Henry Carter Adams.

The science of finance : an investigation of public expenditures and public revenues online

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est possible net income. It is obHged to recognise the social
and industrial tendencies bound up in its policy of administra-
tion, and to adjust the price of its commodities accordingly.
In general it may be said that the price of the products of
public forestry should be adjusted to the market price of
goods with which they come into competition, the only ex-
ception to this generalization being defensible when the
government finds itself in competition with a private indus-
try which aims to maintain an industrial monopoly, and to
charge a monopoly price for its products.

The policy of European states respecting forestry shows a
marked degree of uniformity. At the beginning of the
present century there seems to have been a tendency on the
part of governments to alienate this kind of property, a
tendency which perhaps may have been one of the mistaken
applications of the prevalent theories respecting individual
rights. From 1791 to 1795 France disposed of nearly one-
half of her state forests and continued to reduce the forest
area until in 1870 there remained but one-fifth of the original
state holdings. Many of the German principalities also fol-
lowed the same policy, selling off their forest lands which had
for centuries 'been preserved as government property. They
did not, however, go so far in this direction as France.

During the past forty or fifty years the old policy respect-
ing state forestry has been revived, and nearly all European
nations evince not only a desire to hold on to such forest
property as they have, but to extend its area and efficiency,
and to exercise a stricter control over the use of private forest
property wherever communal interests are thereby en-
dangered. In France since 1870 no sales have been made,
but each year shows a gradual increase in the amount of
land consigned to public forestry. Since 1872 the govern-
ment has spent nearly 200,000,000 francs in the reforesting of
dunes and devastated mountain-sides. In Prussia the policy



SURF/ICE LANDS. 2 45

of selling forest lands prevailed in the beginning of this cen-
tury, but since 1831 the opposing policy has made itself
apparent. Between the years 1867 and 1895 over 22,000,000
marks were spent in increasing the forest area, and the budget
for 1895 contains an item of 2,000,000 marks for the purpose
of purchasing additional lands for this purpose. The in-
creased efficiency of forests as a source of income is shown
by the fact that in 1830 the cost of administration was 61 per
cent of the gross receipts ; in 1870 it was 52 per cent ; in 1893
it was 47 per cent. In other German states the same tendency
may be noted. Bavaria shows a 4-per-cent increase in forest
area, Wiirtemberg a 3-per-cent increase, since 1873. A small
increase also may be noted for Baden and Saxony. In Aus-
tria the selling of forests continued until about 1870, but at the
present time the State is the only great purchaser of forest
lands. In 1886 60,000 acres, in 1888 230,000 acres, and in
1891 211,000 acres were purchased for this purpose. Both
Italy and Russia, while too poor to spend much money in this
manner, have nevertheless made a start in this direction.
Russia sells timber lands to the communes but not to private
individuals, and has enacted a strict law under which the
general forestry of the country is to be administered. The
English Government has no considerable amount of forests,
but this is not due to the fact that the English are averse to
governmental management of forestry culture. In India,
where there is a decided need of forests, the governrnent
shows great activity. Between 1882 and 1892 the reserved
forests were increased from 46,213 square miles to 59,743
square miles, while the total forest area under the control
of the government increased from 71,972 square miles to
114,966 square miles.

No country has greater need than the United States of a
comprehensive system of forestry, and no country, except it
be the South American republics, has shown greater dis-
regard of this need. The land system of the Federal Govern-
ment makes no distinction between forest lands and agricul-
tural lands. The same laws have been followed in the survey
and sale of both classes of property, and in the main the same
price has been demanded. This policy has resulted in the
sale of forest lands as timber property to individuals and cor-
porations, whose only purpose was to realize the largest



246 REVENUE FROM PUBLIC DOM/IIN.

amount of money possible from their purchase iti the least
possible time — a policy which has resulted in the destruction
of most of the timber lands east of the Mississippi and north
of the Ohio. In the West and the Northwest very little care
has been taken to conserve the public forests. Lavish grants
have been made to railway corporations for the use of such
timber as they needed for the construction of their lines, and
no adequate provision has been made against the destruction
of forests by fire. The only encouragement to tree-culture
■which Congress has seen fit to make has been in connection
with its general land policy. Land- has been given to settlers
on condition of their planting and caring for a certain number
of trees, but this has amounted to nothing so far as the de-
velopment of a system of forestry is concerned.

