Adolph Wagner

1 The State in national-economic systems. 2. The State as a category of national economic concepts and functions. 3. The ends and tasks of the State. 4. The trend towards the development of public services, especially State services, particularly in the modern constitutional and cultural State. 5. The prevalence of the principle of prevention in the developed constitutional and cultural State. 6. The determination of the scope of State activity.

 

1 The State in national-economic systems

“The theoretical systems of national economics are at the same time systems of economic – administration,” Lorenz von Stein once aptly said. Thus, we can interpret these words to mean that they are also systems of doctrines and requirements concerning the position of the State in economic life in general.

As theoretical conceptions of economic life evolve, so do scientific conceptions and practical and political demands concerning the position that the State should correctly occupy in the national economy.

As new views of economic theory come to the fore, always in interaction with changes in practical economic conditions, in production technology and the economy, in transport, in moral and legal conceptions, such as the legal norms about freedom and property, about social and economic classes, and finally also with changes in the whole of intellectual life and culture, - the doctrines and requirements concerning the State and economic life also change.
Here, too, everything is in a state of flux.

In the first major scientific period of national economics, the period of the predominantly mercantilist orientation, the State was made, more or less consistently, the dominant factor in the national economy, in line with practical developments.
This was the period of the sixteenth, seventeenth and, in many cases at least, eighteenth century, before the era of revolutions, especially in their most marked manifestations.
It was at this point that, in the European cultural world, especially in Western and Central Europe, the epoch of the territorial and State economy of the nation struggled to emerge from the ruins of the old manorial and urban economy, reaching a certain provisional conclusion, with the economy in kind increasingly giving way to the monetary economy. In this respect, the absolutist State took on the most far-reaching tasks in terms of population policy and general “national cultural policy”, including the most interventionist economic and, in some cases, technical regulation of production, sales, trade and all forms of transport.

In many cases, it transformed and improved older norms of the small autonomous bodies, took over the regulation of agricultural and commercial law. However, it also established new norms for completely new conditions (cottage industry and printing, manufacturing, foreign and colonial trade, banking), encouraging private economic enterprise by the most diverse means. The territorial State endeavoured to create a uniform market area within an external customs perimeter, the territorial basis of the national economy, by developing the border customs system, extending customs duties as far as possible to the entire national territory, levying financial duties and above all protective duties at the border and partially abolishing internal customs duties.

The theory of the national economy accepts this economic policy of the State, which is becoming ‘modern’, as essentially the correct one. It seeks to justify it scientifically, makes use of the arguments of the philosophy, jurisprudence and political theory of the time, defends the latter’s eudemonistic principle (in the time of Christian Wolff) and thus also gives the State the dominant position in economic life, just like in political life. The “theory of the welfare (and police) State” thus acquires an almost unconditional validity in all its consequences within the national economy of the time (seventeenth, and especially eighteenth century) i.e. within the science of administration and policing.

However, the economic doctrine committed the same errors, biases and exaggerations as the philosophy of the welfare State and the practice of Colbert, Louis XIV and XV, Frederick William I and Frederick the Great, and Maria Theresa and Joseph II. It posited almost no limits to the activity of the State in the field of the national economy, to the centralisation of economic administration and its direction from above, to the restriction of individual freedom and individual, often also cooperative, economic activity.

It believed that the State can and should do everything. Like the politics of the time, it also advocated the omnipotence of the State in relation to municipalities, associations and their current functions in the economic sphere.
The most general interference by the State in private relationships, the excessive limitations of the autonomy of other public bodies alongside the State, in particular the municipalities, as well as the towns, is still widely supported in theory. Science also adopted the motto ‘Everything for the people, nothing by the people.’
 ‘State aid, not mutual aid’ also became their motto.

The second great scientific period in Nationalökonomie, which can best be described and summarised as ‘liberal-individualist’, was, on the other hand, a violent reaction against all this, first in the form of the doctrine of the physiocrats, then in that of British economics, Adam Smith and his school, and finally in the extreme form of the so-called Manchester doctrine.

Here too, philosophical ideas (Rousseau, Kant), cosmopolitan viewpoints, more general literary trends (the German ‘Sturm und Drang’ period of fine literature), political transformations (the French Revolution) – and, last but not least, perhaps the most striking moment: the enormous transformation of production and transport technology in the age of steam, mechanical inventions and the foundation of technology by the natural sciences – all acted together to shape liberal and individualist economic theory.

The new doctrines and demands then interact, as usual, with the conditions and needs of practice and the ideas, interests and desires that develop directly from them.
The over-governance of the State in enlightened and unenlightened absolutism and despotism is now being attacked and rejected, as being mostly harmful in practice, at best useless, and condemnable in principle, because it treats the people like children: beneficia non obtruduntur.[benefits cannot be obtruded upon a person against that person's will].

