Page:The New International Encyclopædia 1st ed. v. 07.djvu/674

FINANCE. Eliminating the postal revenue, the Government receipts were in round numbers 587.7 millions of dollars, of which customs duties and internal-revenue taxes produced 545.8 millions of dollars, or 92.7 per cent. of the total. These have been from the beginning the main dependence of the Federal Government, but they have not always occupied the same relative place. The preceding table shows the aggregate net ordinary receipts of the Treasury, and those from customs and internal revenue for selected years.

Internal taxes had been out of vogue since the War of 1812, but during the Civil War they became a more important source of revenue than customs duties. A like result followed the war with Spain, while in time of peace customs duties were the more important.

. The comparison of revenues of foreign countries is beset with difficulties similar to those which are encountered in comparing their expenditures. Just as there are certain unquestioned functions of national States, so there is at least one unquestioned source of national revenue, namely customs duties. But with it are found associated other forms of taxation, both indirect and direct, and other forms of income, according to the scope and variety of the functions exercised by the National Government. The most marked contrast between the United States and Great Britain on the one hand, and the Continental countries on the other, is in the extent among the latter of industrial income.

. As in discussing local expenditures we are forced to go back to the figures presented by the census of 1890, so we must draw our exhibit of local revenues from the same source. In the total they were distributed as follows:

The sources of local revenue are given as follows:

. A third division of the subject of finance concerns public credit and its use. As the creation of public debt often required by the exigencies of national life rests upon the public credit, a complete theory of finance must concern itself with the means by which public credit is established and maintained, as well as the methods by which it is drawn upon for the support of the public finances.

Like the credit of individuals, public credit

rests upon confidence; and, like the credit of individuals, such confidence rests upon past performance of obligations incurred. Without a sacrifice of sovereignty the State can offer no other guaranty to its creditors. It is true that in certain cases the obligations of one Government have been guaranteed as to interest and principal by the Government of another State, as in the case of the Egyptian bonds guaranteed by the English Government. But in such a case the power which guarantees tends to extend its sovereignty over the Government which contracts the obligations. Again, governments have sometimes set aside the receipts from certain revenues, as, for instance, customs, for the payment of interest obligations; but without good faith this guarantee is of little value with a foreign administration of the revenues, which is again an abdication of sovereignty.

The basis of public credit is therefore the ability of the State to fulfill its contracts, and the punctiliousness with which it actually does so. Public debts are therefore bonds without mortgages or similar security. They are primarily contracts to pay interest, but may include also an obligation to pay the principal, either in whole or in part. Usually, in European countries, no fixed date is set for the repayment of public debt. A different policy is pursued by the United States. See.

. Provision for the payment of public debt is sometimes made by the establishing of a sinking fund. A sinking fund contemplates the gradual extinction of a debt, provided by the law authorizing the debt, and while it has been discarded in the practice of the more advanced nations, is sometimes used by the nations of weaker credit. It is needless to say that the faithful fulfillment of the condition when it exists tends to support public credit. Sinking funds may assume various forms, but the principle is simple. The State guarantees an annual appropriation, as, for instance, 1 per cent. of the principal of the debt, which is used to repurchase a part of the debt in the market. The bonds so purchased are not destroyed, but are set apart in a separate fund or sinking fund, and continue to draw interest. The interest of the first year's instalment to the fund plus the second year's instalment is used to purchase bonds. By this process carried out the Government in time acquires possession of all its own bonds, which are then destroyed and the debt cancelled. This plan seems very simple and in the early part of the nineteenth century was widely adopted. Its defects are, first, that the State has not always the money available for such an appropriation; second, that it is not always expedient to purchase bonds in the market because of the premiums upon them, and third, that such a reserve of unredeemed securities can with difficulty be maintained inviolate in times of emergency. In view of these defects, sinking-fund arrangements planned in this way by statesmen like Pitt and Hamilton have never been followed to their logical conclusions. Modifications of one sort and another have been introduced which have left of the original institution little more than the name. This is shown in the history of the sinking funds in the United States, especially that of 1862. By the law of February 25, 1862, it was provided that, after the gold receipts from customs had been used to pay the interest, they were