Admitting the importance of a comprehensive system of
forestry, the question naturally arises whether this should be
done under the direction of the Federal Government or the
State governments. Without discussing this question, the
opinion may be ventured that the proper seat of authority for
the administration of the forestry system is the State govern-
ments. This would obviate quite a number of difficult con-
stitutional questions which might embarrass the administra-
tion of the Federal Government owning forests within the
jurisdiction of the States. From the financial point of view,
also, there is much to be said in favour of such an investment
by the State governments. The chief difficulty in connection
with this question of forestry has been that it has never been
regarded from a comprehensive point of view, and this can
never be done until it is made a part of the fiscal system of the
Federal Government or of the State governments. Each
year that passes renders the solution of the problem more
difficult. The Federal Government should at once undertake
to conserve the forests which remain in its possession, and the
State governments should enter upon a policy of acquiring
land for the purpose of extensive tree-culture.*

Closely connected with the question of forestry, and allied
to it so far as social considerations are concerned, is the
problem of irrigation, Many countries have no problem of

* At all events a tax ought not to be imposed on the import of lum-
ber from other countries, thus encouraging the destruction of such
forests as we have»



SURFACE LANDS. 247

this sort, the ordinary rainfall being adequate for agricultural
purposes. In other countries irrigation has existed for so
long a series of years that riparian rights constitute a per-
manent element in the valuation of landed property. The
question, therefore, will be discussed in view of the conditions
as they exist in the United States. It is estimated that there
are seventy-four millions of acres of land that might be re-
claimed for cultivation by means of an adequate system of
irrigation.* Already certain corporations, notably the in-
surance companies, have invested capital with a view to meet-
ing this demand. In so doing, however, they seize upon the
most generous sources of supply. The canals thus con-
structed do not form a part of a general comprehensive system
of irrigation, nor are they administered with a view to the
highest industrial development. Already many difficulties
have arisen between users of water and the corporations
■which own the water-supply. Laws have been passed regu-
lating the price of water, and the courts have sustained these
laws on the ground that irrigation companies are common
carriers. A set of cases, for the most part unknown to the
American courts, have arisen in connection with the private
ownership of water-supply, and one who is familiar with the
development of the law of riparian rights must recognise the
difficulty of the problem which concerns this country in case
the western territory is developed through private ownership
of irrigating canals. In view, therefore, of the fact that a
very considerable portion of the territory which needs irriga-
tion will be left destitute of a water-supply if the business of
rendering this supply is intrusted to corporations, and in view
of the further fact that wherever private supply through cor-
porations has been tried very serious difficulties have arisen
as to the rights of consumers to the use of the water, it must
be admitted that a strong argument is presented in favour of
public ownership of ditches and canals. If such ownership
be decided upon, it follows, in view of the conditions under
which the industry is carried on, that the irrigation system
will be made a part of the fiscal system of the State.

(2) Shall Government Lease its Domain for Cultivation ?
— Any discussion which involves the relative merits of sys-

* This is the latest estimate of Mr. Newell, hydrographer of tha
United States Geological Survey.



848 RbyENUE FROM PUBLIC DOM AM.

terns of land tenure must proceed along broader lines than lie
strictly within the consideration of the financier. Among the
marks of a good revenue system is its adaptation to the per-
manent trend of opinion upon social and industrial questions.
If the public be convinced that a system of tenant-farming,
in any of its various forms, is better than farmer proprietor-
ship, it is quite easy for the public treasury to adjust itself to
such a conviction, and to demand its income in the form of
a land rental rather than in the form of a land tax. But the
trend of public opinion for centuries has been in the opposite
direction. The commutation of the rentals of feudal times
into modern taxes is generally conceded to have been an
important step in the advance of Western civilization, it being
intimately connected with the rise of private property in land
and the development of a higher technic in agriculture.

This being the case, it may at first appear unnecessary to
consider revenue from land rentals as among the possible
forms of public income, or to concede to this idea the courtesy
of a discussion. Against such a conclusion, however, several
considerations present themselves. In the first place, there
are quite a number of governments which still hold to a sys-
tem of public tenantry. In the second place, among the
socialistic and semi-socialistic theories that to-day agitate the
public mind, will be found the claim that land cannot justly
be alienated by the State. It is, in the third place, conceivable
that the structural changes wrought by four centuries of pri-
vate ownership in land have brought with them the necessity
for more direct and positive governmental influence in
matters pertaining to agriculture than can be accomplished
through the medium of taxation. And lastly, much is to be
learned of the relation of land to the public treasury by a dis-
cussion of the state lease system. For these reasons the
policy of land reivtals will be given a cursory examina-
tion.

At first glance, it seems that no two things could differ
more widely than a society in which land is owned by the
State and leased by the occupier, and a society in which the
occupier is, or may become, the proprietor of the soil which
he works; but a slight consideration shows that this dif-
ference is not so much in the nature of the two forms of
holding as in the terms of the tenant's contract. Every one



SURFACE LANDS. 249

knows that the price of land is its rental value capitalized at
an assumed rate of interest, due allowance being made for
social and speculative interests. It is a strong statement of
the case, although within hmits a correct one, that the occu-
pier who owns the land is its tenant in perpetuity, while the
occupier who rents the land is its owner until the expiration
of the lease.

