CHAPTER V

REVENUES FROM DOMAINS

13. Later Views concerning Domains: Rau. — In England and France, where revenues from landed domains had already sunk to small proportions, the opinions of Adam Smith concerning public landholding gained instant acceptance, and have ever since dominated financial thought. In Germany, Smith's views were accepted by many writers during the first half of the nineteenth century, but after that German opinion gradually drifted back toward the older position, and became more favorable to the retention of domains. About the middle of the nineteenth century a leading economist, Karl Heinrich Rau, presented the following summary, which has become classical in German science, of the reasons for and against the alienation of domains:

At the present day the following are the principal reasons in favor of the alienation of domains:

1. A government is not well fitted to carry on an industry. Private owners, as a rule, make better use of a source of income because they work with greater zeal, give more thought to the improvement of processes, and can manage any branch of industry with vigor, a thing especially important in intensive agriculture. Governments, on the other hand, must maintain an expensive body of lower and higher officials who are less energetic and economical than a proprietor, or are fettered by troublesome administrative regulations. Experience shows conclusively that domains in private hands yield a larger net income.

2. The sale of domains is an easy method of paying off public

1 From Rau's Finanzwissenschaft, §§ 94-98 (fifth edition, 1864).

debts, if it is considered important to do this on a large scale; while the treasury profits thereby because the purchase price of land is usually so large that the interest on the debt retired exceeds the former income from the domains.1

3. The possession of domains gives the government special interests of its own which make it disinclined to undertake many reforms of general benefit to society, such as the abolition of feudal burdens on landed property; or it may at least be unpopular on account of the conflict which arises with the interests of private citizens.

4. Experience shows that domains are in no way necessary to insure a revenue sufficient to meet public expenditure, and that in several states of western Europe in which the domains yield. only a small amount, adequate revenue flows regularly into the treasury without pressing too heavily upon the citizens.

Upon the other hand, the retention of domains, even at the present day, may be defended upon other grounds:

1. From the standpoint of general statecraft, domains have been considered an important support of hereditary monarchy, which has sprung from the possession of large landed wealth and must always rest upon it. Income from domains is prized also because it does not depend upon the consent or grant of a parliamentary body, and can be relied upon in times of internal disturbance or social changes.

2. The income from domains arouses no dissatisfaction or feeling of deprivation, because it flows from a business undertaking independently carried on by the government by means of public property which has long been withdrawn from private ownership. Upon the other hand, taxes have to be paid year after year from the incomes of private citizens, and unavoidably lead to many inequalities and much vexation. If the domains should be sold to poor advantage or the purchase money unwisely used, it would then be necessary even to increase the taxes in order to make good the loss of the income from the domains.

1 If, for instance, domains which yield a net income of 1,000,000 florins can be sold for 30,000,000 florins, and this sum can be used in retiring debts which bear 4 per cent interest, the government in this way saves 1,350,000 florins in interest payments, which exceeds by 350,000 florins the income formerly drawn from domains.

But with this argument it is necessary to observe that the alleged advantage of income from domains would not be decisive if the public lands were less productive than private estates so that the production of wealth would be smaller. Only when the domains are as well managed as private estates is this argument important. Then in the next place, if the money received in the sale of domains is applied to the extinction of debts or profitably invested, no increase of taxation would be necessary; while if other causes increase public expenditures, the retention of domains could not prevent heavier taxation. In a well-governed state legal precautions would be taken against squandering the money received from the sale of domains, or spending it for current outlays.

3. Even if experience shows that public lands in many cases yield a smaller income than private estates, it cannot be affirmed that this must invariably be the case. In this matter one must take into account the kind of land in question, and its quality; while it must be remembered that the methods of administering it may be improved. . . .

4. The income from domains must increase in the course of time, because the rent of land rises as the prices of its products advance and the soil is better and more scientifically cultivated. (Rau goes on to show that this consideration is offset by the fact that the income from the lands is larger under private management, and that the public treasury will profit, therefore, because the citizens are richer.)

