF 
 MUNICIPAL 
 
 VJ^ E now leave the field of federal finance and 
 come to that of the finances of the states or 
 commonwealths and of their traditional political 
 sub-divisions. In New England, and in states re- 
 ceiving their traditions from New England, these 
 sub-divisions are the towns, with counties formed 
 for certain very limited purposes. Generally the 
 counties are only judicial districts. In the South 
 the subdivisions are the counties. In other parts 
 of the country we find a combination in various 
 ways of counties and towns. 
 
 Although the large cities perform the duties 
 of those subdivisions of the state, the towns, or 
 counties, with which they are in each state cor- 
 related, yet they have also a large degree of home 
 rule, which makes their financial problems some- 
 what different from those of the states and their 
 other subdivisions. We therefore reserve the 
 cities for another chapter. In this chapter we 
 shall examine the states' finances mainly, but we 
 shall glance, also, at county and district problems. 
 
 While the Federal Government has been stead- 
 ily encroaching on the domain originally re- 
 served for the states, the latter have not been 
 
 46
 
 State and Local Finance 47 
 
 losing at all in importance and in costliness. 
 They have greatly enlarged and developed those 
 activities which were originally theirs, have 
 found new things to do, and have assumed, in 
 many parts of the country, activities which were 
 originally local. I am personally of the opinion 
 that there is more real growth in state activities 
 than in those of any other part of our govern- 
 ment. By that I mean that the things they are 
 now taking over will prove in their ultimate ex- 
 pansion more fundamentally important to the fu- 
 ture development of the country than the recently 
 assumed functions of any other branch of gov- 
 ernment. 
 
 The states' original activities, while not the 
 same in any two states, and although differing 
 very widely in some cases, embraced in most 
 cases the following: the support of the legis- 
 lature, the higher courts, the executive depart- 
 ments, including the governor, the secretary of 
 state, the financial officers, the attorney general, 
 and the state militia. In 1796, the average ex- 
 penditures of the fifteen states were less than 
 $70,000 apiece, and the total about $1,000,000 
 for all fifteen. In 1902, the states and territories 
 were spending $186,000,000. In 19 13 they were 
 spending $383,000,000 — a phenomenal increase. 
 What the counties and minor civil divisions, in- 
 cluding cities other than those over 25,000 inhab- 
 itants, were spending in 1796 we do not know, 
 but in 1902 they were spending $502,000,000. 
 As the cities over 25,000 spent $469,000,000 in
 
 48 Government Finance 
 
 addition, in 1902 the states' proportion was a 
 little over sixteen per cent of all public money 
 spent, exclusive of federal expenses. By 1912 
 the big cities were spending nearly $900,000,000 
 of revenues alone and much more of borrowed 
 money. In 1913 the counties were spending 
 $385,000,000 and incorporated places over 2,500 
 inhabitants $1,247,000,000. 
 
 The census bureau lists the expenses for func- 
 tions performed in 1902 as follows: legislature, 
 chief executive offices, offices of secretary of 
 state, law offices, finance offices, miscellaneous 
 general government offices, courts, buildings and 
 sites, military, police and inspection, health, con- 
 servation, sewers and drainage, highways, char- 
 ities, insane, penal institutions, education, includ- 
 ing common schools and state institutions, parks 
 and recreation, agriculture, interest, and state 
 commercial industries. 
 
 This is a formidable list, and yet since 1902, 
 state expenditures have very greatly increased. 
 The changes in the last decade have been along 
 the following lines, but not, of course, the same 
 in every state. Among the financial offices have 
 come many new state tax commissions, which 
 supervise the revenues, state boards of control 
 taking over the supervision of expenditures, or 
 even the management of state institutions which 
 were formerly conducted by separate boards. 
 Among the miscellaneous general offices have 
 come the new railroad commissions, and the new 
 public utility commissions which have risen into
 
 State and Local Finance 49 
 
 great importance. So also have the labor bureaus 
 stepped up from relative obscurity. Industrial 
 accident boards have developed, and bank super- 
 vision has become more important and effective. 
 The health office has become a live bureau where 
 it was merely a quarantine office before. Other 
 bureaus have arisen. 
 
 State aid to education varies greatly. In some 
 states the state raises the greater part of the 
 support of the common schools and passes the 
 money over to the school districts. In other 
 cases the state does very little, leaving the com- 
 mon schools primarily to the care of the local- 
 ities. Nearly every state has, at least, a state 
 school fund in a capital sum, the interest of which 
 goes to the schools. 
 
 The prevailing principle today seems to be 
 that the state contributes an amount held to be 
 sufficient to ensure a uniform minimum of school- 
 ing for every child, but leaves a large part of 
 the burden of making the schools better than 
 the minimum to the school districts or local gov- 
 ernments. It is held by good authorities on 
 school finance that too little is done by the states 
 and too much left to the districts. Until the 
 states develop wider taxing powers than they 
 now exercise this cannot well be changed. The 
 states today sometimes aid the high schools. They 
 did little for them before 1902. They very gen- 
 erally provide normal schools. Many now sup- 
 port state universities or at least agricultural 
 colleges. The normal schools and the universi-
 
 50 Government Finance 
 
 ties receive today manyfold what they did in 
 1902. 
 
 Among the recent developments have also been 
 state highways, increased expenditure for health 
 conservation, increased expenditures for char- 
 ities, such as mothers' pensions, and correctional 
 adjuncts to the penal system. 
 
 In all states there has been a development of 
 the old existing activities which, of itself, has 
 trenched on the domain of the local govern- 
 ments, but in many there has been a distinct tak- 
 ing over of functions from the local govern- 
 ments. In every state in the Union new state 
 functions have arisen. 
 
 In no case have local expenditures been much 
 reduced. There may be exceptions, of course, 
 but as a rule, when the states have relieved the 
 local governments of any burden, the local gov- 
 ernments have gone ahead and assumed new 
 burdens. 
 
 This results in a perpetual rolling up of state 
 expenses and taxes, and of county and local 
 expenses and taxes, the end of which is by no 
 means in sight. Even with complete data of 
 recent date as to the amounts of state and local 
 expenses at hand, in the 1913 census reports the 
 diversities of state governmental organization 
 and of economic conditions render averages dan- 
 gerously misleading and comparisons impossible. 
 To attempt to cover the whole country as to state 
 expenditures would be tedious, and would re- 
 quire more space than we have at our disposal.
 
 State and Local Finance 51 
 
 But we may examine some few states which offer 
 interesting data. 
 
 Examples of State Finance 
 
 There was a time when the salary of the Gov- 
 ernor of Rhode Island was only $1,000 per 
 annum, and the office was cheerfully bestowed 
 upon any opulent New Yorker who would honor 
 the state and himself by taking up a residence 
 in his summer home at Newport. The salary of 
 $1,000, with the honor and dignity of the office, 
 more than adequately paid for the services re- 
 quired of his Excellency, for all important gov- 
 ernmental activities were performed in the towns. 
 Today, that smallest of all states, once regarded 
 as a mere federation of independent towns with 
 little central organization, has developed a rela- 
 tively large amount of commonwealth activities. 
 State expenses have risen rapidly — most rapidly 
 in the last two decades. In 1887 that state spent 
 $850,000. In 1913, the expenses were $3,500,- 
 000. The importance of the state's activities has 
 increased the governor's duties so that he now 
 receives a salary of $3,000. Of the $3,500,000 
 spent in 19 13, many items seem to be invasions 
 of the sphere of action formerly reserved for the 
 towns. Thus while the towns and cities still 
 carry the main cost of the schools, the state con- 
 tributed about $200,000 for high schools, com- 
 mon schools, and similar educational affairs. It 
 also spent $290,000 for state roads, $240,000 for 
 bridges, and $250,000 for normal schools and
 
 52 Government Finance 
 
 other forms of higher education. While the 
 state's share of expenses has been growing, the 
 expenses of the cities and towns have not de- 
 cHned. Providence alone is spending $10,500,- 
 000, or three times what the state spends. In 
 1903, Providence spent $4,800,000. 
 
 Crossing the continent, we come to California, 
 which has an entirely different historical growth 
 of state and local activities. Here the state al- 
 ways came first, and the counties, road, and 
 school districts, and cities, theoretically, merely 
 carried out the orders of the state. Yet in Cali- 
 fornia we find the state spending $27,780,000 
 (exclusive of highways being built by state 
 bonds), and all other units of government $117,- 
 000,000 ; or, if we transfer the $6,000,000 which 
 the state collects for schools and hands over to 
 the districts to spend, the ratio is about $22,000,- 
 000 to $123,000,000. As California has four and 
 one-half times the population of Rhode Island, 
 the state's expenses as distinct from those of 
 the counties and cities, are about double those of 
 Rhode Island per capita. But the counties and 
 cities have also a large amount of governmental 
 work to do as is shown by the large expenditures. 
 
 Thus by two different roads these two states 
 are arriving at the same goal. Rhode Island by 
 absorbing functions originally local, and Cali- 
 fornia by enlarging and emphasizing state func- 
 tions, both arrive at a very similar division of 
 expenses between the state and the local govern- 
 ment.
 
 State and Local Finance 53 
 
 Yet the difference in traditions as to the im- 
 portance of the state government is exemplified 
 by the salary of $10,000 paid the Governor of 
 California, in addition to which his dignity is 
 recognized by a " mansion," with $10,000 for its 
 upkeep, $5,000 for traveling expenses, an auto- 
 mobile and chauffeur, all from the state's 
 treasury. 
 
 As California has adopted very many of the 
 new " progressive " things in state government, 
 it will be interesting to see how much they cost. 
 The figures which follow are all for the years 
 1904 and 1914. In every case the smaller amount 
 is for 1904. In some respects the increases are 
 not as important as they appear, because, of 
 course, the state has grown in population and 
 in wealth. Then, too, the general level of prices 
 and wages has gone up. Hence a seventy-five 
 per cent increase might be considered inevitable. 
 
 The cost of the judicial, executive, and admin- 
 istrative departments increased from $783,000 
 to $1,231,000. Most of this is the result of more 
 work falling on these departments in conse- 
 quence of the increase in other state activities. 
 There are new courts, and the "board of con- 
 trol " which took the place of the old board of 
 examiners costs $185,000 (less transfers from 
 other fields, $32,000), against $20,000 for the 
 old board. 
 
 " Regulative " activities increased in cost from 
 $86,000 to $1,143,000. These are largely new. 
 The old railroad commission cost $20,000, the
 
 54 Goz'crnnient Finance 
 
 new one costs $306,000 and is asking for $200,- 
 000 more next year for new duties which were 
 imposed on it by popular vote. A member of the 
 old commission said his office meant " $4,000 a 
 year and not a thing to do." The new commission 
 has no sinecure. It actually regulates all public 
 utility rates and the issuance of securities by 
 utility companies. Its work is very highly es- 
 teemed. Regulating banks now costs $94,000 
 against $24,000. The board of health costs 
 $113,000. It used to cost $23,000, but it now 
 enforces the pure food and drug law. The labor 
 bureau used to cost $8,000, and now $50,000. 
 
 Brand new, regulative commissions, or boards, 
 costing $527,000 have been created. They are 
 for " water control," " industrial accidents " 
 (which costs $440,000, but of this $350,000 is the 
 insurance fund which will sustain itself), " immi- 
 gration and housing," " veterinary medical ex- 
 aminer," and the " civil service commission." 
 
 The largest increase came in the "constructive " 
 group. Harbor improvements and highways cost 
 $6,286,000 in 1914 against $912,000 in 1904. A 
 large part of this is " outlay," or supposed to be 
 an investment. 
 
 Education receives an increase from $4,919,- 
 000 to $9,517,000 in the aggregate. Free text- 
 books account for about $300,000 of this. Then, 
 there are new normal schools and other schools 
 costing $1,087,000. The rest of the increase is 
 distributed between the elementary schools, the 
 high schools and the university. The high
 
 State and Local Finance 55 
 
 schools have relatively the largest increase. 
 Roughly speaking the increase for education 
 along lines existing ten years ago is from $5,000,- 
 000 to $8,000,000. This is a low rate of increase 
 if we allow seventy-five per cent for normal 
 growth. Of course, these activities start from 
 a larger base, they were already well grown ten 
 years ago. It is not fair to contrast them with 
 activities practically new, which start from noth- 
 ing or almost nothing. But yet, as they too have 
 many new things to do, they are really lagging 
 behind seriously. The efifective relative growth 
 is only about ten per cent in ten years. It is 
 characteristic of popular government to love the 
 youngest child best. Hence old established activ- 
 ities have to look out for themselves, or often 
 go uncared for. 
 
 " Developmental " activities, including agricul- 
 tural societies, the fish commission, and a recla- 
 mation board, increased in cost from $151,000 
 to $623,000. 
 
 "Curative" work, mostly the care of the in- 
 sane, costs $2,393,000 against $1,041,000. 
 
 Reformatories grew in cost from $171,000 to 
 $376,000. Prisons grew from $584,000 to 
 $1,113,000. 
 
 The Militia required $574,000 in 1914, it had 
 only $155,000 in 1904. 
 
 Benevolence, on the support of orphans and 
 half -orphans, shows an actual decrease from 
 $500,000 to $400,000. This decrease and, what 
 is more startling, this failure to increase, together
 
 56 Government Finance 
 
 mark two important changes. . First, " graft " 
 has been eHminated ; second, the whole activity 
 has ceased to be a " charity " and has become 
 " curative." This expense includes " mothers' 
 pensions," since 1913. 
 
 The total of all the above items increased from 
 $9,500,000 to $24,000,000. 
 
 As stated above, the same tendencies are to be 
 found all over the United States. It is only a 
 matter of degree in different states. 
 
 In the first period of the coming development, 
 the greatest increase in cost will be for the " regu- 
 lative," " constructive," and " development " 
 activities. Educational and benevolent activities 
 will practically stand still, unless their represent- 
 atives exert themselves more than they are now 
 doing. " Curative," " correctional," and " penal " 
 activities are also hampered because relatively 
 older than the " regulative." 
 
 With many important differences in detail, the 
 same general trend is to be found well exempli- 
 fied in Wisconsin. 
 
 Since all these new activities "make good," 
 there is little doubt that they will spread from 
 state to state. 
 
 Kentucky affords an example of still another 
 variety of state government. With compara- 
 tively little expansion of state activities proper, 
 which are as near the minimum as possible, the 
 financial weakness of the counties has forced 
 the state to take up more and more of local ex- 
 penses. Some of the counties are known locally
 
 State and Local Finance 57 
 
 as " pauper counties " because they receive so 
 much more toward local expenses than they pay 
 to the state. The state pays a large part of the 
 support of the assessors, county clerks and 
 sheriffs, local courts, local attorneys, and of the 
 costs of criminal prosecutions, and also a very 
 large part of the support of schools. 
 
 Minnesota is interesting as affording an exam- 
 ple of a state in which there is a decidedly close 
 interrelation between state and local finance. 
 The state paid out in 191 1, $16,600,000, the coun- 
 ties $41,800,000, the local governments $47,500,- 
 000, a total of nearly $106,000,000. But these 
 payments include duplications. Stripped down 
 to net cost payments, the figures are: state, $11,- 
 000,000 ; counties, $9,300,000 ; local, $46,700,000 ; 
 a total of $67,000,000.* 
 
 The large difference between one hundred and 
 six millions gross payments and sixty-seven mil- 
 h'ons net, illustrates the difficulty inherent in all 
 these figures. In Minnesota nearly half of the 
 state's revenues go for educational purposes, 
 including the university, $2,740,000 (1912), pub- 
 lic schools $1,550,000, normal schools $455,000. 
 
 In 19 12 the state spent on its main disburse- 
 
 * Professor Robinson, whose figures these are, arrives 
 at the further conclusion that the actual taxes paid, at 
 the tax rates of 191 1, by a family of five owning $4,000 
 of property, were: $4.59 for state government, $6.08 
 for county, $24.41 for local governments ; but as a 
 large part of the $24.41 is paid only by residents of 
 cities, we may not add these averages together to form 
 a total. This is an interesting example of the intricacy 
 of tax statistics.
 
 58 Government Finance 
 
 ments from revenue $10,734,000. In 1902 the 
 state spent for the same class of things only 
 $3,734,000. That is, $7,000,000 more in ten 
 years. Population increased about one-fifth, 
 state expenses, nearly three-fold. But the inter- 
 esting thing is the expansion of new duties. The 
 list is very instructive: a tax commission, high- 
 way commission, bureau of immigration, fire 
 marshal, superintendent of banks, live stock sani- 
 tary board, oil inspection, sanitorium for con- 
 sumptives, hospital for crippled and deformed 
 children, industrial school for girls, war pensions, 
 art society, board of visitors to state institutions, 
 hospital for inebriates, weights and measures 
 department, and hotel inspector. There were 
 also a new capitol and additions to the university. 
 
 Minnesota has an unusually well-ordered finan- 
 cial system throughout, and the revenues are well 
 managed. It is, hence, all the more interesting 
 to note that the Minnesota people are not con- 
 tent to have one of the best financial systems in 
 the country. They want to make it still better. 
 A large commission on " efficiency and economy," 
 appointed by the Governor, has just rendered a 
 report urging further improvement. 
 
 Massachusetts is a state where the traditions 
 place the chief burdens of government on the 
 local units, the towns and cities. The auditor's 
 estimate for 1914 called for only $17,750,000 of 
 state funds. Of this, $5,600,000 was for charita- 
 ble purposes, and only $1,750,000 for educational 
 purposes. As Boston alone spent $58,000,000 in
 
 State and Local Finance 59 
 
 1912, Worcester $8,500,000, Fall River $4,500,- 
 000, Lowell $4,200,000, New Bedford $7,000,000, 
 Springfield $5,000,000, and Lynn $4,500,000, the 
 state's expenses seem small by comparison. Yet 
 the state directs some important local activities, 
 like the great metropolitan water works and 
 parks and sewer systems, which are listed, not as 
 state, but as local activities. 
 
 New York, also, throws the burden of govern- 
 ment mainly on the local units. The state's ex- 
 penses were about $52,000,000 in 1913; but the 
 local governments raised in revenues alone, with- 
 out including borrowed money, nearly $300,000,- 
 000. In his 1912 report the Controller makes 
 some interesting comments on the growth of 
 state expenses. He calls attention to the fact 
 that the revenues were $36,600,000 in 1910, and 
 $52,400,000 in 19 1 3. The amount expended for 
 the advancement of agriculture had grown in 
 ten years to $2,000,000 on 180 per cent, al- 
 though population had grown only twenty-five 
 per cent. The state's offerings for education, 
 exclusive of the fund for the support of the com- 
 mon schools, which was $5,000,000, amounted to 
 $4,000,000, an increase of 400 per cent in ten 
 years. State hospitals and related institutions 
 received $7,350,000 in 1912, an increase of fifty 
 per cent in ten years ; charities received $3,000,- 
 000, an increase of sixty per cent, and public 
 works $4,500,000, an increase of 470 per cent. 
 This array of percentages is formidable. But 
 $2,000,000 for agriculture in a state of 10,000,-
 
 6o Government Finance 
 
 ooo people is only twenty cents apiece, and the 
 other items are not yet \a.rgt compared with what 
 any one of the progressive states are doing. 
 
 New York contributes from state funds 
 $9,000,000 to education out of $52,000,000 spent 
 by the state for all purposes or seventeen per cent, 
 while Minnesota contributes from state funds 
 $8,000,000 out of $16,600,000, or nearly half. 
 
 Illinois, like New York, is backward and pro- 
 vincial, and affords us an example of a state 
 whose fiscal system is very old-fashioned. With 
 the exception noted below, the states activities 
 are limited to the bare maintainance of the 
 framework of a government. The " Fairlie " 
 Tax Commission of 1910 said of it : " The pres- 
 ent situation has developed in a desultory way, 
 with little effort at any correlated system." 
 
