Finally, in all countries though with diversities due to national peculiarities, the modes of account and control have been brought into a more effective condition. Previous legislative sanction for both expenditure and receipts in all their particular forms is absolutely necessary; so is thorough scrutiny of the actual application of the funds provided. Either by administrative survey or by judicial examination care is taken to see that there has been no improper diversion from the designed purposes. It is only when the varied systems of financial organization are studied in their general bearing, and with regard to what may be called their frame-work, that their essential resemblance is thoroughly realized. Such a real underlying unity is the reason and justification for regarding “public finance” as a distinct subject of study and as an independent division of political science.
Local Finance.—One of the most remarkable features of modern financial development has been the growth of the complementary system of local finance, which in extent and complication bids to rival that of the central authority. Under the constraining power of the Roman Empire the older city states were reduced to the position of municipalities, and their financial administration became dependent on the control of the Emperor—as is abundantly illustrated in the correspondence of Pliny and Trajan. After the fall of the Western Empire, a partial revival of city life, particularly in Italy and Germany, gave some scope for a return to the type of finance presented by the Athenian state. Florence affords an instructive specimen; but the passage from feudalism to the national state under the authority of monarchy made the cities and country districts parts of a larger whole. It is in this condition of subordination that the finance of localities has been framed and effectively organized. Though each great state has adopted its own methods, influenced by historical circumstances and by ideas of policy, there are general resemblances that furnish material for scientific treatment and allow of important generalizations being made.
Amongst these the first to be noticed is the essential subordination of local finance. Alike in expenditure, in forms of receipt, and in methods of administration the central government has the right of directing and supervising the work of municipal and provincial agencies. The modes employed are various, but they all rest on the sovereignty of the state, whether exercised by the central officials or by the courts. A second characteristic is the predominance of the economic element in the several tasks that local administrations have to perform, and the consequent tendency to treat the charges of local finance as payments for services rendered, or, in the usual phrase, to apply the “benefits” principle, in contrast to that of “ability,” which rightly prevails in national finance. Over a great part of municipal administration—particularly that engaged in supplying the needs of the individual citizens—the finance may be assimilated to that of the joint-stock company, with of course the necessary differences, viz. that the association is compulsory; and that dividends are paid, not in money, but in social advantage. The great expansion in recent years of what is known as Municipal Trading has brought this aspect of local finance into prominence. Water supply, transport and lighting have become public services, requiring careful financial management, and still retaining traces of their earlier private character.
Corresponding to the mainly economic nature of local expenditure there is the further limitation imposed on the side of revenue. Unlike the state in this, localities are limited in respect to the amount and form of their taxation. Several distinct influences combine to produce this result. The needs of the central government lead to its retention of the more profitable modes of procuring revenue. No modern country can surrender the chief direct and indirect taxes to the local administrations. Another limiting condition is found in the practical impossibility of levying by local agencies such imposts as the customs and the income-tax in their modern forms. The elaborate machinery that is requisite for covering the national area and securing the revenue against loss can only be provided by an authority that can deal with the whole territory. Hence the very general limitation of local revenues to certain typical forms. Though in some cases municipal taxation is imposed on commodities in the form of octrois or entry duties—as is notably the case in France—yet the prevailing tendency is towards the levy of direct charges on immovable property, which cannot escape by removal outside the tax jurisdiction. In addition to these “land” and “house” taxes, the employment of licence duties on trades, particularly those that are in special need of supervision, is a favourite method. Closely akin are the payments demanded for privileges to industrial undertakings given as “franchises,” very often in connexion with monopolies, e.g. gas-works and tramways. Over and above the peculiar revenues of local bodies there is the further resource—which emphasizes the subordinate position of local finance—of obtaining supplemental revenue from the central treasury, either by taxes additional to the charges of the state, and collected at the same time; or by donations from its funds, in the shape of grants for special services, or assignments of certain parts of the state’s receipts. Great Britain, France and Prussia furnish good examples of these different modes of preserving local administration from financial collapse.
