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Relation of Public Expenditures to Industrial and Political and Social Conditions


It is the purpose of this chapter to trace the influence of the industrial, the political, and the social conditions of a peo ple upon the aggregate of their public expenditures. Each of these elements of a civilization works in a manner peculiar to itself, and for that reason each may be made a topic for separate analysis.

7. Public Expenditures and Industrial Development. The expenditures of a government may properly be regarded as the complement of private or non-governmental expenditures. Both are charged to the general social income, and for that reason the amount placed at the disposal of government for the purpose of carrying on the public service must be deter mined in view of the industrial development of the nation which gives rise to that income. It is the percentage of pub lic expenditures to the gross income of society that provides a basis for judging the fiscal claims of a government, It is the ratio of the amount consumed to the fund by which con sumption is supported that measures the intensity of a given demand. This being the case, it is clear that a demand for a public service which could not be reasonably allowed when the fund by which it is to be supported is small might be readily sanctioned should the wealth at the disposal of society be in any considerable degree increased. This is an applica tion of a general truth familiar to the latest phase of economic theory, namely, that our estimate of the importance of a service increases as we approach the possibility of its realization, while our estimate of the burden occasioned by the cost of a service decreases as the amount of wealth placed at our disposal increases. It is easier, for example, for the United States to assign $38o,000,000 to the support of the service of the Federal Government at the present time than it was to provide for the expenditure of $3,000,000 in a result due not so much to the increase in population as to a rise in the productive capacity of the people. This thought, which is a familiar one to writers upon finance, is usually ex pressed by saying that the burden of a tax depends rather upon the ability of the citizen to pay than upon the amount paid, and that this in turn depends upon the average wealth of the citizen.

The claim that the aggregate of governmental expendi tures is largely determined by industrial development finds support, also, in the general theory of social evolution. It is a fundamental law of social development that human wants are capable of indefinite expansion, but that their expansion will conform to the order of their relative importance. The conscious ability to satisfy a want which previously lay dor mant gives to it a vitality that raises it from the rank of a simple desire to the rank of a vital principle capable of giving direction to social activity. As expressed by Bentham, " De sires extend themselves with the means of satisfaction; the horizon is enlarged in proportion as one advances, and each new want equally accompanied by its pleasure and its pain becomes a new principle of action." Now it is evident that, for the orderly development of society, new collective wants as well as new individual wants must emerge as development proceeds, from which it follows that industrial growth opens up to society ever-expanding possibilities, which, in part, will be reflected in a corresponding expansion of those functions which government alone can perform. A part, at least, of the increment of social income will be claimed for increased public expenditures.

From the point of view of social investment, also, does it appear that the expenditures of a State are dependent upon the stage of industrial development attained. In the analysis of the foregoing chapter it was suggested that a profitable investment for a State is one which results in raising the grade of industry to a higher level of efficiency. This is a suggestion of considerable importance when one is in search of an explanation of increasing public expenditures among industrially progressive peoples. Should it be generally recognised that the increment of product resulting from the industrial development of the past, by means of which society finds itself in possession of a growing surplus, is in any degree traceable to the action of the State, it is but reasonable that men should willingly give support to a project calling for further investments along the same line. This is the way in which the business mind works in ordinary affairs, and it will undoubtedly follow the same line of reasoning when called upon to judge of public expenditures. The only thought against this conclusion is found in the claim that the neces sity for government decreases as intelligence and a habit of voluntary association increase. The pertinency of this claim can only be determined by an investigation of the facts. But when it is recognised that growth in numbers, differentiation in the industrial process, and expansion of commerce and trade bring society face to face with new perplexities and new dangers at every step, it is not easy to see how the activities of a State can ever be less than they are at the present time. On the contrary, it seems reasonable to assume that with each increment in the social product the people will conceive it to be to their advantage to invest added sums in the machinery of government. From the point of view of investment, there fore, as well as from a consideration of the satisfaction to be secured from the activities of the State, may we conclude that the fiscal demands of government will increase along with, if not in proportion to, the general social income.