 The auditor's reports show a total of state ex- 
 penditures of $26,000,000 for the two years end- 
 ing September 30, 1912, or an average of $13,- 
 000,000 yearly. This includes a contribution of a 
 million and a half annually to the local schools, 
 and two million and a quarter for other educa- 
 tional purposes. Not quite as much goes for 
 charities. The total includes about $850,000 an- 
 nually for local bonds. Data on all local ex- 
 penses are not available. The total of all taxes, 
 state, county, and city, exclusive of special assess- 
 ments, which often become very nearly true 
 taxes, is reported as $96,000,000 in 191 1. But as 
 this is exclusive of non-tax revenues it is below 
 the total expenditures. The tax revenues of the
 
 State and Local Finance 6i 
 
 state are only eight and six-tenths per cent 
 of the total taxes levied. The burden of govern- 
 ment falls on the counties and school districts. 
 
 Small as these expenditures seem for a great 
 state with nearly 6,000,000 people, they show 
 signs of growth. The general state tax levy was 
 raised in 191 1 from $5,100,000 to $7,750,000, and 
 the state's contribution to schools, which is in 
 addition to this, was increased from $1,000,000 
 to $2,000,000. The increases seem to be dis- 
 tributed over all departments. 
 
 These illustrations, scanty as they are, show 
 very clearly the diversities of governmental or- 
 ganization in the various states. They show, 
 also, that comparisons are very difficult to make. 
 The figures given in the published reports are not 
 easy to interpret. 
 
 One thing, however, is clear. State expenses 
 are everywhere growing, perhaps not more 
 rapidly than local expenses, but growing in direc- 
 tions which will call for larger expenses still. 
 There are everywhere three lines of increase: 
 ( I ) The state governments are doing on an ever 
 increasing scale those things which they did be- 
 fore ; (2) State governments are developing func- 
 tions, mostly " regulative " and " developmental," 
 which no branch of government exercised be- 
 fore; (3) State governments are taking over 
 from the local governments in whole or in part 
 duties which used to be regarded as local. Rut 
 the saving to the local governments is more than 
 absorbed by their increases in activities.
 
 62 Government Finance 
 
 The great items of local expenditures, leav- 
 ing out cities of over 8,000 inhabitants, are for 
 schools, highways, and charities. School control 
 by districts has been condemned as " expensive, 
 shortsighted, inefficient, inconsistent, and un- 
 progressive ; it leads to great and unnecessary 
 inequalities in schools, terms, educational advan- 
 tages, and to an unwise multiplication of schools ; 
 the trustees, because they hold the purse strings, 
 frequently assume authority over matters which 
 they are not competent to handle ; and most of 
 the progress in rural school improvement has 
 been made without the support and often against 
 the opposition of the trustees and the people they 
 represent." * 
 
 The remedy proposed is a larger supervisory 
 and taxing district, " preferably the county." 
 
 In so far as it is urged that more money is 
 needed, and that "it cannot well cause an in- 
 crease in district taxation," the argument is 
 faulty. If the districts cannot afford to pay 
 more per se, how can the difficulty be removed 
 by merely combining districts? In so far, how- 
 ever, as a larger unit may reduce duplications 
 and increase efficiency, the argument is cogent. 
 It means having more money by eliminating 
 waste. The school men have not discovered the 
 proper remedy, which is given in the last chapter 
 of this book. 
 
 * Professors Cubberly and Elliott, School and Society, 
 Jan, 30, 1915.
 
 State and Local Finance 63 
 
 Road district, or township control of highways 
 is even more open to criticism than school dis- 
 trict control of schools. All the adjectives of 
 opprobrium hurled at the school districts by the 
 critics just quoted, may be repeated as to road 
 districts. Here the remedy is being applied. The 
 state is stepping in to build the roads, but the 
 problem of paying for them is still far from 
 being permanently solved. It appears, however, 
 that the present solution is to charge the expense 
 the state incurs back to the property or to local 
 units benefited. 
 
 The town poorhouse, or even the county poor 
 farm, has seldom been a credit to our civilization. 
 State aid for the poor and aged, handed down 
 to the local authorities to spend, has not wrought 
 much improvement. State boards of charities 
 have too often been perfunctory. But the pres- 
 ent trend is toward effective state control, which 
 may work an improvement. With this the state 
 assumes a larger share of expense and further 
 strains its resources. 
 
 Prisons, reformatories, asylums for the insane 
 and defectives, schools for the deaf and blind, 
 have generally been state affairs. But local jails 
 are mostly bad and badly managed. Cities are 
 moving to improve these, but county and rural 
 jails are almost uniformly unsanitary and ex- 
 travagantly managed. Sooner or later central 
 control will be demanded here, again an increase 
 in state expense. 
 
 All along the line we find that the future prom-
 
 64 Government Finance 
 
 ises to enlarge still further the sphere of the 
 state. But there is also little hope that the bur- 
 den of local taxation will correspondingly de- 
 crease. The counties and towns too will be 
 called on for larger activities. 
 
 Another development is also in sight. Central 
 control of local taxation is coming. It has 
 proved its usefulness wherever it has been tried. 
 It will eventually be the rule. But central con- 
 trol of taxation, without some control of spend- 
 ing, is only half effective. It is not enough to 
 make sure that taxes are properly apportioned ; 
 the burden may nevertheless be unbearable. 
 Control of local expenditures, at least to the 
 extent of eliminating duplication and waste, is 
 the second half. As the state begins to share in 
 what have been local activities and expenses, it 
 will begin to assert a right to have a voice in the 
 local work along the lines into which it enters. 
 
 But although we may look forward to greater 
 economy, we must not lose sight of the fact that 
 needs are growing and multiplying. More and 
 evermore money will be needed. The general 
 property tax is in many places strained to the 
 breaking point. New sources must be found. 
 The only effective source in the long run will be 
 income taxes. Through them alone can the 
 " unseen benefits," the savings made to the peo- 
 ple by the new governmental activities, be made 
 to help pay for the costs of those activities. 
 
 This may be illustrated by a single example 
 before we close this chapter. The regulation of
 
 State and Local Finance 65 
 
 railroad rates, if as effective as it is claimed to 
 be, adds much to personal efficiency, little to 
 property values. It cuts down railro,ad property 
 values and taxes as much as it raises private 
 property values and taxes. The property tax 
 will never reach the new tax paying ability result- 
 ing from this activity. The income tax can 
 reach it. 
 
 In conclusion we may restate the opinion that 
 the greatest growth in government expenditures 
 is coming in the field of state finance.
 
 CHAPTER VI 
 
 MUNICIPAL EXPENDITURES 
 
 ' I 'HE federal and the commonwealth govern- 
 ments may be said to take care of the fields 
 and gardens of the public estate and the cities 
 may be said to do the housekeeping. 
 
 There is a troublesome lack of uniformity 
 among the larger cities of the United States as 
 to the functions which they perform and con- 
 sequently as to the lines of their expenditures. 
 Their total expenditures (in 1912) range from 
 $9.48 per head in Johnstown, Pa., purged by the 
 flood, to $83.67 in Omaha, Neb. But it should 
 be said that Omaha spent $60.43 P^^ head for 
 new water works, so the better comparison is 
 $9.48 against $23.24. This lack of uniformity 
 is due in part to the fundamental differences in 
 the framework of local government. In some 
 states local government is based on the township 
 system, in others on the county system, and in 
 still others on various combinations of the two. 
 Another cause of diversity is the fact that each 
 state legislature has devised its own way of 
 framing the underlying law for city governments. 
 Many diversities are temporary only, being due 
 to new outlays for permanent improvements. 
 
 While this diversity is sometimes troublesome 
 
 66
 
 Municipal Expenditures 6y 
 
 in any study of city finances, because it makes 
 many comparisons which we would Hke to insti- 
 tute impossible, yet there are also many more 
 important similarities. There are many func- 
 tions which are common to all cities and which 
 are performed in much the same manner and to 
 somewhat the same extent in all large cities. 
 These are sufficiently important to permit us to 
 pass briefly over the differences, a full discussion 
 of which would take up too much space. 
 
 An example of one group of differences is 
 afforded by the judicial functions performed by 
 the city as such. Some cities have very wide 
 duties of this sort, while for others these powers 
 vest largely, especially as to the higher courts, in 
 the county within which the city is located. An- 
 other set of differences is illustrated by the 
 school systems. In some cases the schools and 
 certain other activities are wholly under the 
 direct control of the city government, while in 
 many other cases there still exist within the 
 cities separate school districts and other districts 
 more or less independent of the municipal gov- 
 ernments. Differences of the first type do not 
 involve great differences of expense, and differ- 
 ences of the second sort can be adjusted by com- 
 bining the costs of the separate districts with 
 those of the cities. 
 
 It is necessary to draw the line somewhere 
 between cities that can be considered full-fledged 
 and those which resemble overgrown villages or 
 towns. The line must be more or less arbitrarily
 
 68 Government Finance 
 
 drawn and has been drawn by the Census Bureau 
 at a population of 30,000, or formerly at 25,000. 
 We shall do the same in order to take advantage 
 of the census figures. There were 195 such cities 
 reported on for 19 12. For 146 of the 195 we 
 have data more or less comparable for the years 
 from 1902 to 1912 inclusive. 
 
 The Census Bureau, whose data we shall fol- 
 low in the main, divides the money paid out by 
 cities into three great groups, (i) expenses, (2) 
 interest, and (3) "outlays." The first two are 
 self-explanatory, the last covers all expenditures 
 or investments for " permanent properties and 
 public improvements." The distinction between 
 an " outlay " and an " expense " is occasionally 
 as difficult in city finances as for any individual. 
 While it is clear that a new street, a bridge, 
 where there was none before, or a fine new city 
 hall is an "outlay," yet a new pavement on an 
 old street is an expense or an outlay according 
 to whether we view it as a " repair " or an " im- 
 provement." But the private citizen has the 
 same trouble. It is always an open question 
 whether the cost of a new automobile is an ex- 
 pense of an investment. The distinction is not 
 a hard and fast one. Too often the "outlay" 
 account is swelled artificially for the purpose of 
 making an unduly favorable showing in running 
 expenses. Generally speaking, every expendi- 
 ture of money raised by bonds is considered an 
 outlay, but some current revenues also go into 
 outlays for permanent properties.
 
 Municipal Expenditures 69 
 
 We shall consider first only expenses or cur- 
 rent cost payments. 
 
 City Expenses 
 
 All cities provide in some way by current 
 funds for the support of the following branches 
 or functions: (i) general government; (2) 
 police department; (3) fire department; (4) pro- 
 tection to persons and property other than 
 through the police and fire departments; (5) 
 health department; (6) sanitation, or promotion 
 of cleanliness; (7) streets and highways; (8) 
 charities, hospitals, and corrections ; (9) schools ; 
 (10) libraries, art galleries, and museums; (11) 
 parks and recreation; (12) pensions and gratu- 
 ities. Beyond these twelve there are many mis- 
 cellaneous activities not common to many cities 
 but of great and growing significance where they 
 exist, such as the operation of public-service en- 
 terprises. Since public-service enterprises present 
 problems in finance different from the general 
 run of departmental activities, they will be 
 treated here separate and apart from all others. 
 
 General Government 
 
 Of the total of $508,500,000* spent in 1912 
 for running expenses by the 195 cities reported 
 
 * The sum is about $3,r>oo,ooo greater if we include 
 money spent by independent school (hstricts. This 
 $3,600,000 is included in our analysis of school expenses 
 but is omitted here.
 
 yo Government Finance 
 
 on by the census in that year, $59,700,000 went 
 for the general government. This included : ( i ) 
 the council, or board of aldermen, which is the 
 legislative branch; (2) the executive branch, 
 whether a mayor, a commission (partly taking 
 the legislative functions), or a manager, together 
 with the financial departments of tax assessment 
 and collection, auditing, and the treasurer, the 
 city law department, and some others; (3) the 
 judicial branch, consisting of the various courts, 
 the coroner, marshal, or sheriff; (4) the cost of 
 elections; (5) the care and rental of public build- 
 ings for the general government. 
 
 Of all these the judicial branch costs the most, 
 or nearly $16,000,000, and if we add to this the 
 legal department, that is, the city's attorney, the 
 total for these allied objects becomes nearly 
 $21,000,000. The financial department comes 
 next with some $14,200,000. Then follows the 
 executive and legislative with $10,500,000, public 
 buildings $8,000,000, elections $6,000,000. 
 
 These items bring out at once the character of 
 the city in its two-fold capacity: (i) as a gov- 
 ernmental agency, illustrated by the importance 
 of the judicial department; (2) as a business 
 undertaking, as evidenced by the importance of 
 the financial and administrative departments. 
 The business side, as we shall see, is advancing 
 fastest. Hence arise the new movements in re- 
 gard to the form of city government. The trend 
 was from the old political mayor and board of 
 aldermen to the " commission " form of city gov-
 
 Municipal Expenditures yi 
 
 ernment and now, apparently, to the "business 
 manager " or professional mayor. 
 
 While it is not within our present purpose to 
 inquire into the best form for the central or 
 general government of a city, yet we must note 
 in this connection what different kinds of work 
 the general government has to do. First, there 
 are the delegated political powers of government 
 pure and simple. These include.: (i) some small 
 matters of legislation which, as a rule, are not 
 very important; (2) some very extensive powers 
 of keeping order, preventing and punishing 
 crime, and conserving public welfare. Second, 
 there is a very large amount of public work rang- 
 ing from the construction and maintenance of 
 streets, bridges, and sewers to highly specialized 
 public utilities such as street railways, light, heat, 
 and power plants. Third, there is the school 
 system. 
 
 These are quite distinct lines of activities, and 
 each requires a different kind of talent and train- 
 ing in the officers in charge. The first is mainly 
 political, the second, " business," the third, " pro- 
 fessional." The hardest task in framing a city 
 charter consists in so combining these elements 
 as to afford for each adequate supervision in the 
 general government. 
 
 Protection to Person and Property 
 
 The cost of this part of the municipalities' 
 activities is second only to the cost of education.
 
 y2 Government Finance 
 
 The total spent for this in 1912 was $117,000,- 
 000. Of this the poHce departments took $60,- 
 000,000, the fire departments $47,500,000, includ- 
 ing water where that was a special charge against 
 the fire department, and the remaining $9,500,- 
 000 went for militia and armories, the register 
 of deeds and mortgages, the inspection of build- 
 ings, plumbing, weights and measures, and the 
 like, and for a lot of miscellaneous things of 
 which the pound, the morgue, the police and fire 
 alarm systems may serve as examples. 
 
 There are two sides to the work of the police 
 department ; on one side it is repressive, on the 
 other regulative and constructive. A policeman 
 arresting a pick-pocket illustrates one side ; an- 
 other, directing traffic at a crowded corner, illus- 
 trates the other. We are too apt to think of 
 police work as wholly repressive and forget that 
 it can be, and is becoming, more and more con- 
 structive. 
 
 In a very instructive table in his book Alore 
 Money for the Public Schools, ex-President 
 Eliot shows that where the most money is spent 
 on schools there, generally speaking, the least is 
 spent for the police. Money spent on suppress- 
 ing and punishing crime is a sad expense at best, 
 and if it can be saved by spending more in other 
 directions there is a gain in social welfare too 
 great to be measured by the difference in money 
 saved or spent. The tendency of the American 
 people to set up criminal penalties for all man- 
 ner of infractions of rules, whether such infrac-
 
 Municipal Expenditures 73 
 
 tions are socially dangerous or not, and to mul- 
 tiply the regulations, has enormously increased 
 the cost of the repressive side of the police 
 service. It has, moreover, brought the police 
 service into grave danger of corruption by 
 affording the officers an opportunity to overlook, 
 for a bribe, an offense which public opinion, the 
 law to the contrary notwithstanding, does not 
 hold to be wrong. It is this latter tendency 
 which has prevented a greater reduction in the 
 relative cost of the repressive work of the police. 
 Yet that side of the police work is relatively de- 
 creasing. 
 
 The growth of the constructive work of the 
 police department is large and it is almost en- 
 tirely wholesome. People living together in large 
 masses need guidance. An army cannot be so 
 highly trained as to march without officers, and 
 while the crowd leaves the theater without guid- 
 ance, yet when entering the theater ushers greatly 
 facilitate finding the proper seats. Directing 
 traffic, preventing accidents, caring for the in- 
 jured, seeing that doors are properly secured, and 
 through the police courts caring for children 
 whether physically astray or morally awry, to- 
 gether with a multitude of reformatory activities 
 such as probation, truancy work, and the like, all 
 illustrate what is meant by the constructive side 
 of the police work. It permeates the repressive 
 work as well. In much of this work the local 
 courts aid the police. 
 
 The annual fire waste in the United States is
 
 74 . Government Finance 
 
 a subject to which much attention has been 
 directed, and its tremendous size has been pub- 
 licly deplored. The figures are staggering. The 
 annual property loss is $230,000,000, insurance 
 against that costs $410,000,000 annually, and the 
 large cities alone (those of over 30,000 inhab- 
 itants), spend $45,000,000 more for fire depart- 
 ments. If we make allowance for fire depart- 
 ments in other cities, towns, and villages and the 
 incidental expenses in other departments of city 
 governments, such as special provision for fire 
 by the water works, the total annual cost to the 
 nation for fire waste and prevention runs up to 
 over $750,000,000. A large part of this is due to 
 cheap and faulty construction. There seem to 
 be only two remedies yet discovered to prevent 
 or lessen this waste. One is the enforcement of 
 ordinances requiring, in congested districts, fire- 
 proof construction only. The other is the co- 
 insurance plan of premium rates instituted by 
 the insurance companies, which makes it to the 
 advantage of the owner to build as safely as 
 possible. Fire loss is a preventable loss. But 
 while human beings are careless, incompetent, 
 and selfishly negligent, it will not be prevented 
 wholly. So far as one can see, an efficient fire 
 department is a necessary arm of the city gov- 
 ernment. 
 
 The conservation of health is costing the cities 
 about $10,000,000, of which $4,500,000 goes to 
 the general support of the health office, the same 
 amount to the prevention of communicable dis-
 
 Municipal Expenditures 75 
 
 eases, and another million especially to the con- 
 servation of child life. 
 
 This is a rapidly growing expense, but one that 
 is, probably, only in its infancy yet. The disease 
 and death waste is far more serious than the fire 
 waste, although not measurable in money. It is 
 at least as preventable as is the fire waste. Yet 
 we spend four and a half times as much of public 
 funds on the fire department as on saving lives 
 and preventing sickness. The explanation of this 
 is, of course, to be found in the fact that health 
 is a matter that has been traditionally left to pri- 
 vate initiative to care for and only when 
 epidemics raged or threatened has it been con- 
 sidered of public or governmental concern. That 
 constant watchfulness and cooperative medical 
 supervision through municipal agencies can do 
 this work best has been demonstrated. 
 
 The public accounts of cities carry an annual 
 charge of $41,500,000 for sanitation or the pro- 
 motion of cleanliness. Of this $7,000,000 goes 
 for the current expenses of the upkeep of sewers 
 and the disposition of sewage, while $33,000,000 
 goes for collecting and disposing of garbage. 
 The other $1,500,000 goes for public laundries, 
 wash-houses, convenience stations, and other 
 sanitary purposes. The aggregate expense for 
 sewers might be regarded as misleading, because 
 it is the almost universal practice to write off the 
 original cost. The original cost of sewer con- 
 struction is not known nor is the replacement 
 value ascertainable, but it might perhaps be held
 
 76 Government Finance 
 
 that there should be added to the $7,000,000 a 
 sum, probably very large, for interest on the 
 investment in the sewer system. Some of the 
 interest-bearing debt is the result of sewer con- 
 struction. New sewers called for $32,000,000 
 in 1912. 
 
 Highways 
 
 The care and maintenance of streets, high- 
 ways, and bridges, including their lighting, occa- 
 sion an expense of $58,000,000, of which $22,- 
 000,000 is for lighting. These figures again 
 make no allowance for interest on the investment 
 which, it might possibly be contended, should be 
 included. New highways cost $102,500,000 in 
 1912. 
 
 In this connection passing mention may be 
 made of the fact that some few cities have mu- 
 nicipal plants of various sorts for their own serv- 
 ices. These cost some $2,000,000 to run each 
 year. This is usually a charge against the dif- 
 ferent departments served. 
 
