NOTE

Since the publication of the first edition of this book, the question of classification has been discussed by Professor Seligman in a special article,1 in which vigorous criticism of the views of preceding writers is accompanied by the exposition of a new mode of grouping, believed to be more in accordance with logical requirements. As the acceptance of this system would necessitate extensive changes in the arrangement adopted in the text, it seems right to state briefly the reasons for retaining out former classification.

The general advantages that result from a good method of grouping public revenues are admirably stated by Professor Seligman, whose opening pages may be referred to as supporting what has been said above on that subject.2 A single point of difference should, however, be noticed. We have sought all through to insist on the essentially relative character of classification. No system is in itself absolutely good or bad; each must be judged by its fitness for the purpose for which it is employed. And further, a system will hardly combine all possible advantages with no disadvantages. Any arrangement will probably have something to recommend it, and will bring out features that would remain unnoticed in a different system. On the other hand, Edition: current; Page: [164] Professor Seligman appears at times to maintain that there is one, and but one, perfectly logical arrangement, compared with which all others must be regarded as altogether erroneous. It is true he admits that historical circumstances may alter the mode of classifying, but for modern times no such allowance is to be made, and the least departure from the one ‘correct’ classification becomes deserving of censure. This view is, however, far too narrow. As Jevons points out,1 the distinction between ‘natural’ and ‘artificial’ systems of classification is really one of degree. When we are dealing with the classification of organic species, there is the guiding principle of arrangement according to descent,2 which makes the genealogical grouping the scientific one. But in such subjects as grammar, jurisprudence, legislation, and finance, this element is a subordinate one, and we have to take into account the convenience of a classification in considering the advisability of its adoption.3 Such is the procedure recommended alike by logic and the practice of the best investigators in those branches of knowledge. Applying this test to the particular matter in hand, we cannot avoid coming to the conclusion that the arrangement in the text, if less elaborate and less complicated than Professor Seligman's, is at least as well suited to exhibit in their order the chief features of interest in the financial system. The briefest inspection of the receipts obtained by public authorities suffices to establish the existence of (1) economic revenue and (2) taxes as the two great forms of income. These are broadly contrasted, and must form the basis of any division: it is to their discussion that by much the largest part of any work on the subject must be devoted, and it is by the way in which he handles them that a writer will be judged. Now is there any other form of revenue that can fitly be regarded as ‘co-ordinate’ with these great categories? To this question Professor Seligman replies in the affirmative, while the answer we have already given is in the negative. To justify our position, let us briefly consider the three classes of receipts which are put forward as entitled to so prominent a situation. These may be briefly described as consisting of ‘fines,’ ‘fees,’ and ‘special assessments.’4

‘Fines and penalties,’ we read, ‘form by themselves a class of compulsory revenues, levied according to definite but non-fiscal principles. It is obviously wrong to class them with fees as do some writers, or to ignore them entirely as do others.’5 It is, of course, true that fines are a part of state receipts which should not be ‘ignored,’ but it is equally true that they cannot be regarded as co-ordinate with taxes or economic revenue. Their yield is trivial, Edition: current; Page: [165] and their relation to the financial organisation of the State is remote. To give a separate book of a treatise on finance to fines and penalties would, to adopt Austin's phrase, ‘somewhat smack of the ridiculous.’1 The slightest and most cursory mention is the one best suited to give the reader a proper feeling of their financial insignificance.

With respect to ‘fees’ the case is different. A plausible argument may be framed in support of an arrangement that puts them in a prominent place, but, on the whole, the objections to this procedure appear to outweigh its advantages. An abstract distinction between ‘fees’ and ‘taxes’ may easily be made, but cannot be applied with satisfactory results in practice. Nor will it be easy to secure agreement as to the true boundary line. Professor Seligman himself disagrees with nearly all his predecessors, and confines the fee revenue to that derived from monopolised enterprises. Even then, if profit is obtained, the charge becomes a tax. Thus it would seem that, to take a concrete case, the British letter-post charge is a ‘tax,’ payments for telegrams are ‘fees,’ while the parcel-post service, not being a monopoly, charges a ‘price.’ Put in a general way, the distinction seems acute, and to some minds satisfactory, but what is to be said as to its practical convenience? Must the Post Office revenue be broken up into these several parts and its disjecta membra scattered over several distinct books? Such a course would, we believe, be altogether out of place in an orderly and systematic exposition of financial principles and facts. The different position of similar institutions in different countries further increases the difficulty. Are Prussian railway fares to be treated under ‘taxation,’ while Australasian ones are discussed when dealing with ‘fees’?

