Nor is this the only addition. The phenomena to be dealt with do not admit of being conveniently groupedunder Adam Smith's three heads. This difficulty is at once felt on calling to mind that the expenditure andrevenue under consideration are
revenue. We must examine, not merely theprocesses, but also the mechanism by which those processes are carried on. For the collection andapplication of wealth by the State legislative and administrative action is needed. The right of votingsupplies and supervising expenditure—'the power of the purse'—is one of the leading privileges of arepresentative body; it is also the most effectual safeguard of constitutional rights. Methods of administrative control seriously affect the working of the national finances, and are deserving of attentivestudy. No financial treatise can be complete unless it considers the problems of 'the budget' and 'financialadministration' (
), and such has in late years been the almost invariable practice.
In one respect the scope of public finance has been curtailed by some of its ablest expounders. Frenchwriters, more especially M. P. Leroy-Beaulieu, have refused to regard the problems of public expenditureas a part of their subject. The reason for this limitation is said to be the difficulty of scientificallydetermining the proper amount of state outlay, as that must depend on the functions assigned to theState. 'This kind of inquiry,' says M. Leroy-Beaulieu, 'does not in my opinion belong to the science of finance..... A State has wants: it does not belong to us at present to know what they are, and what theyought to be, but how it is possible to satisfy them in the amplest manner with the least loss and sacrificeto individuals. If you engage a builder to build you a house, it is not his business to inquire if the building istoo large for your income or your social position; what does concern him is to build the house in questionwith the utmost possible solidity, convenience and beauty, at the lowest cost to the owner. In like manner,a writer on finance can sincerely lament that States spend too much; but his real task lies in showing howa State can obtain supplies, while treating the interests of individuals with due tenderness and respecting justice.'
English writers have gone further in this direction, and, by disregarding all forms of Staterevenue except that derived from taxation, have replaced the broader treatment of Adam Smith and theGermans by treatises on 'Taxation' and 'Public Debts.'
It nevertheless seems clear that the question of expenditure is just as much a financial problem as that of revenue. Neither in theory nor in practice is it advisable to separate them completely. The greatest financeministers have made their reputations as much by judicious control of outlay as by wise reforms in respectto revenue,
while for theoretical discussion the principles and facts of expenditure are of considerableinterest. M. Leroy-Beaulieu's suggested parallel of the builder is not in point, since the practical statesmanis the only person to whom the illustration would apply, and he evidently does not act in conformity with it;the scientific student is only limited in his inquiries by the nature of the material that he is investigating.One admission may indeed be made. Questions of expenditure do not allow of quite as precise treatmentas those referring to taxation, some parts of the latter subject permitting the use of lengtheneddeductions. This test of fitness for exact investigation would, however, exclude other large parts of thesubject—
'the public domain'—which are nevertheless discussed by all recent writers, M. Leroy-Beaulieu included. For a complete inquiry into the theory of finance some consideration of the conditionsgoverning State outlay is indispensable—
the increase of military expenditure in European States, itscauses and limits, cannot be left wholly unnoticed by any thorough student of public finance. Such aninquiry is more especially needed owing to the fact that expenditure and revenue are connected. Publicoutlay is not something unchangeable and determined, to be met 'with the least loss and sacrifice toindividuals.' Expenditure that would be legitimate in a lightly taxed State would be blameworthy in one thatis heavily taxed. The aim of the statesman is not simply to distribute loss and reduce it to a minimum; it israther to procure the maximum of advantage to the community, and to so balance expenditure andrevenue as to attain that result.The principal difficulty in the scientific examination of public expenditure is found when attempting to limitthe mode of treatment. Some writers enter into discussions as to the legitimacy of certain state functions,and their relative urgency. Others simply state the forms and facts of public outlay, leaving further inquiryto the political theorist. In the present work, in accordance with the precedent set by Adam Smith, theseveral items of expenditure will be treated on a positive basis, and at the same time the considerationsnaturally arising from their existence, and the financial questions that they suggest will be noticed, thoughno complete examination of state functions will be attempted. Whatever theoretical questions may beraised, such seems to be the course that convenience suggests, and is one to which the subject naturallylends itself. Our object is to elucidate the principles of public finance; and the admission or exclusion of any special topic, as well as the extent of treatment in each case, must be determined solely by referenceto that end.
Theoretical writers on finance, especially in Germany, have very fully considered the relations of their subject to cognate branches of knowledge,
to the various social and political sciences, and have inparticular laid stress on the ties that bind it to economics.
In its origin financial science was a product of economic study. It appears either as a special section, or as the main subject of the older treatises of Political Economy, 'when considered as a branch of the science of a statesman or legislator,' to quoteAdam Smith's phrase. In another aspect it may be regarded as belonging to administration, and as suchformed a large part of the 'Chamber Science' (
) which was in Germany the precursor of scientific economics. The undue limitation of the scope of finance by English writers has led to itsinclusion under the title of 'taxation' in the various systematic expositions of political economy,
and themore enlarged view taken by German writers has not prevented a similar result in that country, for sincethe time of K. H. Rau, political economy has been regarded as comprising, in addition to the generaltheory, the economics of special industries, economic legislation and administration, as well as public