Laisser faire et passer, le monde va de lui-même. “One (the government) should leave the sterile expenditures to themselves” (François Quesnay).

The State should withdraw its hand from economic life. The welfare mission of the State, on which, according to the doctrine and practical aspirations of the previous period, the entire mission of the State was in fact based, is now being denied as a matter of principle, and State aid in the economic and social sphere is being rejected.

Only the legal purpose of the State is being recognised, albeit within narrow limits. In terms of political economy, the State is to be no more than a ‘producer of security’.
With the granting and guaranteeing of personal freedom, free and full private property, freedom of contract and the right of inheritance, the State's mission in the economic sphere seemed fulfilled.

Everything else, according to the prevailing view, was an evil. The watchword became: the individual helping himself and, possibly, but by no means always free cooperatives, to which the ‘liberal theory’, with its individualist conception, has long been opposed; ‘everything for the people, but also everything by the people alone’, i.e. essentially by individuals for themselves. We, the individuals, should not be forced by the State to achieve economic happiness, but should be free to move about and determine the goals and means of achieving them.

Immanuel Kant and Adam Smith and their two schools of thought arrived at almost the same result as far as the State was concerned, with the exception that the State was left with a few special tasks in the field of popular education and assistance with the creation of individual institutions of public utility, for the realisation of which the interest of the private economy was either lacking or not strong enough.

Powerfully inspired by the idea of freedom, these doctrines and demands developed (William von Humboldt) without, of course, ever reaching their full realisation in practice, even in the most economically free countries (England, America). But they dominated economic doctrine from the last third of the previous century to the middle of our own, in the teaching of the “correct role of the State in relation to the national economy,” and they still enjoy a certain popularity and validity today.

And practice, statesmen, parliaments, legislation and administration have often been decisively influenced by this doctrine. The modern constitutions of agriculture, industry, commerce, the stock exchange, the currency, credit and banking, the modern constitution of labour in general and especially in the industrial field with its fundamental principle of the ‘free’ employment contract, the entire national economic policy which is the basis of all these conceptions in the various economic fields, all bear witness to this.

The liberal-individualist doctrine of the place and mission of the State in economic life then developed to the point of extreme exaggeration and the most brutal theoretical exacerbation in the so-called Manchester doctrine. This doctrine recognises only a ‘free play of economic forces on the market’, expects salvation only from the market, sees the national economy only as a juxtaposition of individual households simply linked by and on the market, looking after nothing else but themselves, and thus finally assigns to the State, in the biting but apt words of an opponent of these views, Ferdinand Lassalle, only the role of ‘night watchman’ in economic life (British Manchester School, Frédéric Bastiat, Adam Smith, German School of Free Trade, although among the latter there are many more measured voices).

Thus, as far as the State was concerned, the exaggerated ‘action’ of late mercantilist practice and the eudemonist economic doctrine had been followed by an equally exaggerated reaction. It was therefore natural that the latter should not be able to triumph for long in the science of Nationalökonomie.

The inversion in the legal, political and economic sciences towards the social from the individualistic, the historical from the abstract, the organic from the mechanical conception; the new practical economic and socio-political tasks facing the State, which steadily became greater, more difficult, but also more necessary in the 19th century; the inevitable consequence of the increasing effect of the reorganisation of production and communication technology and, in turn, the further consequences of this - the strong increase in population, the increased migration and local accumulation of population in cities, industrial and mining districts, the development of the capitalist economic system with all its accompanying phenomena, above all the sharper contrast between capital and labour, the transformation of employment, income and property relations etc. etc. - all this led to a backlash against liberal-individualist economic theory and especially against its doctrines of the supposedly correct, i.e. merely passive, position of the State in economic life.

Here, too, the critical and positive socialist literature acted as a powerful ferment on the whole of the science of Nationalökonomie, because, despite all its exaggerations, it exposed the unmistakable shortcomings of liberal-individualist theory and the State practice of laisser faire in the economic and social sphere. In German science and practice, even during the period when liberal-individualist theory and practice prevailed, the old tradition of cameral science and the historically naturalised legislative and administrative practice had always remained important. All that was needed was to re-establish a more open and energetic link with them.

On the side of the theoretical and practical opponents of the representatives of economic individualism and liberalism, there came indeed lively warnings against ‘falling back’ into the system of over-governance of the old police State and against the other, supposedly necessary consequence of following the theory of the ‘socialist State of the future’ with its complete control over all economic life, namely all production from the State.

And such perils undoubtedly existed for a theoretical and practical orientation that basically refuses to define, in precise and concise abstract formulas, the tasks of the State in the field of economic life, the ‘limits of its effectiveness’, of its ‘interference’, because it considers that this is impossible and only wants to make decisions on a case-by-case basis, according to the given circumstances.