Working into the question from this point of view, it
appears that progress in the art of agriculture under a
system of tenantry, so far as that depends upon the care and
thrift of the occupier, will approximate the results that are
observed to follow when the farmer is also proprietor, in pro-
portion to the length of the lease and the liberality of the
contract. It is, therefore, conceivable (the probabilities of
the case are not here brought into question) that as good
technical results may be shown under a system of tenantry
with long lease as under a system of free holding. It further
appears from this comparison that the rent paid by a tenant
to the State approximates a tax in proportion to the length
of the lease. Under a system of annual lease the payment
for land will be determined by competition and will equal the
full economic rent. That is to say, the government will take
the total of the " excess profit " arising from the industry of
farming, leaving to the farmer his wages as a labourer, and
the interest on improvements, provided they represent an
investment of his capital. The government might, it is true,
leave a portion of this pure rent in the hands of the tenant
and in this manner create a system of rent-sharing between
itself and the tenant. According to modern fiscal theories
by which the revenue of the State is determined according to
pubHc necessities, this must be the case, since the payment
by the farmer of the full economic rent to the State would
result in his paying a relatively higher amount than would
be paid by those engaged in commerce or manufacture. The
form which this concession to equality would probably assume
would be the substitution of a time lease for an annual rental.
It thus becomes apparent that, in case fiscal rather than com-
mercial principles determine the amount of payment, no essen-
tial difference exists between a land tax and a land rent ; and
the substitution of a system of tenantry for a system of free-
holders, provided the tenant's lease is recognised as nego-



■a So REyENUE FROM PUBLIC DOM /I IN.

tiable property, would involve no very radical change as com-
pared with the present system of farmer proprietorship.

What, then, it may be asked, are the considerations urged
by those who favour a rental of public lands. These con-
siderations are not very coherent, nor do all of them pertain
directly to the Science of Finance ; but it may be well to
pass them in rapid review.

In the first place, quite a number of detached suggestions
present themselves which rest upon the assumption that better
general and technical results would follow should the industry
•of agriculture be placed under the direction of government
than if left to develop at the hands of a large number of in-
dependent owners. It is urged, for example, that under a
tenant system the contract for occupancy might be so drawn
as to check undue morselization of land. A further illustra-
tion is found in the suggestion that the State as a landholder
would be in a position to introduce scientific methods of
farming, and to so direct the cropping of land that the supply
of agricultural products would meet a statistically determined
demand.

These are both interesting suggestions and typical of
■others of the same sort that might be made. They bring into
ccmtrast the relative merits of two theories of social progress,
the one of which calls upon the State to exercise direction
in industrial affairs, while the other finds in the survival of
the most successful among many experiments the surest path
to technical progress. One who entertains the latter view
cannot doubt respecting the superiority of the system of agri-
culture as it exists in the main in the United States. Under
no other condition except that of ownership of the soil by him
who works it can the spirit of venture and invention be
brought to bear upon the industry of agriculture. As has
been already suggested, this business embraces too many
details to flourish under the influence of administrative advice.
There is, for example, no determinable size for a profitable
farnl. This varies with the crops to be cultivated and. the
means of cultivation. It would be much wiser to remove the
social or political influences which lead to excessive subdivi-
sions of land, than to enter upon an official analysis of details
for determining the normal size of a holding.

So far as the second of the above suggestions is concerned,



SURF/ICE LANDS. 351

one may inquire if it is necessary for the State to assert its
ownership in the land in order to bring to bear upon agriculture
the results of scientific investigation. Education, technical as
well as general, is among the recognised governmental func-
tions, and it is probable that an agricultural system which rests
upon the intelligence of a large number of freeholders will
reahze the suggestions of scientists for the improvement in
agricultural methods as rapidly as may be warranted under the
circumstances. The experience of this country in the develop-
ment of the agricultural industry, while by no means above
criticism, nevertheless furnishes ample proof of the advantages
of private ownership of land. Nor is it necessary, in order to
bring the influence of the State, and through the State the
influence of social interests, to bear upon agriculture, that
freeholders should be supplanted by leaseholders. This ques-
tion is a part of the comprehensive question of social organi-
zation, and the answer which is here given to it implies confi-
dence in the principle of voluntary association and a distrust
of the principle of coercive association.

