Public Finance

§ 1. The recognition of education as one of the tasks of the State was a natural result of the decline of the influence of the Church. The innumerable religious institutions of the Middle Ages had provided instruction for youth, as they had provided sustenance for those in need, and when their endowments were in great part seized by the different European sovereigns, some provision in their place, or by their diversion to the supply of education, was obviously suggested. Even the theorists of the eighteenth century hesitated to exclude the duty of assisting education from the sphere of state operations. The Physiocrats and Adam Smith agreed in recommending state aid to education, but only under such conditions as would encourage efficiency in the teachers, with industry and application in their pupils.
*78 Since their time the tendency has been towards the extension of public effort in all the departments of education. The question presents itself in connexion with each of the three forms of teaching, primary, secondary or intermediate, and university.

§ 2. In respect to primary education we may note the distinct expression of opinion by Adam Smith in favour of state facilities for this form of teaching. The success of the Scotch parish schools had evidently impressed him, and he contends with great force that the increased division of labour due to economic progress tends to weaken the faculties of the workman, and that this evil can only be counteracted by education. The State has moreover, he thinks, a direct interest in the education of the bulk of the people in order to secure political tranquillity.
*79 A mild form of compulsion is even allowable, since he suggests that passing an examination should be a necessary preliminary to entry into a trade. Adam Smith does not advocate free education, but his reason is curious, viz. that the teacher’s diligence is stimulated by the receipt of fees, an aim that would be otherwise reached through the modern result-fee system.

During the present century the state-guided system of primary instruction has become definitely established, as an examination of the details of expenditure will most clearly show. The development of this system has brought out the existence of several difficulties imperfectly recognised at its commencement. Among those are:—(1) The problem of religious teaching; denominational schools are offensive to one section, undenominational ones to another; and both the amount and application of state funds are hotly contested by the different parties. (2) Distinct from the foregoing, but connected with it, is the relation of state to voluntary schools. If no fees are charged in public schools, the private schools complain of the unfairness, which indeed is manifest. On the other hand, fees—especially if education is compulsory—press heavily on the poorer parents. (3) When, to avoid some of the foregoing puzzles, payment by results is made, there is a danger of superficial preparation; and yet without some test of the kind, efficiency cannot easily be measured. The only complete escape from such difficulties would be the abandonment of instruction to voluntary effort, a solution which is forbidden by the importance of education, both socially and economically, as also by the practical impossibility of securing it without state aid in the case of the very poor.

§ 3. Secondary education is in a very different position. The older economists would abandon it to the action of individual and family interest. There is, it would appear, no pressing ground for state exertion in order to supply instruction superior to that enjoyed by the whole population. It may, therefore, reasonably be left to private initiative or to voluntary effort, more particularly in the form—too often disregarded by economic and financial theorists—of endowment by gift or bequest. The modern tendency is here, too, in favour of an extension of state action, generally directed rather to supervision and readjustment of existing resources than to the supply of additional funds. In some instances special agencies for testing the quality of secondary education, either by inspection or examination, have been created.
*80 From the financial point of view, it must be said that outlay of this kind is not to be placed in the same rank with that in aid of the primary instruction of a country. At best it belongs to the class of useful outlay, and is very likely to be supplied by private funds. It, moreover, is open to the objection of benefiting but one, and that the most independent, section of the population. Against these weaknesses it may claim to be of a moderate character, and not likely to seriously affect national finance.
*81

§ 4. Universities, or, more generally, institutions for higher education, have to be judged on special grounds so far as their claims for state aid are concerned. It is quite true, as Adam Smith shows, that the higher education in many cases is not a necessity, but rather a luxury or ornament that may very well be paid for by the wealthy, if they desire it for themselves or their families. In most of the remaining instances it is a legitimate investment in immaterial or personal capital, a point of view that predominates in the minds of the professional and commercial classes, so that on either supposition there is no call for public intervention. State or other endowments have besides, the injurious effect of checking the easy remodelling of the system of higher instruction in accordance with the inevitable changes in scientific and literary studies.
*82 There is unfortunately a tendency on the part of highly paid permanent teachers to take their work in a mechanical manner, and expend their energies in other directions. The result of such considerations leads to the suggestion of thorough reform in the mode of higher education, rather than complete surrender on the part of the State of its regulating functions, more especially when some less obvious parts of the working of Universities are taken into account.

The modern University has very different elements, and may be looked at from different points of view. In the first place, it is a grouping of professional schools, and here the tendency towards extended administrative action almost compels the State to form closer relations with the larger teaching bodies. The increase in the number of professions, entry into which is granted only on supposed proof of competence, as evidenced by examinations and courses of study obtainable solely by means of attendance at a University College, affords a strong reason for offering facilities towards getting the necessary instruction. When the State imposes on candidates for various offices or professions the obligation of having a University Degree, or something similar, it is in fairness bound to supply them with reasonable opportunities for acquiring that needful badge. Moreover, many parts of administrative work could hardly be carried on without the aid of the scientific skill maintained by the teaching bodies.

