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It is generally conceded that narrow debt limits should not be applied in the case of cities to investments.

The census volume just referred to makes a further distinction between investments and outlays as follows: "Under investments are included all transactions of national, state, and municipal governments connected with the purchase, sale, or possession of real property or securities held exclusively for investment purposes, and the loan of public money to individuals, corporations, or other civil divisions. Such transactions are of two classes: first, those of the sinking, investment, and public trust funds in which or through which the nation, state, or municipality invests money for the sole purpose of deriving interest, rent, or other income therefrom; second, the transactions of a more temporary character by which the national, state, or municipal government receives interest on current cash deposits and on deferred payments of taxes and special assessments." 1

"Outlays 'Outlays' are the costs, paid or payable, incurred by nations, states, and municipalities in the purchase of lands, in the purchase or construction of buildings and other structures, and in the equipment, improvement, and additions to public works which are more or less permanent in character, and which are used by the nations, states, and municipalities in the exercise of their general functions or in connection with the business undertakings conducted by them. Governmental outlays partake of the nature both of commercial expenses and of commercial capital outlays. Like commercial outlays, they are to secure more or less permanent acquisitions; but unlike them, they do not secure property applicable under any ordinary condition for meeting liabilities. Further, they are always a legal charge against revenue, while capital expenditures in commercial undertakings are always recorded in the accounts with capital." "

2

A further important distinction is that between expenditures for works of a permanent character and those of a more temporary character. The products of expenditures of a permanent character are those which keep on yielding utilities indefinitely a public park, for example. The expenditure

for utilities of a temporary character are those which must be perpetually renewed, like an annual expenditure for the maintenance of public parks. This is a distinction which must always be observed in sound public finance. Classification of Public Expenditures. — Many principles of classification have been adopted. An important one is that made with respect to political units:

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I. Central.

II. Intermediate.

III. Local units.

This classification can be extended indefinitely, but it gives us the three main classes of units. In our country the central would be the federal, the intermediate would be the separate states, and the others, the local. An

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examination of expenditures with respect to these units throws a good deal of light upon our general political evolution. It especially helps us to determine whether or not there is a tendency in the direction of centralization, although expenditures alone are not conclusive. Sometimes fear has been expressed lest the central governments should expand at the expense of the local governments. It is thought by some that we are living in a period of centralization. The statistics of public expenditures do not bear this out, as local expenditures seem to be increasing more rapidly than those of central governments. There may be some ground to apprehend that in the United States the cities and federal government are increasing in importance more rapidly than our commonwealths. The states which make up the Union have lost somewhat in relative significance, if we may judge from the comparison of public expenditures of the various political units. There appears to be, however, some ground for thinking that the states are again becoming of greater importance in our general structure of government. We find, for example, that the expenditures of the state of New York have increased from not quite $10,000,000 in 1881 to nearly $22,000,000 in 1902. This is a budget which would seem to indicate activity, although, to be sure, far less than the budget of New York City. Our Western states are developing remarkable educational systems, reaching from the common school to the university, and some of our states are developing forest property, and a department of forestry. These are, perhaps, ample illustrations of the growing significance of the state. But we must await future developments in order to ascertain the extent of the movement.

The following is a very simple classification made with respect to objects for expenditure:

I. Expenditures for security.

II. Expenditures for the poor and unfortunate.

III. Expenditures for education.

IV. Expenditures for commerce, diplomacy, and government.

The following is a more extensive classification:2

I. Head of the state.

II. Legislative bodies.

III. Public administration, including central departments.

IV. Army and navy.

I. Head of the state emperor, kings, grand dukes, etc., Germany. Presidents and governors - representing the sovereignty of the state.

1 It must again be emphasized that expenditures alone are not sufficient evidence to enable us to speak positively on this point. In general, however, there is a correspondence between the amount of public money expended by a political unit and its social significance.

2 This is taken largely from Cossa's Taxation: Its Principles and Methods, Part II, Chap. III, Classification of Public Expenditures.

II. Legislative bodies ·Congress, legislatures, county boards, county councils, municipal councils.

III. Public administration - central, intermediate, local.

A. Financial administration.

1. Treasury.

2. Public domain - (regalia) - - fiscal monopolies, public business.

Further subdivision possible.

3. Administration (especially collection) of taxes.

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B. Administration of foreign affairs- diplomacy, consulates, etc.
C. Administration of the interior.

1. Internal security.

Courts.

U.S. marshals.

Constables.

Police, etc.

Repression and prevention.

2. The administration designed to promote general public welfare. a. Intellectual and moral welfare.

Education in its various phases. Statistical bureaus, etc. b. Physical welfare.

(a) General economic well-being: economic welfare in general the promotion of manufactures, agriculture, and commerce. Weather bureau.

(b) Life saving in general.

ministration.

Public health. Sanitary ad

(c) Charitable and provident institutions.

