FINANCIAL ADMINISTRATION AND CONTROL
BOOK VI, CHAPTER I
§ 1. We recognised at the commencement of our inquiry that problems of administration and control form an integral part of the science of finance. It is not sufficient to consider public revenue and expenditure with the relation that exists between them. The constitutional guarantees for the proper application of outlay and the due and moderate levy of taxes, the machinery by which those processes are effectively carried out, and, finally, the agencies by which, and the manner in which, the public accounts are prepared and verified, have important effects on both income and outlay, which need to be studied if we want to understand thoroughly the nature and working of public economy. To the discussions of the preceding books we have to add one on 'Budgetary Legislation' in the widest use of the term.*1
So long as financial topics were regarded as a part of applied political economy, there was some excuse for omitting to notice matters that seemed rather to belong to the domain of public law. But when we treat them as forming a distinct branch of political science, this reason loses all plausibility. At the same time it must be said that we are not directly concerned with constitutional or administrative principles and details. Legal and political conditions are of importance only in so far as they produce financial effects, and need be considered only from that particular point of view. Their more elaborate and thorough investigation must be left to the jurist or political philosopher.
§ 2. It is instructive to note that this side of public economy, though often neglected by modern writers, was the part of finance that first attracted the attention of students and practical administrators. The most important part of the financial system to those engaged in its working is the machinery by which the various state requirements are duly met, while to the contributor, the authority that taxes him, the way in which it uses its powers, and the checks on its action are the really vital matters.*2
The modes of financial regulation, like the forms of expenditure and revenue have been gradually developed in the progress of society. It is unnecessary to repeat the account already given of the primitive stage in which little special regulation is requisite. The sentiment of the tribe, or, later on, of the ruler, is the all-sufficient authority for outlay or contribution. Careful official organisation and refined constitutional rules would, under such conditions, be as impossible as any of the other expedients of higher social life, e.g. the credit, or railway system, or modern constitutional government. To this earliest form succeeds the period in which the domain is the chief source of public revenue, as in the city States of Greece and Italy, and also in feudal Europe; and here the whole financial mechanism is not very different from that of any private economy. State or royal officers collect rent and administer the public property placed under their care by the methods usual at the time. Receipts are thus directly applied to meet the public wants according to the ruler's discretion. Along with this economic or quasi-private revenue may be placed the beginning of indirect taxation. The various services rendered by the ruler afford a ground for indefinite exactions, and his prerogative rights, which can easily be stretched beyond their due limits, are enforced by his servants.
When public economy has progressed thus far, methods of account and control make their appearance. The Roman Treasury was under the charge of the Quæstors, but complete unity of system did not exist, and it seems to have been the Censors who acted as finance ministers under the direction of the Senate. Even in the time of the Empire there was a separation between the distinct treasuries of the State and the Princeps, though the course of movement was towards fusion, and the official organisation for the collection and control of revenue was minutely subdivided and graded. The method of farming out the taxes on commodities and inheritances must also be regarded as a further mark of that incompleteness of system which was inherent in the ancient state economy.
Mediæval kingdoms, and such smaller bodies as the free cities were likewise forced to devise means for the due regulation of their income and expenditure. Thus methods, at first rude and imperfect, were gradually improved. The English Exchequer, with its curious and picturesque forms, was an agency of this kind, to which the King's debtors had to account, and his creditors to apply for payment.*3 The Carolingian Empire had its check on accounts, as the rules of the Capitularies show, a system continued under the Capetiens, but essentially of the nature of a private economy.*4
A striking characteristic of this stage is the rare and infrequent use of direct taxation. It only appears as an occasional and extraordinary resource reserved for times of emergency, and quite distinct in its nature from either the economic revenue or the dues (Auflagen) on commodities. The importance of this circumstance in the present connexion arises from the need of the contributors' assent to legalise the employment of direct levies. However cut down and reduced in later times, it was the common law of the feudal State that direct taxation required the consent of the classes who had to pay it.
§ 3. The growth of the monarchical power from the preceding condition was gradual, and is illustrated by the history, both of the later Roman Empire and of the several European countries in the 15th and 16th centuries. The collection of revenue came more and more to assume the aspect of a public function; the ministry of finance was recognised as a government department, and the methods of control and accounting were further improved. This special progress is bound up with the whole course of political development, and can be fully explained only by reference to the actual historical conditions. The increase of royal authority, the greater cost incurred in the performance of public tasks, and the more frequent use of money in transactions, conjoined in giving higher importance to financial administration.
