This section is from the "Elementary Principles of Economics" book, by Richard T. Ely and George Ray Wicker. Also available from Amazon: Elementary Principles Of Economics: Together With A Short Sketch Of Economic History
The Magnitude of Public Expenditure.The importance of public finance becomes more apparent when we consider the magnitude of government expenditures in modern times. The fact has often been cited that England's expenditure increased forty-fold between 1685 and 1841, while her population was increasing only threefold; but this is only one of hundreds of equally significant facts. The French budget the name applied to the detailed statement of revenues and expenditures showed expenditures of a thousand million francs, or about $200,000,000 in 1821 for the first time, and the result was widespread alarm; yet no French budget since that time has called for smaller expenditure, and to-day the total annual expenditure of France and her minor governmental divisions amounts to about $1,000,000,000. The annual national expenditure of Great Britain, after a slight decrease following the Napoleonic wars, has increased quite regularly since, rising from about $235,000,000 in 1833 to a little over $500,000,000 in 1898, just before the out break of the South African War.
Growth of Expenditure in the United States. The fol-lowing table shows a similar increase in the Federal expenditures of the United States:
Causes of Growth. It must not be thought that this great increase in public expenditures is due to recklessness or dishonesty. Probably, on the whole, government has improved during the last century; and it is significant that where government is most undoubtedly honest, there have been larger increases than in many other quarters. The explanation of the increase is not difficult. In the first place, we must remember that population has been increasing more rapidly than ever before, and that increase in aggregate expenditure does not mean a proportionate increase in the burden borne by individuals. But beyond this, we must conclude that government activity, while wiser than before, is also more extensive and important. Public schools, provision for public health, public parks, public baths, public libraries, all show the greatly increased range of State activity in modern times. With some unfortunate exceptions, these increased expenditures are a sign of health, and do not indicate any tendency on the part of government to absorb an undue proportion of the industrial life of the nation.
This can hardly be said, however, of the great increase in expenditure for pensions and for military and naval equipment. Whether these expenditures have been wisely or unwisely made, it is at least regrettable that 70 per cent of the regular Federal expenditures are due to past wars and to the preparation for war. The burden of this expenditure alone amounted in 1903 to $339,663,200, or $4.20 per capita.
Classification of Public Expenditures. So numerous are the objects of governmental expenditure that it is manifestly impossible to treat the subject exhaustively within the limits of our space. We must content ourselves here with a consideration of some of the more important classes into which such expenditures naturally fall.
1. Expenditures for Fulfilling the Protective Functions of the State. Of the general class of expenditures incurred in fulfilling the protective function of the State, the first to be mentioned are those (a) for security from foes without the State. Under this head falls the cost of the army and navy. Until within a few years, this item in our national budget has been relatively unimportant; but when we look to European countries we find a very different state of things. Italy and Spain feel the burden more than the others, but the statesmen of Russia, France, Germany, and England are seriously concerned over the problem which confronts them in providing for the national defence. The direct cost of national defence includes the pay and equipment of troops, and the cost of ships, and cannon, and ammunition, etc. The indirect cost is represented by the pension list, as well as by the great waste of resources and opportunities for labor in times of war.
(6) Internal Security. Under expenditures for internal security are included the cost of our police system in all its branches,including constables, sheriffs, etc.,and that of our judiciary system, since both of these are occupied almost wholly in securing persons and property from injury.
(c) Expenditures for the Poor and Unfortunate. Every civilized government recognizes an obligation to extend relief to paupers, to the deaf, the blind, the insane, and the feeble-minded, who, from natural defects, are unable to hold their own in the struggle for existence. The problem of relieving such classes is receiving an increasing share of attention from thoughtful people everywhere.
2. Expenditures for Fulfilling the Commercial Functions. A second general class of expenditures consists of those which are incurred in fulfilling the commercial functions of the State. Among these are expenditures (a) for the construction and maintenance of such agencies as roads, bridges, canals, and riverways, improved harbors, light-houses, etc. (b) The post-office and telegraph and railway lines are also commercial as well as educational in their purpose, but they are generally managed as self-sustaining or remunerative investments, even when they are under the ownership and management of the State. A similar expenditure for commerce is that (c) for maintaining a currency and systems of weights and measures. (d) Expenditure for the consular service also falls under the same general head. To a less degree the same may be said of the diplomatic service, though in this case the purpose of the service is perhaps primarily for maintaining international peace.
3. Expenditures for Fulfilling the Developmental Function. The third general class of expenditures consists of those incurred in fulfilling the developmental function of the State. Most important among these is (a) the expenditure for education. Of all classes of expenditure that for education has grown most constantly and rapidly in the modern State. Especially has such expenditure increased with the spread of democracy in government. It is felt everywhere that republican institutions find their best safeguard in a high average of enlightenment. Moreover, there is reason for believing that even more directly expenditure for education is justified as a productive investment by the increased earning power and the improved consuming power of the people, to which it powerfully contributes. Under the head of education fall not only the education of the schools, but also that which is to be gained from art galleries and museums and other agencies for the promotion of culture. It is a mistake to regard these merely as amusements for the idle hour. They should be, and for many they are, indispensable adjuncts to books and to the schools in securing a higher education.
Other expenditures falling in the same general class are those for (6) public recreation, for (c) investigation, and (d) for maintaining equitable conditions for private business.
4. Expenditures for the Maintenance of Government. The expenditures we have been considering are, of course, expenditures by government: we have now to mention a fourth general class, the expenditures for government; that is, expenditures for governmental functions too general and fundamental to be ranged under any of the heads that we have before mentioned. Such are the expenditures for (a) legislation and administration, and for (6) tax collection.
Objects of Public Expenditure in the United States. It is not customary for governments to classify their expenditures as we have here classified them, or in any such way as will show accurately just what the government pays for the objects which we have discussed. But a careful study of Federal, state, and local expenditures will show that the greater part of the Federal expenditure is for the pro-tective and commercial functions, while the greater part of the expense of the developmental functions rests upon the state and local governments. Considering the aggregate expenditures of all the divisions of government, we find that they are roughly divided as follows: for the protective functions, about 45 per cent; for the developmental functions, about 30 per cent; for the commercial functions, about 15 per cent; and for the expenses of government itself, about 10 per cent.
It is also interesting to note the relative growth of expenditure in the different political divisions of the government. Not only in the United States, but also quite generally throughout the civilized world an increasing proportion of the aggregate expenditure is being made by the local governments, from which it appears that the greatest increase in governmental activity occurs where government is most directly and closely watched and administered by the people themselves. In the United States the expenditures of the state governments have, as a rule, diminished in importance relatively both to Federal and local expenditures, and this fact has generally been held to indicate growing nationalization as well as growing governmental activity.