But this only goes to show that it is in the practical problem itself that the real difficulty lies, and that theorists, legislators and statesmen are right to be cautious in pointing out the danger of going too far and entrusting the State with tasks that are too great.
However, this in no way proves, as the liberal-individualist doctrine believes it can, that ‘laisser-faire’ and the ‘free play of economic forces’ are the genuine guidelines for the State in the modern national economy.

Gradually, after the one-sidedness of the liberal-individualistic view of the second period, a third new theory of the position of the State in economic life, and thus a new national-economic doctrine of the State, has been developed, especially in German science, but also, partly under its influence, increasingly in that of other civilised peoples. According to its most important characteristic, it can probably be called the social theory.

It contains points of contact with the mercantilist and also the socialist theory of the State, but the one-sidedness and exaggerations of these two related theories are carefully avoided. The socialist theory of the ‘future State’ appears to be an extreme distortion of the so-called ‘social’ theory (otherwise called ‘State socialist’ by this author), analogous in this respect to its absolute counterpart, the Manchester theory, in its relationship to the liberal-individualist theory.

The latest scientific socialism based on the dogma of evolution and the materialist view of history (Marx and his school) rejects the term and concept of the ‘future State.’ It predicts that the State as such will become superfluous and cease to exist with the realisation of the socialist economic system of the ‘social mode of production’ based on the ‘socialisation’ of the material means of production.
But this does not imply any conception other than the one we have just outlined. What this new socialism calls the ‘social mode of production’ is simply the ‘State’ at its most powerful, which absorbs all economic and therefore also social life, but which actually has all the characteristics of the notion of ‘State’, to the most eminent degree.

However, the new social doctrine of State and economic life also adheres to important basic doctrines of the liberal-individualist period. It still represents the ideal that a classic exponent of political liberalism and individualism set out in a frequently quoted sentence: ‘What the whole greatness of man ultimately rests upon, what individual man must eternally strive for, and what he who wishes to act upon men must never lose sight of, is the specificity of strength and education’ (William von Humboldt).

The new social doctrine is based solely on the assumption that it is absolutely necessary for the State to intervene heavily in the ‘free play of economic forces’ in order to enable the individual and ultimately as many individuals as possible - if possible all individuals, especially those who are economically and socially weaker - to fulfil the economic conditions so that they can achieve this Humboldtian goal sooner or come closer to it.

However, it does not advocate such intervention in a one-sided eudaemonism solely for the sake of the individual or the individuals, but precisely for the good of the whole of the nation, for the good of the cultural community: the welfare, the prosperity, the favourable development of this whole and thus of the individuals as its members, the economic, the material uplift also of the lower classes, not merely for their own sake, but for the sake of the whole, and as a prerequisite for the most general possible moral, spiritual, cultural elevation - that is the goal which this theory sets for economic and social policy and for the State as the main organ of this policy in economic life. The peculiar national-economic doctrine of the State in this theory can be explained from these guiding points of view.

 

2. The State as a category of national economic concepts and functions

According to a widespread – though not uncontested – and, in our opinion, correct view, the term ‘economic good’ is not limited to physical objects, but is extended to personal services and to ‘relationships between persons and objects’. The State is also such a ‘relationship’, so it is only logical to include it under the term ‘economic good’.
Due to its function in and for the production of economic goods, it can also be categorised as capital, with the totality of its facilities under the standing ‘intangible capital’ of the national economy (Wilhelm Röscher, Karl Dietzel).

However, because of the sum and nature of all its activities, because of its overall function in and for the entire national economy, it appears above all as a separate institution belonging to the category of public economies, in particular the public economies based on the principle of coercion, which constitutes the highest form of these economies and thus a genuine ‘total economy of the people organised by the State’.

More or less, but always to some extent, and to a progressively increasing degree with the development of (modern) economic life as a whole, the State as an economic entity becomes a powerful, often dominating member of the whole national economic organism. In the field of production, it thus becomes partly a condition, partly a formal factor, as when it takes over material-economic branches, a causal factor of many processes. In the field of distribution as legislator and creator of law; as financial power and in particular in the fiscal and financial economy, it becomes a regulator of distribution.

Everything the State performs in terms of services and functions of all kinds, all the services it provides to the private and other public economies, that it obtains in terms of material goods and adds to the other material goods of the national economy, that it draws from the latter in terms of material goods and services, always also represents ‘economic’ processes, in particular processes of the division of labour between the members of the national economy.

However, these relations are the products not of free organisation of transactions, but of authoritative determination by the ‘sovereign’ State, which is legally and factually equipped with the coercive power that may be necessary for implementation.

From this difference in the principle of implementation within the division of labour in the State-organised national economy and in the latter as a free-transaction society, important further consequences and differences arise. They constitute advantages in one respect, but dangers and concerns in another, for all State activities in the economic field, compared with the activities of private economies that lack any coercive power.

