Page:The New International Encyclopædia 1st ed. v. 07.djvu/670

FINANCE. Yet, within limits, such a contrast exists, and marks the divergent tendencies of public and of private economy.

. It is through the expenditure of public money that the State works in all of its activities, and it is the first duty of the science of finance to determine their nature and scope. Finance accepts public expenditures as a fact. It is not concerned with justifying them, either in whole or in detail. Whether a given expenditure is proper is in part a question of political philosophy, in part a question of practical expediency. The former may influence general lines of policy in this respect, though in practice each proposed public expenditure is apt to be judged on its own merits. The grounds upon which such proposals are approved or rejected lie outside the domain of finance. But the fact that expenditure is made is of prime importance, and, scrutinizing the expenditures which are actually made, finance seeks, by classifying them, to arrive at the laws of their development.

. Formerly economists classified public expenditures as necessary and voluntary. This classification, based upon a definite theory of the functions of the State—a subject beyond the province of finance—obviously fails to meet the requirements of modern financial theory. A fairly satisfactory classification is that of Prof. Henry C. Adams, who classes public expenditure as protective, commercial, and developmental. The first class includes the preservation of internal peace and the defense of the nation against foreign aggression. In the second class are placed expenditures entailed by the performance of a number of functions in which the State takes the place of the private capitalist, as in the management of enterprises such as the post-office, telegraphs, and railways. In the third group, developmental expenditures, are included those which the State undertakes to promote its own interests, or those of its inhabitants, such as expenditures for education and other outlays which are designed to improve general conditions among the people. It is not to be understood that the boundaries of these groups can be sharply drawn. Legislative expenses, for example, fall under all these heads. Such a classification has its value in pointing out that, besides the expenditures for protection which are essential to existence, there are others equally natural and equally unavoidable which are incident to growth and progress. The precise form which the latter take depends on local necessities and historical antecedents.

. Whatever may be the theoretical justification of expenditures, however they may be appropriately grouped, finance must take cognizance of the fact that in volume expenditures are growing at a rapid rate.

The evidence upon this point is cumulative, but not comprehensive. The division of authority between national and local governments materially enhances the difficulty of ascertaining the aggregate expenditures for all public purposes within a given nation. The distribution of expenditures between the national and local governments differs widely in the various countries; and for this reason it is necessary to exercise great caution in comparing the national expenditures of modern States. For national expenditures the figures are generally available. We borrow from Professor Adams a table giving the national expenditure in millions of dollars for a number of States from 1830 to 1890, to which we have added, from the latest sources, the figures for 1900:

So far as these figures go they show steady advance, though it is by no means uniformly rapid, for the various countries. The significance of this advance in national expenditure can be fully understood only by a detailed study of each of the countries involved. The first consideration is the relation of expenditure to population. For the United States this is shown by the following table, taken from the Report of the Secretary of the Treasury:

(Net expenditure, i. e. all national expenditures except payment of the national debt. In the nomenclature of the Treasury report ‘net expenditure’ includes ‘net ordinary expenditure’ and interest on the public debt.)

These figures show a marked difference between the period which preceded the Civil War and that which followed; they also illustrate the disturbing influence of war on the national finances. Both the earlier and the later period manifest a general tendency toward an advance of expenditure slightly more rapid than that of population. In some States, however, as, for example, Great Britain, per capita expenditures have remained nearly stationary. The most that can be said is that in recent years national expenditures have outrun the population considerably in the United States, but only slightly in Great Britain and France.