(d) Public works, including model institutions, etc., such as

farms.

(c) The promotion of the interests of labor. Here there is overlapping, for the labor bureau is educational also. (f) Pleasure, recreation, and miscellaneous.

IV. Army and navy.

Regular army and navy militia.

The student, and even the general reader, will find it especially instructive to study the financial reports of the federal government and of our states and cities, and arrange the items of expenditures under these various heads. If access can be had to reports covering a considerable number of years and different countries, it will be found that an examination of them will throw an immense amount of light upon the nature of modern civilization and its direction.

It is also instructive to compare expenditures on account of the head of the state in various countries, and particularly to contrast monarchical and

republican countries. It is important to discover great historical tendencies, and to contrast different periods of time, especially as regards monarchical expenditures. It is beyond all question that relatively, in the civilized world, this is an item of declining importance. At the present time, the king of a great country like Prussia or England supports a magnificence of state which is altogether out of keeping with the ideas of a democracy or a republic. Four or five milllons of dollars per annum for a modern monarch is not a large expenditure. On the other hand, in contrast, the expenditures of the President of the United States (including those connected with the executive mansion, contingent expenses of all sorts, and presidential clerks) amount roughly to $150,000. However, as regards the expenditures of a modern monarch (like the German Emperor William II), a detailed examination shows that custom and tradition, as well as the will of the monarch, cause a large part of his income to go for public purposes, and that his wealth has been largely socialized. The king is no longer the typical rich man.

On the other hand, the expenditures on account of the American Congress are unprecedented in amount among the expenditures incurred on account of legislative bodies. The world has never seen anything of the kind before, and nothing parallel to it can be found in any other country. Among other things, this goes to indicate, as contrasted with Germany, the great importance of the legislative body which is supposed to represent the people directly and immediately and to carry out their will. In aristocratic countries the legislative office is sometimes an unpaid office. This is the case in British and German parliaments, the idea being to favor wealth and to counteract democratic tendencies an aim not accomplished at present.

A democracy, however, is more likely to insist upon a legislative office being a paid office; and, in some of the German states, although the payment is small, its acceptance is compulsory for the members of the legislative bodies.

Expenditures incurred in the administration of foreign affairs are of increasing importance on account of growing economic internationalism. We would here have two main classes; namely, expenditures on account of diplomacy, those representing the purely political side of government, and expenditures on account of the consular service, representing the business interests of the country. Boundaries and surveys are expenses which would come under this general heading.

With regard to the administration of foreign affairs, any one nation is limited in what it can do by international customs. We Americans, for example, cannot force our ideas on other nations. Certain standards of dignity and propriety have been established with respect to the mode of life for diplomats, and, if we depart from these, we do so at a loss which every diplomat in the service of the United States keenly feels. The most that we can do is to exercise pressure in what we believe to be the right direction, and that is the direction of democratic simplicity.

When we examine expenses incurred in the administration of justice, we notice a large increase with the growth of democracy. In earlier times in countries like England and Germany, the administration of justice was to a greater or less extent "patrimonial," being connected with certain estates. The duty of administering justice went with the great estate or manor and involved little expense. As people take things into their own hands they must pay their own expenses. Democracy, in its progress, means large public expenditures.

The new humanitarianism of the age, which, in a way, is one expression of democracy, involves large expenditures, as seen in education, modern reformatories, etc. But it is believed by the advocates of humanitarianism and democracy that these expenditures are worth while.

It is when we come to expenses incurred in the promotion of the general welfare that we see the most remarkable and edifying phenomena that greet us in the treatment of public expenditures. This has been seen in the data already given, and will become increasingly manifest as the student carries on his statistical studies in this field.1

QUESTIONS AND EXERCISES

1. Define public finance. Why should it be regarded as a part of economics? Can you give any reasons why it should be regarded as a separate science?

2. Can we spare money for taxes only when we have an income affording a surplus over and above necessities? If the money paid for taxes is used to provide us with necessities, is there any good ground for the doctrine that an income sufficient to afford a minimum of subsistence should be exempted from taxation in the case of an income tax?

3. What various meanings do you ascribe to the enormous increase in public expenditures during the nineteenth century?

4. What would be the consequences if the government of the state in which you live should strive for the largest possible amount of revenue, and then govern its expenditures so as to consume the entire state income?

5. Discuss the differences between public expenditures and the expenditures of a private household. Would you regard it wise on your part to make any expenditures with the idea that a benefit to some one would accrue one hundred years later? fifty years later? twenty years later?

6. What considerations must govern us when we attempt to answer the question, "What is the proper proportion between public expenditures and the total income of society?"

7. Discuss Wagner's rule.

Is the fact that public ownership increases

the permissible proportion of social income that may be used for public

1 For statistical matter bearing upon the subject-matter of this chapter, see Appendix A.

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