The

Development of Public
Finance
Presented by: Cindy R. Balingit
 III. Capitalism:
Public Finance & Free Enterprise

1. Adam Smith
2. David Ricardo
3. Adolf Wagner
4. John Stuart Mill
Capitalism:
-is an economic system where the
means of production are owned by
private individuals.
 Adam Smith
(1723-1790)
▪ He was the initiator of “Classical
economics”.
▪ He advocated the policy of minimum
government control on business
activities (laissez-faire).
▪ Government should limit its expenditures; while private
sector should provide the needs of society.
 David Ricardo
(1772-1823)

▪ He was credited for his theory of

comparative advantage.
▪ His concepts became one of the
bases for the institution of equality
and uniformity in modern taxation
and the progressive tax structure.
 Adolf Wagner
(1835-1917)

▪ He emphasized that the state should

eliminate the inequalities of wealth
through fiscal policy.

▪ The use of fiscal policies for distributive goals in

modern times partly originated from his theory
 John Stuart Mill
(1806-1873)

▪ He is well known for his work,

“Principles of Political Economy”.

▪ He was a strong believer in freedom, especially of

speech and of thought.
 IV. The Crisis of Capitalism: Keynesian
Public Finance
John Maynard Keynes (1883-1946)

▪ He developed the concept of fiscal policy

as a tool for correcting imbalances in the
economy.
▪ He introduced the concept of government fiscal
management within the context of capitalism.
▪ The concept of mixed economies served as basic tool in
both industrialized or developing countries.
 V. Marxism
Karl Marx (1818-1883)

▪ LABOR was the key instrument of

productive capacity.

▪ Marx claimed that capitalist

exploited the working class by
trying to get the largest possible
amount of “surplus value”.
 Basic Features of Socialist
Public Finance
▪ The Primacy of Central Planning: Planning plays a
crucial role in socialist public finance, while
classical capitalist theory relies on market
mechanism. Since there is only one sector in
socialism –the state sector- so central planning is
feasible. That is why socialist economies are named
as Centrally Planned Economies.
 Basic Features of Socialist
Public Finance
▪ Role of Taxation in Revenue-Raising: Unlike the
mixed economies where taxation accounts for most
of government revenue, taxation plays a role in
socialist public finance. Revenue of state came
mostly from state enterprises.
▪ No Budget Deficits: Socialist countries do not have
deficits but have surpluses of revenue over
expenditure.
 VI. The Impact of Public
Western
Finance Institutions on LDCs

A. Classical Public Finance

▪ Adam Smith’s ideas on his book are still quoted in the
LDCs.
▪ Smith’s progressive taxation is enshrined in the Philippine
Constitution.
▪ Smith’s views on the balanced budget were upheld in the
Philippines until 1972
 B. Keynesian Public Finance

▪ John Keynes had the most impact on public

finance practices of LDCs.

▪ Keynes’ view that government should play a

dominant role in running economy was reechoed
by LDC fiscal policy makers.
Thank you for
listening!