 CJiarities 
 
 Charities, hospitals, and corrections are among 
 the oldest city functions, yet they are not among 
 the most costly. Every town or county has its 
 poor farm and the cities do like work. The total 
 in 1912 was, however, only $33,250,000. This 
 line of public work is supplemented largely by 
 private charities and endowments and by state
 
 Municipal Expenditures yy 
 
 and county agencies, so that the public work of 
 the cities is very httle uniform and the signifi- 
 cance of the figures is difficult to ascertain. 
 
 Education 
 
 As has already been stated, the public schools 
 constitute the largest single object of city ex- 
 penditures, the total being $147,000,000 by the 
 cities as such. Adding to this the expenditures 
 made by independent school districts identified 
 with the cities, the total for current expenses is 
 $150,600,000. This is merely for expense; in- 
 terest, and outlays swell the total to $220,000,000. 
 
 There are three ways of financing the city 
 schools : ( I ) the entire support may be a burden 
 on the city; (2) the state may collect the entire 
 fund and apportion it to the cities, and other 
 districts; (3) the state (and sometimes the 
 county), may raise a general maintenance fund 
 and apportion that, while the cities and districts 
 supplement that with additional funds for main- 
 tenance and for construction of buildings. 
 
 The third, in a great variety of forms, is the 
 most common method. The reason for a central 
 state fund apportioned to the cities and districts 
 is the desire to ensure a certain minimum uni- 
 formity. It also places a part at least of the 
 burden of the support of the schools in poor 
 cities and districts on the shoulders of the richer 
 cities and districts. Of the $150,600,000 spent, 
 $22,000,000 came from the state funds and
 
 78 Government Finance 
 
 $4,000,000 from county funds. Nearly all the 
 rest was raised by the cities themselves or within 
 the cities through school districts. But the dif- 
 ferences in practice are wide. New York City 
 spends $34,700,000 for schools of which hardly 
 $2,000,000 comes from the state, while in 
 Newark, N. J., the state supplies about half. 
 
 Of the $150,600,000 which the 195 cities spent 
 for the running expenses of the public schools 
 of all grades, $95,400,000 went for the salaries 
 of teachers other than principals. To this should 
 be added $13,800,000 for supervision of instruc- 
 tion by principals and other officers. Thus $109,- 
 200,000 or seventy-three percent of the total 
 goes to salaries for instruction. Supplies used 
 directly in the work of instruction — such as 
 books, maps, stationery, and the like — cost 
 $9,000,000 more. This makes the full cost of 
 instruction alone $118,200,000, which is eighty- 
 four per cent of the whole. General administra- 
 tion, janitors, fuel, repairs, and other miscel- 
 laneous expenses make up the remainder. When 
 we consider the size and number of the school 
 buildings and the heavy wear and tear to which 
 they are subject it seems that sixteen per cent 
 is a very small operative charge, and a system 
 which actually puts $84 out of every $100 of cur- 
 rent expenses into the main object can not be 
 regarded as badly managed. When we add to 
 the running expenses the interest charges of 
 some $12,000,000, and the outlays of about 
 $42,000,000 we may not be as well pleased.
 
 Municipal Expenditures 79 
 
 School trustees serve for the most part without 
 compensation. Thus a real cost is incurred 
 which does not show in the accounts. 
 
 Of the new features among these costs for 
 schools may be mentioned " free textbooks " 
 $1,364,000, and "teachers' pensions" $1,720,- 
 000. Free textbooks have long been furnished 
 to pupils too poor to pay for them, but the inno- 
 vation is in furnishing all textbooks free. This 
 is by no means universal. In some states this 
 is a state and not a city charge. Teachers' pen- 
 sions are not paid in all cities. In 1912, out of 
 19s cities fifty-three paid teachers' pensions, and 
 five more had funds for that purpose. Less than 
 half of this expense comes from funds furnished 
 by the taxpayers. The greater part is from 
 assessments levied on the teachers, which are 
 handled somewhat after the analogy of insurance 
 funds. 
 
 We reach the end of the expenses of the cities 
 with parks and other recreations which cost $18,- 
 800,000 and some miscellaneous items which 
 amount to $14,600,000, 
 
 The Growth of Expenses 
 
 The growth of city expenditures presents many 
 interesting phases. The aggregate expenses 
 merely, exclusive of interest and borrowed 
 money spent, and exclusive of the expenses of 
 public service enterprises, increased for the 146 
 cities, for which continuous statistics are avail-
 
 8o Government Finance 
 
 able, from $272,400,000 in 1902 to $486,900,000 
 in 1912. But, of course, the population also 
 increased. In proportion to population the in- 
 crease is from $13.02 per capita in 1902 to 
 $17.34 per capita. This is an increase in per 
 capita cost of thirty-three per cent in an interval 
 of ten years. 
 
 It might be claimed that part of this increase 
 is fictitious because of the shrinking in the pur- 
 chasing power of money. Without going into 
 the pros and cons of this claim, we may for 
 argument's sake admit it. Professor Fisher's 
 study of the purchasing power of money shows 
 in a general way that it took about $1.23 in 1912 
 to buy as much as $1.00 would have bought in 
 1902. But for every dollar spent in 1902, the 
 cities were spending $1.33 in 1912. Even if the 
 fall in money accounts for twenty-three cents of 
 the increase in each dollar per capita, there is at 
 least ten cents more in each such dollar to be 
 accounted for. This increase amounts to $1.30 
 annually for each inhabitant. 
 
 But in fact there is much more than that to be 
 accounted for. In the first place cities have cut 
 down the loss of "graft," of which there is far 
 less than there used to be. It is obvious also 
 that there are many things which cities do which 
 can be done more cheaply on a large scale than 
 on a small scale. We need not specify these, but 
 we may point out that street cleaning, street 
 lighting, and dozens of other things can be done 
 more cheaply if done in the same style, or with
 
 Municipal Expenditures 8i 
 
 no better methods, in a city of 200,000 inhab- 
 itants than in one of 100,000 inhabitants. This 
 very illustration reveals the reason for the in- 
 crease in cost which we find where a decrease 
 was to be expected. Instead of the dim lights 
 of ten years ago, cities are brilliant with ten or 
 twenty times as many candle power per block 
 along their " white ways " as they had along the 
 same streets before. Practically every branch 
 of city activity is doing more than it did ten 
 years ago. This increase in civic work has eaten 
 up the saving which came from doing things on 
 a large scale and also the saving from the reduc- 
 tion in "graft," and then about $1.30 per capita 
 more, even if we allow to the utmost for the 
 shrinkage in the purchasing power of money. 
 
 The following table shows where the increases 
 have been made. 
 
 Per Capita Departmental Expenses 
 
 Increase Per Cent of Aggregate 
 Expenses Per Cent In 1912 In 1902 
 
 Total 33 100 100 
 
 General Government 43 11.8 10.9 
 
 Police II 1 1.9 13.4 
 
 Fire 24 9.2 9.5 
 
 Other Protection 330 1.9 1.3 
 
 Health 66 2.1 1.6 
 
 Sanitation 61 8.2 6.8 
 
 Highways 17 11.4 12.9 
 
 Charities, etc 35 6.7 6.4 
 
 Schools 39 28.5 27.5 
 
 Libraries 37 1.3 1.2 
 
 Recreation (parks) 10 3.8 4.5 
 
 Miscellaneous 50 3.2 3.8
 
 82 Government Finance 
 
 Let us inquire into the causes of these in- 
 creases, comparing each one with the average 
 or thirty-three per cent. 
 
 The main cause why central or general govern- 
 ment expense increased faster than the average 
 is probably to be found in the increase in regula- 
 tive work and, also, in public service enterprises, 
 the expenses of which are not included here but 
 the supervision of which causes more work for 
 the central offices. 
 
 That the cost of police did not increase as 
 fast as the average, only eleven per cent against 
 thirty-three per cent, is explained by the fact 
 that here at least a part of the saving arising 
 from doing things on a large scale has accrued 
 to the tax payers. The fact that the police take 
 only eleven and nine-tenths per cent of all the 
 money spent for running expenses now as against 
 thirteen and four-tenths ten years ago is gratify- 
 ing. The same thing is true of the fire depart- 
 ment but not to the same extent as the police. 
 
 " Other protection " stands out in startling 
 fashion. But these things are new and more- 
 over were cared for, in some small degree, under 
 other departments before, so the showing is 
 somewhat artificial. As the cost is less than two 
 per cent of the whole, we may pass this item. 
 
 Health protection is growing twice as fast as 
 the average, and sanitation is growing almost as 
 fast as health protection. All of this, we must 
 agree, is as it should be. It means money spent 
 for the conservation of life and strength.
 
 Municipal Expenditures 83 
 
 Charities keep pace with the average growth. 
 
 Schools and libraries are growing faster than 
 the average city activities. This is all the more 
 significant as it falls on nearly thirty per cent 
 of the whole expenses. But as we have seen, the 
 states' contributions are not keeping pace so well. 
 
 The failure of recreation expenses to increase 
 as fast as the average is easily explained. Parks 
 are rarely utilized to their limit of capacity, and 
 it costs but little more in the aggregate to care for 
 a park visited by 20,000 people than one used by 
 only 10,000. 
 
 The miscellaneous are small items, mostly new. 
 Among them are pensions. 
 
 The Meaning of the Averages 
 
 The figures we have been considering are aver- 
 ages with many limitations. It is hardly safe to 
 assume that they are normal or typical. The 
 increase has not been at all steady throughout 
 the period. The increase was most rapid in 1907, 
 the departmental expenses in that year being 
 eleven and eight-tenths per cent more than in 
 1906. Between 1908 and 1909 the increase was 
 least, being only two and two-tenths per cent. In 
 other words, the crisis of 1907 was preceded by 
 a rapid growth of public expenditures and fol- 
 lowed by a tendency to contract. 
 
 Again while the average is $17.34 per capita 
 in 1912, yet there are some cities which spend 
 much more. Boston, for example, spends $28.06 ; 
 Washington, D. C, $25.43; New York, $24.58;
 
 84 Government Finance 
 
 Denver, $20.13; Atlantic City, $22.76; Mount 
 Vernon, $27.53. Many cities spend much less : 
 Charlotte, N. C, only $6.44 ; Allentown, Pa., 
 $6.47 ; Birmingham, Ala., $8.64 ; New Orleans, 
 $12.79; Baltimore, $15.14. 
 
 The average is pulled up by the relatively high 
 per capita expense of the great cities. This is 
 shown by the following table: 
 
 No. of 
 
 Cities Having a 
 
 Per Capita Expenses 
 
 Cities 
 
 Population of 
 
 for Departments 
 
 9 
 
 500,000 and over 
 
 $21.24 
 
 9 
 
 300,000 to 500,000 
 
 19.99 
 
 95 
 
 100,000 to 300,000 
 
 14.22 
 
 IS 
 
 30,000 to 100,000 
 
 12.06 
 
 67 
 
 50,000 to 50,000 
 
 11.69 
 
 195 $17-34 
 
 Even in the first group there are six cities 
 which spend less than $18.50 per capita, but the 
 general average is pulled up by New York, which 
 spends $124,500,000 out of the total of $267,800,- 
 000 for the group. 
 
 In the second group the range is less and the 
 average of $20 per capita in this class of cities 
 may be regarded as typical. 
 
 The third contains the largest number of cities. 
 In this group sixty-eight out of the ninety-five 
 cities spend less than the average. Twenty-five 
 spend between $12 and $14 per capita, and all 
 things considered $13 per capita is more rep- 
 resentative of this group than $14.22. 
 
 In the fourth group there is much less varia- 
 tion and the average is fairly typical.
 
 Municipal Expenditures 85 
 
 In the last group again there are twenty-one 
 out of sixty-seven cities in the group which spend 
 between $10 and $12 per capita; hence the aver- 
 age although pulled up a little by the heavy ex- 
 penditures of San Diego, Cal., Newton, Mass., 
 and Mount Vernon, N. Y., is fairly represen- 
 tative. 
 
 For the United States at large, however, the 
 average of $17.34 is in no way typical. Because 
 half the cities spend less than $12.10 and three- 
 fourths less than $15 per capita. There is no 
 pronounced grouping at any point, but there are 
 124 cities which spend as much as $9 per capita 
 and less than $15, and the mid-point in that large 
 group is $12 per capita. Hence $13.50 is prob- 
 ably a fair average to use. 
 
 The per capita costs for all purposes is, of 
 course, much higher than any of these figures, as 
 the table on page 86 shows ; but for comparison 
 between cities departmental costs are the best. 
 
 Public Service Enterprises 
 
 Much of the work done by cities, which we 
 have considered above, is cooperative or semi- 
 socialistic. That is to say, the cities provide for 
 the individual citizens things which they might — 
 and for a long time did — provide for them- 
 selves, or which might be provided by private 
 enterprise. The big motor-driven street sweeper 
 has taken the place of the primitive rule " let 
 every man sweep in front of his own door,"
 
 86 
 
 Government Finance 
 
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 Municipal Expenditures 87 
 
 This is notably true of the schools, of all pro- 
 tection of health, of recreation, of a part of the 
 constructive work of the police. But some of 
 these things, such as schools, have been govern- 
 mental so long that we have come to think of 
 them as necessarily so. Others are, as it were, 
 direct adjuncts to, or outgrowths of, pure gov- 
 ernmental functions, or require the force of gov- 
 ernment to make them go, so that nobody ques- 
 tions them as invasions of the sphere of private 
 enterprise. 
 
 But there are some thing which cities are be- 
 ginning to do which we all class as " public 
 service enterprises," or " industrial undertak- 
 ings." By that classification we imply that they 
 are as yet on the borderline between public and 
 private enterprise. Thus many cities have public 
 water works, while others depend on private 
 companies to supply the people with water. 
 
 In like manner some cities furnish for sale to 
 private citizens electric power and light. Others 
 furnish gas. Recently several important cities 
 have started municipal street railways. This is 
 since 19 12, and hence not yet reported by the 
 Census Bureau. Other public service enterprises 
 listed by the Census Bureau in 1912 were: mar- 
 kets and public scales, docks, cemeteries, crema- 
 tories, public halls, subways for pipes and wires, 
 ferries, toll bridges, lunchrooms, city farms, the 
 "city-record," a municipal newspaper, a "belt 
 railroad," harbor pilotage, towing and dredging, 
 " river and ditch commission," municipal stores,
 
 88 Government Finance 
 
 a liquor agency, a municipal organ, a powder 
 magazine, a canal, levee improvement, and an 
 artesian well. 
 
 To one familiar with municipal matters this 
 list of itself shows, as the Census Bureau very 
 justly points out, that "the statistics of munici- 
 pally operated public service enterprises are for 
 most cities defective in consequence of the fact 
 that their accounts are not completely segre- 
 gated." The confusion in the accounts, more- 
 over, further confirms the principle elsewhere set 
 forth that when a government takes over any 
 activity from the field of private enterprise it 
 very soon comes to treat that " activity " as a 
 " public " one in the complete sense, although 
 at first it may have been only quasi-public. 
 
 It would take us away from our immediate 
 purposes to discuss at great length the relative 
 merits of public and of private ownership and 
 operation of public utilities, such as waterworks, 
 street railways, gas and electric supplies, and the 
 mass of enterprises listed above. But a brief 
 statement of the principles involved may be 
 given. 
 
 Waterworks are very commonly municipal en- 
 terprises. In some cases they became so because 
 of difficulties connected with granting to a pri- 
 vate company that guarantee of a steady income 
 which was necessary to call forth enough capital 
 to provide an adequate supply. In other cases 
 solicitude for the purity of the water and the 
 broad exercise of the government's powers neces-
 
 Municipal Expenditures 89 
 
 sary to insure that purity seemed to be the deter- 
 mining factor. In still other cases, and probably 
 they are the most numerous, the profits of water 
 works did not promise to be large enough to 
 tempt private capital into the field. A resort to 
 general taxation was in such cases necessary. 
 The large public use of water for street sprink- 
 ling, flushing of sewers, fire protection, and sani- 
 tation generally, also, suggested public water 
 works. It is, also, almost as important to me 
 that my neighbor have and use an adequate sup- 
 ply of water as it is for me to have enough for 
 myself. 
 
 Another influence tending to decide the public 
 to municipalize the waterworks is the fact that 
 the charges, or water rates, have of necessity 
 to be fixed by methods akin to taxation. The 
 " overhead " charges are the main costs, and a 
 definite total income must be assured. The serv- 
 ice is so necessary, so indispensable, that the risk 
 of interruption from insufficient patronage is one 
 that cannot be .incurred. So all charges must be 
 met in some way or other. Unless the supply is 
 very limited, so that meters are necessary to pre- 
 vent waste, the rates are graded according to the 
 facilities afforded by the system rather than by 
 the use made of the water. 
 
 Public water works have generally been a suc- 
 cess. There have been "graft," waste, extrava- 
 gance, and other troubles in too many cases. But 
 on the whole, the results of public management 
 have been satisfactory.
 
 90 Government Finance 
 
 The reasons for this are : ( i ) the installment 
 of the works is so obviously an engineering prob- 
 lem that men of training have been called in ; (2) 
 the investment and work is conspicuously large 
 and catches the public attention, so that it is open 
 and "public" from the start; (3) once installed 
 the service is always under the eye of and of 
 live interest to every voter; (4) the service is 
 very simple, and requires few operators ; wages 
 and salaries being a relatively small part of the 
 total expenses the usual weaknesses of political 
 appointment of employees are reduced to a mini- 
 mum ; (5) a very considerable part of the ex- 
 pense is inevitably shifted to the tax field and 
 not unjustly so, hence nobody objects; (6) the 
 service is permanent and not much subject to 
 change. Nothing much better than the Roman 
 aqueducts has yet been invented. Also, no sub- 
 stitutes for water has been found which, fatuous 
 as it may sound, is an important consideration. 
 
 Cities go into other public enterprises, such as 
 street railways and gas and electric service, from 
 a variety of motives, all very different from those 
 leading them to install water works. Private 
 capital has, until this year, been eager to enter 
 here. The service has been adequate, or gener- 
 ally can be made so by regulation. The service 
 has never been a necessity to the same extent as 
 water is, for there are many substitutes. The 
 main arguments for such enterprises have been : 
 (i) that the profits of private enterprise in these 
 fields might be saved to the public; (2) that pub-
 
 Municipal Expenditures 91 
 
 lie ownership will give services which may not be 
 "profitable" but may be publicly desirable. 
 
 We cannot at this writing foresee what the 
 future of these two kinds of service is to be. It 
 seems apparent that street railways operating on 
 surface roads will suffer severely from the wider 
 use of vehicles that require no tracks. But 
 whether tubes, tunnels, and elevated ways, en- 
 larging the street surfaces, should be built by 
 private enterprise or from public funds will be 
 the problem that will take the place of the street 
 railway problem. How permanent the gas and 
 electric systems of today may be no one can tell. 
 
 Experience so far is too limited for definite 
 conclusions as to the relative merits of public 
 and of private ownership and operation of street 
 cars and gas and electric works. But thus far 
 we may note that gas and electric service by 
 cities has only occasionally succeeded. Gener- 
 ally, the municipal plant soon becomes antiquated 
 and is abandonded. Street railways as public 
 enterprises generally start with some very profit- 
 able trunk line, but very soon the demand for 
 extensions into places where private enterprise 
 would not build lines, swamps the city system 
 and the taxpayers foot the bill. But, inasmuch 
 as the life of track vehicles for city passenger 
 traffic on surface streets may be limited, the 
 whole question as to municipal street railways 
 may soon be a matter of historical interest only. 
 Right here the tendency of private owners to 
 unload moribund service plants on the public
 
 92 Government Finance 
 
 comes to the aid of the socialist. Just when 
 the wireless telegraph's sparks cross the ocean 
 and the telephone spans the continent a Post- 
 master General advocates the purchase by the 
 Federal Government of the decaying poles and 
 corroded wires of the old telegraph company. 
 Just when the city street-railway car is to be 
 displaced by the railless car the cities plunge into 
 debt to build municipal rail lines where lapsing 
 franchises have allowed private capital to escape. 
 