The above analysis is pertinent beyond that of strengthen ing the impression that the considerations which determine the aggregate of public expenditures root themselves in the industrial order. It suggests, also, the appropriate classifica tion of states, should one undertake a comparative investiga tion into public expenditures. If it be true that the amount of normal expenditure rests fundamentally upon the efficiency of capital and labour within the country, the amount appropri ated for the support of the State has no very definite mean ing until referred to some particular stage in the order of material development, and through this to the rank or grade of the nation in question judged from the point of view of modern civilization. A cursory review of history shows that what for one nation is an indigenous growth is for another the result of imitation; what to one people springs easily and naturally out of their industrial conditions imposes upon another a conscious and possibly a severe strain. A com prehensive study of the growth of public expenditures, there fore, would call for a separation of those peoples with whom material development is the forerunner of fiscal expansion from those which, by the pressure of political competition, find it necessary, or think they find it necessary, to impose an extended fiscal system upon an inadequate industrial economy.

8. Public Expenditures and Political Conditions. The political conditions by which public expenditures are in fluenced pertain to external relations, or what may be termed the political environment of a people, and to internal rela tions or political organization. Our analysis will grant each of these relations separate consideration.

(I) Expenditures and Political Environment. It must be observed, in the second place, that the aggregate of public expenditures is closely related to the political environment of states. The most obvious illustration of this is found in the increase of military expenditures incurred by the leading na tions of Europe; and, now that the spirit of Western rivalry has invaded the Orient, we may expect similar results to make their appearance in the budgets of China and Japan. The growth of expenditures in Europe in recent years, trace able to the necessity of living in constant preparation for war, has been very marked. The aggregate of military and naval expenditures for selected years since 1868 for England, France, Germany, Austria, Russia, and Italy is • First four amounts quoted from Bastable, p. 69.

No one would care to deny that these enormous payments for the support of army and navy are the results, possibly under existing conditions the inevitable result, of the spirit of nationality by which the foreign policy of modern nations is controlled. It would be incorrect, however, to say that the spirit of nationality is an adequate explanation of this expen diture; it is rather the contiguity of a warlike neighbour, powerful in resources, and equally strenuous in the assertion of its nationality, that imposes upon a people the necessity of a military budget. It is no part of finance to moralize on the nature of this expenditure. All that can be said is that the spirit of nationality is perhaps the most potent factor in the political life of modern peoples, and until it has spent its force, or until, through the development of international law, the necessity of appeal to the arbitrament of arms becomes less frequent, provision must be made in national budgets for military expenditures.

That the spirit of nationality in itself is not an adequate explanation of the growth of military expenditures is evi denced by the fact that it does not necessarily manifest itself in this form. Whenever a nation is so fortunate as to be separated by a natural barrier from neighbours who are foreigners by blood, enemies by virtue of their history, or irritants because they acknowledge a different social ideal, the fact is unmistakably reflected by the form of the ordinary budget. Many illustrations of this might be cited. Victoria, for example, out of a total annual expenditure of between $4o,000,000 and $5o,000,000 appropriates but $2,000,000 or $3,000,000 for defences. Her budget shows no separate chap ter for army and for navy. The United States spends about $42,000,000 on army and navy out of a total expenditure of $380,000,000. In the former case the country is quite sepa rate from any foreign power; in the latter, the contiguous countries are decidedly inferior in population, wealth, and na tional strength, and, what is perhaps of equal importance, the United States has no violent or deep-rooted historical preju dice, while her commercial and social interests are, in the main, common to those of neighbouring countries.

While it is undoubtedly true that contiguity of territory occupied by strong and self-assertive peoples is the most im portant of the surface facts in explaining the increase of mill.