One consequence of the increasing centralisation of government was the inclusion of such smaller public economies as the cities and minor districts in the state organisation. The resulting absorption—total or partial—of their revenues had the natural effect of making the need for full accountability on the part of those engaged in collecting or expending public funds still more pressing. The loss of popular liberties, and the absence of due control on accounts, explain the oppression and waste that usually mark the financial practice of absolute governments. When the salutary check imposed by the opinion of the contributors is removed, it is vain to expect the observance of those maxims of prudence embodied in the canons of taxation, nor can we expect a proper supervision of the many items of expenditure.*5
The secrecy in respect to public revenue and expenditure that was formerly so noticeable, and which has been dispelled by the extension of constitutional government, had extremely evil effects. On the one hand, prodigality and injustice often escaped notice, while, as an aggravation, fair and legitimate taxation and expense were through ignorance frequently regarded as grievances. Publicity and responsibility have been proved by a lengthened experience to be the necessary conditions for an efficient administration of finance. Though every country that has any semblance of a settled government must possess some of the constituents of a financial administration, and though it is possible as in the case of the Roman Empire to have a highly developed system of taxation and expenditure managed by an extensive official class, without any check on the ruler's will, yet the probability of prudent management and due adaptation to the special conditions is extremely small. Sound finance is so bound up with good government that one cannot be had without the other. Observance of the technical rules of public economy might indeed be carried out by a body of trained administrators under an absolute monarch, but unless the checks provided by the full publication of authentic accounts and the indirect influence of public opinion in some shape or other are in operation, it seems hopeless to expect it.*6
§ 4. The rise of constitutional arrangements in respect to financial matters undoubtedly originated in England, and therefore it may be said that in their present form the guarantees for proper administration are the result of her example, extensively imitated during the past century by other countries. We find the principle that grants to the Crown should be voluntarily made by the Estates of the Realm definitely established in the 14th century, as also the right of inquisition into the application of the funds so provided.*7 But the events of the 15th and 16th centuries practically destroyed this older system of parliamentary control, which had to be reconquered from the Stuarts. The issues of the Civil War were closely connected with the right of taxation, and even on the Restoration the supplies to Charles II. were determined by the Parliament. Votes for particular purposes—e.g. that for the navy—were limited to the amount deemed requisite in each case, though this restraint was in fact easily evaded. But the rudimentary character of financial control is very apparent during this period.
The Revolution of 1688 made parliamentary supervision and control a reality. By the expedient of an annual Appropriation Act, limiting and defining the purposes of expenditure, and the amount to be devoted to each, it became impossible, without directly breaking the law, to use the public funds in any way other than those sanctioned by Parliament. The establishment of cabinet government, with the inevitably resulting dependence of the executive on the legislature, brought the details of financial management before the Lower House, which had already asserted its superiority to the Upper one in respect to money bills.*8 The annual financial statement known as 'the Budget' thus arose, and the many intricate rules as to the legislative conduct of financial business were developed as occasion needed.
The preparation of the materials, and the final checks on the accounts, were, as we shall see, added subsequently, and will probably undergo further change, but it is here sufficient to remark that the growth of British financial legislation and control has been quite indigenous, and in full harmony with the general movement that has made the law of the constitution so peculiarly flexible and capable of being adjusted to new conditions. Budgetary regulations are really a mass of laws and conventions in which the latter are perhaps the more important.*9
§ 5. Other countries have followed the example of England, and the rules that in her case have been left elastic, and supported only by the sanction of public opinion, have hardened into the rigid provisions of a written constitution. To find the neatest expression in strict legal form of the code that governs the conduct of finance at home, we have to refer to the legislation of France, Italy, and Belgium, though of course there are variations due to peculiarities of constitutional development.
Historically, this remarkable result began with the revolt of the American colonies. The right of taxation was the actual cause of dispute,*10 and the establishment of American independence involved the complete control of the representatives over the national finances, a privilege expressly provided for in the existing Constitution*11 and hedged round by effective guarantees.