 In the face of these bewildering changes, one 
 thing alone is clear. That is, that there should 
 be not only a recognized paramount public neces- 
 sity for any extension of public enterprise but 
 also some assurance of permanency. Private en- 
 terprise may take a " sporting chance," but gov- 
 ernment cannot. A city government has too 
 many vital obligations which it does not ade- 
 quately meet to dare to risk its finances in fleet- 
 ing industries. With its schools needing more 
 money it is folly for a city to borrow millions 
 to speculate on the chances of life and profits of 
 a surface street railway system. 
 
 Public service enterprises owned by cities 
 earned in 191 2 $85,000,000 gross. The costs 
 credited to them were $39,000,000, showing an 
 apparent profit of $46,000,000. Water supply 
 systems included above brought in $70,000,000 
 and were charged with costs of $30,000,000 and 
 hence yielded most of the apparent profit. Docks, 
 wharves, and landings showed an apparent profit 
 of $3,500,000. Against these enterprises stands
 
 Municipal Expenditures 93 
 
 a debt of $840,000,000. Against water works 
 alone stands $475,000,000 of debt, against docks 
 $348,000,000. If the census estimates of the 
 value of the "land, buildings, and equipment of 
 public service enterprises" of $1,215,000,000 be 
 accepted, the apparent profit above is three and 
 eight-tenths per cent on the investment. Water 
 works are valued at $910,000,000 and return 
 four and four-tenths per cent on that value. But 
 as elsewhere explained, the book costs of public 
 service enterprises does not include all real costs, 
 so this is a merely speculative line of inquiry. 
 
 Municipal Outlays 
 
 New buildings, streets, and other permanent 
 properties acquired or developed are the occasion 
 for " outlays " as distinct from running expenses. 
 The amount of such outlays in 191 2 was $303,- 
 500,000. The net increase in debt for the year 
 less sinking funds was $135,000,000. So all of 
 these " outlays " could not have been made dis- 
 tinctly from borrowed money. At least making 
 them did not occasion an increase in debt equal 
 to the outlays. On the other hand, cities bor- 
 rowed $635,000,000, of which $316,500,000 was 
 funded on floating debt other than special assess- 
 ment bonds, revenue bonds, notes and warrants. 
 They redeemed $461,000,000 of obligations of 
 which $143,000,000 was of the same character as 
 the $316,500,000. 
 
 In the intricacies of these operations it is
 
 94 Government Finance 
 
 hard to see just what took place. The census 
 office is probably right when it hails these facts 
 as evidence of a tendency to make permanent 
 improvements out of current revenues instead 
 of always borrowing for them. But on the 
 other hand $316,500,000 of new bonds were 
 placed and $303,500,000 of new improvements 
 made, and, furthermore, taxes did not come 
 down. 
 
 The largest outlays were for highways, $102,- 
 500,000; schools and libraries come next with 
 $42,000,000. Sewers and sanitation called for 
 $32,000,000. 
 
 Grand Total of All Government Costs 
 
 The grand total of all the moneys paid from 
 the treasuries of the 195 cities was $960,000,000 
 (nearly). Of this, $656,000,000 was for expenses 
 and interest as follows : For general expenses 
 $509,000,000, for expenses of public service en- 
 terprises $39,000,000, for interest $108,000,000, 
 and lastly there were $303,500,000 for outlays. 
 
 The totals for the 146 cities for which con- 
 tinuous data are available grew from $463,000,000 
 in 1902, to $907,000,000 in 19 12, or they nearly 
 doubled in ten years. The interest charge more 
 than doubled, and outlays in 1912 were 133 per 
 cent greater than in 1902. Meanwhile the popula- 
 tion increased from 20,000,000 to 27,000,000, or 
 only thirty-four per cent. 
 
 The size of these expenditures can be judged 
 by comparison with the Federal Government's
 
 Municipal Expenditures 95 
 
 expenditures. The 146 cities spent in 1912 an 
 average of $33.08 per capita, while the Federal 
 Government spent $10.10 per capita. The Fed- 
 eral Government spent in all $965,000,000, the 
 146 cities $907,000,000, the 195 cities $960,- 
 000,000. Federal expenditures grew seventeen 
 per cent in ten years while city expenditures grew 
 forty-five per cent. 
 
 The census average of $33.08 per capita is, 
 however, not a very good average. To be sure 
 it is the correct arithmetical average. But as 
 pointed out in connection with the average for 
 departmental expenses, the average is brought up 
 by the large cities. New York's $48.02, Boston's 
 $45.78, Los Angeles' $61.42 (due to the outlays 
 for the Owens' River water works), and other 
 similar cases distort it. Half the cities expend 
 for all purposes less than $22 per capita. 
 
 The ad valorem taxes levied in cities in 1912 
 amounted to $18.34 per capita, in 1902 to $13.20. 
 The average tax rates — but these have little 
 actual meaning in view of the uncertainty as to 
 the ratio of assessed to true value — rose from 
 $1.63 to $1.75 per $100 of assessed value. It is 
 probably true that the ratio of assessed to true 
 value was higher in 1912 than in 1902. It is 
 probably safe to assert that the burden of city 
 taxes on city property is a third heavier than it 
 was in 1902. 
 
 How long the present taxpayers can stand the 
 steady and persistent increase in tax burden is 
 an interesting subject of speculation.
 
 CHAPTER VII 
 
 EFFICIENCY IN GOVERNMENT BUSINESS 
 
 ' I 'O discuss the efficiency of government busi- 
 ness thoroughly would lead us far afield 
 from mere finance. The questions as to the best 
 form and framework of government are for 
 students of government to settle. The waste of 
 government money is everywhere great. Bu- 
 reaus of municipal research, civic associations of 
 many kinds, tax associations, and the like are 
 constantly revealing waste and inefficiency in 
 government business. Many of these organiza- 
 tions are private societies maintained at private 
 cost or by subscriptions from many persons. 
 Some are subsidized by heavy taxpayers. A pri- 
 vate association to watch and check a govern- 
 ment which is conducted by the elected represen- 
 tatives of the people certainly seems to be an 
 anomaly. A few such agencies are regular bu- 
 reaus of government. Generally the efforts at 
 reform and economy are spasmodic and soon die 
 out. When made by public officials they seldom 
 survive a change of party. All of which is very 
 unfortunate. 
 
 Senator Aldrich is credited with saying that a 
 "business" administration of the Federal Gov- 
 ernment would save $300,000,000 a year. In a 
 
 96
 
 Efficiency in Government Business 97 
 
 recent popular article President Taft holds this 
 claim of Senator Aldrich to be excessive, but 
 claims that it would not be hard to save 
 $100,000,000. 
 
 In recent messages President Wilson has 
 rather belittled the importance of saving, claim- 
 ing: that "the people of the United States do 
 not wish to curtail the activities of this Govern- 
 ment ; they wish, rather, to enlarge them ; and 
 with every enlargement, with the mere growth, 
 indeed of the country itself, there must come, of 
 course, the inevitable increase in expense." All 
 of this is true enough, but a saving of money 
 which would facilitate making these expansions 
 without an increase in tax burden would be even 
 more acceptable. A comparison of President 
 Garfield's view, cited in Chapter iv, with the 
 above view will give much food for thought. 
 
 The Budget 
 
 To facilitate a better control of expenses by 
 Congress, state legislatures, and the city councils, 
 a " budget system " is widely urged. The term 
 budget is used in this connection in a new and 
 restricted sense. No true budget system can be 
 devised for this country without a sweeping 
 change in our form and theory of government. 
 Separation of the executive from the legislative 
 department is universal, from the Federal Gov- 
 ernment down. In England, as in many other 
 countries, the executive — the ministry — is re- 
 sponsible to Parliament, and the ministers are
 
 98 Government Finance 
 
 spokesmen of the majority in Parliament. Con- 
 sequently the recommendations as to what shall 
 be spent and what taxes shall be levied are the 
 recommendations of the majority's representa- 
 tives to the members of their own party. In 
 some years the majority in Congress is in close 
 sympathy with the President and his cabinet, or 
 the majority in the legislature with the governor, 
 or again the city fathers may be in full accord 
 with the mayor ; yet the independence of the two 
 branches is so jealously guarded that the unity 
 necessary for a true budget does not develop. 
 When, as quite often happens, the executive is 
 of one party and the legislative bodies of an- 
 other, no such unity is possible. In such cases 
 no " budget " of any kind would be of any use. 
 But merely because a true budget system 
 cannot grow up, there is no reason to assume that 
 much cannot be gained by a systematic presenta- 
 tion and study of the money needs, if it be made 
 in advance of legislative consideration and en- 
 actment. The legislator is busy and his time is 
 scant. Formal " estimates " presented by depart- 
 ment and bureau chiefs, revised after hearings 
 and investigation by the budget-making board 
 or officer, and brought together in such form that 
 general oversight and comparison are possible 
 and easy, cannot fail to be of great assistance to 
 the legislature. But these never become bind- 
 ing. Any senator, congressman, legislator, city 
 councilman, or other legislative member may 
 originate new spending or new taxes. With the
 
 Efficiency in Government Business 99 
 
 introduction of the initiative, even though it be 
 guarded and limited so that money measures are 
 excluded, as it should be, new projects calling 
 ultimately for spending may be launched which 
 will throw out the most carefully prepared budget. 
 
 What the movement toward a budget system 
 really means is that the legislative committees 
 of ways and means and the like have been found 
 wanting, either for lack of time or lack of ade- 
 quate knowledge and equipment. Hence the reg- 
 ular executive officers who have the necessary 
 time and more or less expert knowledge are be- 
 ing called on to aid the committees. 
 
 Owing to the absence of this branch of exec- 
 utive work in the past the officers who would 
 naturally be expected to prepare such a budget 
 have been diverted and employ themselves in 
 other directions. The auditor, controller, or other 
 officer of that type, is today contented to see 
 that the revenues are collected according to law 
 and public money is spent according to law. 
 He rarely dares to assume that it may be his 
 duty to question the advisability of the individual 
 expenditures, if only they are legal, much less 
 does he dare to question the advisability of the 
 law itself. Possibly too much aggression might 
 endanger his office. Hence the determination of 
 the actual spending, within the law, is left to de- 
 partment chiefs. Taxation goes by legislative 
 guess, and failures of income to meet outgo are 
 frequent. The only thing that has saved us from 
 frequent and very embarrassing deficits in state
 
 loo Government Finance 
 
 and local affairs has been the rapid growth of 
 property values with the growth of population. 
 Tax revenues have grown rapidly. But with 
 taxes climbing fast to two per cent of the full 
 value of property in cities and one and one-quar- 
 ter to one and one-half per cent of rural prop- 
 erty values, the day of such careless spending is 
 coming to an end. The limit of the tax-payer's 
 patience if not of his ability is in sight. Malad- 
 justments of tax burdens become very serious 
 under such circumstances. Tax reform will do 
 something, but waste must be stopped. 
 
 Civil service, trained officials, and various de- 
 vices for lessening the mediocrity of elective offi- 
 cers under our democratic system, the organiza- 
 tion of allied offices under responsible depart- 
 mental chiefs, and other reforms will do much, 
 but these are not primarily fiscal reforms. 
 
 Boards of Control 
 
 There is no sign that a federal bureau of 
 economy and efficiency is to be established in 
 the near future. But in the states there is a 
 rapid growth of "boards of control." These 
 are of two types. First, there are those which 
 aim to exercise an extensive pre-audit of all 
 expenses. Their sanction must be had before 
 any expense is contracted, no matter how well 
 within the law it may be. The second type is a 
 board which actually becomes the governing 
 board of some or all state institutions. 
 
 There are two sets of evils aimed at by these
 
 Efficiency in Government Business loi 
 
 reform boards. The first is the incompetence 
 of elected, and sometimes of appointed officials 
 when it comes to spending money economically. 
 The second is the indifference and inertia of 
 " honorary " boards, trustees, regents, etc., in con- 
 trol of asylums, prisons, hospitals, charities, and 
 other institutions. 
 
 The experiments along these lines are far too 
 recent to enable us to judge how they are going 
 to result. In so far as these boards of control 
 are in addition to an auditor or controller's office 
 which might have exercised these powers, they 
 are themselves an extravagance. But it is an 
 American habit to create a new office for every 
 public duty which comes for a time to be prom- 
 inent in the public eye. Witness, the " blue sky " 
 law commissioners doing the very work for which 
 registration of corporation charters with the Sec- 
 retary of State was once supposed to provide. 
 
 In so far as these boards have introduced uni- 
 form accounting and joint, or central, purchas- 
 ing, subjected contracts and contractors to a uni- 
 form inspection, and busied themselves catching 
 petty and large grafters, they seem to have been 
 a success. A pre-audit is obviously more ef- 
 fective than any post-audit. It is not yet ap- 
 parent that they have had any marked influence 
 on the broad general policy of the finances of 
 any state. But sometimes they have been the 
 agents for carrying out or formulating some 
 broad policy outlined by an able governor. 
 
 Boards of the second type seem less likely to
 
 I02 Government Finance 
 
 succeed. An honorary board of trustees for a 
 home for the feeble-minded may reduce its 
 " honorary " activities to a perfunctory minimum, 
 and leave all real responsibility to a superin- 
 tendent or manager. But a central board of con- 
 trol endeavoring to manage several large prisons 
 and the reform schools, a number of insane asy- 
 lums, various hospitals, schools for the deaf and 
 blind, various "homes" for veterans, for the 
 adult blind, the feeble-minded, etc., several nor- 
 mal schools, a state university, an agricultural 
 college, a number of research stations, admin- 
 istering outdoor relief for widows and half-or- 
 phans, or widows' pensions, supervising indoor 
 relief for state wards in private institutions, 
 supervising state buildings, and perhaps running 
 some industry and other matters, has obviously 
 too heterogeneous a job for true success. The 
 experience in Kansas of placing the university 
 with all other state institutions under the State 
 Board of Control and abolishing the special 
 boards has been very unhappy so far as the uni- 
 versity was concerned. The better way would 
 seem to be to leave the old boards as they are, 
 revivify them if they are not active, and bring 
 them under the wholesome necessity of regular 
 reports, and of justifying each proposed action 
 to a central authority. 
 
 Efficiency in Cities 
 City governments in matters of finance have 
 not evolved very much. Without intending to
 
 Efficiency in Government Business 103 
 
 be flippant we may say that they have " re- 
 volved." For they are just completing the round 
 of a circle. Cities began with a mayor and a 
 board of aldermen elected by wards. Then 
 " scientists " urged that the board should be 
 elected at large and some cities tried that. Then 
 the cry was that the mayor should be shorn of 
 power and commissioners should take the place 
 of mayor and board. The " commission form " 
 of government, which washed ashore with the 
 Galveston tidal wave, has now been succeeded in 
 " scientific " appreciation by the " city manager 
 plan," left behind by the subsiding waters of the 
 Dayton flood. In passing, let us remember that 
 Johnstown, Pa., which also had a famous flood, 
 has the lowest per capita expense of any city. 
 But, what is the " city manager plan " but the 
 old mayor and ward alderman type rediscovered? 
 To be sure in going around the circle we have 
 picked up a few ideas. One of some value is 
 the emphasis on permanency of tenure in the 
 mayor's ofiice, which may bring to bear skill, 
 independence of action, and " business " methods. 
 
 As there is no real hope that "politics" can 
 ever be eliminated from city government, and as 
 "politics" in the best sense of the term has a 
 very proper place in city government, mere 
 changes in form have little efifcct on finances. 
 
 Uniform and simplified accounts with much 
 publicity promise something. Concentration of 
 all funds in one treasury subject to warrant by 
 one auditor is much needed. But progress here
 
 I04 Government Finance 
 
 is extremely difficult. As I write I have before 
 me possibly one hundred municipal financial re- 
 ports which I have looked over. The best of 
 them are those which try to conform to the 
 Census Bureau standard of uniform accounts. 
 On their face many of these look very fair. But 
 when we compare them with the more compre- 
 hensive census figures we find them very defec- 
 tive. The city auditor of one large city says the 
 city spends $6,500,000, the Census Bureau say 
 the total is $12,000,000. The other $5,500,000 is 
 accounted for on the books of other than city 
 officers (in this case county and school district 
 officers) . 
 
 In other cases special taxes, fees and many 
 other public moneys are kept in the office of first 
 collection and disbursed without being paid into 
 the central treasury. Often when one is able to 
 secure actual knowledge of local conditions he 
 finds the classification of items has been distorted 
 to prove a case for some particular line of policy. 
 Bookkeeping cannot take the place of human 
 judgment, and the man is more important than 
 the form of his office. Statutes and charters can 
 not legislate wisdom into office. 
 
 The Proportion of Expenditures for Different 
 Purposes 
 Very little attention is paid to ascertaining the 
 proper proportion of the available resources 
 which should go to each activity. The aggressive 
 or adroit or able head of some one institution,
 
 Efficiency in Government Business 105 
 
 or of a bureau, will sometimes succeed in get- 
 ting a share of the aggregate funds entirely dis- 
 proportionate to the relative importance of his in- 
 stitution or bureau. A governor, or mayor with 
 a particular interest in some one line of activity 
 may overstress that to the detriment of other 
 activities. 
 
 An auditor or a board of control making up a 
 budget too often accepts the proportions of last 
 year as correct and merely adds for those neces- 
 sities which seem most urgent or which are most 
 forcefully presented. 
 
 One board of supervisors will spend much 
 money on roads and neglect the charities, the 
 next one may spend too much on the poor and let 
 the roads go. 
 
 The problem is one calling for the exercise of 
 wide powers of judgment and discretion. It is 
 not likely to be solved by a legislative body where 
 each member is looking out for his constituents. 
 It would seem to be the particular province of a 
 president, a governor, or a mayor. 
 
 The only partial solution so far found is the 
 right of the governor, or mayor, to veto separate 
 items in an appropriation bill. Budget boards 
 or boards of control may ultimately help in this 
 direction.
 
 CHAPTER VIII 
 
 PUBLIC BORROWING 
 
 'T^HERE are times when governments are jus- 
 tified in borrowing money. To meet those 
 expenses of war, which exceed all the taxes the 
 people can afford to pay, borrowing is clearly 
 justifiable. There are doubtless other occasions 
 when borrowing is justifiable. But they are not 
 many, nor are they so easy to recognize as our 
 rapid growth in government indebtedness would 
 seem to imply. 
 
 The federal government built the Panama 
 Canal with borrowed money. It may be argued 
 that the canal is a permanent investment, and 
 that through the benefits it will confer, it will 
 afford the people and the government the means 
 for the payment of the debt. This will probably 
 be the case. I have little doubt of it. But we 
 cannot see far enough into the future to be abso- 
 lutely sure even of that. Just as the wireless 
 telegraph is superseding the old telegraph poles, 
 so the air craft may supersede the ship. That is 
 fanciful, of course, but stranger dreams have 
 come true. It would be wise, any way, to hurry 
 up and pay this debt. 
 
 A school district "bonds itself" to build a 
 schoolhouse, which, it is assumed, is beyond its 
 present powers to pay for out of taxes, even if 
 1 06
 
 Public Borrowing 107 
 
 the cost were spread over several years. The 
 bonds run for forty years, and the annual in- 
 terest charge diminishes the power to raise money 
 for other purposes. When they fall due they are 
 " refunded " and the debt continues. Inciden- 
 tally, it becomes hard to get any more school- 
 houses. The schoolhouse has to be maintained, 
 and the up-keep eats up more money. Hence 
 some things are left undone which should be 
 done, or more borrowing is resorted to. Mean- 
 while the building wears out, or, more likely, 
 goes out of fashion. Costly, solid, many-storied 
 buildings, once the "true ideal" of school archi- 
 tecture, may soon be displaced by the one-story 
 " open-air " schoolhouses, which are infinitely 
 better for the purpose, and cost much less, 
 although they require more land. But the bonds 
 voted by the grandfather for a now antiquated 
 structure must be paid by the grandson, who 
 consequently cannot have a new, modern building 
 for his children. Yet there is seldom any great 
 opposition to voting school bonds. 
 
