HOW THE REVENUE WAS SPENT
In dealing with expenditures, the factors become more certain quantities
than those present in the forecasting of possible revenue. The money
collected from Cuba, whether it was $26,000,000 or more, has all gone,
and nothing was found in the treasury when the United States forces took
possession but numerous evidences of promises to pay, records of
receipts given by the Government for goods not paid for, and debts of
all kinds, including the salaries of a large number of the minor
officials. The first and most important item of expenditure is, as has
been said, for sovereignty expenses, and aggregates a sum exceeding
$22,000,000. These expenses are subdivided as follows:
I. Interest on Public Debt and General Expenses $12,574,709.12
II. State Church, and Justice 329,072.63
III. War 5,896,740.73
IV. Navy 1,055,136.13
V. Executive 2,645,149.98
--------------
$22,500,808.59
The largest single item in these expenditures is that of the interest on
the public debt and general expenses, which aggregates $12,574,709.12.
Of the total, about $10,500,000 undoubtedly found its way to Spain to
pay interest and sinking-fund payments on the enormous debt which Spain
had saddled upon Cuba. There has been much controversy over this debt,
and as the discussion has ended by the American Peace Commission
insisting on Spain's assuming the debt, and thus freeing Cuba forever
from the legal obligation, a brief review of the subject will be of
interest to the reader. Owing to the fact that Cuba has been, until
United States occupancy, a colony without personality and without real
representation, the question of the public debt was never properly
settled. The Spanish Government, the Cubans contend, arbitrarily
burdened the Island with the weight of the whole war debt of 1868-78.
The Cubans have rightly taken the ground that this debt was Spanish, not
Cuban. As a matter of fact, the Spanish Government, during the
insurrection of 1868-78, never admitted that there was any war in Cuba,
affirming, on the contrary, that the trouble was only a disturbance
limited to some parts of the Island, and that the immense majority of
the population of Cuba were loyal Spaniards. The conclusion to be drawn
from this official fact and from its assertion by the Government was
that Cuba was not bound to pay the expenses of that revolt. A somewhat
similar instance occurred in the Peninsula at the same time. The Carlist
War was likewise a very serious disturbance spread over some important
provinces of Spain. The cost, however, of that war was not charged to
the revolted provinces, but was considered a national debt. Besides,
there are some items which have been held as forming part of the Cuban
debt, which by no means can be accepted as such. Thirty or forty years
ago Spain sustained war with Mexico, San Domingo, and Peru, the cost of
those three wars having been charged to the Cuban Treasury, which, since
then, has annually paid the interest thereon. In 1878 or 1879, a general
liquidation of Cuban accounts took place, in which the "Banco
Hispano-Colonial" of Barcelona assumed a very important position.
Probably the cost of the three above-mentioned wars (in Mexico, San
Domingo, and Peru) and some other accounts were then settled.
Not even the smallest part of the whole debt has been employed in any
kind of Cuban improvement. A memorandum prepared by the Cuban planters
and addressed to Madrid in 1894 thus referred to the debt:
"This debt has its origin in the extraordinary expenses of the
civil war (1868-78), and it has since been increased, first by the
administrative demoralisation which is so evident to all those who
live in Cuba, and which has been so well described in the Cortes by
ministers and by representatives belonging to all political
parties; and secondly, by the deficits originating in the fiscal
laws, the first object, or aim, of which has been (particularly
since the year 1882), more than the regulation of public expenses,
to secure an excessive protection to the Spanish industries. And,
so formed, the public debt, which, as well in the years of
insurrection as in the years of peace, has enriched so many people,
represents the ruins of the war, the disorders of the public
administration, and the injustice of the fiscal laws."
During the discussion of the Cuban debt by the Peace Commission in Paris
last autumn, the _Economiste Français_ contained an article by Paul
Leroy Beaulieu, proposing an arrangement or compromise, with the
bondholders, of part of the Cuban debt (about $140,000,000). The author
of the article admitted that Cuba was not bound to pay the cost of the
last insurrection (of 1895-98). As the _Economiste Français_ represents
the interests of the French public and of the great French banking
houses that have largely invested in Cuban bonds of the issues of 1886
and 1890, the inference to be finally drawn from the above-mentioned
article is rather in favour of Cuba. If Spain thus lent her guarantee,
she did so in obedience to a necessity and as a business convenience, in
order to prop up her colonial and commercial system. The Spanish nation
believed that her domination in Cuba would be lasting, and that the
remote danger of being called upon to pay the Cuban debt was more than
compensated by the enormous amount of wealth which she drew every year
from the colony.
