The expenditure of a state is similar to that of an individual in that both have to do with the giving up of money. The principles which underlie these expenditures, however, are somewhat different. Eheberg, a German writer, has pointed out these differences under five heads, as follows: (1) the ends sought by the state reach far beyond the sphere of individual activity; (2) in private business the ruling principle is special service and special payment; (3) the state cannot compare the cost of the service with the value of the product - a necessary feature in private business; (4) a state can undertake enterprises of unlimited duration, which individuals would not; (5) the income of the state is measured by its needs, while the expenditure of the individual is limited by his income.1

Some exceptions, of course, are found to these generalizations, but as a whole they indicate fundamental differences in state and individual activity. In these days of huge combinations of capital, the sphere open to individual enterprise has materially widened. Yet there remains to the state enterprises of a nature that individuals do not care to enter. No individual cares to undertake the task of supplying all the needed services of an immaterial nature the value of which cannot be measured. Examples of this would be army, navy, and police protection, establishment of systems of courts for maintaining justice, and the maintenance of public parks and libraries. Even the magnitude of enterprises like the Panama Canal would still have a deterrent effect on private undertaking.

Returns on Investment. - The state is not so much concerned about a special payment for a special service as is the individual, neither is it so concerned about a compari1This passage from Eheberg is quoted in Bullock's Readings in Public Finance, p. 19.

son between cost of production and value of product. This is because the state does not depend to any appreciable extent upon its enterprises for its income. The individual cannot continue to sell the products of industry for less than the cost of production. The value of many of the products of the state, on the other hand, does not permit of financial measurement. Who would venture to value the return from the millions of dollars expended annually on education, on the judicial system, or on our eleemosynary institutions? In a broad way the motivating force of private business is profit, which necessitates payments for services and a selling for more than cost of production. The motivating force of the state's activity, in general, is service, the value of which often cannot be measured, and for which no direct payment is asked.

The individual is concerned, ordinarily, in quick returns on his investment. Few individuals would undertake an enterprise, no matter how much in public demand, if no returns could be had for twenty, thirty, or forty years. The state may often make expenditures on the basis of distant future returns as well as on present returns. Where the element of future service is large, the state may justly borrow funds for the enterprise, and require the future generations that enjoy the service to repay the loan. While the state is a continuing entity, the individual lives only in one generation, and he is primarily concerned with enterprises the fruition of which is not in the distant future.

Measure of State's Income. - The statement that a state's income is measured by its expenditure must be hedged with proper qualifications. While it is true that the state has the resources of its citizens upon which to draw, yet these resources are not infinite, and thought must be had for future as well as for present revenues. It would be as destructive a fiscal policy to use up, for present revenue, the sources capable of supplying a continuous stream of funds, as it would be to cut down a tree to get the fruit.

Fiscal officials should be concerned about the continued existence of the state, and should not so act in the present as to impair the future. While expenditure which encroaches upon the source of revenue is to be avoided, parsimony on the part of officials should also be looked upon as undesirable. Officials have sometimes curtailed expenditures far more than the healthy development of the state would justify, in order to make a good showing to their constituency.

Political Restraint. - Another important limitation upon a state's revenue is the existing political restraints. The form of government and customs which have come down from the past must be considered. The same fiscal system would not succeed in a monarchical state as in an extreme democracy. The political restraints established by constitutions and legislatures must, of course, be observed. Export duties, graduated excise taxes, or other than apportioned direct taxes, could not be used by our Federal government because they are prohibited by the Constitution. A number of the state constitutions contain what is known as the "uniform assessment" of property clause, which provides that all property is to be assessed at the same rate. Frequently tax limitation laws exist which place a maximum on the amount of revenue political units may collect. Evidently, then, fiscal officials do not have absolutely a free hand in securing funds, but must be concerned about future needs of the state, and be governed by existing political institutions and laws.