 The city of Grand Forks, North Dakota, bor- 
 rowed money to buy a fire engine. The North 
 Dakota " State Tax Association " tells the story, 
 as follows : 
 
 Fire engine cost $ 6,000 
 
 Plus : interest 35 years : 
 
 ( 1 ) on $6,000 (a) 7% for 15 years 6,300 
 
 (2) on $5,000 refunding bonds @ 6% for 20 
 
 years 6,000 
 
 Total cost $18,300
 
 io8 Government Finance 
 
 The engine went to the junk heap ten years 
 ago. Still due on the engine, $5,000. " Departed, 
 though dear to memory still." 
 
 These three examples show three different de- 
 grees of permanence in outlays made with bor- 
 rowed money. 
 
 Jefferson laid down the rule that bonds should 
 not run beyond the life of one generation. The 
 idea was that we should not pass on to future 
 generations the burden of paying for our facili- 
 ties, and possibly for our follies. Generally, it is 
 the mistakes which we pass on in this way to 
 our children and to theirs. 
 
 Another rule which might be urged is : never 
 to borrow except for improvements or enterprises 
 of the most unqualified and undoubted perma- 
 nence. 
 
 And still another rule is : never borrow if the 
 taxpayers can by any possibility meet the pro- 
 posed expense by taxes sufficient to pay cash, 
 for the improvement. 
 
 Although cities, because of the assured char- 
 acter of their revenues, need not always follow 
 strictly the rule of sound private investment, 
 which is to invest only savings, yet they should, 
 to enforce a feeling of civic responsibility, make 
 some saving in advance out of current revenues 
 before borrowing. A "pay as you go" policy 
 is a good one for any government. There is no 
 magic in public bonds that is not also to be found 
 in many forms of private credit. 
 
 One issue of bonds often leads to another.
 
 Public Borrowing 109 
 
 Once a sentiment " in favor of bonds " is created, 
 bonds are voted regardless of purpose. 
 
 Constitutional and charter restrictions on bond 
 issues prevail everywhere. They were designed 
 to enforce the above rules. But everywhere, 
 bonds may be voted if the popular electorate ap- 
 proves and that approval is most easily obtained. 
 
 Let us see how the facts stand. Our federal 
 debt is discussed under federal finances. It is in 
 state and local finances that the dangers of bor- 
 rowing show up. 
 
 The states today owe : $400,000,000 gross 
 
 In 1902 they owed: 261,000,000 gross 
 
 Increase fifty-four per cent. 
 
 Because of the growth in population of cities 
 no such exact comparison can be made. But we 
 have the following approximation : 
 
 In 1912, 195 cities over 30,000 owed: $2,866,000,000, ^ro.y.s 
 Or, less sinking funds, they owed : 2,040,000,000, tiet 
 In 1902, 160 cities over 25,000 owed: 1,310,000,000, <7ro.f.y 
 Or, less sinking funds, they owed: 1,040,000,000, n^f 
 
 The increase is very nearly one hundred per 
 cent. 
 
 County debts in 1913 were $372,000,000. In 
 1902 they were $200,000,000, net. Increase one 
 hundred and eighty-six per cent. 
 
 District debts today are not known. In 1902 
 they were outside cities $400,000,000. 
 
 In some parts of the country district debts are
 
 no Government Finance 
 
 increasing very much faster than are any other 
 group of debts. Within cities, debts incurred by 
 districts and not assumed by the city corporation 
 per se are growing faster than are the city debts 
 proper. But the above figures include most of 
 these. Government debts in obscure corners, not 
 in the eye of a wide public, are rolling up rapidly. 
 
 It is safe to assert that public indebtedness, 
 state, county, district, and municipal, has in- 
 creased more than one hundred per cent in the 
 last decade. This excludes special assessment 
 debts. 
 
 Debts of a quasi public character, but enor- 
 mous in amount, resulting from special assess- 
 ments, often escape the statistician entirely and 
 do not get into the totals, unless the special 
 assessments have grown into quasi taxes. Here 
 and there, one may get news of these debts. But 
 nothing short of a systematic search, involving 
 very great expense, will reveal the whole amount 
 thereof, even in one city. Thus, private collateral 
 bonds, based on unpaid special assessments, are 
 widely offered for sale. They are advertised in 
 street cars and local papers. But the aggregate 
 of the shifting amount of underlying debt is not 
 easy to ascertain, even for one city, let alone for 
 the whole country. 
 
 The city of Seattle is built on a steep hill rising 
 abruptly from the harbor. The hill is so steep 
 that to get room for streets and buildings it has 
 had to be washed away into the bottom of the 
 deep harbor by hydraulic rams. A debt of $12,-
 
 Public Borrowing iii 
 
 000,000 stands against the property benefited by 
 this work. But it is not a debt of the city. The 
 census bureau counts this in, but the city auditor 
 does not. Analagous debts in other places escape 
 even the census bureau. 
 
 The budget of the city of New York calls for 
 $200,000,000, of which over $55,000,000 is for 
 debt changes. The net debt is reported for 1912 
 as $1,089,000,000. One city owes as much as 
 does Uncle Sam! 
 
 What may be called an " orgy " of debt making 
 has swept over California in recent years. The 
 same is true of some other states. In 1910 the 
 cities of California owed $30,000,000; in 1912, 
 $100,000,000. In 1907 the counties, and the 
 districts which are, in this state, part of the coun- 
 ties and sometimes lie in the cities, owed $6,- 
 500,000; in 1914 they owed $57,000,000, an in- 
 crease of nearly ninefold in seven years. 
 
 What is all this debt for? Is it for things 
 which will endure, or is it for fire engines and 
 the like, which go to the junk heap long before 
 the debt is paid? 
 
 The census reports city debts as incurred for 
 the following purposes (rearranged in the order 
 of size) : 
 
 Public service enterprises and investments $ 839,000,000 
 
 Water supply $475,500,000 
 
 Electric, etc 15,000,000 
 
 All other (the largest 
 items are for docks and 
 wharves) 348,500,000
 
 112 Government Finance 
 
 Street car systems will show up in 1913 
 
 and 1914: 
 Highways and bridges $400,000,000 
 
 Street pavements $ 42,600,000 
 
 Bridges, etc 100,700,000 
 
 Other highway bonds . . . 256,600,000 
 
 School buildings 288,000,000 
 
 Sewers 175,000,000 
 
 Parks 157,000,000 
 
 Government buildings 69,000,000 
 
 Charities, hospitals, etc 43,000,000 
 
 Police and fire departments 37,000,000 
 
 Libraries and art galleries 28,000,000 
 
 $2,036,000,000 
 Funding, refunding, combined or untrace- 
 able, with miscellaneous 630,000,000 
 
 Grand Total $2,666,000,000 
 
 This list is very instructive, but not reassuring. 
 To borrow money for " public service enter- 
 prises " is tempting. " The investment will pay 
 the costs," it is argued. Waterworks are es- 
 pecially attractive and necessary. New York has 
 her Croton system and later developments and 
 owes $152,000,000 for it. Boston and surround- 
 ing cities have the Metropolitan water system 
 which costs over $2,000,000 annually for debt 
 charges and maintenance. Seattle goes into the 
 nearby mountains and obtains a wonderful sup- 
 ply of soft pure water, debt $4,300,000. Los 
 Angeles not to be outdone goes to the foot of 
 Mt. Whitney, 209 miles away, and gets water, 
 debt $26,200,000, and not done yet. San Fran- 
 cisco must, forthwith, follow suit, and bring 
 water from the Hetch Hetchey Valley, a hun-
 
 Public Borrozving 113 
 
 dred miles away, although it has many sources 
 nearer. But this is for the future. Waterworks 
 are undoubtedly one of the most justifiable pur- 
 poses of borrowing. But, even here, too little 
 of the investment is savings and too much pure 
 borrowings. 
 
 Lighting plants and more recently street rail- 
 ways are much more questionable investments 
 for city borrowing. The heavy depreciation 
 charge on electric plants, the rapid development 
 of methods, the uncertainty as to whether hy- 
 draulic or steam generation is the cheaper, make 
 lighting plants very dangerous toys for cities to 
 play with. How much longer the street railways, 
 as we now have them, will endure is possibly an 
 open question. It is certain that the acquisition 
 of the telegraph lines by the federal government, 
 as proposed by the Postmaster General, would 
 simply result in loading on to the government 
 an antiquated plant, for a nearly antiquated 
 method of communication. Automobile passen- 
 ger vehicles, for short distances, and under- 
 ground system for longer runs, may put the sur- 
 face cars out of business in a few decades. As 
 an " investment," especially for cities, street rail- 
 ways are highly speculative. 
 
 To borrow for bridges, boulevards, and the 
 opening of new arteries for traffic is generally to 
 borrow for permanent acquisitions. But surely 
 street pavements are not durable enough to out- 
 live any but the shortest term bonds. Sewers 
 fall into the same group with highways. The
 
 114 Govermnent Finance 
 
 changes in fashion as to school buildings has 
 already been commented on. 
 
 Parks, government buildings, police and fire 
 department, libraries and art galleries are all 
 rather dubious purposes for borrowing. They 
 should be acquired from current income, or sav- 
 ings, rather than by debt-making. 
 
 Of the now outstanding city debts more than 
 $1,265,000,000 matures more than twenty years 
 hence. Of the $1,400,000,000 maturing sooner, 
 much will be refunded. Moreover, new debt will 
 doubtless be created. There is little to indicate 
 that twenty years hence cities will owe less than 
 they do today, or even less per capita, or less in 
 proportion to wealth. On the contrary, unless 
 habits change wonderfully, they will owe much 
 more. The interest charge of $107,000,000 an- 
 nually and sinking fund receipts of $161,000,000, 
 in all $268,000,000, gives us a rough, but by no 
 means exact measure, of the burden which this 
 debt imposes on the total revenues of $849,- 
 000,000. Roughly, 30 cents of every dollar of 
 revenue receipts is pledged for debt charges. 
 
 Accountants sometimes try to minimize the 
 debt by setting over against it the assets of the 
 cities. For that purpose they sometimes use cost 
 values and sometimes replacement values of the 
 city's possessions. While there is something to 
 be said for this, where there are income earning 
 properties, like waterworks, there is more often 
 no merit in such a proceeding, considering the 
 nature of the other properties owned. Streets,
 
 Public Borroiving 115 
 
 bridges, and public buildings are rarely available 
 to be sold to reduce debt. On the contrary, as 
 they are a constant source of expense, their pos- 
 session is as much a liability as it is an asset. The 
 benefits they confer go to the citizens, not to the 
 city governments. 
 
 In view of all the foregoing it would seem that 
 much more caution should be exercised in debt 
 making. A little slower pace in acquiring public 
 facilities, a higher tax rate for a few years, will 
 save money and thus make a faster growth, in 
 the long run, possible.
 
 CHAPTER IX 
 
 The Equation of Receipts and Expenditures 
 
 T N the long run every government must cover 
 its expenditures by its receipts. In any one 
 year there may be a deficit or a surplus of re- 
 ceipts to be made up later, or to be covered by 
 borrowing. Public accounts never speak of a 
 deficit of expenditures, although it is quite con- 
 ceivable that we may be spending less than is 
 wise. Nor do public accounts ever show a sur- 
 plus of expenditures, although we know that gov- 
 ernments are often extravagant. The blame, or 
 the praise, always falls on the receipts. 
 
 Obviously the fixing of the expenditures is so 
 largely a matter of policy, of opinion, and of pol- 
 itics, good or bad, that an accountant who would 
 record a " surplus of expenditure " in place of 
 the customary " deficit of revenues " would be 
 regarded as voicing a reproof to those in power. 
 Such an accountant would be more obnoxious 
 who should venture to say there was a " deficit 
 in expenditures." 
 
 The receipts of governments are of ten possible 
 classes: (i) taxes; (2) fees; (3) income from 
 investments and rent of public property; (4) re- 
 ceipts from the sale of property; (5) earnings of 
 public service and other commercial enterprises; 
 
 116
 
 Receipts and Expenditures 117 
 
 (6) escheats; (7) gifts; (8) fines and penalties; 
 (9) subventions from other branches of govern- 
 ment, and (10) borrowed money. 
 
 Of these all are sufficiently described for our 
 present purposes by the names given them except 
 two — namely, taxes and fees. 
 
 For a complete discussion of the theory and 
 principles of taxation and for more extended 
 definitions the reader will have to look to the 
 larger treatises. Here we are interested only to 
 understand the different sources of revenue of 
 the different branches of government. Hence 
 very brief definitions are all that are needed. 
 
 Taxes, for the very simple purposes of this 
 discussion, may be defined as " compulsory con- 
 tributions collected by governments, without any 
 specific return being given or promised." The 
 proceeds of taxes are used by governments for 
 such general, or other, purposes of government 
 as the powers that be decree to be wise, and there 
 is no agreement, tacit or otherwise, with the tax- 
 payer that any specific thing shall be done for 
 him personally in return. Taxes, therefore, are 
 for the general upkeep of government. 
 
 In the case of fees there is always some direct 
 return. So fees may be defined as "compul- 
 sory payments required when the citizen, or resi- 
 dent, obtains some special service from the gov- 
 ernment." If I seek a marriage license, register 
 a deed, secure a building permit, or obtain a pat- 
 ent, I have to pay a fee. If the government 
 opens, grades, metals, sewers, or curbs a street
 
 ii8 Govcrmiicnt Finance 
 
 along or through my property I have to pay a 
 fee which in this instance is usually called a 
 " special assessment." The main difference be- 
 tween a tax and a fee is the presence or absence 
 of an implied or definite agreement on the part 
 of the government to make a direct return in 
 some definitely specified service. 
 
 Taxes fall into two classes, direct and indirect. 
 The plain and ordinary meaning of these terms 
 is sufficient for our present purpose. But there 
 has been and still is much discussion as to their 
 application in special cases. The Federal Gov- 
 ernment was, by the framers of the constitution, 
 forbidden to use certain direct taxes. What the 
 constitution means by direct taxes has been the 
 subject of much important litigation, for a re- 
 view of which the reader is referred to Selig- 
 man's Income Tax. 
 
 Indirect taxes are known by various names 
 which have historical origins ; they are called 
 " customs duties," " excises," " internal revenue 
 duties," or sometimes " license taxes." Direct 
 taxes are usually known by the things that are 
 listed as the base, or, as " subject to," the tax in 
 each case. Such are " poll " taxes, " property " 
 taxes, " income " taxes, and the like. 
 
 The Federal Government 
 
 The Federal Government depends mainly on 
 indirect taxes, and recently has definitely ac- 
 quired the right, granted before but not too 
 clearly, to use an " income " tax.
 
 Receipts and Expenditures 119 
 
 Federal Receipts 
 
 A. Taxes: Total 1913 $ 671,500,000 
 
 1. Customs $319,000,000 
 
 2. Internal indirect 
 
 taxes 309,000,000 
 
 3. Corporation tax.... 35,000,000 
 
 4. Other taxes 8,500,000 
 
 B. Fees, fines, penalties, and gifts 10,500,000 
 
 C. I. Incomes from investments, rents, 
 
 sale of public lands and prop- 
 erty, and earnings (other than 
 
 Post-office) 17,500,000 
 
 2. Post-office earnings 267,000,000 
 
 D. Subventions and local taxes collected. . 10,000,000 
 
 E. Trust funds 12,000,000 
 
 F. Money borrowed 23,500,000 
 
 Unclassified 2,000,000 
 
 Total $1,014,000,000 
 
 None of these 19 13 revenues were really elas- 
 tic. That is, they could not readily be made to 
 expand should more money be needed. The cus- 
 toms duties are readjusted only after more or 
 less of a political struggle. They are designed 
 primarily for purposes other than revenue, 
 namely " protection " to industries. To change 
 the rates in order to meet changing revenue 
 needs is hardly feasible. The internal taxes, un- 
 less the rates are violently changed, grow but 
 slowly. The rates are now very high and if 
 raised much more would so repress the busi- 
 nesses from which these taxes are derived as to 
 lessen, rather than increase the revenues. 
 
 The Federal Government has, therefore, had 
 to cut its garments to the cloth. There have 
 been a few years when the cloth was scant. But
 
 I20 Government Finanee 
 
 for the most part the cloth has been more than 
 ample. This has led to extravagance at times. 
 That the extravagance has not been greater than 
 it has been is a matter of good luck. Nothing 
 but the fact that the country has had enormous 
 undeveloped natural resources, into the exploita- 
 tion of which the surpluses have been poured, 
 has saved us from disaster. 
 
 In 19 1 3, however, there was inaugurated an 
 income tax. There were a number of all suffi- 
 cient political reasons for the introduction of an 
 income tax, no one of which had any foundation 
 in fiscal necessities. The income tax was not 
 urgently needed for the revenues which it might 
 yield. It was argued that the reduction of the 
 tariff rates would reduce the revenues from that 
 source. But in so far as that reduction accom- 
 plishes its avowed purpose of reducing the cost 
 of living, it should increase importations and in- 
 crease the customs receipts. How the new tariff 
 would have worked out in this respect we shall 
 never know on account of the war. In any event 
 the yield of the income tax has been so small 
 that it could not make up much of any deficit. 
 That part of the income tax which is wholly new, 
 namely the tax on the incomes of individual per- 
 sons, yielded $28,000,000. The accompanying 
 changes in the old corporation tax now consoli- 
 dated into the income tax, increased its yield 
 from $35,000,000 to $52,000,000, making the 
 total $80,000,000. 
 
 Entirely aside from the far reaching political
 
 Receipts and Expenditures 121 
 
 and social reasons which led to the federal in- 
 come tax and from the reason above discussed 
 was the argument that it was needed for the pur- 
 pose of giving an elastic element to the revenue 
 system of the Federal Government. 
 
 Such a reason is eminently sound. The Federal 
 Government may at any moment be plunged into 
 great expense and it is wise to have some " en- 
 gine of revenue " which can carry the load of 
 any possible increase in expenses. 
 
 But the income tax as established, and so far 
 as yet used, is a veritable toy. It is like the 
 child's toy locomotive. It runs by "truly 
 steam." It has cylinders, pistons, and driving 
 wheels, in fact it is perfect in all its parts. But 
 it pulls no freight. Compared with what Glad- 
 stone described as that " colossal engine of 
 finance," the British income tax, which before 
 the war yielded $200,000,000 from a population 
 of 45,000,000 people, our income tax, which 
 raised less than $30,000,000 from a population of 
 90,000,000 people — well, why not use slang? — 
 " looks like thirty cents." The British income 
 tax .reaches its maximum rate at an income which 
 with us is still exempt, namely $3,000. The nor- 
 mal rate was five per cent in times of slight 
 stress and nobody knows how much more, ulti- 
 mately, in times of war. Our tax does not reacli" 
 one per cent until one has an income of $24,000 
 and the maximum is not reached until the income 
 is far above a million. 
 
 The mere toy character of the income tax
 
 122 Government Finance 
 
 would not be an indictment of the sincerity of its 
 establishment, if there were any evidence of an 
 intention to use it for the purpose of elasticity. 
 But on the very first occasion for such a use, the 
 recent so-called war taxes, the government turns, 
 not to the income tax, but to new and burden- 
 some internal revenue taxes. 
 
 In view of all this it may be stated in conclu- 
 sion that the Federal Government has, as yet, 
 no orderly system in use for establishing the 
 equation between expenditures and receipts. 
 When receipts are large it spends lavishly. 
 When expenditures outrun receipts it resorts to 
 petty temporary and generally oppressive taxes to 
 make ends meet. 
 
 State Governments 
 
 While the " general property tax," that is a tax 
 based upon all kinds of property at a valuation 
 determined by assessment, is the main source of 
 revenues for the counties, towns, and cities, it is 
 of relatively less importance as a source of state 
 revenue. 
 
 The great diversity of state activities has been 
 commented on in connection with the discussion 
 of state expenditures. There is just as much 
 diversity in tax systems, and in the other rev- 
 enues used by the states. 
 