If, instead of extorting, yearly, millions of dollars, the Government of
Spain had applied the superabundant resources of the Island to the
extinction of the debt, it is certain that in 1895 the whole of it would
have been paid off. It may unquestionably be asserted that Cuba has, in
many ways, from 1878 to 1895, spent enormous sums of money, millions of
dollars, in payment of debts not really her own,--but with this
difference, namely, that the whole of the money lost to the colony,
instead of going to redeem the outstanding Cuban bonds, has been spent
in Spain, either in a reproductive way, or otherwise. The amount in
Spain of the manufacturing, commercial, and agricultural riches,
dwelling-houses, and even palaces, country villas, and other
investments, representing Cuban wealth which has been transferred
without any return, is incredible. The magnificent fleet of steamers of
the Transatlantic Company enters into this category. At the same time,
the unhappy Cubans who produced that wealth suffered want and went into
bankruptcy; for the Spanish exactions absorbed not only the profits of
Cuban industries, but also a part of its gross production, and in that
way encroached on the industrial capital of the Island. The encroachment
was shown and evinced by the accumulation of public and private debts in
all forms. The productive classes of Cuba have always, though in vain,
protested against the injustice of having this burden thrown upon the
treasury of the Island, which, as is shown above, has been compelled to
pay more than $10,500,000 every year for the interest and sinking fund
of this unrighteous debt.
The debt which was, so far as Cuba is concerned, wiped out by the
American Commission in Paris must have amounted to over $500,000,000.
From a variety of rather scrappy data, obtained by the author in Havana,
a brief statement of the Cuban debt has been made up. The debts of the
Cuban Treasury before the war can be reduced to five.
First: Spain's debt to the United States.
Second: Redeemable debt of 1 per cent. per annum and 3 per cent.
interest.
Third: Annuity debt.
Fourth: Mortgage notes of 1886.
Fifth: Mortgage notes of 1890.
The first debt, $600,000. is an engagement made by Spain and signed in
Madrid on the 17th of February, 1834, to pay the United States the
amount specified; it was confirmed by the minister of the Spanish Treaty
in a royal order, dated April 8, 1841, ordering the payment to be made
by the Havana Treasury.
The second and third debts have been almost entirely converted into
mortgage notes.
The fourth debt: by a royal decree of May 10, 1886, 1,240,000 notes of
500 _pesetas_ each (about $124,000,000) were issued, redeemable by
quarterly drawings and paying six per cent. per annum interest.
The fifth debt: by a royal decree of the 27th of September, 1890,
1,750,000 mortgage notes of 500 _pesetas_ each (about $175,000,000),
were issued, redeemable at par by quarterly drawings, and paying five
percent. per annum interest.
The notes of these last two emissions are placed in Paris and London,
and the redemption and interest thereon are payable in gold or its
equivalent. They are guaranteed by the customs, post-office, and stamp
revenue of the Island of Cuba, and the direct and indirect taxes, and
besides by the Spanish nation. Besides, during the last war, the Spanish
Government made an internal loan against the Cuban Treasury of
400,000,000 _pesetas_ ($80,000,000) and another one of 200,000,000
_pesetas_ more ($40,000,000), guaranteed by the Spanish customs. The
floating debt, caused by the war expenditure and payments of current
appropriations in Cuba, was not less than $100,000,000. These are not
exactly official statements, and yet they were obtained personally by
the author from official sources, and come close to the mark.
Tabulated, we have this:
STATEMENT OF CUBAN DEBT, OCTOBER, 1898
Spain's debt to the United States $600,000
Notes by royal decree of May 10, 1886 124,000,000
" " " " " September 27, 1890 175,000,000
Internal loan against Cuban Treasury 80,000,000
" " " Spanish customs 40,000,000
Floating debt, war expenses, etc. 100,000,000
------------
$519,600,000
Paul Leroy Beaulieu gives the bonded debt of Cuba as 2,032,000,000
_pesetas_, or $406,400,000. This evidently does not include the large
floating debt included in the above estimate. So far as Cuba is
concerned, this debt has been liquidated. It will, therefore, in the
language of the French economist, be "absolutely necessary for Spain to
meet the expenditure." Why not? Spain lost the game, therefore she must
pay the cost.