It is therefore always necessary to consider whether, how and when the State should take over something, intervene in a regulatory manner and procure the material means for the realisation of its services (in particular by means of taxation). This can never be decided solely and definitively on the basis of simple principles, let alone dictated in brief formulae, as the doctrine tends to do time and again, but only on a case-by-case basis, examining the relevant circumstances. This is what happens in practice, but the theory should also emphasise that this is how things ought to be.

Particular difficulties arise from the fact that here as well, the most important public services of the State are of an immaterial nature, and benefit the individual classes and individuals of the people to a non-measurable, but obviously to an often unequal degree. These services usually cannot be subjected to any estimation of exchange value, are amenable to an estimation of use value only according to vague criteria and a subjective judgement, and cannot give place to a more precise comparison between their benefit for the whole and for the individuals and their costs.

The statement that the material economic costs of public services, and therefore also the taxes allocated to them, must be reproduced in the value of these services for the people and the State, and thus be made economically possible at all times (‘principle of reproducibility’), can be seen as an ideal guideline, but one that can only be followed on the basis of frequently uncertain considerations about the likely impact of public services on the life of the people and the State as a whole.

Another guiding principle of cost recovery for public services is that the benefits of these services, which are demonstrably differentiated in their effects, should be paid for solely, or to a greater extent, by the beneficiaries through taxes, fees, etc.; likewise, services that are triggered or made necessary by individuals should be paid for by them.

Given the unavoidable difficulty of correctly determining the nature, scope and costs of public services, the political postulates of liberalism regarding the participation of the population in any representative bodies in legislation, in certain controls of the administration, in the regulation of the State budget, in the approval of expenditure and the authorisation of revenue, especially taxes and fees, and also regarding the granting of legal protection to individuals against arbitrariness and unlawful action by the administration (overseeing of administrative justice) will also find support from an economic point of view.

This is intended to create, as far as humanly possible, an increased guarantee for the correct definition and delimitation of the State's perimeter, for the correct decentralisation of State administration and for the order and limited independence of the autonomous administration, for the correct financial management and fair distribution of the public burdens that necessarily result for the population and individuals from the functioning of the public body, and also for the strictly lawful function of the administration towards the individual, the association, and with regard to ‘freedom and property’.

 

3. The ends and tasks of the State

The more recent theory of the State, which endeavours to unite the correct scientific aspects of the theory of the welfare State and of the constitutional State while avoiding the past one-sidedness as far as possible, usually distinguishes between two actual organic State ends, which then correspond to main groups of tasks and services: the objective of law and power and the objective of culture and welfare.

This theory emphasises, however, that such a distinction is based on an abstraction and must not and cannot be understood and implemented in an externally mechanical way, particularly in the various specialist areas.

The theory of the national economy can accept this newer doctrine of the ends of the State and then, from its point of view, help to justify and elaborate it, thereby rendering an essential service to the doctrine of the State. In particular, the theory of the national economy must explain the significance of the State for the whole of economic life in connection with the doctrine of the ends of the State, and show how it is largely economic factors that determine the development of the State, its tasks and achievements, and its administrative organisation.

The legal objective of the State “consists in caring, first and foremost, for the common needs of human coexistence among peoples, for the legal order within the State, the people and the national economy, and externally towards other States, peoples and national economies.

Dealing with internal and external sides, but above all with the outside world, the aim of the law appears to be one of (national) power: to maintain the independence and sovereignty of the State and the people.”

The correct achievement of this goal is partly the prerequisite for, partly the most important way to promote, all economic life and circulation in the national economy, which is linked first and foremost to the territory of the State, as its physical base.

More recent historical developments have concentrated the various tasks belonging to this area - legislation, peacekeeping (preventive and repressive), the judiciary, police and defence - more and more in the hands of the State itself, transferring most of them exclusively to it and taking them away from other autonomous public bodies (municipalities, etc., including manorial estates). This has been partly conditioned and favoured by economic interests and has had major economic and financial consequences (permanent professional civil service, State judiciary, army, financial institutions; as justifications for this, see sections 4 and 5 below).

The clearly recognised cultural and welfare purpose of the modern State “consists in the promotion of the citizens, in the pursuit of their life tasks, their physical, economic, moral, spiritual and religious interests, especially insofar as common needs come into play.”

As far as possible, only the general conditions for the development of independent individuals and their free associations ought to be guaranteed: the ideal goal of drawing the correct boundaries between State and individual activity, also here and especially here. But in actual life, these boundaries are fluid, they are difficult to draw precisely in specific cases, and it is precisely here that the historical social differentiation of the population, the diversity of property, income, education, character, customs, position in life, is so significant, also due to particular causes and conditions of modern economic life. This is especially true here, as a result of the design and development of production technology, which is itself undoubtedly on the increase and, in any case, constantly evolving.

