On account of the close relation existing between Public Finance and Political Economy, most of the discussions as to the proper method for the latter bear with equal force upon the former.1 But the nature of the materials with which Public Finance deals is such that in general the inductive method has a wider possible scope, and the deductive a narrower field than in the larger science. The historical and comparative method is most serviceable for ascertaining the conditions under which different kinds of taxation work. The general effects of taxation, its shifting and incidence, the effect of expenditure and public debts, can be best studied deductively. The deductions in this case are derived from the conclusions reached by the previous method, and from principles derived from Political Economy. Inasmuch as the purpose of the present book is merely to expound principles already determined by the science and to use the facts of financial practice rather as illustration than as proof of the doctrines advanced, it will not be necessary to acquaint the reader, in each case, with the method used to ascertain the truths stated. In the main, therefore, we shall follow what has been aptly called the method of instruction, which is in a sense an inverted induction, in which the principle is first stated and then sufficient facts are adduced to show that the principle is true.

1 Cf. Keynes' Scope and Method of Political Economy.

The subject falls naturally into four parts: (1) Public Expenditure, (2) Public Revenue, (3) Public Debts, (4) Financial Administration.           Of these, Public Expenditure and Financial Administration have, until recently, not been the subject of important works in the English language, and, therefore, a few words in defence of their incorporation are necessary. Public Expenditure is as much a part of Public Finance as Consumption is of Political Economy. While it belongs peculiarly to Political Science to determine what the lines of expenditure shall be, just as it belongs to Ethics to teach the individual in what direction he should use his wealth, yet, when the lines of expenditure have been determined, its form, amount, and effect belong to Public Finance, just as the form, amount, and effect of consumption belong to Political Economy. Consumption, or the satisfaction of wants, is the end and aim of all production and distribution. So is expenditure the end and aim of the collection of revenues and of the other financial activities of the statesman. To exclude, at least, a statement of the forms and the customary direction of expenditure would

be to overlook the purpose of all the rest. But there is still another consideration that emphasises the need of a statement of the general objects of expenditure. The amount of expenditure is generally determined first, and after that has been settled the required revenue is obtained. In this Public Finance differs materially from Political Economy. In the broader science it is generally assumed that the individual cannot regulate his income by his wants, but must limit his wants to his income. In some cases this difference fades away. Cities often have to forego, temporarily at least, desirable improvements on account of the increased burden they would impose on the finances. But in general we find that the modern State is quite as likely to neglect some important and desirable function which it could perform, as to increase its functions beyond what would be wise.1 If this is true, and that it is so will be seen in the course of the discussion, then it would be well to ascertain the main features of expenditure at the outset. But we are not obliged to justify or condemn the different lines of expenditure that are deemed by the leading nations to be wise or expedient.2

1 Cf. Cohn, Finanzwissenschaft, p. 183.

2 Another strong objection to entering into a discussion of the advisability of the different lines of expenditure, has been mentioned above in the paragraph showing that Public Finance should be studied as a science and not as an art. If we discuss whether certain expenditures ought to be made, or should be enlarged, or curtailed, we are leaving the safe scientific ground of what is or will be. The danger of thus falling from the high plane of scientific impartiality to the level of political wrangling is frequently illustrated by the work of Leroy-Beaulieu. Bastable's work, although saved from anything like a similar failure by the author's masterly ability to defend his position, is yet certainly marred by too frequent judgments concerning the advisability of existing features of fiscal practice.

Financial Administration is properly regarded as the fourth division of the subject, because it is as necessary to know how a State gets its revenues as to know whence it gets them and for what it spends them. This department, too, deals with a large number of technical details which would only cumber the other parts if taken up in connection with them.

Of the four divisions, Public Revenue is necessarily the largest : probably for reasons akin to those that influenced previous English writers to give taxation their exclusive attention. It is here that the most urgent reforms belong, and hence the need of understanding existing conditions is most pressing.

The distribution of the various financial activities among the different divisions of the government, federal, national, or local, will be noted in connection with the discussion of each part of the subject.