The broad resemblance between the two parts of the entire system of public finance is seen in another direction. To national debts there has been added a great mass of municipal and local indebtedness, which seems likely to equal, or even exceed in magnitude the liabilities of the central governments. But here also the essential limitations of the newer form are easily perceptible. The sovereignty of the state enables it to deal as it thinks best with the public creditor. In its methods of borrowing, in its plans for repayment, or, in extremity, in its power of repudiation it is independent of external control. Local debt on the other hand can only be contracted under the sanction of the appropriate administrative organ of the state. The creditor has the right of claiming the aid of the law against the defaulting municipality; and the amounts, the terms, and the time of duration of local debt are supervised in order to prevent injustice to particular persons or improvidence with regard to the revenue and property of the local units. The chief reason for contracting local debt being the establishment of works that are, directly or indirectly, reproductive, the governing conditions are evidently to be found in the character and probable yield of those businesses. The principles of company investments are fully applicable: the creation of sinking-funds, the fixing the term of each loan to the time at which the return from its employment ceases, and the avoidance of the formation of fictitious capital, become guiding rules from this part of finance, and indicate the connexion with what the commercial world calls “financial operations.”
Finally, there is the same set of problems in respect to accounting and control in local as in central finance. Though the materials are simpler, the need for a well-prepared budget is existent in the case of the city, county or department, if there is to be clear and accurate financial management. Perhaps the greatest weakness of local finance lies in this direction. The public opinion that affects the national budget is unfortunately too often lacking in the most important towns, not excluding those in which political life is highly developed.
Bibliography.—The English literature on finance is rather unsatisfactory; for public finance the available text-books are: Adams, Science of Finance (New York, 1898); Bastable, Public Finance (London, 1892; 3rd ed., 1903); Daniels, Public Finance (New York, 1899), and Plehn, Public Finance (3rd ed., New York, 1909). In French, Leroy-Beaulieu, Traité de la science des finances (1877; 3rd ed., 1908), is the standard work. The German literature is abundant. Roscher, 5th ed. (edited by Gerlach), 1901; Wagner (4 vols.), incomplete; Cohn (1889) and Eheberg (9th ed., 1908) have published works entitled Finanzwissenschaft, dealing with all the aspects of state finance. For Greek financial history Boekh, Staalshaushaltung der Athenen (ed. Fränkel, 1887), is still a standard work. For Rome, Marquardt, Römische Staatsverwaltung, vol. ii., and Humbert, Les Finances et la comptabilité publique chez les Romains, are valuable. Clamageran, Histoire de l’impôt en France (1876), gives the earlier development of French finance. R.H. Patterson, Science of Finance (London, 1868), C.S. Meade, Trust Finance (1903), and E. Carroll, Principles and Practice of Finance, deal with finance in the wider sense of business transactions.
(C. F. B.)
FINCH, FINCH-HATTON. This old English family has had many notable members, and has contributed in no small degree to the peerage. Sir Thomas Finch (d. 1563), who was knighted for his share in suppressing Sir T. Wyatt’s insurrection against Queen Mary, was a soldier of note, and was the son and heir of Sir William Finch, who was knighted in 1513. He was the father of Sir Moyle Finch (d. 1614), who was created a baronet in 1611, and whose widow Elizabeth (daughter of Sir Thomas Heneage) was created a peeress as countess of Maidstone in 1623 and countess of Winchilsea in 1628; and also of Sir Henry Finch (1558-1625), whose son John, Baron Finch of Fordwich (1584-1660), is separately noticed. Thomas, eldest son of Sir Moyle, succeeded his mother as first earl of Winchilsea; and Sir Heneage, the fourth son (d. 1631), was the speaker of the House of Commons, whose son Heneage (1621-1682), lord chancellor, was created earl of Nottingham in 1675. The latter’s second son Heneage (1649-1719) was created earl of Aylesford in 1714. The earldoms of Winchilsea and Nottingham became united in 1729, when the fifth earl of Winchilsea died, leaving no son, and the title passed to his cousin the second earl of Nottingham, the earldom of Nottingham having since then been held by the earl of Winchilsea. In 1826, on the death of the ninth earl of Winchilsea and fifth of Nottingham, his cousin George William Finch-Hatton succeeded to the titles, the additional surname of Hatton (since held in this line) having been assumed in 1764 by his father under the will of an aunt, a daughter of Christopher, Viscount Hatton (1632-1706), whose father was related to the famous Sir Christopher Hatton.