Therefore, in this area of cultural and welfare objectives, the modern State has been entrusted with particularly important and difficult tasks which are growing all the time: to provide ‘social assistance’ and support, especially to the socially and economically weaker elements of the population, those who own little or nothing, those who are essentially excluded from ‘private ownership of the material means of production’ and are dependent on those who own these ‘means of production’, those who are insecure and earn little, the ‘lower’ classes, who for all these reasons are lacking in education and sometimes in morals.

Therefore, in many cases, because the other public bodies (municipalities, public associations) are not strong and efficient enough or because standardization and uniformity of institutions and measures is required, the State's activities will branch out or coexist with the activities of such other bodies, even if not to the same extent and only occasionally (for example, in certain areas of education and transport) and not as overarchingly as in the area of law and power.

The services of the State in this field of cultural and welfare objectives then appear in two main forms: firstly, more indirectly, in measures, precautions and facilities which remove or reduce obstacles and impediments to individual, co-operative and other corporate (including communal) activities; secondly, more directly, in the establishment and provision of State facilities and institutions to be used directly by the individuals.

In the first case, the private economy and possibly also other smaller public economies (municipality, district, province) retain a more comprehensive activity of their own; in the second, the State’s public economy (like the municipal economy at a lower level) draws private economic areas into its sphere and administers them according to principles that may differ more or less from the private economy in economic and financial terms. In part, it is again technical reasons that influence the expansion of precisely this second form of State services (transport companies).

Whereas law and power remain the main and most essential domain of the developed State, the area of culture and welfare is becoming ever more extensive and expansive. According to its own laws of development, the State becomes more and more a true ‘juridical and cultural State’ responding to the driving needs of the population and in particular of the national economy.

The supreme administration of State power (government and central leadership) and State financial management (State budget) are not ends in themselves, but technical means for the realisation of the two organic objectives of the State. The government constitutes the leading (legal and economic) subject in the public economy represented by the State as a whole. The financial administration is itself a separate (production and acquisition) economy in its own right, if it is considered separately from the State’s public economy as a whole.

Their task is specifically economic: the procurement and utilisation of the material resources (money) necessary for the realisation of State objectives, i.e. for the production of State services and for the needs of governmental and financial administration.

The development of State tasks and services within the framework of State objectives must therefore necessarily be accompanied by a corresponding development of the governmental and financial administration (a larger, more specialised administration, corresponding to a finer division of labour; a civil service; higher and more secure expenditures and revenues).

 

4. The trend towards the development of public services, especially State services, particularly in the modern constitutional and cultural State

Observationally, historically and statistically, there is a clear tendency for the State to expand public or State activities with the progress of the national economy and culture in the areas of the two organic State ends, the juridical and the political.

This expansion appears as something so regular and so clearly traceable to its internal causes and conditions that it seems appropriate to speak of a ‘law’ of the increasing expansion of public (including municipal, etc.), and especially State, activities in the sense in which this expression is used and can be used in the field of social and economic phenomena.

From the perspective of the national economy, this law means the absolute and even relative expansion of the public sector, especially the State public sector, alongside and instead of the private sector within the national economy.

The causes lie in the emergence of new, increased, more refined public needs, namely common needs in the entire life of the people. The conditions consist to a large extent in changes in production and transport technology, which make the State’s function and possibly, alongside or instead of it, other public, communal, etc. functions more feasible and desirable.

The consequences are that the individual, the private economies, achieve the satisfaction of their needs to an ever-greater extent through the mediation of the State and other public bodies and pay for this in taxes and fees; or that the State and these authorities appropriate more of the sources of income from the private economy and draw from their surpluses the means to cover the costs of public services.

The preconditions for and, in turn, the consequences of the development are therefore also specifically economic and financial: the private-economy norms of remuneration are replaced by public-economy norms; the free transaction price is replaced by fees, taxes and duties.

Public finances, especially State finances, expand more and more in revenue and expenditure, taking on new forms, ‘taxes grow’ without definite limits, but the taxed, the entire population, receive the equivalent value – and, on average, a fully sufficient equivalent value – in increased and improved public services.

But for the most part, each individual is not billed for his or her individual receipt of public services, the value of his or her participation in them and his or her individual estimate in accordance with the private-sector principle of value correspondence between a specific service and its estimated value.

This only happens to some extent in the ‘financial fee system’ and in related cases, with court costs, administrative costs, school fees, transport charges according to tariffs, etc. Rather, public services are predominantly made available to the population as a whole and to the individuals as its members and, in accordance with the public-service principle of general remunerability, the individuals are then obliged to provide individual services in return according to certain standards that are deemed appropriate, i.e. they are generally taxed according to their economic capacity. The development, expansion and growth of public finances, especially State finances, therefore reflect the expansion of public activities.