tary expenditures among modern peoples, it by no means suggests a complete statement of what is meant by the phrase " political environment." The final thing in the analysis of national character is the conception of rights and duties, pub lic as well as private, inter-national as well as infra-national, which a people entertains. This is equivalent to saying that the conception of law is the groundwork of social life. Now it is evident that government is limited in its application of law for the peaceable settlement of disputes to those ques tions respecting which there is a general consensus of opinion with regard to the rights and the duties that are involved. Beyond this point force of some sort must be employed, and provision for the exercise of force will be considered essential. This being the case, it is futile to urge disarmament, and the consequent extinction of the military budget, so long as there continues to be a conflict of legal ideas. The fundamental principles of the systems of jurisprudence, that phrase being used in its broad and comprehensive meaning, must be ren dered harmonious before juridical procedure can supersede the employment of force. It is no accident that the first ap proach to a successful tribunal for the arbitration of inter national disputes should rest upon negotiations for a treaty between England and the United States, for these peoples practise the same system of jurisprudence. Their theory of rights, and the method by which they aim to enforce those rights, are the same. A standing international tribunal rest ing on agreement between England and Russia, however, or between the United States and China, is beyond the range of reasonable expectation at the present time; for it is only upon the basis of a common system of jurisprudence that a system of international law can be developed which shall render the preparation for war unnecessary. It thus appears that the controlling element in the political environment of nations by which military expenditures are determined is the similarity or dissimilarity of the systems of jurisprudence which the re spective nations have adopted.

(2) Expenditures and Political Organization. Public expen ditures are open to another influence incident to the political conditions of nations besides the one bound up in the spirit of nationality. Their organization, so far as the relative impor tance of local and central administration is concerned, affects not alone the distribution of expenditures between these two agencies of the State, but it affects the aggregate of expendi tures as well. Confidence in this generalization must rest rather on a priori considerations than on statistical evidence, since there are no two nations whose political, industrial, and social conditions, exclusive of organization for local adminis tration, are sufficiently alike to warant statistical comparison. The considerations in support of this generalization, however, are simple and convincing.

Wherever local administration is well developed, especially if it proceed so far as to attain to the dignity of local self government, a spirit favourable to collective service will be likely to show itself. Indeed, if the industrial growth take the form of an intense commercial or manufacturing life, the in evitable tendency toward congested population will force the necessity of cooperative action into the foreground; and whether this necessity be met by extending the direct ser vices of the municipal government, or by granting liberal franchises to corporations (a policy which must in time ne cessitate adequate provision for holding them to public ac count), public expenditures will in either case be increased. The readiness with which expenditures for public undertak ings will be incurred depends, other things being equal, upon the conviction among the people of their ability to manage their own affairs. It is sometimes remarked as a strange re versal of an accepted policy that Manchester in England, which was once the centre of the most intense form of prac tical laissez-faire should have adopted so readily the policy of municipal ownership of quasi-public works; but a cursory analysis of the situation shows this to have been natural in a country where local government has learned to be efficient, and where control over great commercial enterprises through cor porations is a familiar idea to the people. What the manufactu rers of Manchester objected to in their advocacy of free trade was that the protective policy of England did not enable them to control the conditions under which their industry was prosecuted. The restrictions imposed by government were an obstacle to their business success. The situation is the same at the present time with regard to private control of in dustries necessary to the industrial supremacy of the city of Manchester. The form of argument is changed, but the spirit upon which it rests is the same, namely, a desire to control public policy so as to make it contribute to private advantage. If these considerations are sound, and there are others which look in the same direction, it follows that among those peoples whose political organization imposes heavy responsibilities upon local government, the aggregate of nor mal expenditure naturally tends to increase as the commercial life of the community becomes more and more intense.

There is, however, another phase of this question. The same spirit which tends to an increase of local expenditure— that is to say, the spirit of industrial independence on the part of the citizen—will act as a check upon the expansion of Fede ral or Imperial services, and consequently tends to curtail national expenditures. Wherever the spirit of local inde pendence prevails one may always observe a quiet jealousy of central authority, which in many ways tends to limit the functions of the national government to such services as are beyond the possibility of doubt collective in character and common to all classes and sections of the country. Thus, although a people strong for local government choose to ex pand local expenditures, they naturally will endeavour to con fine national expenditures within narrower limits than might otherwise be the case. The aggregate of expenditures, therefore, both grades of government being taken into the account, will be influenced in a decided manner by the relative strength of the two sentiments favouring nationalism or localism in political affairs. This argument would amount to nothing, however, so far as the influence of local government upon the aggre gate of public expenditures is concerned, if the question in hand pertained simply to the division of a given range of pub lic functions between national and local governments. Were this the case the amount spent by each government would de pend upon the relative economy of the two centres of admi nistration. But it is probable, in view of the way in which human nature works, that the check on national expenditure will be relatively less effective than the stimulus to local ex penditure; and consequently we are warranted in the con clusion that the spirit of localism among democratic peoples tends to increase the aggregate of public expenditures. This, in one of its phases, is but another way of saying what von Hock asserts with such emphasis, that ease of raising revenue is in direct proportion to the extent to which popular gavern ment is realized.