 For this reason general averages for all the 
 states together have little significance and unless 
 very carefully guarded are likely to be mislead- 
 ing.
 
 Receipts and Expenditures 123 
 
 But the following general statements are fairly 
 safe. About sixty per cent of the revenues of 
 the states come from taxes of all kinds. This 
 proportion is, however, increasing. About thirty 
 per cent of all the revenues, or just about one- 
 half the taxes, of the states comes from the gen- 
 eral property tax. The states are depending 
 heavily on borrowing to keep the balance between 
 receipts and expenses. The states' receipts from 
 the sale of lands are bound to decrease. The 
 states' receipts from investments and public 
 property are being more and more outstripped 
 by interest charges on the growing debts. The 
 states have a rapidly growing need of more tax 
 revenues. 
 
 The diversity of state revenue systems is so 
 great that here, as in the case of expenditures, 
 we are forced to resort to examples. 
 
 Examples of State Revenue Systems 
 
 We saw how Rhode Island has emerged from 
 a condition where state activities were relatively 
 small and has developed a considerable need for 
 revenues of its own. It still retains a share of 
 the general property tax. But the state tax rate 
 has always been low. For many years it was 
 only eighteen cents on the $100 of assessed valua- 
 tion. In 1912 it was cut down to nine cents. 
 Just before that year the state began to build 
 up its own sources of revenue. 
 
 The sources resorted to are so instructive that
 
 124 Government Finance 
 
 they are worth citing in full, especially because 
 they show the diversity of taxes being used. 
 
 Rhode Island's State Revenues 1913 
 
 1. The "direct" tax $561,000 
 
 2. Tax on savings accounts 552,000 
 
 3. Tax on insurance 207,000 
 
 4. Fines, penalties, and forfeiture 60.000 
 
 5. Corporation charters 22,000 
 
 6. Public service corporations 213,000 
 
 7. Bank shares 70,000 
 
 8. Manufacturing and mercantile corpora- 
 
 tions 550,000 
 
 9. Oyster grounds 130,000 
 
 10. Municipal licenses 184,000 
 
 11. Miscellaneous 460,000 
 
 12. Borrowed 450,000 
 
 Total $3,459,000 
 
 Thus Rhode Island now has revenues, inde- 
 pendent of the property tax and of borrowing, 
 amounting to over seventy per cent of her needs. 
 She has no inheritance tax, although one is under 
 discussion. 
 
 California has for five years had complete 
 separation of state from local taxation. That is 
 she has not levied a general property tax for 
 state purposes during that period. Her state 
 revenues come from taxes on certain classes of 
 public service companies, taxes on banks and in- 
 surance companies, taxes on corporate franchises, 
 an inheritance tax and an automobile license tax ; 
 in all $16,000,000 in 19 13- 14. The total of $36,- 
 000,000 on $20,000,000 more was made up of a 
 poll tax, now repealed, a corporation license tax,
 
 Receipts and Expenditures 125 
 
 repealed in 1913, reenacted in 1915, earnings of 
 state property of which the San Francisco harbor 
 is the largest source, earnings of state institu- 
 tions among which are the earnings of prisons, 
 a multitude of fees and miscellaneous items, and 
 $11,000,000 of borrowed money. The state is 
 borrowing for highways, the harbor, and new 
 buildings. 
 
 The increase in state activities has been very 
 great. The curtailment of revenues by the re- 
 peal of two important taxes, the poll tax and the 
 corporation license tax, together with the growth 
 of state activities has swamped the state's inde- 
 pendent revenue system. New taxes will have to 
 be devised or there must be a general ad valorem 
 tax to make up the deficit. The lack of correla- 
 tion between income and outgo is marked. 
 
 Kentucky, whose burdens we reviewed briefly, 
 has a state revenue system which in some re- 
 spects shows the characteristic of the southern 
 states in general. In the first place she has a flat 
 rate of fifty cents per $100 of assessed value on 
 all property in the state. This rate is not changed 
 very frequently. No attempt is made to adjust 
 the rate each year to meet changes in the needs 
 for revenues. This is quite the reverse of the 
 practice of northern states or, more especially, 
 of western states. The state simply takes what 
 this rate yields. The amount is about $4,000,000 
 per annum. The state also has a number of 
 other taxes. In some of these the local govern- 
 ments, especially the counties, share, as they do,
 
 126 Government Finance 
 
 also, in the general property tax. In the main 
 these are only parts of the general property tax, 
 and are " separated " only in so far as the state's 
 share is paid directly to the state by the taxpay- 
 ers, instead of being, as are the taxes on real 
 estate, collected by the county officers and re- 
 mitted to the state. These are the taxes on 
 bank stocks, distilled spirits, franchises, and rail- 
 roads. There are also taxes on inheritance, on 
 insurance companies and a number of miscellane- 
 ous subjects. 
 
 But characteristic of Kentucky, and more so 
 even of many another southern state, is the ex- 
 tensive use of business license taxes. Among 
 these " licenses " common in the south but not 
 all. used by Kentucky are four groups: (i) 
 licenses on saloons and the sale of liquor; (2) 
 licenses on amusements; (3) licenses on lines of 
 business which are so organized as not to use 
 much tangible property which is subject to the 
 property tax, such as peddlers, solicitors, agents, 
 brokers, auctioneers, and many others ; (4) busi- 
 ness taxes on all kinds of manufacturers and 
 merchants, so arranged that they are in a meas- 
 ure substitutes for any taxes which might have 
 been levied, but are not, on stocks of merchan- 
 dise on hand. The fourth class is not particu- 
 larly represented in Kentucky, although just 
 across the line in Tennessee they are strong. 
 
 Kentucky also has a state tax on dogs, which it 
 is interesting to note yields $100,000 a year, a 
 sum larger than all the taxes she succeeds in col-
 
 Receipts and Expenditures 127 
 
 lecting on money and credits of all kinds. Much 
 of the dog tax goes to pay for damages done by 
 vicious dogs to sheep. The totals show up as 
 follows : 
 
 Kentucky Revenues, 191 i 
 
 A. Taxes proper $6,192,000 
 
 B. Fees iS7,ooo 
 
 C. Earnings of property 15,000 
 
 D. Earnings of institutions 381,000 
 
 E. Fines and forfeitures 65,000 
 
 Total $6,810,000 
 
 The state is running behind at the rate of about 
 $300,000 each year. This is financed by the 
 crude expedient of issuing, in payment of her 
 dues, interest bearing warrants, which the banks 
 buy at a discount. These are steadily accumu- 
 lating and now amount to about $2,500,000. She 
 has also borrowed from herself most of her trust 
 funds and this debt represents about $2,500,000 
 more. 
 
 Minnesota is justly proud of her revenue and 
 tax system. It is excellently administered and 
 fairly equitable. She leans on the general prop- 
 erty tax for $3,250,000 out of nearly $9,000,000 
 of taxes. She collects $5,000,000 for state pur- 
 poses from gross receipts taxes on railroads and 
 certain other public utilities, has an inheritance 
 tax and other minor taxes yielding some $650,000 
 in 1912. In 1910 she made nearly $4,000,000 
 from her state institutions and investments of 
 various kinds. In 1914 her independent revenues
 
 128 Government Finance 
 
 alone amounted to $9,000,000, and she had to 
 resort to the general property tax for less than 
 $3,000,000. She has no funded debt but has met 
 large expenditures for new buildings and lands 
 by short time notes, which she can easily carry. 
 
 This state strikes an exact balance between 
 outgo and income by adjusting the rate of the 
 state tax on general property each year. 
 
 It would be interesting to know, if it were pos- 
 sible to ascertain it, in how far the well-ordered 
 condition of this state's finances is due to the 
 fact that the same man has been auditor for 
 twelve years, and that two members of the three 
 members and the secretary of the strong central 
 tax commission have served since its inception in 
 1907. 
 
 Massachusetts leans on the general property 
 tax for nearly $(S,ooo,ooo and has independent 
 revenues of $9,500,000. The independent state 
 revenues consist mainly of the inheritance tax 
 and a complex system of corporation taxes. They 
 are too complex for detailed description in a 
 short space. 
 
 For a number of years New York succeeded in 
 living on her independent state revenues. But she 
 has recently increased her state expenses so 
 largely that she has had to resort to a state tax on 
 general property again. In 1910 the state's rev- 
 enues, exclusive of a small ad valorem tax for 
 special purposes were $37,500,000; in 1912 they 
 rose to $44,000,000, but the state raised $6,- 
 000,000 more, exclusive again of the small tax
 
 Receipts and Expenditures I2g 
 
 for special purposes, by a general state levy. In 
 191 3 the state's segregated taxes fell to $40,- 
 000,000, and $11,000,000 was raised by direct 
 taxation. Some people look upon these figures 
 as an illustration of the saying "facilis descensus 
 avcrni." New York's independent state taxes 
 consist of a complex system composed mainly of 
 corporation taxes, too complex for description 
 within the space at our disposal. 
 
 Illinois is dependent very largely on an anti- 
 quated form of the general property tax. Out 
 of $14,000,000 annual revenues for the year end- 
 ing September 30, 1912, nearly $11,000,000 came 
 from the property tax. Another $1,200,000 came 
 from the Illinois Central Railroad, which pays 
 seven per cent of its gross receipts in lieu of all 
 other taxes. The miscellaneous state revenues 
 are therefore relatively small; they include a tax 
 on insurance companies, and an inheritance tax. 
 
 The general property tax in Illinois is based 
 on practically uncontrolled local assessments of 
 property by township assessors in that part of the 
 state where the township system prevails, and 
 elsewhere by county assessors. In Cook county, 
 where Chicago lies, the assessment is made by a 
 Ijoard of five assessors. A striking feature is the 
 rule laid down by law that the assessment has to 
 be at thirty per cent of true value. But it ap- 
 pears to be very much lower than that, probably 
 only one-fifth of true value. There is no central 
 control over the assessment, and the State Board 
 of Equalization is reported to be " a clumsy and
 
 130 Government Finance 
 
 ineffective body." An interesting side light is 
 thrown on the tax system by the fact that the 
 school teachers brought a suit to compel the 
 assessment of certain classes of property. When 
 such methods have to be resorted to the tax sys- 
 tem must be badly administered indeed. Al- 
 though the general tax burden in Illinois, special 
 assessments for local improvements being ex- 
 cluded, is not yet very heavy, nevertheless its 
 rapid growth promises to make the inequalities 
 more and more burdensome and to force a 
 reform. 
 
 County and Local Revenues Other Than Large 
 Cities 
 
 Much over ninety per cent, probably nearly 
 ninety-five per cent, of all local revenues, exclu- 
 sive of the revenues of large cities comes from 
 the property taxes and from subventions from 
 the states. About eighty-five per cent comes 
 from the general property taxes levied on prop- 
 erty within the counties, districts, or towns. The 
 other sources are poll taxes, liquor licenses, and 
 in the southern states county and local business 
 licenses paralleling the state's business license 
 taxes. 
 
 The general property tax is essentially a neigh- 
 borhood tax ; that is, it is admirably adapted to 
 apportioning neighborhood charges among neigh- 
 bors. If well administered it is admirably 
 adapted to the revenue needs of counties and
 
 Receipts and Expenditures 131 
 
 their local divisions. The main difficulties are 
 those connected with obtaining an equitable 
 assessment and with the apportionment of taxes 
 to different subdivisions of the counties. These 
 difficulties call for an increasing amount of cen- 
 tral control and supervision. 
 
 While the general property tax as a local tax 
 has many merits, yet as it is administered in most 
 parts of the United States today it has grave 
 faults. Most of these arise from the weaknesses 
 of the administration, or more particularly, of the 
 assessment work. 
 
 There are many parts of the United States to 
 which the following remarks do not apply. 
 But they do apply to the greater part of the 
 country. 
 
 The officers to whom the important and diffi- 
 cult task of making the assessment is entrusted 
 are, too often, elected without reference to pre- 
 vious training or experience. They serve, too 
 often, for but a short time and gain no experi- 
 ence. Their districts are, too often, too small, 
 so that their compensation is incommensurate 
 with the importance of the duties. They depend 
 too much on the tax-payers' own statements, 
 which they are unable to verify. It is not safe to 
 assume that taxpayers will list all their 
 taxable property. We know that they don't 
 and won't. 
 
 Assessors are, too often, unequipped with the 
 necessary tools and facilities for their work. As 
 the assessment must be completed in a few
 
 132 Government Finance 
 
 weeks, the assessor of a small district is often 
 without a proper room even for his office. Too 
 often, he has no tax maps. Yet a good map is 
 the first prerequisite. Inexperienced and un- 
 trained as he often is he is given no instructions, 
 guidance, or supervision. He is supposed to en- 
 force a law which is almost the most complex 
 on the statute book, and there is no assurance 
 that he can read that law understandingly. 
 
 The author used this illustration in the report 
 of the special tax commission of the State of 
 Kentucky of 19 12 : 
 
 "Assessing the multifarious properties in a 
 county is analogous to taking a valued inventory 
 of the stock in a great department store. What 
 business man would employ a green clerk for 
 such an inventory, set him to work without a 
 word of instruction as to where things are or 
 what they are worth, and give him nothing to go 
 by but last year's inventory (all full of errors), 
 and the list of new purchases, and then go away 
 and leave him to shift for himself as best he 
 could? If, after once having committed such a 
 folly, what business man would, as soon as that 
 inventory clerk had acquired for himself a little 
 knowledge and experience, discharge him and 
 put in another man whose sole qualification had 
 to be that he had never done any of that kind 
 of work before? Can a carpenter build a house 
 without plans and specifications, and without 
 tools — a hammer, saw, or plane? Yet this is 
 what the law expects the assessor to do."
 
 Receipts and Expenditures 133 
 
 A peculiarity of the Kentucky law was that 
 the assessor was not eligible for re-election. 
 
 The political influences under which the asses- 
 sor does his work are bad. If he seeks re-elec- 
 tion he must make friends. The easiest way to 
 make friends is to " play favorites " in the assess- 
 ment. 
 
 The remedies are so apparent that it is a won- 
 der that they are so often overlooked. 
 
 The work of the assessor is technical, difficult, 
 and hard to learn, but it is interesting, and that 
 being so the office should offer an honorable 
 career for life. The assessor should be able to 
 look upon his office as a profession, not as a cas- 
 ual employment. The districts should be large 
 enough to warrant paying a good man to give all 
 his time and life to the work. The assessor 
 should be given tools, and all equipment neces- 
 sary. He should be guided and supervised 
 and protected, by working under rules and 
 enforcing standards prescribed by a superior 
 authority. 
 
 This calls for a strong central tax commission. 
 
 Municipal Revenue 
 
 The large cities, whose expenditures we re- 
 viewed at some length, have a great diversity of 
 revenues. The following table includes certain 
 receipts of school districts and other districts 
 within the cities, when those districts perform 
 functions which arc practically municipal.
 
 134 Government Finance 
 
 Municipal Revenues, 1913 
 
 Per Cent 
 
 Total $866,000,000 100 
 
 General property taxes 526,000,000 60.7 
 
 Special property taxes 12,500,000 1.4 
 
 Poll and occupation taxes 1,500,000 0.2 
 
 Business taxes 53,000,000 6.1 
 
 Non-business license taxes 4,000,000 0.5 
 
 Special assessments 72,500,000 8.4 
 
 Fines, forfeitures, and escheats., 4,500,000 0.6 
 
 Subventions and grants 34,500,000 4.0 
 
 Donations, gifts, and pension as- 
 sessments 4,000,000 0.5 
 
 Earnings of general departments. 21,000,000 2.4 
 
 Highway privileges 12,500,000 1.4 
 
 Rents of investment properties... 9,000,000 i.o 
 
 Interest 24,500,000 2.8 
 
 Earnings of waterworks 71,000,000 8.2 
 
 Other earnings i5,5C)0,ooo 1.8 
 
 In addition to these revenues available for 
 spending on current affairs there were other re- 
 ceipts as follows : 
 
 Non-revenue receipts $996,000,000 
 
 From sales of investments 76,500,000 
 
 From sales of supplies 360,000 
 
 From issue of debt obligations 637,000,000 
 
 From trust and agency transactions 80,500,000 
 
 From counter-balancing transactions 8,000,000 
 
 From general transfers 193,500,000 
 
 Restated : The 195 cities had revenues 
 amounting to $866,000,000, borrowed $637,000,- 
 000 more and disposed of property amounting 
 to about $77,000,000, so that without trust 
 moneys and bookkeeping entries, the aggregate 
 is $1,580,000,000. The cities ran behind and 
 borrowed. But the $637,000,000 is not all new
 
 Receipts and Expenditures 135 
 
 debt. They paid off $464,000,000 of debt, so the 
 net debt grew $173,000,000. $340,000,000 out 
 of the $637,000,000 borrowed was borrowed by 
 New York, whose total revenues were $205,500,- 
 000, or only about one- fourth of her aggregate 
 funds. She paid off $265,000,000 of old debt 
 with new debt, so her net increase of debt was 
 $75,000,000. But even omitting New York, 
 thirty-six per cent of the gross receipts of cities 
 came from borrowed money. 
 
 A comparison of past years shows still more 
 clearly where the cities are going in the matter 
 of finance. We have in the census reports con- 
 tinuous data for 146 cities for eleven years, 
 1902-1912 inclusive. The population of these 
 cities increased from 20,400,000 in 1902 to 27,- 
 400,000 in 1912, an increase of thirty-four per 
 cent. The items which the census classes as " net 
 government cost payments " grew from $463,- 
 000,000 in 1902 to $907,000,000 in 19 12 or ninety- 
 six per cent. That is the expenses grew two and 
 three-quarter times as fast as the population. 
 The debts increased from $900,000,000 to $1,933,- 
 000,000 or 115 per cent, that is, debts are now 
 two fold what they were ten years ago and 
 fifteen per cent over. The inference to be drawn 
 needs no further statement. 
 
 " Net revenue receipts " increased from $420,- 
 000,000 in 1902 to $788,000,000 in 19 1 2 or eighty- 
 seven and eight-tenths per cent, which is eight 
 and two-tenths per cent short of the increase in 
 expenses.
 
 136 Goverfimcnt Finance 
 
 Some slight encouragement is afforded by the 
 fact that of the 195 cities over 30,000 which were 
 reported by the census in 1913, forty-eight had, 
 in that year, reduced their debt, but for the whole 
 group there was a net increase of $135,000,000. 
 
 Conclusion 
 
 In view of all the foregoing facts the follow- 
 ing conclusion seems to be forced upon us : The 
 expenses of city, county, and state governments 
 are increasing more rapidly than are the revenues. 
 More and more are the expenses being met by 
 borrowing. The borrowed money is being spent 
 on buildings and other public improvements 
 which call for increased expenses for up-keep. 
 Revenues must be increased from some source. 
 If expenses are going to continue to increase as 
 they have been increasing, and the debt charges 
 are to be met, then the annual increase in rev- 
 enues must be at least ten per cent per annum 
 and probably more. 
 
 Since the main source of revenue for all these 
 governments is the property tax, the question at 
 once presents itself, " how much longer can this 
 one tax stand the strain ? " 
 
 There are too many differences between differ- 
 ent parts of the country to permit of a universal 
 answer to this vital question, even if we knew 
 enough of the essential facts, which unfortu- 
 nately is not the case. In some places the tax 
 burden is very heavy, although the taxes may
 
 Receipts and Expenditures 137 
 
 seem small. In others the taxes are large but 
 are lightly carried. 
 