In the area of both ends of the State, the juridical and the political, this development manifests itself to an even greater extent as far as the State is concerned, and this is due to historical development, to emerging needs, i.e. to the aforementioned possibility of a greater uniformity of public institutions and functions throughout the State. The effect is that the State as such assumes the main tasks of legal protection both internally and externally, even in place of other public bodies and organs (municipalities, landlords) that were previously involved in these tasks (military, judiciary, police, legislation, foreign representation).

In the field of culture and welfare, there are not the same needs for uniformity, concentration and centralisation of public institutions and functions, and in some cases the needs are just the opposite. For this reason, other public bodies are heavily involved in providing services alongside and sometimes instead of the State, and are increasingly doing so. Newer administrative institutions, such as the organisation of larger self-governing bodies between the local community and the State, serve this purpose (‘associations’, counties, districts, the recent so-called ‘higher-order self-governing bodies’).

The guarantee of undisturbed legal security within the country – the national economy – as well as externally – from one country to another, from one people to another – is becoming increasingly important with the progress of culture, again as both a condition and a consequence of that progress. The ever more complicated circulation, economic and legal relationships resulting from increasing population density, greater local concentration of the population (cities, industrial centres) and the ever more developed division of labour - these are the decisive factors that lead to an extensive and intensive increase in public and especially State activity in the area of law and power. At the same time, these are the same factors which make the principle of prevention and the corresponding institutions increasingly dominant.

The needs of the developed national economy, in particular, drive in these two directions, and the well-functioning public institutions and their services then become the prerequisite for many economic advances and thus for a generally higher level of culture. The great similarity in the development of public institutions and services in the area of law and power clearly shows that there are here general needs and conditions for development.

In the field of culture and welfare, the expansion of public, State and communal facilities and services is as much an effect and consequence as it is a cause and condition of economic and cultural progress. The only difference is that the development is not as uniform across time and space, and is subject to greater temporary and permanent differences, especially with regard to the distribution of facilities and services among the State (Empire) and the associations, municipalities or bodies acting for a specific purpose. However, the tendency towards expansion also has the character of an evolutionary law.

In the field of the production of material goods, with regard to its legal and economic basis, the land, buildings, capital – especially in the field of the circulation system – the current evolution of production technology, the needs of large companies, the evils of speculative private capital and its forms of organisation (shareholding system, stock exchange), the general climatic, health, ethical and political interests of the national community and the area in which it lives – all these factors mean that, here too, public institutions, establishments and services provided by the State, by associations and by local authorities take precedence over the private economy of individuals and commercial companies.

This is then associated with the upholding or expansion of ‘public’ ownership (albeit in the form of private law) of land, buildings, transport facilities and capital (State forests, mines, banks, commercial enterprises, transport routes, transport facilities, post office, telegraph, railways, insurance facilities, municipal transport, market, lighting and medical facilities, etc.). Subsequently, in an extensive and intensive way, an ever-richer deployment of public institutions and services takes place in the most diverse specialised fields of the production of material goods and transport – here again, with no determinable limits.

But still, according to previous experience, this only ever occurs in special areas, for special reasons, according to case-by-case decision and not according to a general formula and an absolute principle. This is a major error of socialism. The usual main areas of economic life – agriculture, trade and commerce – are and will presumably remain, at least in the main and rightly so, beyond the reach of the State or communal economy.

In other cultural fields, there has been a similar development, but on the whole even more extensive and intense, with the State, local authorities and associations taking charge of institutions, facilities and services in the areas of education, training, schools, health care, aid to the poor, charity work, etc.

This is partly because, according to the dominant ideas of the world of culture, these are more important matters for the common good: the duties of society towards the socially and economically weaker elements, the broad general interests of the whole population, a greater guarantee and a more abundant measure of satisfaction of the needs concerned, the widest possible accessibility for all circles and classes of people, the consequences of scientific progress in the most diverse areas of life, the use of the results of this progress to increase and better guarantee the welfare of the people, to safely prevent dangers and eliminate evils.

Through legislative and administrative measures and financial aid, the State is once again intervening alongside, before, and in place of, smaller public bodies, because a greater uniformity of institutions, facilities and services must be guaranteed in the interests of success, or because it offers the best guarantee that what is necessary will be carried out in the most perfect and perhaps also the most economical way, or because it bears the costs in the easiest and most appropriate way, or distributes the costs to the population in the most correct way (taxation).

The progress made by the natural sciences in understanding the conditions of health and disease in humans, animals and plants, as regards light, air, water, food, housing, etc., the pathogens and the means of prevention in many of these relationships, has had an influence on the fact that State activities are increasingly taking place in the general interest to guarantee conditions of sanitary well-being.