The influence of the relative importance of central and local governments in the structure of the State may, then, be accepted as one of the permanent considerations which de termine the aggregate of public expenditures, although its normal tendencies may at any particular time be set aside by some passing phase of political or industrial life. The western world at the present time, for example, is passing through a peculiar phase of industrial history, due to the development of cheap and rapid transit for goods and persons. This means a destruction of local markets and a consequent readjustment of the territorial distribution of industries. Moreover, a world's market is in process of creation, and the questions forced upon public attention by the fact that local trading centres are being crystallized into a world's market are, from the nature of the case, national in character, if, indeed, they are not international. The result of this is that, while society is adjusting itself to the new industrial conditions to which railways have introduced the business world, it is the national government rather than the local government to which people must look for the formulation of new legal conditions, and for protection against such evils as are bound up in this period of transition, no matter how strong may be the sentiment among the people at large against the concentration of political power. But these conditions are temporary. The readjust ment will sooner or later be effected. Population will at no distant day settle itself in harmony with the new conditions. The new lands will be taken up, and manufacturing and com mercial centres will be definitely and finally settled. Then, and not till then, the occasion for the constant appeal to cen tral authority having passed away, will the spirit of local in dependence again assert itself and impose its check upon the expansion of Imperial functions. The student of finance must not be misled by the great increase in national expenditures since 184o, and he will not be misled if he keep clearly in mind the nature of the forces which determine political develop ment, and recognise the exceptional character, so far as na tional expenditures are concerned, of the present industrial epoch.

It should also be remarked—if among political conditions political corruption is to be counted—that the presence of political corruption, such as shows itself in so many of the municipal governments of the United States, will work against the normal influence of a strong sentiment in favour of local self-government. That is to say, it will tend to a curtailment of local functions, and ultimately of local expendi tures. Many who recognise the evils of corporate control over quasi-public works, and who appreciate the importance of that wide range of social services which if rendered at all must be rendered through the agency of municipal govern ment, are deterred from advocating an extension of muni cipal functions on account of the glaring evils of political corruption. It would be improper, however, to a :ept

the prevalence of political corruption as a permanent factor. While it may properly influence a policy in the presence of given conditions, it must always enter into the theory of public expenditures as an exception to the rules laid down.

Our general conclusion, then, is as follows : (I) A strong sentiment in favour of local government, as indicated by the relative confidence in Federal or local centres of administra tion, will tend to reduce national expenditures below what they otherwise would be. (2) The same spirit, however, will tend to expand local expenditures, and, assuming the same line or class of services, it is likely that the aggregate of ex penditures will permanently be greater when services are un dertaken by local rather than by central control. (3) As modifying the above conclusion it should be added that the aggregate of expenditures may at any particular time be re duced below what it otherwise would be on account of the fact that local governments, however strong in theory, are in reality weak wherever political corruption prevails in local affairs.

9. Public Expenditures and Social Organization. The aggregate of public expenditures depends, in the third place, upon the theory of social relations which a people has adopted, and the degree of strictness with which that theory is followed in practice. This theory may be looked for in the accepted philosophy of the respective rights and duties of government and individuals, or, what amounts to the same thing, in the attitude of mind which the public instinctively assumes when certain social or industrial problems are under consideration.

The problems of the class referred to are such as rely for their solution upon the extension, in some of its various forms, of the principle of cooperation; but a great deal depends, so far as public expenditures are concerned, upon the character of that cooperation. Is the collective activity demanded govern mental or is it private? Is the cooperation desired to be secured by coercion or through voluntary association? One cannot emphasize too strongly the contrast between these two forms of social activity in their influence upon the ratio of public to private expenditures, or, as we are now discussing the subject, upon the aggregate of public expenditures.