A second consideration urged in favour of a system of
public tenantry is found in the suggestion of those who as-
sume that ultimately land must come under some form of
communal ownership, while and at the same time they recog-
nize the importance of private ownership in the present stage
of industrial development. In order to harmonize these two
interests it is proposed that all states which have the disposal
of large tracts of uncultivated lands should grant them in lease
for ninety-nine years, but not in fee simple. This suggestion,
it will be observed, is neither general in its character nor does
it involve any fundamental principle. It is of slight impor-
tance to European peoples and is presented as a suggestion
worthy the consideration of those countries only where wild
lands are being brought under cultivation. The object of this
proposal is to avert strife when the time shall have arrived
for making lands communal property. For the time being,
it will be observed, all the advantages of private ownership
are to be realized. The plan does not contemplate the exer-
cise of any direction by the State over agriculture on account
of the fact that the title granted the occupier is a lease and
not a deed. A discussion of this suggestion rests of course
upon, its fundamental assumption, that all land must ultir



252 REyENUE FROM PUBLIC DOM/41N.

mately become public property ; and, until there is a general
sentiment in the community favouring this way of thinking,
it is unnecessary for the practical financier to consider the
suggestion.

The third suggestion in favour of leasing rather than sell-
ing the public domain presents itself as part of a general
financial system. All governments must prepare for financial
exigencies, and it is claimed that a retention of a considerable
portion of the public domain would secure the means of
making headway against an unusual demand for money in
time of exigency. This might be done in either of two ways:
the lands might be sold, or they might be used as security
in the borrowing of money. The question thus raised as to
the best means of providing against a fiscal exigency is
one which will receive consideration in the discussion of
Public Credit. If it be necessary, in order to provide against
fiscal emergencies, that the State should retain proprietor-
ship over a considerable portion of agricultural lands, the
argument in favour of the tenant system of agriculture is a
strong one ; but a moment's consideration will make it clear
that the proposal is wholly inadequate to the end in view. In
the first place, it is altogether unlikely that the land could
be sold under conditions of fiscal emergency such as are
assumed. Suppose, for example, that there arises an unusual
demand for public revenue on account of war. Is it not cer-
tain that the disturbance of industrial conditions incident to
war will preclude the possibility of sale except to those who
might invest for the purpose of speculation ? This means
that the lands will be disposed of at low prices, and that the
purchasers will be, in all probability, the most undesirable
of all purchasers. In this connection, too, it should be re-
membered that, in order to make of this suggestion a per-
manent policy, the government would be obliged to repurchase
lands when the exigency shall have passed. This policy, there-
fore, forces a sale when prices must necessarily be low and
forces purchase when prices will probably be high.

It may, however, be urged that money to meet a fiscal
exigency may be raised by a mortgage upon the land. This,
it is true, avoids the criticism involved in the proposal
of sale, but it overlooks the fact that a public bond
issued by a sovereign State is worth no more in the



SURFACE LANDS. 253

form of a mortgage than as a mere promise to pay. No
tribunal can force the foreclosure of such a bond in case
of default. This being the case, the price of a government
bond will be higher if it rests on the general property of
all industries than if based upon a particular property incident
to a particular industry. A government which enjoys public
credit so as to enable it to borrow money at all will find itself
at a disadvantage if it encumber its loan policy with land
mortgages. It therefore follows, whether one considers the
sale of agricultural lands held under lease, or their mortgage
as security for money borrowed, that the argument in favour
of the retention by government of cultivated lands is incon-
clusive. The retention of land as a fund of value to be used
in case of fiscal emergency does in a very incompetent manner
what may be more easily and cheaply accomplished by the
direct use of public credit.

One word further may be added respecting the general
policy of leasing public lands. It is an exceedingly dangerous
poHcy. A government which is sufficiently strong to ad-
minister wisely the details arising in connection with a system
of land tenure will be tempted to exercise that power in a
tyrannous manner. On the other hand, a popular or demo-
cratic government, which is the only one that could with
safety to the liberty of its citizens be intrusted with the exer-
cise of a landlord's rights, is not strong enough to administer
those rights efficiently and in harmony with a systematic
plan. There is something incongruous in the idea of
establishing the relation of landlord and tenant between a
government and its citizens where the citizens are the govern-
ment. A complete analysis of the question would disclose
the fact that private property in land is one of the essential
conditions for the satisfactory working of popular govern-
ment. This is final against the lease system, except the leases
be drawn for so long a period, and in such liberal terms, as
practically to amount to ownership in fee simple.

Reference should be made in this connection to what is
popularly known as the " single tax " theory, which from one
point of view may be classed as a proposition to replace the
system of free holdings by the tenant system. This plan
proposes to substitute for all forms of public income an annual
payment equal to the full rental value of the land. The title



2 54 REVENUE FROM PUBLIC DOMAIN.

in the land will not on this account be disturbed, although all
income arising from the land in excess of labourers' wages
and interest on improvements, that is to say, the proprietor's
income, will be transferred to the State. Under such condi-
tions no motive to owr land exists, except such as arises in
connection with occupancy, and the justification for classing
this project as a proposition to create a tenant system with
the State as a landlord is found in the fact that the amount



Online LibraryHenry Carter AdamsThe science of finance : an investigation of public expenditures and public revenues → online text (page 25 of 56)