 The great difficulty is that " assessed " value is 
 not " true value," and many kinds of property 
 escape taxation. To get an accurate measure of 
 the tax burden we ought to know the ratio of the 
 tax to the net income of the property taxed. 
 Even that would be subject to various interpre- 
 tations. Sometimes efforts have been made to 
 establish the rate of the tax to the true value of 
 the property. This, assuming that the true value 
 is based on the net income, might help. But still 
 it is subject to different interpretations in indi- 
 vidual cases. Thus it was established in Cali- 
 fornia that the ratio of local taxes to the true 
 value of farm lands and of urban real estate 
 averaged for the state at large : One per cent 
 in 1905, 1. 10 per cent in 19 12, and 1.21 per cent 
 in 19 14. But we have no way of knowing how 
 these rates affected different kinds of lands. The 
 Minnesota Tax Commission established some- 
 what similar average ratios for that state, as 
 0.964 per cent in 191 1, and 1.097 per cent in 
 1912. In Wisconsin the rate was reported as 
 1.03T per cent in 1906 and 1.109 per cent in 191 1. 
 But in each of these states the central or state 
 government has large independent revenues. 
 These three states are rich and their government 
 finances are in fairly good order. In other states, 
 whether merely backward or poor, we find over 
 and above these basic rates a state tax. In Ken- 
 tucky the state and county rates average a little
 
 138 Government Finance 
 
 over 0.62 per cent of true value. But in the four 
 large cities of that state the city rates alone range 
 from one per cent to 1.31 per cent more, or from 
 1.62 per cent and 1.93 per cent in all. 
 
 In any case the taxes on city real estate are 
 now very heavy. There are those who look upon 
 this with complacency as a partial confiscation of 
 the " unearned increment," a partial application 
 of the " single tax." But I am one of those who 
 believe that the confiscation of the so-called un- 
 earned increment will, by lessening the beneficent 
 influence of private property in land as an eco- 
 nomic force, work a serious injury to all society. 
 Be that as it may, the same tax rates fall on the 
 improvements on the land and on some kinds of 
 personal property which, as these bear no eco- 
 nomic rent, or yield no unearned increment, 
 should not, by the above reasoning, pay as much 
 tax as land. 
 
 The foregoing abstruse considerations and 
 complex computations are " great fun " for the 
 tax experts, but are doubtless " all Greek " to the 
 layman. For the latter's benefit we may inter- 
 pret them broadly. The substance of them is, 
 that the various branches of government have 
 acquired a sort of partnership interest with the 
 tax-paying owner in all taxed property. If the 
 average farm will yield six per cent on what it 
 would sell for, the government takes a little over 
 one per cent out of the six, leaving the owner 
 five per cent. It is as though the government 
 owned one-sixth of the farm. On city property
 
 Receipts and Expenditures 139 
 
 it is more, probably, over one and one-half per 
 cent or a one- fourth interest. But the govern- 
 ment's share is growing larger all the time. 
 
 The commissioners of taxes and assessments 
 of New York City have stated that four to four 
 and one-half per cent is a sufficient rate at which 
 to capitalize the net income of real estate in that 
 city. At that rate the taxes now levied in New 
 York are about thirty per cent of the income of 
 real estate. In times of peace five per cent is a 
 high rate for an income tax in Europe and ten 
 or twelve per cent is a " war tax." Hence thirty 
 per cent is certainly to be regarded as heavy. 
 
 Real estate values increased in New York City 
 between 1912 and 1913 less than two per cent, 
 between 1913 and 1914 barely six-tenths of one 
 per cent. From 191 1 to 1914 the increase has 
 been seven per cent, or roughly two and one-third 
 per cent annually. It will require a heavy ad- 
 vance in real estate values to enable them to keep 
 pace with the growth of taxes. 
 
 It seems clear, then, that the general property 
 tax cannot stand the increase in tax burden much 
 longer. Certainly it ought not to be called upon 
 to do so. 
 
 As a matter of fact new sources of government 
 revenue are being constantly sought and found. 
 As we have seen, most of these belong to the 
 states. But even the cities are using many other 
 sources. 
 
 In 1912 a sub-committee of the commissioners 
 of taxes and assessments of New York City made
 
 140 Government Finance 
 
 a report on New York state as a whole, which 
 seems to show that the growth of special taxes of 
 one sort or another had reduced the proportion 
 of all the taxes borne by real estate from eighty- 
 seven per cent in 1880 to sixty-five per cent in 
 19 1 3. The form of presentation is not very clear 
 nor convincing. But a total of $45,600,000 of 
 taxes more or less independent of the property 
 tax or taking the place of parts thereof has been 
 developed in that state. The same tendency is 
 observable all over the country. 
 
 Tax Reform Now in Progress 
 
 The pressure of growing expenses upon sta- 
 tionary revenues is everywhere the main spring 
 of tax reform. 
 
 While many new theories of taxation have 
 been promulgated, none have had any perceptible 
 eflfect. But the need for more revenue has very 
 often brought reforms. 
 
 There are three lines of successful tax reform 
 going on in this country at the present time. In 
 many states they are being tried in combination. 
 
 The first is an improved and centralized admin- 
 istration of taxation. 
 
 The second is the segregation of different 
 sources of revenues, some being assigned to the 
 state and others to the local governments. This 
 has come to be technically known as " separa- 
 tion." A form of this, more often known as 
 " classification " of taxable property, is some- 
 times associated in thought with the first reform.
 
 Receipts and Expenditures 141 
 
 The idea is that some classes of property, like 
 money and credits, which cannot stand the heavy 
 taxes placed on real estate, should each be taxed 
 in a different manner and at a different rate. 
 Another phase of this is the so-called " fractional 
 assessment" plan. Under this, each class of 
 property is valued at a different rate of assessed 
 to true value. 
 
 The third is the finding of new taxes, either as 
 substitutes for the old ones, or to reach tax- 
 paying ability not touched before. 
 
 Improved Administration 
 The movement for improved administration is 
 very widespread. The weakness and lack of skill 
 of the locally elected assessors is vmiversally 
 recognized. The remedy is a strong central tax 
 commission with control over the local assessors. 
 The degree of control to be exercised depends on 
 local conditions. In most cases of accomplished 
 reform it does not go far beyond the supervision 
 and instruction of locally selected assessors, with 
 some power of discipline. The last is usually 
 limited not to exceed the power to bring an 
 action for dismissal. 
 
 The success of this line of reform depends 
 mainly on the prescription of right methods of 
 assessment, of strict rules of valuation, the re- 
 quirement of tax maps, and similar technical 
 matters. It is essential that the assessment dis- 
 tricts be large enough so that the work will 
 require all of the assessor's time, and also large
 
 142 Government Finance 
 
 enough so that the compensation available will 
 be sufficient to attract a good man and hold him. 
 Civil service methods of appointment are desir- 
 able but not absolutely necessary. 
 
 Such central control is almost a sine qua non 
 for success where the general property tax is 
 the main support of all three branches of govern- 
 ment — state, county, and local. It is especially 
 necessary where the state leans at all heavily on 
 that tax. Equalization of assessments after the 
 assessment has been made is a failure every- 
 where. Just as a post-audit is of about as much 
 use as " locking the barn door after the horse 
 has been stolen," so is a post-assessment equaliza- 
 tion. Equalization must be made before the 
 assessment is made or while it is being done. In 
 that way it has all the advantages of a pre-audit. 
 
 Where the second line of reform has been in- 
 augurated or where the state has acquired a large 
 amount of independent revenues the control of 
 the local assessments is not so necesaary. But, 
 nevertheless, there is no surer way of securing 
 good and inexpensive assessments, even for local 
 purposes alone, as under central control, if that 
 control be of the right kind. There are always 
 certain classes of property, like railroads, not 
 easily assessable, save by some unit rule ; that 
 is, by assessing the whole system as a unit, not 
 piece by piece in each town, or which can only 
 be assessed well by a body or officer more power- 
 ful than a local assessor. Moreover, there are 
 sound reasons arising from the close economic
 
 Receipts and Expenditures 143 
 
 relationships which exist between all communi- 
 ties in the same state, why it is desirable to have 
 the tax laws uniformly administered in the same 
 way in every city and in every county. Too 
 much " home rule " may mean too much rivalry 
 in tax abatements ; tax wars, as it were, may 
 arise between sister communities. 
 
 Central control is, also, in the line of economy. 
 If assessments are really uniform there would 
 be no need of having a city assessor to assess 
 property already once assessed by a county as- 
 sessor. Lastly, no local assessor is so able, or 
 so skilled, that he cannot benefit by instruction 
 and help from a central body with an outlook 
 broader than his. The taxpayer also gains by 
 having an administrative court of appeal. 
 
 States with a strong central tax commission, 
 composed of three men, appointed for long terms, 
 changing but slowly in personnel, and well paid, 
 have gained much. 
 
 The chief gain has been in wiping out, or re- 
 ducing, inequalities and reaching the "tax 
 dodger." But incidental gains have been numer- 
 ous. Among others the commission becomes an 
 advisor to the legislature, and enables that body 
 to keep its tax system apace with the changes of 
 the times. 
 
 Separation of State from Local Taxation 
 
 The essence of this remedy, is to increase the 
 state's independent revenues so that it will not 
 have to lean heavily, if at all, upon the general
 
 144 Government Finance 
 
 property tax, or at least not upon certain parts 
 of that tax which seems particularly adapted to 
 local use. 
 
 As it has been worked out, so far, in certain 
 states, it amounts to little more than selecting 
 certain classes of property which are not easily 
 taxable locally, or which in the nature of things 
 cannot bear the heavy tax rates which fall on 
 real estate, and taxing these for state purposes 
 only. 
 
 It is not a radical or final remedy, so far as it 
 has been worked out. It evades, rather than 
 solves, the difficult question of equalization. 
 Where it has not grown up without conscious 
 guidance, as it did in some eastern states, it has 
 come because of the difficulty of settling in any 
 other way the division of certain taxes, such as 
 those on railroads and the like among different 
 communities. The presence of a great city in a 
 state otherwise mainly rural gives rise to tax 
 difficulties which are greatly lessened under sepa- 
 ration. 
 
 Separation is not a remedy that can be suc- 
 cessfully worked out in many states unless it 
 goes far beyond anything yet tried. In Ken- 
 tucky, for example, there is not enough segre- 
 gateable property to support the state at the 
 state's present scale of expenditures. The selec- 
 tion of property for state taxation cannot be 
 arbitrary, it must be logical and must go by 
 clearly distinguishable classes. The segregateable 
 classes are, in the main, public utilities, banks.
 
 Receipts and Expenditures 145 
 
 insurance companies, franchises, and money and 
 credits. If these are fairly uniformly distributed 
 throughout the state there is no great gain in 
 segregation. But central assessment is, never- 
 theless, imperative. If they are not uniformly 
 distributed, if some counties or localities get too 
 much of the taxes thereon, it would be well to 
 segregate them for state tax purposes only. 
 
 But separation, in current form, but not in its 
 final form, brings its own difficulties. There is 
 always a popular desire to know whether the 
 taxes on the segregated classes of property are 
 " equal " to the taxes on the nonsegregated classes 
 of property. By " equal," the average man means 
 " equal in proportion to property value." This 
 demand is sometimes logical, but more often not 
 so. Cearly, money and credits cannot afford to 
 pay two per cent in taxes, and experience shows 
 that they cannot be made to do so. No other 
 test of equality of burden satisfies the people, 
 and unrest arises. Where, as in New York and 
 Pennsylvania, the segregation was made long ago, 
 such questions are not so often raised. 
 
 Another universal difficulty is that such a tax 
 system in present form is not " elastic." The 
 revenues go up or go down regardless of needs. 
 The legislature finds this particularly trouble- 
 some. When an ambitious legislator is told that 
 he cannot have money for his pet scheme because 
 the party leaders will not stand for an increase 
 in the tax rate, he has perforce to be content. 
 But when he learns that he cannot have it be-
 
 146 Government Finance 
 
 cause the revenues from the state's segregated 
 taxes are not sufficient, he has an incHnation to 
 change the system, or — more Hkely — he says, 
 " let the corporations pay more," and moves to 
 raise the rates, justly or unjustly. 
 
 It has been urged, although it is not supported 
 by satisfactory evidence, that separation leads 
 to extravagance, since the wholesome restraint 
 of a rising tax rate, falling on the legislator's 
 constituents, is removed. 
 
 Classification 
 
 While classification does not necessarily mean 
 any definite form of separation, yet in purpose 
 it is partly the same, hence it is considered here 
 although it might just as well, perhaps, have been 
 discussed under administrative reform. 
 
 Classification means that different methods 
 shall be applied to dififerent subjects. Professor 
 Ely recently said that, " there is no greater in- 
 equality than the equal treatment of unequals." 
 Equal amounts of dififerent kinds of property 
 do not have an equal but a very unequal power 
 of paying taxes. A two per cent tax on saving 
 accounts yielding four per cent is not "equal" 
 to two per cent on a gold mine. 
 
 So far as yet worked out classification means 
 one of two things: (i) It may mean that a dif- 
 ferent tax rate shall be applied to some one class 
 of property, or a different rate to each of several 
 classes — the classes thus selected are mortgages.
 
 Receipts and Expenditures 147 
 
 money, credits, and, sometimes, stocks and 
 bonds; (2) it means that different classes of 
 property are to be assessed for taxation at dif- 
 ferent ratios of assessed to true value. Minne- 
 sota has this form of classification as follows : 
 All property is divided into four classes and each 
 is assessed at a different fraction of true value. 
 Class one, is iron ore, assessed at fifty per cent ; 
 class two, household goods, wearing apparel, and 
 other items, twenty-five per cent ; class three, live 
 stock, agricultural products, and the like, thirty- 
 three and one-third per cent ; class four, all other, 
 mainly real estate, forty per cent. But money 
 and credits are also " classified " in Minnesota by 
 the other method, in that they pay a low tax rate. 
 The danger in classification is that it may be 
 whimsical. It is hard, especially when fractional 
 values are used, to make it logical. Some classes 
 are selected because " public sentiment " demands 
 a high tax rate thereon. Politics, in the sense of 
 currying favor, can easily enter into the making 
 of the classes. 
 
 Independent State Taxes 
 
 Sound administration is necessary in any event. 
 Separation, in the forms now in use, may palliate 
 many evils, where the people are not ripe for far- 
 reaching and radical reform. But the only real, 
 final, and broad, statesmanlike solution I can see 
 for the problem presented by the rapid growth 
 of government expenses is nezv state taxes. In 
 short, a real " separation."
 
 148 Government Finance 
 
 These new taxes should be, in the main, state 
 taxes. ReHeved of the state tax the general 
 property tax, properly administered, would afford 
 resources sufficient for the county, local, and city 
 needs, for a long time to come, and, supple- 
 mented by local licenses, will afford all the rev- 
 enues that the cities can legitimately require. If 
 the state secures revenues from new sources, not 
 from fractions of the old, it can continue its de- 
 velopment. If not, it must thrust more and more 
 duties down upon the lower branches of govern- 
 ment, where they cannot be so sucessfully 
 handled. 
 
 So far, the only marked step in this direction 
 is the adoption of the inheritance tax. This it 
 will be observed is not a part of the old property 
 tax, chipped off for the state. It is exclusively 
 the state's revenue. The localities cannot add to 
 it any surtaxes. The state may set apart some 
 of the receipts from the inheritance tax for local 
 schools. But that is spending not taxing. 
 
 Of the forty-eight states only nine do not now 
 have an inheritance tax. Fifteen tax only col- 
 lateral inheritance. Twenty-four, or just half, 
 tax both direct and collateral inheritance. In 
 1902 there was no inheritance tax in twenty- three 
 states or nearly half as against nine today. In 
 1902, sixteen states taxed collateral inheritance 
 only, against fifteen today. All along the line the 
 rates of this tax have been raised and exemptions 
 have been reduced. 
 
 There are interesting questions in regard to
 
 Receipts and Expenditures 149 
 
 the inheritance tax. One of them is, whether 
 the money collected should be regarded as spend- 
 ing money, or whether it should be hoarded and 
 invested, so as not to reduce society's capital ac- 
 cumulations. But these we have no space to dis- 
 cuss. 
 
 Among the other independent state revenues 
 are many which are merely parts of the general 
 property tax set aside for the state, but there are 
 a few which interfere but very little with the field 
 of local taxation. 
 
 The state poll tax is one of the latter. But 
 poll taxes are gradually being given up, despite 
 their merits when combined with other taxes. 
 
 Taxes on insurance companies, based on 
 premiums, may be classed as very appropriate 
 state taxes. 
 
 In New York, some of the " franchise " taxes 
 on general corporations which have been in force 
 a long time seem to interfere to but a small 
 degree with the customary local property taxes. 
 The same is true of the New York " organiza- 
 tion " tax on domestic companies, and the 
 " license tax " on foreign corporations in that 
 state. Massachusetts, in retaining for state pur- 
 poses that part of her tax on the shares of stock 
 in corporations which is assessed on shares not 
 owned in the state ; Connecticut with her " choses 
 in action" tax; Pennsylvania with her system of 
 state corporation taxes ; Rhode Island's selected 
 list, cited above, and a number of other peculiar 
 cases, may all be cited as examples of inde-
 
 150 Government Finance 
 
 pendent state taxes, not especially related to the 
 general property tax. 
 
 Mortgage registry taxes and taxes at reduced 
 rates on money and credits are excellent sources 
 of state revenue. 
 
 Licenses levied on professions, numberless 
 fees, of which corporation charter fees are im- 
 portant, taxes on express companies and car com- 
 panies which have never been successfully 
 reached by local assessment, and other numerous 
 but miscellaneous revenues are all small glean- 
 ings from the cut-over field. 
 
 Shares in local business licenses, in liquor 
 licenses and the like do not promise any final 
 solution of the need for state revenues. 
 
 On the other hand where we find " separation " 
 after the type of California, Wisconsin, and 
 Minnesota, we have a more or less distinct inva- 
 sion of the field of the local general property tax. 
 This is especially so when public utilities and 
 banks are made the source of state revenues. 
 Taking them for state taxation removes them 
 from the local rolls. 
 
 As the states are barred from the field of in- 
 direct taxes by the preemption of these for the 
 Federal Government, there are but few avenues 
 of relief. 
 
 The most promising of these is a state income 
 tax. 
 
 There is a certain logical order of taxes result- 
 ing from the division of government into federal, 
 state, and local. That order is : indirect taxes for
 
 Receipts and Expenditures 151 
 
 the federal government, with an income tax for 
 great emergencies ; income and inheritance taxes 
 for the states; general property taxes for the 
 counties, districts, towns, and cities. 
 
 Just as the appropriation of the inheritance 
 tax by the state put an end to the proposal for 
 a federal inheritance tax, so the general use by 
 the states of the income tax may be expected 
 to have the effect of limiting its use by the fed- 
 eral government to grave emergencies. Beyond 
 this one case of over-lapping we would have 
 three distinctly clear fields. Each branch of 
 government would, under this plan, be using the 
 kind of tax it is best fitted to administer; also, 
 the taxes of the different branches would fall on 
 those subjects in each case which benefit most by 
 the activities of the taxing power. Thus, the 
 federal taxes would fall on trade, its special 
 sphere ; the state income and allied taxes on per- 
 sons, whose rights arc the states' care ; the local 
 taxes on property, which benefits directly by local 
 activities. The federal indirect taxes can be 
 easily made adequate to its needs, a reasonable 
 arrangement of income tax rates would cover the 
 needs of the state, and with the state ad valorem 
 tax out of the way the general property tax would 
 be sufficient for the cities and counties. 
 
 A state income tax can be made to tax sources 
 of public revenues not now reached, and would 
 fall on ability to pay which does not now assist. 
 
 Some of the revenues now derived by the 
 states independent of the general property tax
 
 152 Government Finance 
 
 would fit into an income tax. In states like Cali- 
 fornia, Minnesota, Wisconsin, Pennsylvania, 
 New York, Connecticut, and others, which have 
 a large degree of separation, the best part of the 
 existing system would drop into place in an in- 
 come tax very readily. 
 
 Although seven states have income tax laws 
 on their statute books only one state, today, has 
 an income tax that is effective as a revenue meas- 
 ure, that is Wisconsin. But even there it is a 
 I>artial substitute for the personal property tax 
 and is interwoven with the general property tax. 
 