It is exceedingly difficult in a few words to express the char:. 7teristic features of the social theories which, under various forms and with many and constant modifications, give colour to the social and political fabric of various states. These differences may, however, be suggested by observing that the one theory is a modification of the view of the State assumed by Roman law, and exemplified in a general way by most of the Continental peoples; while the other is a develop ment of the Teutonic and Saxon ideas of personal liberty, and shows its most natural unfolding among peoples of English torical descent. The former makes the State the centre of all col lective life, and defines the rights of individuals in terms of na tional importance; the latter places the individual at the cen tre of thought, and conceives of the State as one of several means to individual attainment and development. Under the influence of that philosophy which subordinates the individual to the State it is natural for those intrusted with the adminis tration of government to regard all questions as properly ad justed when the interests 6f the State are conserved. Es pecially will this be true if to such a theory of society there be added the influence of the monarchical form of administra tion. It is logical, for example, that they who represent mo narchical governments should accept the necessities of the State as the true measure of legitimate expenditures, without having very much regard to the concurrent needs of indi viduals; and in view of this trait of character, which leads men to unduly magnify whatever service they for the time being render, or whatever office they happen to occupy, it is not strange that the claim of government upon the social in come should be strong for all those lines of service which foster national pride and increase bureaucratic importance. It is easy, also, under such a social theory, for the spirit of paternalism to show itself in many of the items of a budget, and for the thought that the State is an industrial corporation as well as a political organization to swell the proportion of public expenditures.

The view of social relations which underlies English com mon law, on the other hand, works upon national expendi ture in quite another manner, at least so far as those appro priations are concerned which minister to pride and foster bureaucracy, or which are related to the exercise of paternal functions. According to this theory a condition of liberty is conceived to be the heritage of the individual. The State is not regarded as an organism in the sense that it possesses soul, conscience, and sensibilities of its own; it is rather a form of association, and differs mainly from ordinary associa tions in the character of the service it has to perform, and in the fact that these services are of such a sort as require the State to be the depository of coercive power. Public conces sions are judged from the point of view of the interest of the individual, and are approved or disapproved according as they bear upon his prospects. The result of this philosophy of social relations among peoples who practise self-government is to insist that the government prove its case beyond the possibility of a doubt whenever it demands increased expendi tures for approved services or the approval of expenditures for an unusual service. Greater reliance is placed upon volun tary association for the attainment of collective interests than upon coercive association. And this results inevitably in charging the cost of many lines Of service to the income ac count of private corporations rather than to that of the State. In this manner, therefore, public expenditures are curtailed by virtue of individualistic philosophy applied to governmental affairs.

It must not be overlooked in this connection that, al though the restrictive theory of governmental action may limit expenditures by curtailing the field of activity, it is likely, at least in the peculiar form in which it presents itself among commercial peoples, to induce lavish expenditures in those few cases in which industrial functions are imposed upon the State. Wherever, for example, a legislative body created by popular vote undertakes, let us say, a system of public improve ments at the expense of the general treasury, the project is sure to be undertaken upon a scale of too great magnitude. This is true because no member of the legislature, holding in mind the fact that he accounts to his constituency for his vote, will consent to any project which does not contribute directly to the prosperity of his constituents. It is a fact be yond question that investments of capital are unnecessarily lavish when made through the agency of popular legislative bodies; and it is on this account a wise conservatism for de mocratic peoples to hesitate before accepting the experience of governments highly centralized for administrative purposes as a proof that they could attain equally advantageous results in securing public improvements through governmental agency.

So far, therefore, as the bearing of the individualistic theory of social relations upon the aggregate of national ex penditures is concerned we may say that it is in the main opposed to such expenditures; but should public improve ments, or any service, indeed, which results in localized in vestments of capital, be undertaken by a popular legislative body, a lavish expenditure of public funds must be counted upon as an inevitable result of such a decision.

10. Two Rules of Pull Expenditure. It may perhaps add something to the definiteness of these considerations if the rules of public expenditure, so far as they may be said to exist, formulated by the adherence of the two social theories mentioned, be passed in review.