Secondly, the importance of scientific research in its effects on the production of wealth, and in dealing with many social problems, is now abundantly recognised. Even literary and historical inquiries are found in many cases to be of practical service, and to powerfully aid in the advance of culture. The ‘endowment of research’ is a matter, if not of practical politics, at least of discussion. A University, however, is, or at least ought to be, the home of research, and its support by the State may be claimed on the ground that it discharges this most valuable function. Possessing these two departments, which may reasonably expect aid from public funds, a University naturally adds to them a third in supplying to the richer members of the society the ornamental education or ‘culture’ that they demand and are willing to pay for. By this combination it is further possible to stimulate the teachers by fees that will largely depend on the reputation and credit of the institution where they are placed.

§ 5. The question of ‘technical’ as opposed to general education presents itself in all the stages of instruction, and in each it raises the same problems. The evident economic advantage that a nation obtains through the skill of its producers is a
prima facie ground for State aid being given towards the attainment of suitable training. Expenditure for such an object is productive even in a financial point of view, and it may be further argued that individual or family interest will not suffice to accomplish the end desired. On the other hand, the sturdier individualists urge that self-interest, if good for anything, should surely be good for inciting men to learn in the most efficient manner the trades or occupations by which they have to earn a livelihood. The same general result is reached here as elsewhere, viz. that the true test is experience, and it shows that public outlay may be of advantage in promoting industrial training, though it is subject to the inevitable drawback of all state interference in its tendency to reduce private exertion, and in the difficulty of duly regulating the supply of skilled labour called out by its action. The acquisition of training for unprofitable employments is no slight evil, and under the rigid system of regulation inseparable from official management it is not unlikely to occur. Even general education may produce a
surmenage scolaire, as the example of France shows.

§ 6. Under the same head the cost of museums, libraries, picture galleries, and institutions for promoting science and art generally should be placed. They come in to supplement the more directly educational agencies, and are often quite as effective in promoting the ends aimed at. The modern development in this domain is remarkable (especially in England and the United States). Central and local authorities have both made considerable efforts in the direction of meeting the wants of the population for opportunities of acquiring information and culture. Few large towns are without appliances that were unknown a century ago, or confined to national capitals. We have to add this expenditure to the cost of schools and colleges before we can say what is the total sacrifice incurred by a nation in its public capacity for the object of culture.

§ 7. Voluntary action may be expected to relieve the revenues of the State from a great deal of this charge. Not only are the expenses of education largely met by the normal economic process of payment for advantages obtained; the donations and bequests of the wealthy have supplied, and we may hope will continue to supply, a good many of the less profitable fields of instruction and research with sufficient endowment. The splendid example set by American millionaires may produce good effect in Europe by attracting attention to the benefits of supporting the educational and investigating bodies to which civilisation owes so much.
*83

In any case, it must be said that no modern State is likely to suffer financial embarrassment through its outlay in promoting education and culture. Measured against the cost of war, and preparation for war, this form of expenditure is modest and inconspicuous in the total amount; and taken with its probable advantages, it is the least questionable of the many secondary heads of charge.

§ 8. The relations of Church and State have been at different periods the principal problem of rulers. The earlier sentiment rather included the State in the Church than the Church in the State. Modern societies are practically agreed in reversing this position. Excluding the polemical sides of the subject, we can see that for the financier the religious wants of the community need the supply of particular forms of services and commodities, and the question arises whether the public authority should provide these needed objects or leave them to private effort. Historical conditions have determined the actual solution in each country, while the prevalent theoretical view is derived from the doctrines of the last century. Adam Smith, who approached the subject under the influence of Hume,
*84 regards the clergy as a particular form of police attending to spiritual interests. His ideal is complete non-intervention on the part of the State. The probable result would be a ‘great multitude of religious sects,’ whose fanaticism might be kept in check by the two remedies of: (
a) ‘the study of science and philosophy,’ and (
b) ‘the frequency and gaiety of public diversions.’ Where, however, there is one predominant religion, the State ought, he thinks, to regulate and control, or, to use his significant term, to ‘manage’ it—a process that is best carried out by the skilful use of the power of bestowing preferment. Religious endowments are regarded as a part of state wealth withdrawn from the more pressing end of defence.
*85

The circumstances of the case have, it need hardly be said, been profoundly altered since 1776. The United States now afford a remarkable example of the actual working of the policy of
laissez faire in respect to religion,
*86 and they are imitated by the English colonies. Continental nations show a different set of changes: the ‘Established Churches,’ with their numerous independent and private funds, have given place to bodies directly chargeable on the State revenues. The ‘enlightened absolutism’ of the eighteenth century commenced the work of disendowment, which was further carried out by the revolutionary movements since 1789. Later reaction has made the clergy pensioners of the State. As regards the United Kingdom, the American example has, for special reasons, been followed in Ireland, and seems likely to be extended to Great Britain.

Viewing the question as one of finance, it appears that the expenditure on religion, though not large, can be easily supplied by voluntary contributions, and therefore is not an urgent call on public resources, which can be better used for other objects. When the State, for political motives, undertakes the supervision of religion and its supply, concurrent endowment is a necessity in modern societies, as otherwise an evident injustice would be inflicted on the non-endowed sects. Such is the policy of most States at present, but it is more expensive, owing to the greater number of ministers, buildings, &c., that have to be provided.

The provision for religious teaching has a rather close affinity to that for education proper. Modern budgets often combine the two charges under a single head. There is also an historical connexion between them, and it is noticeable that in countries such as the United States and the English colonies, where state endowment of religion is given up, educational bodies take the vacant place. Public expenditure for denominational education is a near approximation to state aid to religion.