5. Public loans can be more easily floated because the domains afford collateral security acceptable to creditors. This, however, is of little moment, especially in the larger countries with good credit, where well-managed finances and the proven good faith of the government make landed possessions unnecessary as a support for public credit. The concurrence of a parliament in contracting a loan is of greater aid to the public credit than the pledging of domains, a security which is sometimes of doubtful legal force.

6. Domains may be useful because improved methods of cultivation can be introduced upon them, and then the knowledge of such things can be widely extended. . . .

Later German writers generally attach less weight than Rau did to the arguments in favor of alienation. Wagner, for instance, says that Rau erred in giving attention exclusively to the financial aspects of the question, or to the influence of public landownership on the production of wealth, and says that the problem of the distribution of wealth and various ques tions of social policy should be taken into account. The retention of domains, he thinks, may be defended on such grounds even when the considerations mentioned by Rau seem to tell against it. Into this subject we cannot follow him, since the questions involved are not of a financial character and fall outside of the scope of our studies.

14. The Public Domain of the United States. - By cession from the original states and by subsequent acquisitions of new territory (as in 1803, 1819, 1845, 1846, 1853, and 1867), the United States has, at various times, come into the proprietorship of a public domain of not less than 2,708,388 square miles. The general policy of the government has been to dispose of the land as fast as seemed practicable and desirable. The methods followed and results achieved are described in the following article by Professor Albert Bushnell Hart: 2

First in amount and importance are the sales. The history of the public lands happens to fall into five tolerably distinct periods, each of about twenty years. From 1784 to 1801, the policy of the government was to sell lands in large quantities by special contract; the result was an average sale of less than one hundred thousand acres yearly. In 1800 was inaugurated a new system of sales, in small lots, on credit; about eighteen millions of acres were thus taken, but more than two and a half millions subsequently reverted to the government under relief acts. In the middle of 1820 began a system of sales for cash,

1 Finanzwissenschaft, I, §§ 219–220.

2 Reprinted, by permission of author and publisher, from Hart's Practical Essays on American Government, pp. 239 et seq. New York, Longmans, Green, and Co. (1893).

in lots to suit purchasers. Seventy-six million acres were sold in twenty years; but of this large quantity one half passed out of the hands of the government in the two years preceding the panic of 1837. After that revulsion, the preemption system was adopted, by which the most desirable lands were reserved for actual settlers, at a low price. Except in the years 185657, the sales were steady, and kept pace with the growth of the West. The homestead system carried the principle of "land for the landless" still further, and cut down cash sales to an average of a million acres a year. Since 1880, preëmptions have been resorted to again, in many cases for fraudulent purposes; and the total sales average almost four million acres a year. At present, lands are classified by the land office as agricultural, saline, town site, mineral, coal, stone, and timber, and desert lands. From 1854 to 1862, there was a further class of "graduated lands." These were tracts which had long remained unsold, and were offered to abutters at very low prices. The mimimum price for ordinary lands has for many years been $1.25 per acre. Timber lands and lands reserved from railroad land grants are sold at the "double minimum" of $2.50 per acre; mineral lands are valued at $2.50 and $5.00 an acre; coal lands, at $10 and $20 an acre.

It would seem, therefore, as though the sale of a hundred and ninety-two million acres must have brought in a handsome sum to the government. As long ago as 1787, Thomas Jefferson wrote: "I am very much pleased that our Western lands sell so successfully. I turn to this precious resource as that which will, in every event, liberate us from our domestic debt, and perhaps, too, from our foreign one." It is true that the proceeds of the public lands did eventually wipe out the last vestiges of the debt which had existed in 1787. It is true that the lands had, up to June 30, 1883, brought into the Treasury of the United States the smart amount of $233,000,000. It is equally true that, except for the period from 1830 to 1840, the lands have been a drain upon our finances. At the end of the financial year 1882-83, the government was out of pocket, so far as cash outlay and receipts are measures of the value of the lands, in the sum of more than one hundred and twenty-six millions of dollars.