(I) The English Conception of Public Expenditure. The rule, commonly regarded as adequate by those who hold the re strictive theory of government, is simple, so far as statement is concerned. No one has ever expressed this view more tersely than Sir Henry Parnell, who in 183o published his remarkable tract On Financial Reform. The date of this tract is significant. It appeared when the old individualism was at the height of its influence. The tract itself is impor tant as having been influential in bringing about the finan cial reforms which place England in the fore rank of na tions so far as taxation and regulations for international commerce are concerned. The following quotation is from the tract referred to : " With respect to the principles on which retrenchment should be conducted it is of the greatest importance that they should be well considered, and, when decided upon, most severely adhered to. No person can have his mind in a per fectly fit state to form a judgment on any question of retrench ment without having acquired the habit, by previous study, of referring to what the uses and object of government are, and the grounds on which taxes are paid. The great error which is commonly committed is taking the utility of an ex penditure as a sufficient justification of it; whereas, however useful it may be, if it cannot be shown to be absolutely neces sary for securing some public object that could not be had by any other means as economic and as convenient, it is super fluous and ought to be discontinued. It is not an uncommon opinion among those persons who are in situations to have considerable influence in matters of finance that we ought first to secure all the revenue we can, and then regulate the expenditure according to it. Others allow themselves to be guided by their feelings and their passions, and, not having any fixed principles to go by, are continually favouring ex pense and resisting economy, when cases of apparent indi vidual hardship come before them, not recollecting what those persons suffer who pay the taxes for providing for the effects of their mistaken compassion and unjustifiable liberality with the public money. If right principles were referred to they would suggest that taxation is the price we pay for govern ment; and that every particle of expense that is incurred be yond what necessity absolutely requires for the preservation of social order and for protection against foreign attack is waste, and an unjust and oppressive imposition upon the pub lic. Every minister and every member of Parliament who has the power to spend or to save the public money should do all in his power to prevent the wants of the State from depriving ilie people of the means of providing for their wants; and, therefore, economy and frugality, which are virtues in a pri vate station, from their vast influence upon national happi ness in a public station, become the most pressing of duties." The three points in the above statement which may be ac cepted as formulating the theory of public expenditures ad vocated by Sir Henry Parnell are, first, that there should be no expenditure except " for securing some public object that could not be had by any other means "; second, that expense " incurred beyond what necessity absolutely requires for the preservation of social order and for protection against foreign attack is waste "; and third, that the State should never de mand sums which would result in " depriving the people of the means of providing for their wants." This is the doctrine of laissez-faire in its most extreme form, expressed in the language of finance. The third point above referred to has been expanded by other writers until it has come to be ac cepted by many English economists as the doctrine that taxes should always be levied upon what a man can save. Rogers, for example, says, in effect, that to tax what a man cannot save is robbery, which, if it means anything, means that the expenditure of the individual for support of government is not to be classed among necessary expenditures.

That these views are not in full accord with the attitude assumed in this treatise must be recognized from what has al ready been said respecting the nature of public expenditures. The financier is not at liberty to place the individual over against the State, or to ignore the fact that in some particulars public expenditure is different in character, and consequently subject to different rules, from private expenditure. To fol low the rule submitted by Parnell would result in depriving the public of some of its most important governmental func tions in the development of civilization, for it would cut off all expenditures which rely for their justification upon the ultimate rather than the immediate advantage to citizens. Nor can the student, whose aim should be to emancipate himself from the superstition of phrases, admit that any pre sumption lies against collective expenditures as such. All decisions must rest upon analysis, and not upon presumptions. It is not claimed as against Parnell that the State is justified iri making use of the people's money when the people could • On Financial Reform, by Sir Henry Parnell, Bart., M.P. (1830), p. 118.

secure greater advantage by expending it through private agencies, but that the considerations which determine public and private expenditures in many classes of appropriations proceed along planes far removed from each other, and that a comparison between them is, to say the least, a very difficult matter. The rule, therefore, is of little advantage except for declamatory purposes.

