The Principles of Political Economy

Henry Sidgwick

Book III

Chapter IV

Section 1

§1. I now pass to the discussion of the chief actual cases in which modern governments have distinctly encroached on the system of laisser faire in the interests of production, either by taking into their own management certain departments of industry, or by regulating or assisting the undertakings of private individuals or companies. I ought to premise that in speaking of `governments' I include both ``central'' and ``local'' or ``provincial'' governments and do not generally take note of the division of functions between the two kinds of organs. If my limits allowed, it would be interesting to discuss the economic considerations that have to be taken into account in determining this division. We might notice in the first place the analogy between the general arguments for or against centralisation of governmental functions and the arguments for ``large-scale'' and ``small-scale'' production in private industry: in either case we have to balance the advantages of more special experience in managers and more keen concern for details of the result, against the advantages of more systematic management and generally more comprehensive views and a higher quality of skill. Again, for governmental work in which particular districts are solely or mainly interested, it is natural to select the local governments of such districts; on the other hand, care has sometimes to be taken that the local government does not exercise its functions in the interest of its locality where that is opposed to the interest of the whole country,---e.g. if a single town or district has the management of an important railroad or waterway, it may be tempted to make the greatest net profit out of its monopoly by a rate of charge inconveniently high for the rest of the community. These and other general considerations might be illustrated under more than one of the heads that we are about to discuss; but on the whole I have thought it best to avoid all questions relating to the structure of government, and confine myself to the determination of its economic functions.

If we put on one side (1) the promotion of Education and Culture, which it is not usual to regard simply, or even mainly, from a productional point of view, and (2) the `burning question' of protection to native industry,---which I reserve for a separate chapter,---we find that the departments of production with which governments have actually concerned themselves are chiefly various branches of what may be called the machinery of transfer; including under this term, not only Conveyance and Communication---the establishment and management of roads and bridges, canals and railroads, harbours and lighthouses, the organization for sending letters and telegrams, &c.---but also the machinery of Exchange; i.e. the issue of metallic and paper currency, and the business of banking so far as it is connected with currency. The universality of the need of the commodities furnished by these various businesses has been sometimes put forward as the justification for governmental intervention; it has been said that the provision for such commodities, being a matter of common concern, is properly undertaken or controlled by the community through its government. But this reason is not sufficiently special; since the needs of food, fuel, clothing, and shelter---the provision for which is almost universally left to private enterprise in modern communities---are even more urgent and universal than the needs of conveyance and communication: and, further, the reason just mentioned would not explain why governments should so largely leave the provision for the moveable instruments of conveyance---carriages, ships, &c.---to private enterprise, while undertaking the establishment of the permanent and stationary instruments---roads, canals, harbours, &c. The valid arguments for governmental interference in these departments are rather, in my opinion, the following: Firstly, organization on a very large scale---and in some cases organization under a single control---is either necessary or obviously most expedient in important parts of the businesses concerned with transfer; so that if they were left to private enterprise, either (a) some important utilities would not be provided at all, or would be more expensive or inferior in quality; or (b) the business of providing them would become the monopoly of private persons, whose interest would not generally coincide with the interest of the public. Secondly, there is a special probability that the advantage to the public of improvements in the machinery of transfer may exceed very greatly the direct utilities to the persons who primarily benefit by them; which latter are generally the only utilities for which the provider is able to obtain remuneration in the way of free exchange.

There are besides certain special drawbacks or obstacles incident to the production of some of these commodities by private enterprise, which will appear when we consider some of the businesses in detail.

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