But a more serious difficulty remains. Perhaps the commonest use of ‘fee’ in this sense in the English language is its employment to describe the charges made for various official acts. We speak of ‘court fees’ or ‘registration fees’ far more readily than of ‘postal fees.’ In those cases, however, the idea of equivalent service is not very prominent.2 A certificate of birth or the issue of a writ involves some payment, but in each case there is really a small contribution towards the expense of a public department, not a charge based on ‘the special benefit accruing to the individual.’3 In fact, this kind of fee is essentially ‘incidental revenue,’4 and it is noteworthy that the earliest Edition: current; Page: [166] systematic writers took exactly this view. Professor Seligman will not allow that Rau was the originator of the separation of fees, and refers to Justi as having perceived their existence. Both Justi and his contemporary Sonnenfels do, indeed, speak of ‘casual revenue’ (Zufällige Einkünfte), and this is precisely what fees are. They come in, if not as a windfall, at least as a by-product, a characteristic which prevents their being entitled to be classed as co-ordinate with taxes. The transference of one large portion of the matter, sometimes placed under the head of fees, to that of economic revenue, and of another less extensive portion to the category of taxation, leaving the miscellaneous residue to come in as an appendix to the treatment of the former, commends itself as a logical and convenient distribution of material.

The third distinct category is of greater interest. Special assessments may be fairly described as an American creation,1 and it was therefore fitting that American writers should introduce them to the scientific students of finance. This pleasing duty has been ably performed by Professor Seligman and his pupil Mr. Rosewater,2 and the European writer will henceforth be compelled to enlarge his descriptive material in order to include this new phenomenon. It is not quite so certain, however, that he ‘will have to revise his classification.’3 That will depend on the view he takes of the character and working of these charges. One of the first features of the special assessment that attracts notice is its strictly local application. It is a product of a particular form of local finance, and has apparently little or no place in general receipts. Following out the clue thus supplied, we discover that the special assessment is a mode of distributing burden according to advantage received, and has thus one point of resemblance to the special improvement rates that British local bodies frequently levy on limited areas receiving advantage from work done. The doctrine that ‘special assessments must always be proportional to benefits’4 is merely an example of those legal fictions so dear to the minds of American judges and lawyers, since ‘acreage, frontage, value, superficial area,’ may any of them be taken as the measure of presumptive benefit (a benefit which, it should be added, may never be realised),5 and therefore the limitation of proportionality is effectually evaded. In any case there is no necessity for proportional charge. A sovereign legislature might levy assessments at a heavier percentage on those who held larger masses of property, or, in other words, it might permit the smaller owners to retain a greater part of the benefit or ‘betterment’ that the improvement had produced.6

Edition: current; Page: [167] Thus it seems that the line of demarcation between special assessments and taxes is by no means so sharp as Professor Seligman supposes. The real characteristic of the former is their imposition as a single charge on property instead of being a recurring charge on income.1 They belong, in mercantile language, to the ‘capital,’ not to the ‘profit and loss’ account. But in this respect they are paralleled by taxes levied for a single great occasion, e.g. a war or the discharge of debt.2 In estimating the financial position, it is important to keep both ‘capital’ and ‘revenue’ accounts in view; this, however, need not hinder us from regarding a capital payment as a tax levied uno ictu, instead of by recurring charges. When local bodies have recourse to this method, the circumstance deserves to be noted, but does not call for any revolutionary change in arrangement.3

Prof. Plehn, in an article entitled ‘Classification in Public Finance,’4 has sought to support Prof. Seligman's arrangement, and has criticised the views expressed in this note. He has, however, failed to understand them, and has been led into several misrepresentations, some of which have been already pointed out. Thus he seems unable to grasp the idea that the principle of classification is relative to the matter in hand; that an arrangement suitable for one purpose may be unsuitable for another. But this is a commonplace with logicians; it is familiar by practice to students of natural science, and should be equally so to investigators of social life.5 ‘It is unscientific,’ says Prof. Plehn, ‘in the study of legal institutions or economic life to confuse the old and new, or to classify in such a way as to hide the connecting links between them.’6 No doubt ‘confusion’ is always unscientific, but combination of similar phenomena, though of widely different origin, is not. To take examples: the emphyteusis of Roman Law may be placed along with Irish judicial tenancies, and the English income tax with other charges on revenue, without reference to the wide differences in origin. In fact, one of the most instructive lessons in social inquiry is derived from the adaptation of diverse institutions and rules to accomplish similar ends.

Equally incorrect is Prof. Plehn's assertion that ‘Prof. Bastable ... denies ... that there is any necessity for distinguishing between fees and taxes.’ It is hard to understand how any one who had read the sections on ‘Administrative Revenue’7 could have committed himself to so misleading a statement. It is hardly necessary to state once more that there is no denial of the existence of so-called ‘fees.’ What has been urged is (1) that ‘fees’ are Edition: current; Page: [168] not a class co-ordinate with ‘economic revenue’ and ‘taxes.’ (2) That some fees are really ‘industrial,’ that others are ‘special taxes,’ while the balance may best be described as ‘miscellaneous receipts.’ (3) That the heterogeneous character of ‘fees’ is proved by the divergence of opinion respecting their character and boundaries. The practical outcome of these views is the treatment of a large section of fees as a kind of appendage to economic receipts, and this course is supported by Prof. Plehn's ‘practice,’1 which in this, as in many other cases, is better than his ‘theory.’

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