 

5. The prevalence of the principle of prevention in the developed constitutional and cultural State

As everywhere in the national economy, the performance of State activities at the higher levels of State life displays a growing importance taken by the capital factor, in particular by fixed capital, in the form of large institutions and permanent establishments and, partly linked to this, by skilled labour, in the form of professionally trained civil servants and soldiers.

This development is linked, particularly in the field of legal and power activities, but also in certain cases of a different nature, such as in the health sector, to a particularly important change of principle with far-reaching consequences for the entire method of carrying out public activities.

This change of principle, however, is in turn conditioned by the course of cultural development and by the needs of national life, especially economic life, arising from the latter and thus becoming a necessity. The aim is to prevent disruption of the rule of law at home and abroad, and to instil in the public mind a sense of the greatest possible security in this respect.

This is a goal of civilisation, and in many cases, under the complex conditions of the division of labour and circulation at the higher levels of the national economy –  in the latter’s industrial-mercantile phase, especially with the increasing importance of the long-distance sale of domestic products and the long-distance purchase of foreign ones, with the growing participation in world economic circulation, with the development of the credit economy – it is a prerequisite of the whole economic machinery and its smooth functioning.

There is therefore every incentive to create, through major institutions and events serving this purpose, guarantees for the secure maintenance of the rule of law, so that disruptions to the rule of law can be avoided as far as possible, so that they are suppressed at their root and, if this does not succeed completely, they are apt to be eliminated all the more safely and quickly.

This development, which can be witnessed everywhere in the cultural world and is therefore very uniform, can be summarised in the following formula: The existence of a principle of prevention along with comprehensive capabilities for the anticipation of legal disorders and other evils (e.g. in the field of health care). A formal preventive system is increasingly being implemented, so that the principle of repression recedes, only to be put into operation with all the more vigour, if necessary but on the whole exceptionally, on the basis of the preventive facilities.

Here again, in the sense of the word mentioned earlier, one can speak of a ‘law’ of the prevalence of the principle of prevention in the developed constitutional and cultural State.

In no other area of State activity is this development more important and more fraught with consequences – including economic and financial ones – than in the area of defence, in the organisation of standing armies, in particular surrounding the principle of universal conscription, major fortifications, the war fleet and related institutions.
But equally characteristic and important evidence of this law are the security police with its large institutions (Gendarmerie, Auxiliary Police), the entire judicial organisation with its standing courts, which are always ready for action, the prison system, the standing diplomatic and consular service, and in the field of culture and welfare many preventive institutions and measures of the sanitary, medical, poor-relief and charity system.

Many of these institutions and establishments in the preventive system require skilled workers and significant capitalistic resources to carry out State and other public activities. Hence the particular organisation of the modern civil service as a whole, and of the education and pension system, which often differs in principle from the wage regulations of the private economy, a kind of ‘social tax’ based on scales of value for needs and benefits.

This is why there are large standing capital investments in buildings, land, inventories, the war machinery system, weapons, tools, devices for the attack and defence of land and for sea warfare – all things whose nature and extent are determined by the state of the art and whose use requires a large permanent staff, regularly trained, even in peacetime.

This prevalence of the principle of prevention, along with all these institutions and the conditions of its application, also has far-reaching consequences for the organisation of State finances. It necessitates a very large financial outlay, which on the whole is already increasing according to the demands of technology and which remains high even in normal peacetime. And this, in turn, necessitates a structure of revenue which guarantees that this outlay is regularly covered.

Hence the huge budgets, even in times of peace, the high taxes and other significant non-tax revenues which weigh heavily on the national economy as a whole, but which are also the means of guaranteeing order and tranquillity, the primary condition of any healthy economic life and of any national culture, constituting the economic and cultural ‘insurance costs.’

However, the occasional need for repressive action increases the financial requirements even more (major modern wars) in order to be able to shift the preventive institutions into the function of repression.

But the well-prepared preventive system which then turns into repression also guarantees the greater and, above all, swifter success of repression, and therefore the quicker restoration of the rule of law and of tranquillity – an economic, social and ethical postulate of the first order, since the major costs in times of unrest (war, etc.) can then remain moderate due to their shorter duration.

Thus, from a financial point of view, the preventive system does not lead, as is too often claimed and deplored, to an increase in the overall financial needs and costs of the State, but, at least when viewed over longer periods of changing national destinies, to a different and overall more economically advantageous distribution of these needs and of the financial resources (taxes, etc.) used to cover them over longer periods.

On the whole, therefore, the preventive system may be regarded not only as a necessary development under human conditions still displayed by all present-day civilised peoples and probably also by the ones of the future, but it can also be regarded as something overwhelmingly favourable, especially in economic terms.

