Henry Carter Adams.

The science of finance : an investigation of public expenditures and public revenues online

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ment, and recognise the exceptional character, so far as na-
tional expenditures are concerned, of the present industrial

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-'^uhWc 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 accept
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

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
characteristic 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 his-
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 of 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

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 coriservatism 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

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 Public 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 1830 published his
remarkable tract On Financial Reform. The date of this

* A distinction is here made between national and local expenditures
(Cf. pp. 11-13), the line of distinction being that the territory con-
trolled by a local government is so limited as to allow any scheme of
public works to be comprehensive without endangering the success of
the scheme. The political and industrial results, also, of public im-
provements differ according as they are undertaken by the national or
by the local governments.


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 errcw
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
the 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 ofj
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 pubHc 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
in making use of the people's money when the people could

* On Financial Rr form, 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 Gefifcken, who
^ys : " 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
(^ck 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-

* Lehrbuck der Finanzwissenschaft, by Lorenz von Stein, p. 137.

f Cf. SchBnberg's Handbuch der politischen Oekonomie, Vol. Ill, p. 28.
Article by Geffcken on " GrundsStze fUr die Staatsausgaben."

\ Cf. Kaufmann, Les Finances de la France, p. 37. I have the French
and not the German edition.

g Quoted from Kaufmann.


vidua! 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 privatej
functions. As already suggested, a theory of pubHc expendi-'«
tures must be a theory of the evolution of the collective wants ';
of individuals, and its further development necessitates an i
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

* It is not possible to use the phrase "German Economists" as
standing for a compact body of thought. The criticism in the text is
addressed to what perhaps may be called the second generation of
Historical Economists, whose political bent was given them by sym-
pathy with the growth of German power.


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-

* 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.



The Protective Functions of Government.
(i) Military Expenditures.

(2) Police and Court Expenditures.

(3) Expenditures for Protection against Social Disease.
The Commercial Functions of Government.

(i) Characterization of Commercial Functions.
(2) Tendencies in Expenditures for Commercial Functions.
The Developmental Functions of Government.
(i) Expenditures for Education.

(2) Expenditures for Public Recreation.

(3) Expenditures for maintaining Equitable Conditions for the

Prosecution of Private Business.

(4) Expenditures for Public Investigation.

(5) Expenditures for the Development of the Physical Basis

of the State.

The important question which the theory of expenditure
asks regarding the several lines of public service pertains to
the influence of a developing civilization upon the grants de-
manded for the support of each service, and the discussion
which follows will be with a view to some conclusion upon
this point.

11. The Protective Functions of Government. — The
public function which deserves first place in the classifi-
cation of the services of the State, both by virtue of its
importance and because it is historically the first to define it-
self with clearness, is the function of protection. The grant-
ing of protection was originally a very simple affair — so far,
at least, as the idea is concerned ; but with the passing of the
centuries and the process of social evolution the protection
which the State grants has taken upon itself several distinct


phases. At present a classification of governmental func-
tions must recognise three sorts of protection which citizens
receive from the State. These are as follows :

First. Protection against invasion from without.

Second. Protection of life, property, reputation, etc., or,
to speak comprehensively, of all those rights which pertain to

Online LibraryHenry Carter AdamsThe science of finance : an investigation of public expenditures and public revenues → online text (page 6 of 56)