 It seems hardly possible to blend an income 
 tax with a property tax. It takes a great deal 
 of constant shaking to keep oil and water mixed, 
 even as an emulsion. So it takes a great deal 
 of agitation to keep the "oil of the income tax" 
 emulsified with the " water of the property tax " 
 and they will never make a true compound. The 
 better way is to put the " oil " in one bottle and 
 the " water " in another. Use the income tax as 
 a state tax, the property tax as a local tax ! 
 
 The complaint one hears from Wisconsin is 
 that the man who pays on his land thinks that he, 
 who pays the income tax alone, on income from 
 a like amount in value of personal property, pays 
 too little. This is a false issue, but it is enough 
 to threaten the permanence of the tax. But if 
 the income tax were wholly by itself as a state 
 tax, and the property tax by itself as a local tax, 
 and if no question of fitting the one into the other 
 were raised by the procedure, the people would
 
 Receipts and Expenditures 153 
 
 soon come to consider them as separate taxes, 
 each standing on its own bottom. There is no 
 necessity for making the state tax " equal " to 
 the local taxes any more than there is to make 
 the taxes in New York equal to those in Buffalo. 
 
 The objections to the income tax commonly 
 raised in the United States in the past have been 
 very serious. They are much less important to- 
 day than they were, even a few years ago. The 
 most potent have been : ( i ) that it is undemo- 
 cratic and un-American, in that it is too inquisi- 
 torial ; (2) that it cannot be administered equita- 
 tily ; (3) that it is enough to tax the property, 
 which is the source of the income. 
 
 The author once held these objections to be 
 conclusive against the income tax in the United 
 States. He has changed his mind in view of the 
 changed conditions. 
 
 Practical experience, as a tax administrative 
 official, has shown, to the author's satisfaction, 
 that the American taxpayer with very few excep- 
 tions is willing to pay his fair share of taxes. 
 When property is concealed, it is generally such 
 classes of property as cannot possibly bear the 
 heavy tax rates imposed. The Wisconsin com- 
 missioners confirm this view. Inquisition is al- 
 ways resented. But inquiry, honestly and ob- 
 viously directed solely to ascertaining the facts 
 necessary to apportion the taxes equally, is, far 
 from being resented, almost universally wel- 
 comed. Twenty thousand corporations are 
 taxed each year in California on their franchises.
 
 154 Government Finance 
 
 The data necessary to make the assessment in- 
 clude many intimate details of a private business 
 character. Yet they are always furnished, as 
 soon as it is understood that they are to be used 
 for equalizing the assessments. 
 
 No income tax can be successfully assessed by 
 the administrative machinery of taxation which 
 we have had in the past. It is not enough to pass 
 a law and leave it to township or other local 
 assessors to administer. But the necessary 
 machinery of administration can be, and in some 
 cases has been, created. Wisconsin has done it 
 for the income tax itself, and has succeeded even 
 in the face of the adverse circumstances referred 
 to above. Other states have done it for other 
 taxes, harder to administer even than an income 
 tax. A strong central taxing board does not be- 
 come a bureaucratic agency dangerous to democ- 
 racy. Witness, to the contrary, a dozen strong 
 tax commissions, not omitting the new New York 
 City Commissioners of Taxation and Assessment. 
 It is not the strength, or power, given to such 
 commissions that is the danger, but they are a 
 menace if too weak. In several states where they 
 have been too weak, or have had too little work 
 of importance to do, they have succumbed to too 
 much politics. 
 
 An income tax is easier to enforce than the 
 personal property tax. If a man returns his sav- 
 ings bank account which yields him four per 
 cent, he may, in some states, have to pay a tax 
 of two per cent on the principal or one-half the
 
 Receipts and Expenditures 155 
 
 income. But if he returns the income and the 
 tax is five per cent thereon, he has three and 
 eight-tenths per cent left of the four per cent. In 
 this case, the personal property tax is confisca- 
 tory, the income tax is not. 
 
 Theoretically, the income tax is superior in 
 justice and equity to any other tax. 
 
 The form of the income tax, best suited to use 
 by the states, can be but briefly suggested : It 
 should fall on all incomes from every source, 
 above a fair subsistence for the family ; it should 
 be graduated for larger incomes ; it need not be 
 specially graduated for the different kinds of 
 incomes from invested property — they are cov- 
 ered by other taxes ; so far as possible it should 
 be stopped at the source ; it should be adminis- 
 tered by a central board through their own 
 appointed agents. In each state the details would 
 have to be adjusted to prevailing local traditions 
 and industries. In many states it will be neces- 
 sary to amend the constitution before an income 
 tax can be introduced.
 
 REFERENCES 
 
 GENERAL TREATISES 
 
 Adams, H. C. Science of Finance. Henry Holt & 
 
 Company, 1899. 
 Bastable, C. F. Public Finance. The Macmillan 
 
 Company, 1895. . 
 Bullock, C. J. Selected Readings in Public Finance. 
 
 Ginn & Co., 1906. 
 Daniels, W. M. Elements of Public Finance. Henry 
 
 Holt & Company, 191 1. 
 FiLLEBROWN, C. B. Taxation. A. C McClurg & 
 
 Co., 1914. 
 Kennan, K. K. Income Taxation. Burdick & 
 
 Allen, 1910. 
 Plehn, Carl C. Introduction to Public Finance. 
 
 The Macmillan Company, 1910. 
 Seligman, E. R. a. The Income Tax. The Mac- 
 millan Company, 1914. 
 
 FEDERAL REPORTS 
 
 Treasury — Annual Reports — Finance. 
 President's Commission on Economy and Efficiency, 
 
 House Documents, 62nd Congress, 2nd Session, 
 
 Numbers 854, 458. 
 
 STATE AND LOCAL REPORTS 
 
 Only the largest libraries make complete collections 
 of the state and municipal reports, but the 
 census reports are available everywhere.
 
 158 References 
 
 Bureau of the Census. Abstract of special bulletins, 
 Wealth, Debt, and Taxation, 1913. Government 
 Printing Office, 1915. 
 
 Note : Beginning on page 7 of the above re- 
 port is a list of the publications of the census, 
 referring to government finance. These publi- 
 cations bring down to date the data in the 
 volume of the Twelfth Census, Wealth, Debt, 
 and Taxation, 1902. 
 
 Bureau of the Census. Financial Statistics of Cities. 
 Published annually. 
 
 TAX COMMISSIONS AND THE LIKE: OLDER 
 REPORTS 
 
 Ely, R. T. Taxation in American States and Cities. 
 Thomas Y. Crowell Company, 1888. 
 
 Chapman, J. W., Jr. State Tax Commissions in 
 the United States. Johns Hopkins University 
 Studies. Vol. XV, 1897. 
 
 Seligman, E. R. a. Essays in Taxation. Eighth 
 edition. The Macmillan Company, 1913. Chap- 
 ters XIX, XX, XXI, and special biography. 
 
 SIGNIFICANT RECENT REPORTS 
 
 Kentucky. Special Tax Commission, 1913. 
 Connecticut, Massachusetts, Minnesota, Rhode 
 
 Island, and Wisconsin. Regular annual reports 
 
 of the Tax Commissions. 
 
 DISCUSSIONS AND PAPERS 
 
 Proceedings of the Annual Conferences of the 
 National Tax Association. 15 Dey Street, New 
 York.
 
 INDEX 
 
 Administration, reform of tax, 141-143 
 
 Agriculture, federal aid to, 36; State aid to, 49 
 
 Aldermen, 70 
 
 Aldrich, Senator, quoted, 96 
 
 Allentown, 84 
 
 Apportionment of expenditures, 104 
 
 Art galleries, 9, 69 
 
 Assessment districts, 141 
 
 Assessors, 131-133, 143 
 
 Atlantic City, 84 
 
 Auditor, State, 99 
 
 Austria-Hungary, debt of, 44, 45 
 
 Averages, meaning of in city costs, 83 
 
 Baltimore, 84 
 Birmingham, Ala., 84 
 Bonds, public, 15 
 (See also Debt) 
 Borrowing, public, 106-I15 
 Boston, 58, 83, 112 
 Bridges, city toll, 87 
 Budget, 97-100 
 Bullock, C. J., quoted, 27 
 Burden of federal government, 26 
 Business taxes, 126 
 
 California, debts, iii; expenditures, 52-56; revenues, 
 124, 125; tax burden in, 137 
 
 Canals, 9, 36 
 
 Cemeteries, 87 
 
 Central control of local expenditures, 64; of local taxa- 
 tion, 64, 142 
 
 Central tax commission, 141 
 
 Census bureau, 20, 24, 48, 68, 87, 88 
 
 Cities, expenditures of, 47-51 
 •(See also Municipal)
 
 i6o Index 
 
 Charlotte, 84 
 
 Charities, 9, 50, 69, 76 
 
 China, campaign in, 34 
 
 Choses in action tax, 149 
 
 City assessors, 143 ; expenses, 69-95 ; growth of expen- 
 ditures, 79-83; manager, 71 
 
 Civilization and taxes, 7 
 
 Civil service, 100; federal commission of, 30 
 
 Civil war, cost of, 34 
 
 Classification of tax subjects, 140, 146, 147 
 
 Commission on economy and efficiency, 28 
 
 Commission form of city government, 70 
 
 Compulsory revenues, 36 
 
 Congress, cost of, 29 
 
 Connecticut, 149 
 
 Consular service, 36 
 
 Cost of government, 20-24; cities, 86, 94; estimate of, 21; 
 federal, 22 ; in Minnesota, 22 
 
 Cost of war, history of in United States, 33, 34 
 
 Cost to tax-payers, defined, 21 
 
 Cost, meaning of, 21 
 
 Constructive police work, 72 
 
 Controller, 99 
 
 Consumption, 3, 4 
 
 Control, boards of, 48, 100-102 
 
 Corporations, bureau of, 35 
 
 Corrections, 76 
 
 Council, city, 70 
 
 Counties, expenditures of, 47, 48; revenues of, 130-133 
 
 Courts, federal, 35 
 
 Crematories, 87 
 
 Crown, cost of in Great Britain, 30 
 
 Cubberly, Prof., quoted, 62 
 
 Customs, 118 
 
 Debt, making rules for, 108 
 
 Debt, public, 106-115; concealed, no; federal, 42-45; 
 
 local, 109; of different nations, 44-45; purposes of, 
 
 III ; term of, 114 
 Denver, 84 
 Distribution, 3 
 District of Columbia, 37 
 District, road, 63; schools, 62 
 Docks, city, 87
 
 Index i6i 
 
 Donations, 3 
 Dresden china, 10 
 
 Earnings of public enterprises, 116 
 
 Economics of government, 6-19 
 
 Education, 62; bureau of, 31; municipal, jy; state aid 
 
 to, 49 
 
 (See also Schools) 
 Efficiency and economy, 96-105; federal, 40; in cities, 
 
 102-104 
 Elasticity of revenues, 41 
 Elections, cost of, 70 
 Electric plants, 9, 87, 90 
 Eliot, Ex-Pres., quoted, 15-17, 72 
 Elliott, Prof., quoted, 62 
 Ely, R. T., quoted, 146 
 Equalization, 142 
 Equal taxation, 145 
 Escheats, 117 
 Established church, 10 
 Evolution of public business, 6 
 Excises. 118 
 Expenditures, 5, 20; cities, 47-51; gross defined, 22,', 
 
 local, 62-65; municipal, 66-95; of counties and minor 
 
 civil divisions, 47, 48; state, 47-65 
 Expenses, city departmental, 81 
 
 Fall River, 59 
 
 Federal activities, scope of, 37-40 ; debt, 42-45 ; expendi- 
 tures, 28; finances, 25-45; revenues, 118-122 
 Federal Reserve Banks, 35 
 Fees, 116, 117 
 Ferries, 87 
 Fines, 117 
 
 Fire department, 69; waste, y^ 
 Fisher, T., quoted, 80 
 Fishery service, 36 
 Foods and drugs, inspection of, 35 
 Forestry service, 2i7 
 Fractional assessment, 141 
 France, debt of 44-45 
 Franchise taxes, 149 
 Free textbooks, 19, 79
 
 I 62 Index 
 
 Garbage, 75 
 
 Garfield, Pres., quoted, 27 
 
 Gas plants, 87, 90 
 
 General property tax, 122, 130, 131 
 
 Geological Survey, 31 
 
 German Empire, debt of, 44-45 
 
 Gifts, 117 
 
 Gobelin tapestry, 10 
 
 Government activities, 13; organized effort, 7 
 
 Grand Forks, 107 
 
 Halls, public, 87 
 Health, conservation of, 74 
 High schools, 49 
 Highways, 50, 76 
 Hospitals, 9, 69, 76 
 
 Illinois, expenditures of, 60; revenues of, 129 
 
 Immigration service, 35 
 
 Income tax, British, 121; federal, 41, 120; state, 150- 
 
 155; Wisconsin, 152 
 Indebtedness, see debt, 
 Indian affairs, office of, 31 
 Indians, 36 
 
 Industrial accident boards, 49 
 Inheritance tax, 148 
 Interior department, 31 
 Internal revenues, 41, 118 
 Interstate Commerce Commission, 35 
 Investments, public, 116 
 Irrigation works, 36 
 Italy, debt of, 44, 45 
 
 Jails, 63 
 
 Japan, debt of, 44, 45 
 
 Justice, department of, 34 
 
 Kansas, 102 
 
 Kentucky, expenditures of, 56, 57; revenues of, 125; 
 tax burden in, 137; tax report quoted, 132 
 
 Labor bureaus, 35, 49 
 Land office, 31 
 Laundries, 75 
 Libraries, 69
 
 Index i6t, 
 
 Licenses, ii8, 126, 150 
 
 Life-saving, 35 
 
 Lighthouses, 35 
 
 Lighting, 9 
 
 Local expenditures, 62-65 ; central control of, 64 
 
 Local revenues, 130 
 
 Local taxation, central control of, 64, 142 
 
 Los Angeles, U2 
 
 Lunch rooms, 87 
 
 Lowell, 59 
 
 Lynn, 59 
 
 Manufacturers public 10 
 
 Marine insurance, 40 
 
 Markets, 87 
 
 Massachusetts, expenditures of, 58, 59; revenues of, 128 
 
 Mexican war, 33 
 
 Mines, bureau of, 31 
 
 Minnesota, classification in, 147; expenditures of, 57; 
 
 revenues of,. 127; tax burden in, 137; tax commission, 
 
 22, 28, 137 
 Money, issue of, 37 
 Mortgage taxes, 150 
 Mothers' pensions, 50 
 Mt. Vernon, 84 
 Municipal costs, 94; expenditures, 66-95; outlays, 93; 
 
 revenues, 133-136 
 Museums, 9, 69 
 
 National banks, 43 
 
 Net cost to taxpayers, 23 
 
 New Bedford, 59 
 
 New England, fiscal system of, 46 
 
 New Orleans, 84 
 
 New York City, 78, 83, iii, 112, 139 
 
 New York State, expenditures of, 59, 60; revenues of, 
 
 128; tax burden in, 140 
 Newton, 85 
 Normal schools, 49 
 
 Old age pensions, 3 
 Organization tax, 149 
 Outlay, defined, 24 
 Outlays, municipal, 93
 
 I 64 Index 
 
 Patent office, 31, 36 
 
 Panama Canal, 29, 36, 40 
 
 Parks, 9, 69 
 
 Payments, defined, 23 
 
 Peace and order, preservation of, 32 
 
 Pennsylvania, 149; constitution quoted, 27 
 
 Pensions, bureau of, 31; city, 69; federal, 32; mothers', 
 
 50; teachers', 79 
 Philippines, campaign in, 34 
 Police, 69, 72 
 Poll tax, 118, 149 
 Poorhouses, 62, 
 Post-office, 9, 36 
 Postal savings bank, ^7 
 Pre-audit, 100 
 President, cost of office, 30 
 Prisons, 63 
 
 Private vs. public enterprises, 9, 11, 14, 90 
 Private schools, 14, 17 
 Privateersmen. 8 
 
 Protection of life and property, 32, 71-76; tariff, 119 
 Providence, R. I., 52 
 Publications, federal, 2,6 
 Public buildings, federal, 32 
 Public debt, federal, 27 
 
 (See also Debt) 
 Public enterprises, 13 
 Public health, federal care of, 35 
 Public lands, 2>7 
 Public management costly, 19 
 Public vs. private, 
 
 (See Private vs. public) 
 Public printing office, 30 
 Public purpose, 10 
 Public schools, 14-15 
 Public service enterprises, 82, 85-93 
 Public utility commissions, 48 
 Public works, 2>^ 
 
 Railroad commissions, 48 
 
 Railroads, private vs. public, 11, 12 
 
 Receipts and expenditures, equation of, 1 16-155; federal, 
 
 41. 
 Receipts, ten classes of, 116
 
 Index 165 
 
 Reclamation service, 31 
 
 Reformatories, 63 
 
 Reform of taxation, 140, 141 
 
 Regulation, 10; in California, 53; of industry and com- 
 merce. 35; of railroads, 12 
 
 Regulative police work, 72 
 
 Religion, 10 
 
 Revenues below expenses, 136 
 
 Revenues, problem of, 2 
 
 Revenues (See Federal, State, Local, Municipal) 
 
 Revolutionary war, 33 
 
 Rhode Island, expenditures of, 51, 52; revenues of, 
 123, 124 
 
 Rivers and harbors, 36 
 
 Roads, 9 
 
 Road districts, 63 
 
 Robinson, E. V., quoted, 22, 28, 57 
 
 Russia, debt of, 44, 45 
 
 Safety, public, federal cost for, 35 
 
 Salaries, teachers, 78 
 
 San Diego, 85 
 
 San Francisco, 1 12 
 
 Sanitation, 35, 69, 75 
 
 Schools, 9, 49, 62, 63. 69, 77 
 
 School districts, 62. 106 
 
 Scientific research, 36 
 
 Seattle, no, 112 
 
 Segregation, 144 
 
 Scligman, on income tax, 118 
 
 Separation, 140, 143-146 
 
 Service, aim of government, 14 
 
 Sevres ware, 10 
 
 Sewers, 75 
 
 Single tax, 138 
 
 Smith. Adam, 32 
 
 Socialists, i 
 
 Southern states, fiscal system of, 46 
 
 Spanish war, cost of, 34 
 
 Special assessments, no, n8 
 
 Springfield, 59 
 
 State activities, growth of. 47; sphere of. 39 
 
 State and local finance, 46-65 
 
 State expenditures, 47-65
 
 I 66 Index 
 
 State functions, 48 
 
 State income tax, 150, 155 
 
 State revenues, 122-130; examples of, 123 
 
 State rights, 38 
 
 State taxes, independent, 147-155 
 
 Steamboat inspection, 35 
 
 Streets, 69, j6 
 
 Street car service, 9, 87, 90 
 
 Subventions, 117 
 
 Taft, Pres.. commission on economy and efficiency, 28 
 
 Taft, Pres., quoted, 97 
 
 Tariff, 41 
 
 Tax administration, 141 
 
 Tax commissions, 48 
 
 Taxes, 116; defined, 117; direct and indirect, 118 
 
 Tax limit law, 5 
 
 Tax reform, 4, 140, 141 
 
 Textbooks, free. 79 
 
 Trade promotion, 36 
 
 Transfers, 21 
 
 Tribal religion, 7 
 
 Treasury department, federal. 31 
 
 Unearned increment, 138 
 Uniform accounts, 104 
 Uniformity of taxation, 143 
 United Kingdom, debt of, 44, 45 
 United States, debt of, 44, 45 
 
 (See Federal) 
 Universities, state, 49 
 Utopians, i 
 
 War, cost of to United States, 32 
 
 War of 1812, 33 
 
 Washington, D. C, 83 
 
 Water works, 9, 17. 18, 88. 113 
 
 Wilson, Pres., quoted, 97 
 
 Wisconsin, 56; income tax, 152; tax burden in, 137 
 
 Worcester, 59
 
 This book is DUE on the last date stamped helow 
 
 1 6 \^^ 
 
 ^'^ 11 1939 
 "^^'^ 1948 
 
 Form L-9-15m-7,'32
 
 UC SOUTHERN REGIONAL LIBRARY EACILI^^^ 
 
 AA 001027 812 5
 
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