This section of the book is from the "Introduction To Public Finance" book, by Carl Copping Plehn.
If Political Science cannot in the nature of things give us any definite, theoretical limits to the expansion or the contraction of State functions, can such limits be found in Public Finance ? If the common statement that " the State regulates its income by its expenditure and not its expenditure by its income" is altogether true, there can be no limit set by Public Finance to the possible expansion of State functions. But there are as a matter of fact many important exceptions recognised.1 Those exceptions are: (1) that statesmen in deciding as to the advisability of any new expenditure necessarily consider the amount of burden it will impose on the tax-payers. The expansion of municipal activities in the last twenty-five years has been so rapid that at present any further expansion is, in many instances, at least temporarily checked by the difficulties in the way of meeting the cost. (2) There are some instances where for political reasons income has outrun what was regarded as wise expenditure and new ways of spending have had to be devised. This is a decidedly more unfortunate state of affairs than the other, for such forced expenditure seldom takes a wise direction. Witness the wholesale plundering of the United States treasury for pensions. (3) Expenditures may sometimes rise very rapidly, and necessarily so, at a time when it would be extremely unwise to attempt to increase the revenues. At such times the practice of nations, — a practice that has proven itself wise, — has been to let expenditure run beyond the income and borrow the difference.
One of the prime requisites of a good system of public revenues is that the sums taken from the people each year in the various ways shall be as steady as possible. The reason for this will be made clear under the general consideration of revenue. That fact, however, forbids our determining the annual revenues absolutely by the annual expenditures. The general practice of nations is to increase expenditure, (a) when it is absolutely necessary, (5) if not absolutely necessary, when it offers advantages which more than compensate for the increased burden on the revenues. The experience of nations has also shown that it is universally better to do the public business, if expenses areincreasing rapidly, on a deficit ratherthan on a surplus. If expenses are for a considerable period quite uniform, the usual policy is to keep the revenues, as nearly as possible, equal to them, but not in excess of them, and when expenses can for some reason be lessened, some of the revenues may be applied to the amortisation of accumulated deficits. It would seem, then, that steadiness of revenue is treated as the more important consideration. Herein lies a limit, but not an absolutely fixed one, to the expansion of expenditure and of State functions.
1 Cf. Bastable, p. 42 ; Wagner, I., sec. 11.
To sum up: the general character of public expenditure, especially as to whether imperative or not, as well as to its particular direction, will depend primarily upon considerationswhich belong to Political Science. Its amount will depend on the revenue-yielding strength of the State, and upon the effect which such expenditure will have thereon. The danger made so much of by some writers1 lest, revenues being obtainable by compulsion, that compulsion be exercised for the benefit of interested persons, who gain particularly by the increased spending, is in a democracy replaced by the corresponding danger lest too meagre supplies be granted by the voters who must themselves pay the larger part of the revenues, and advisable or even necessary lines of expenditure be omitted or seriously curtailed.
1 Roscher, sec. 109.