In France the Constituent Assembly at once asserted the principle that no taxes were legal except those voted by the delegates of the nation, but it did not extend the control of the popular will to the equally important matter of expenditure. As M. Stourm has shown,*12 this task was reserved for the Restoration period, and indeed it is naturally later in order. The prevention of illegal exactions is a far more urgent work than that of securing a perfectly correct application of the supplies voted for the public service, and it is besides much easier to deal with. The rapid growth of constitutional government has brought the question of financial control into greater notice, and the general result has been a fuller recognition of the essential principles of popular consent and administrative responsibility, as they have been developed in England. The very bitterness of the disputes on these points—specially illustrated in Prussia*13—proves the tendency towards their more complete establishment.
The formation of a thorough system of audit and account is one of the latest steps in the attainment of a good financial organisation. In respect to it England has not held the same leading position. The system in use on the Continent is rather French than English in its forms and methods, and has moreover a judicial instead of an administrative character.*14 Institutions of the kind have to be judged by their fruits, a test which after all may be endured without fear by the present English methods, imperfect as they may seem when abstracted from the particular instance in which they are employed. A final characteristic of modern finance in this department is the partial co-ordination of general and local income and outlay. Social and economic conditions have contributed to this centralising movement, by which the scattered elements of local finance are collected and compared with those of the State. The necessity for bringing the checks of a wider public opinion and the restraining power of the central government to bear on local action is a further reason. Careful audit and strict observance of the technical conditions desirable in any body of accounts are now regarded as indispensable in the regulation of the finances of the minor political bodies, and their natural result is to be seen in a closer relation of central and local finance.
§ 6. The preceding historical notice was requisite in order to understand the actual condition of financial method and regulation in the civilised nations of the present day. Though the varieties that still exist are by no means unimportant, either in themselves or as evidences of the differences in political development that have produced them, there is sufficient uniformity to allow of a description which will hold true generally, and the departures from which will also admit of classification and explanation. In the succeeding chapters these general features will be concisely examined.
Notes for this chapter
The literature for this part of the subject has received important additions since the last edition of this work. Stourm's valuable treatise is now in its 4th edition and is paralleled by the German work of Heckel, Das Budget. Masè-Dari's Bilancio dello Stato, is specially useful for Italy. A fuller recognition of the necessity for studying budgetary legislation as a part of finance is evidenced in the space—one-fifth of the whole treatise—allotted to it in Adam's Science of Finance, and the smaller works of Plehn and Daniels also devote separate sections to this topic.
For the attitude in this respect of the mediæval writers, the Germans of the seventeenth century, and Montesquien, cp. Intr. ch. 2, §§ 3, 5.
See the Dialogus de Scaccario (attributed to Richard, Bishop of London), printed by Madox in his History of the Exchequer; also by Stubbs, Select Charters, 168-248. Hall's Antiquities of the Exchequer gives a more popular account of the working of the system.
See Bouchard, Système Financier, 21 sq., on this point.
Cp. Bk. iii. ch. 7. The condition of the French finances just before the Revolution affords an admirable illustration of this statement.
The case of France under the Ancien Régime referred to in the preceding note is also instructive in regard to the evils that result from concealment and the absence of responsibility. At present the Russian and Indian finances show by their contrast the advantage that publication of vouched accounts and the power of opinion may be, even to a subject country.
Hallam, Middle Ages, iii. 84-86; Stubbs, Const. History, ii. 543-601. For the development of parliamentary taxation see Gneist, History of the English Constitution (2nd ed.), 388-93.
Hallam, Const. History, iii. 27-32.
Dicey, Law of the Constitution, 328-9. See, for a fuller account of the actual regulations, Anson, Law and Custom of the Constitution, ii. ch. 7.
In the colonial period there had been frequent disputes with the governors as to the granting of supplies and the preparing of estimates.
'The Congress shall have the power to lay and collect taxes.' Art. i. § 6. 'All bills for raising revenue shall originate in the House of Representatives.' Ib. § 7. 'No money shall be drawn from the Treasury but in consequence of appropriations made by law; and a regular statement and account of the receipts and the expenditures of all public money shall be published from time to time.' Ib. § 9.
Le Budget, 40 sq.
Stourm, op. cit. 23-5.
Cp. Bk. vi. ch. 3, § 7, for further explanation.
Book VI, Chapter II
End of Notes
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