The public domain formerly held the most important place in the source of revenues. Much discussion arose as to the wisdom of this, and the result has been that modern states have almost entirely disposed of their landed possessions. A number of reasons have been set forth why the state should retain these lands, and also why the state should dispose of them. The best summary of these arguments has been given, perhaps, by Rau, a German fiscal writer. Some of them are worthy of notice.
Disposal of Public Land. - A state should give up its public domain, he said, because it was not fitted to enter industry. In private hands the domains would yield a larger income because an individual owner is more energetic in seeking to get profits than is a public official. As a rule public officials are not so much concerned in making improvements in methods of production as are individuals. The public ownership of land, moreover, gives the government a special interest of its own, which may lessen its activity in undertaking projects which might be needed for the general good of its citizens. Competition with private industry might also lead to dissatisfaction. Experience has shown, moreover, that states that have given up lands have had an ample source of revenue from the citizens, which shows that the retention is unnecessary.
Retention of Public Land. - On the other hand, something may be said in favor of the state retaining lands so as to have an independent source of revenue. An income from such a permanent source can be depended upon, and the state does not have to rely upon legislative enactment to procure funds. When legislative enactment is necessary, officials who desire to gain favor with a part of their constituency may curtail the exaction of revenues far beyond legitimate needs. Recognition has sometimes been made of the fact that particular officials may be hostile to, or disinterested in, certain public enterprises, the usefulness of which could be hampered by retrenchment in the revenues for their development. To prevent this situation, provision is sometimes made that a certain part of the revenue collected shall be used for a particular purpose, as, for example, for the state university. If the citizenship lacks public spirit, moreover, and resents the exaction of funds, an independent source of revenue might mean more harmony within the state. The problems of inequality and injustice, which arise when funds are secured from individuals, would also be minimized, it was claimed.
Public credit would be strengthened, it was further contended, if the state had public lands to offer as security. Use was made of lands as a basis for credit to a relatively large extent in the early development of governments. One of the best examples of the use and failure of the public domain as a basis for credit was in France, when John Law used it as the basis for bank note circulation. Not only were the notes based upon the public lands of France, but also upon the lands in the Mississippi Valley. Difficulty arose, however, when attempts were made to redeem the notes.
The reasons set forth for the state's retention of public lands would have more weight if they could be managed as efficiently in the hands of the state as when turned over to individuals. This, however, would seldom be true, especially if agricultural pursuits were followed, since this form of industry does not lend itself well to large scale production. The state can draw upon the resources of its citizenship, moreover, and it has usually gained by disposing of its lands and allowing them to be managed by the greater efficiency of individuals.