The evil that lies therein is not the fault of this system, but of those aspects of human nature that make such a system necessary for the maintenance of law, peace and order, probably forever – since we are dealing with aspects of human nature that are not very changeable in terms of history and location – but at any rate for an incalculably long time.

 

6. Determination of the scope of State activity

This domain is a historical product, and therefore subject to change, as we have already emphasised several times. But it is nevertheless possible to formulate some general conditions and rules for identifying this area. The result is a certain guideline which, in concrete cases, not only does not render more specific studies useless, but in fact makes them necessary for its practical application.

The ‘national-economic analysis’ of the State (Schäffle*) provides valuable information for determining the scope of State activity in general, and in particular in relation to the activity of private economies and the remaining public bodies.

It is possible to identify characteristics whose isolated and, above all, grouped occurrence leads to the presumption that a State activity has been rightly identified. Even then, a more precise justification remains necessary in the specific case or, on the contrary, a refutation remains possible. The former is facilitated, however, and the latter rightly becomes more difficult when this presumption is established, which makes it easier to justify both a positive and a negative decision.

The general rule for State activity can thus be summarised as follows: ‘The State must take on those activities to satisfy the needs of its citizens which neither private businesses nor free associations nor other compulsory communities (public self-governing bodies) can perform at all or which all of these can only perform less well or more expensively.’

The presumption of State activity also exists in the particular case when the following three conditions for the proper manufacturing (production) of the services concerned and a fourth condition for the use (consumption) of these services are met separately or jointly: in the first instance, as regards production, the greatest possible sustainability over time, spatial extension and uniformity or even exclusivity of the necessary activities within a single hand; in the second instance, concerning consumption, if the consumption of the service is inevitably, by its intrinsic nature, common to several people or even all, or can become so without specific difficulties, in particular without correspondingly increasing costs, if the service in general benefits a plurality of individuals, each of them to a non-measurable degree (essentially according to Schäffle and Wagner).

It is precisely on the basis of this rule and of these conditions that the main activities in the field of law and power – which, according to the historical development of civilised peoples, have been exclusively or predominantly taken over by the State – appear in principle to be properly entrusted to the State: the military, the judiciary, the security police, foreign representation.

However, important tasks and activities in the field of culture and welfare that have been retained or newly assumed by the modern State can also be explained and justified in principle as State activities in this way: State forestry, legislation and control over private forests, waters, mining, hunting, fishing; public roads, in particular State roads, transport (post, telegraph, railway); weights and measures, money and coinage, part of credit and banking and insurance; humanitarian assistance, poverty relief, sanitation, medical services; education and teaching; legislation around and support of agriculture, trade, commerce – all these are areas of comprehensive and expanding State activity, partly exclusive, partly shared only with the other public bodies.

In order to carry out the practical tasks of correctly determining the scope of State activity and correctly solving the financial problems associated with it, it is necessary to re-emphasise the political assumption among cultured peoples that the people's representatives should participate alongside the government (System der konstitutionellen Budgetwirtschaft, Schäffle).

As to the practical implementation of the assumed State activities themselves, the importance of a correspondingly efficient civil service must be emphasised. Therefore, here we encounter all the major questions surrounding the organisation of the civil service, the system of appointments to public offices, the guarantee of moral integrity, technical efficiency, independence of mind but also proper subordination.

The solution to the correct definition of the area of State activity, the correct organisation and function of the State administration, and the correct financial regulations and institutions, depends to a large extent on the correct solution to these questions.

It is obvious, therefore, that the modern constitutional and cultural State increasingly permeates the entire life of the people in all its aspects, the entire national economy in all its relations. However it does not, cannot and should not absorb all individual, associational and self-governing activity, which, while influenced and regulated by it, must nevertheless maintain a certain independence in the name of the overall interest.

It is not possible in principle to draw a definite line between the activities of the State and those of all others – private individuals, associations, societies, larger and smaller self-governing bodies. The correct limit must be determined according to the points of view and considerations outlined above; it is never stable, it changes and must change with the changes in the living conditions of the people, with the technology of production, with the transport system, with the changes in the national economy in general.

But there is nevertheless a limit and there always will be. The ‘theory’, including that of Nationalökonomie and ‘social economics’, can only mention these points of view. It is up to the statesman, the legislator, to draw the relatively most correct line in each case - the only one that is within man’s reach. But he must of course also take into account history, the existing conditions and needs, the facts at issue, as well as the theory, the science of the State and the national economy.

 

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Note

[*] Albert Schäffle (1831-1903) was a German sociologist, political economist and newspaper editor. In his major work, a treatise called Bau und Leben des sozialen Körpers (Construction and Life of the Social Body) he attempted to show a unity between social behaviour and biological processes, attributing to the State (the "rational social State") an important role.