The largest expenditure, next to interest on debt, was for purposes of
war, $5,896,740.73. The expenses of the navy aggregate $1,055,136.13,
and of the executive department, $2,645,149.98. Under the last section
will be noted the salary of the Cuban Governor-General, $40,000, and the
expenses of his office, $46,450, aggregating $86,450. In this division,
it appears, the Civil Guards were paid; this body of men received, in
all, $2,095,221.12. The second largest item in this total is the subsidy
to the Compañia Transatlántica, which amounts to $471,836.68. A study of
these several items will at once show that the principal expenditures
for the Island of Cuba are those which have, directly or indirectly, to
do with the control of the Island by Spain. Ten and a half millions,
annual charge for the debt; nearly $7,000,000, the combined cost of the
army and navy; while upward of $2,000,000 of the total amount expended
under the classification of executive went to the Civil Guards, who have
been used for patrolling the various parts of the Island. Here, then, we
have a total of $19,500,000 for extraordinary expenditures, the larger
portion of which will be abolished now the public debt is wiped out and
peace restored to Cuba.
The second grand division of expenditure is the smallest, and represents
the amount of money which was spent strictly for local affairs, and not
in the defence of the sovereignty, in its possession of Cuba, and the
payment of an unjust debt. One of the first items of expenditure under
this latter head is the result of the concession last year by Spain of
autonomy for the Island, and the round sum of $133,830 is paid under the
head of "Colonial Legislature." The second section is for the church,
justice, and executive; also for the courts of justice, expenses for
prisons and charitable institutions. It aggregates $1,612,859.44. The
next most expensive department of the Government seems to be that of the
Treasury, the salaries of the secretary, sub-secretaries, and other
officers aggregating $218,725. This does not include general expenses,
which make another item of this department, aggregating $33,500. Under
the head of contingent expenses may be found the various provincial
administrations of the Treasury; the cost of administration of
custom-houses and revenue marine, amounting to $472,370, giving a total
for the department of $708,978.51.
Public instruction fares badly in Cuba. Under this head, it appears,
$247,033.02 were expended. The largest item in these expenditures seems
to be for the University of Havana and its educational adjuncts,
aggregating $172,840.80. The next largest item is the salary of the
Secretary of Education and the inspectors of primary instruction, etc.,
aggregating $58,300. None of the total amount seems to go for
common-school education, as it is understood in the United States. Under
the head of "Public Works and Communications," $1,036,582.10 was
expended. The proportion of this money which goes for salaries is very
large indeed. The largest single item of expenditure is given under the
rather dubious heading of "Communication," and aggregates $417,640.
Repairs and care of public buildings, including rent of buildings,
aggregates $79,500; postal communication, $114,514. Marine navigation,
including docks and sheds, lighthouses and buoys, aggregates $98,058;
and the construction of the San Cristobal bridge, $49,000. The care and
repair of public roads cost $100,000; in all making the above-mentioned
total.
[Illustration: A COCOANUT GROVE.]
The agriculture, industry, and commerce of Cuba, like the public
instruction, in the broader sense of the word, comes in for a meagre
share of the small amount of the total budget, which seems to be
reserved exclusively for expenditures for the benefit of the Home
Government. The aggregate under the title of "Agriculture, Industry, and
Commerce" is $108,178.52, the most of which is used in salaries and
expenses for the secretary's office, for which one-third of the total
appropriation is expended. Under the head of "Local Fairs of
Agricultural Industries," $40,000 is appropriated. The forest lands seem
to come in for some attention; at least $16,175 is expended for
inspection under this head.
These form the chief items of expenditure for all purposes for the
Island of Cuba. Perhaps it would be more accurate to say these are the
estimates of the appropriations which the Secretary of the Treasury
thought would be necessary to run the government on the present plan. It
is only necessary to study these interesting tables in detail to see
where a large amount of this expenditure can be reduced or abolished
altogether. In doing this, however, it must be borne in mind that other
expenses will be necessary in order satisfactorily and honestly to
administer the affairs of Cuba in the interests of the people of the
Island.
At this moment it is impossible to make a satisfactory estimate of the
new budget, nor can it very well be done until after the United States
authorities have been in full possession for at least twelve months, and
are thus able to secure complete data as to the pressing needs of the
Government of Cuba. Of course, the large items, such as interest on the
public debt and expenditures of Spain for the purpose of conquering the
Island will have disappeared, making a reduction, if we include the
Civil Guards, of $18,000,000 or $20,000,000. To forecast how much of
this amount will be required for immediate expenditures under the new
order of things is impossible.
