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BOOK III

PUBLIC FINANCE

CHAPTER XXXII

PUBLIC EXPENDITURES

Introductory. Nature and Significance of Public Finance.Public finance deals with the revenues of government, with their expenditure and their administration. Public finance is one part of economics. Like general economics, it deals with the means for the satisfaction of human wants. Some of our wants we satisfy in one way, some in another. Some we satisfy individually. Some we satisfy through private associated effort, especially through the private corporation. Others we satisfy through public collective effort, that is to say, through some governmental agency. The wants which we satisfy through governmental agency are not all of them so peculiar that they could not be satisfied either through private individual activity or private associated activity. Let us take the case of watering the streets. There are places in which the streets, in so far as they are watered at all, are watered by individuals in their private capacity, each man watering the street in front of his own house with his own hose. There are other places in which the householders join together and pay some one to water the streets for them, and do this privately. There are still other cities in which the city government employs persons to water the streets and pays them from the proceeds of taxation.

There are, to be sure, some wants which are satisfied through governmental agency and which a civilized community will not allow us to satisfy privately. This is the case with those wants which are satisfied by means of the police and the courts. It is a peculiar function of government in modern times to provide the inestimable blessing that we call security of person and property. This requires economic resources, just as the satisfaction of the

other wants mentioned does, and public finance has to do with the provision of these resources.

But

Public finance, then, is a part of economics because it deals with the satisfaction of wants through economic resources. It is also a part of economics because it has its influence upon the production, the distribution, and the consumption of wealth. while we have to insist that public finance belongs to economics, it is more separated from the other parts of economics than they are from each other. Inasmuch as it deals with the satisfaction of wants through governmental agency, it has its own peculiarities, and it is only an undue emphasis upon these peculiarities which leads some writers to make it a separate science.

The significance of public finance may be brought before us; first, by examination of the increasing amount of public revenues, and second, by the enormous aggregate of these revenues at the present time. Public revenues have gone on increasing during the present century by leaps and bounds. An illustration is afforded by the history of France. Eighty years ago the public expenditures of France reached one thousand million francs for the first time, or, as we generally say, a billion francs. There was universal astonishment and alarm, just as there was when, for the first time, an American Congress spent a billion dollars in two years. Never since the time, however, when the public expenditures of France first amounted to a thousand million francs have they been so small. Gradually they increased until they reached two thousand millions, never to pass below that mark; then they increased until they touched three thousand millions; and now the national expenditures are nearly four thousand millions. Public expenditures at the present time, under the modern government, amount to more than a tenth part of all the wealth produced.1

1 This estimate (that public expenditures equal one tenth part of all the wealth annually produced) has been given, but it must be a very considerable underestimate for the modern nation. We in reality know very little about the amount of wealth annually produced in the modern nations of the world. But such data as we have, and familiar observation, are sufficient to convince us that the wealth produced is not ten times the total public expenditures. In the United States, according to the Report of the Census Office, Wealth, Debt, and Taxation, the

Now what does this mean? Does it signify increasing extravagance or even corruption? Quite the contrary. While the modern government is far from perfect, it is throughout the civilized world probably better than it ever has been before. Taking the civilized world as a whole, there probably never was more honest government or more efficient government than there is to-day. What it really means is this: We are living in a period of increasing public coöperation. We think we find it more advantageous to satisfy certain wants, growing in number and significance, through public coöperation, than through individual effort or private coöperation. This is the chief significance of the increasing governmental budget throughout the civilized world. But unhappily, militarism in its various phases is next in significance, and is the chief phase of public expenditures that is disquieting.1 Educational expenditures afford a good illustration. They run up into the hundred millions in the modern nation, whereas, previously to this century, they were insignificant. Expenditures for police protection, for public lighting, and for sanitation are something which, so far as any expenditures of magnitude are concerned, belongs to this century.

Public finance has another significance. Questions of social reform are now connected generally with financial questions just as formerly they were with constitutional questions. Public finance has become the central fighting place for social reform. The question of protection has, from the earliest days in this country, been connected with public finance. Police regulation has also been connected with fiscal measures. The license charge for saloons furnishes an illustration. The idea of police power is

total expenditures, including the national government, states, territories, and local subdivisions, amount to over $1,700,000,000. This would make a per capita expenditure exceeding $20, if the population of the country is estimated at eightv millions. This would mean $100 per family of five; and, on the basis of 10 per cent for such a family, would mean an average annual income of $1000. In England the per capita expenditure of the national government alone is over $15.50, and in France over $17. The 10 per cent estimate, then, is clearly an underestimate.

1 This topic is adequately treated by Professor Charles J. Bullock in his article entitled "The Growth of Federal Expenditures," in the Political Science Quarterly, Vol. XVIII, pp. 97-111.

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