(2) The German Conception of Public Expenditures. The theory of public expenditures entertained by many German writers, on the other hand, when pressed so far as to claim a presumption in favour of government whenever a new social function makes its appearance, is as erroneous as the one just considered. We may say with Stein that parsimony is not economy, and that " the saving proper for the statesman to consider is not that which always decides for the smallest amount, but that which knows how to measure the amount of expenditure to the worth of the object." We may even go so far as to allow some truth to the simile of Geffcken, who says : " The administration of finances should be conducted according to the rule prescribed by nature, which everywhere abstracts moisture from the earth and the plants to give it back again in nourishing dews and rains." f We may, I say, depart so far as this from the old conception of the relation of government to industry, and still deny that the State has the first claim on the products of current industry. We can not agree with Kaufmann when he implies that the funda mental principle underlying the taxing system of civilized states places justice to the citizen when compared with the needs of the State as a matter of secondary importance; $ nor with Nasse when he asserts that " it is not justice to the individual, but the realization of the means destined to assure the onward march of the State and the accomplishment of its designs, which is the first object of taxation." § It is possible, of course, to interpret expressions like the above in such a way that due regard may be had to the interest of the indi vidual citizen, but in view of German national history and of German political philosophy it is doubtful if such an interpre tation is possible to a German economist. Austrian finan ciers are not committed to so extreme an assertion of the im portance of the State. A student imbued with the spirit of English jurisprudence, and who on this account must regard the State as an organ of society, cannot well understand how the claims of the State can thus be set over against the claims of the individual.

(3) Conclusion. The situation seems to be that the older English writers did not need a theory of expenditures be cause the theory of government which they held implied a fixed limit to governmental functions; while the earlier Ger man economists could not work out a satisfactory theory respecting the public use of money because their theory of government presented too strong a presumption in favour of the State. As is so frequently the case, the truth respecting public expenditures lies between these extremes, and can only be discovered by the concurrent study of public and of private functions. As already suggested, a theory of public expendi tures must be a theory of the evolution of the collective wants of individuals, and its further development necessitates an analysis of the governmental functions, not alone as they now are, but as they have developed. In no other way can they be classified so as to enable the financier to determine the propor tion of the social income properly assigned at any time to the support of government, or to measure the relative intensity of the various claims made upon the public treasury.

We are thus for a third time brought back to the thought that a classification of public functions is necessary to the un folding of the theory of public expenditures, although in each case the suggestion was approached from a different point of view. The first occasion for this remark arose out of the comparison of public and private expenditures, when it was suggested that the theory of expenditures for the State was akin to the theory of consumption for the individual; and that as the latter rests on the law of the development of human wants, so the former rests on the law of the development of governmental functions.

The thought was a second time brought to notice by the statement that the theory of public expenditures is a theory of adjustments and apportionments—meaning by adjustment the assignment of a certain portion of the social income to expenditures through the agency of the State, and by appor tionment the assignment of the amount thus set aside between the various lines of public service. It was stated that before a budget can be framed the various functions of the State for which the several chapters in the budget respectively stand must be classified in order to learn the relative importance of these functions for the life of the people.

The necessity of the analysis and classification of public functions was for the third time brought into notice by the inadequacy of current rules respecting public expenditures. It was found that these rules were either too narrow to apply to the complicated conditions of modern society, or they were too comprehensive to allow of just discrimination respecting the relative claims of coercive and voluntary association. Some clear idea respecting the concurrent growth of public and private activity must be arrived at, and the manner in which each reacts upon the other must be duly appreciated, before specific appropriations for definite ends can come to have an explicit meaning. The claim of a definite appropriation is relative, and it is not until the function which it is intended to serve is fitted into the general scheme of social activities that the strength of this claim can be measured. In view, there fore, of the persistence with which the question of govern mental functions asserts itself, one is justified in the conclu sion that it holds the key to the theory of public expendi tures.

• It is perhaps unnecessary to repeat that the Science of Finance - has no opinion respecting the question of the proper limit of public duties. The form of government is for it a given condition. It is equally true that the judgment of the financier respecting the wisdom of extending the sphere of the State in any particular direction, even though his views be expressed in the form of a discussion of appropria tions, does not attain the dignity of a theory of expenditures which can, properly find place in the Science of Finance.

government, theory, local, expenditure and development