In recommending revenue laws for Cuba, the author was aided by the
suggestions of Mr. Fran Figueras, who has given the subject intelligent
consideration. To emphasise the importance of giving immediate attention
to a careful division of the expenditures for the central government and
the expenditures for local purposes (something the Spanish Government,
in the whole history of its management of Cuba, has failed to do), the
following is given from a statement made to the author by Mr. Figueras:
"The right to impose customs duties has a rational and just limit;
it is determined by the legitimate needs of the Treasury. All in
excess of these needs converts tax into an unjust, and therefore
insupportable exaction. With due attention to these considerations
and bearing in mind that the customs duties are the real source of
revenue in the Island of Cuba, it is indispensable to determine the
total amount of expenditure which this revenue must liquidate. If
these expenditures are those used for public defence, central
government administration of post-offices, justice, public works,
education, and any other which it would not be advisable to turn
over to the municipal or provincial governments, we may safely
consider that six million to eight million dollars annually would
be quite sufficient. This is the largest revenue the American
Government should expect from the administration of customs duties
in Cuba."
Another statement well worth attention in this connection is that of Mr.
Philip Pelaez, a former official of the Spanish Government in Cuba, who
said to the author when in Havana:
"Neither in the administration of the islands, nor in the ministry
of the colonies, are there any statistics with respect to the
composition of the tariffs, and only a few data with regard to
valuations. This is as much as can be stated precisely offhand
concerning the said tariffs, an analysis of which, article by
article, it would be very difficult to get, seeing that there are
no statistics of the real importations. Even without asking these
investigations, there remains for the Government of the United
States the most interesting problem on the making of peace, with
the cession of the two islands. Is free trade convenient? Is a
simple tariff preferable? Would it not be more prudent to keep to
the existing one? Free trade at the present time would impose the
burden of the general expenses without any profit and with great
dangers, the most immediate being the paralysation of business, the
flight of existing capital, etc. The _ad valorem_ tariff diminishes
the receipts and gives advantages to a multitude of foreign
articles. The tariffs now in force would, with a few changes, suit
the islands and the United States for a long time to come."
This sets forth substantially what has been done. The United States
Government has made no violent fiscal changes in Cuba. Where the old
laws and methods and customs could be fitted to the new order of things,
they have been so fitted. The first and only radical change in the
revenue system of Cuba is the speedy and absolute separation of local
and general revenue. That which is local should be collected by local
authorities and regarded as municipal revenue, to be expended for
municipal purposes; while that which is general should be levied and
collected by general authorities and expended for the general welfare of
the Island. The general fund, after careful consultation with the
governor of each province, should be apportioned geographically, and
also into funds, such as the following:
_a._--Maintenance of the general government, 20 per cent.
_b._--Sanitary and other improvements, and loans to cities
therefor, 10 per cent.
_c._--Public schools and education, 10 per cent.
_d._--To pay the bonds and other obligations issued by the
Provisional Government of Cuba and its duly authorised agents since
February, 24, 1895, which in the aggregate must not exceed
$2,500,000, and to pay amounts due the soldiers of the Army of
Liberation, 20 per cent.
_e._--Development of the Island by the building of railroads,
properly constructed highways, and other means of communication, 25
per cent.
_f._--The repayment of the cost to the United States of the
temporary military occupation pending the establishment of the
proposed stable and independent government, 15 per cent.
As all the expenses of the municipal and local government can be readily
provided from taxes on real estate, income tax, liquor licences, and
other internal-revenue taxes, the customs revenue can, without
embarrassment, be devoted to and amply satisfy all general governmental
requirements as scheduled above. The percentages above suggested are, of
course, tentative, and must not be regarded as more than a rough
apportionment. The widest possible latitude should be given each
provincial governor in the expenditure of the share of the general funds
allotted him for sanitary and other improvements, public schools, for
building railroads, and constructing highways. A study of the Jamaica
budget, presented in Chapter IV., might help in a fair apportionment of
funds for the new budget of Cuba. The subject has not yet been taken up
systematically by the United States Government, but will soon need
attention, or the old haphazard Spanish methods will receive a new lease
of life. Such a contingency would indeed prove a misfortune.