Before and during the Middle Ages refer-ences to the fiscal aspects of the state are not lacking in
the numerous political and historical writings which are
to be found. During this period the finances of the state
were practically synonymous with those of the prince,
and their study is of the principles of private finance
rather than that of fiscal problems.

The development of commerce and trade caused a
change in the situation. Cities and city-states that had
little connection with the domain of the prince grew and
flourished. The initial appearance of this situation came
in Italy. The opening of the Mediterranean route of
commerce, with its subsequent domination of world
trade, made Italy the commercial center of the world.
The rapid growth of such city-states as Florence and
Naples led to a corresponding growth in their fiscal needs.
It was in these Italian city-states of the fifteenth century,
moreover, that the first systematic study of the principles
which are properly included in the field of Public Finance
made its appearance. The discussion centered around
such questions as progressive taxation, the administration
of revenues, and a systematic classification of expenditures.
Many of these early ideas have much in common with
modern expressions concerning fiscal subjects.

7. French and German Scholars Followed Italian Writ-
ers in the Study of Fiscal Problems. By the latter part
of the sixteenth century political organizations had so
changed that more attention to fiscal problems became
imperative. The disintegration of the feudal regime
caused concern to the public officials because a remodeling



INTRODUCTION II

of fiscal policies became necessary. Jean Bodin, a French-
man, first sensed the need for a systematic study of these
changing political and fiscal conditions. His treatise, Les
six Livres de la Republique, was published in 1576, and
exerted a marked influence upon future fiscal and political
writings. He considered the nerves of the state to be
found in the proper management of its expenditures and
revenues, and contended that revenues must be raised
honestly, that they must be used for the profit and honor
of the state, and that a part should be saved for a tune of
need.

After the works of Bodin, a decided lull appeared in the
interest which was given to the study of expenditures and
revenues of the country. It was not until the eighteenth
century, when the abuses of the government in handling
the public treasury became boldly open and flagrant, that
any expressed interest in the study of fiscal problems again
appeared. The revival of investigations of this nature
was begun by Vauban, who published his Project for a
Royal Tythe in 1707. His plan centered around an income
tax which was to be supplemented by a number of indirect
taxes. A work which had considerable influence upon
future fiscal development was the Esprit des lois, which
was published by Montesquieu in 1748. Besides con-
demning the institution of public credit, he discoursed at
length upon the influence which different forms of gov-
ernment exert upon fiscal systems.

One of the distinct contributions of the French to fiscal
and economic thought came through the physiocrats, of
which Quesnay and Turgot were leaders. Quesnay pub-
lished the famous Tableau ceconomique in 1758. He did
much to develop a consistent theory of production and
distribution, and correlated his system for securing rev-
enues to the theory which he developed. The theory
which was proposed for land taxes will be noticed in a
subsequent chapter. 1 A number of modern French stu-

1 See the chapter, "The Single Tax."



12 OUTLINES OF PUBLIC FINANCE

dents, of whom the best known is Leroy-Beaulieu, have
turned their attention to fiscal problems. Leroy-Beau-
lieu's works are considered among the best in the field of
Public Finance, and his Traite de la Science des Finances
is especially worthy of study by all who are interested in
fiscal problems.

German Writers. German writers were but little be-
hind those in France in taking up a study of the problems
connected with expenditures and revenues. At first the
influence of French writers can be clearly discerned, but
it was not long before the investigations of the German
scholars divorced themselves from foreign influences.
Many writers have appeared in the field, of whom the
first of importance was Von Justi. His Staatswirthschaft
was published in 1755. He treated public expenditures
in detail, considered that incomes from public domains
should be the base for a sound fiscal system, yet treated
the economic and political effects of the various kinds of
taxes. The large number of treatises which the German
fiscal students have given disclose not only an uninter-
rupted, but a systematic development of fiscal investiga-
tions. An important work of the early nineteenth century
(1832), which treats different phases of fiscal problems,
was the Grundsdtze der Finanzwissenschaft, by K. H. Rau.
More modern works of a general nature have been by G.
Cohn (Finanzwssenschaftj 1889), and by A. Wagner
(Finanzwissenschaft, 1883-1899).

8. English and American Scholars Have Studied Fis-
cal Problems. The first real interest in fiscal problems
shown by English writers was displayed by the transla-
tion of Bodin's work into English, at the beginning of the
seventeenth century. Some chance reference to fiscal
problems may be found in earlier writings, but they are of
such a nature as to indicate that only a very casual in-
terest was taken in such problems. A half century after
the translation of Bodin's work, Sir William Petty pro-
duced the first English work (1662), a Treatise of Taxes



INTRODUCTION 13

and Contributions, that properly can be said to deal with
the subject matter of Public Finance. His classifications
of expenditures and revenues are interesting to modern
students. They show the change in the relative impor-
tance of the various items which have been, and are, the
objects of governmental expenditures.

The Wealth of Nations. More than a century passed
after the publication of Petty's treatise before another
systematic study of fiscal problems was produced. This
was in 1776, when Adam Smith published his Wealth of
Nations, and thereby planted a new milestone in the
progress of fiscal development. Before this, however, the
continual increase of expenditures and indebtedness in
England caused much debate, and many half-hearted sug-
gestions were made for reform, yet nothing in the form of
a systematic treatise appeared.

Adam Smith has received most mention as an econo-
mist. He has, indeed, been called the father of Political
Economy, and his Wealth of Nations is looked upon as the
first general treatise on this subject. It may just as truly
be called the first great treatise on that phase of economics
which we now define as Public Finance. The title of the
work is indicative that the contents are of this nature.
Nations at that tune were becoming more and more con-
cerned about the possible sources for the increased rev-
enues which growing expenditures were constantly de-
manding. The mercantilistic school had been advocating
the doctrine of restrictions upon trade, commerce, and
industry, by which it was expected to bring more wealth,
either directly or indirectly, into the coffers of the state.

It was against this artificial regulation that Adam Smith
revolted. He purposed to show in his work that a nation
could obtain a greater store of wealth, that it could have
a greater source of revenue if the government would allow
trade and industry to take their own course through a
proper division of labor and capitalistic production. The
function of the government, instead of attempting to



14 OUTLINES OF PUBLIC FINANCE

regulate commerce and industry, was to supply facilities
to aid in carrying on industry, commerce, and exchange,
such as sound systems of currency, banks, and credit.
This purpose explains his "inquiry into the nature and
causes of the wealth of nations."

The worth of Smith's treatise was soon recognized, and
it was almost immediately translated into a number of
foreign languages, and in this way it was destined to in-
fluence the trend of fiscal thought for years to come.
Fiscal subjects continued to call forth discussion and
writing, yet English writers produced nothing after the
Wealth of Nations until comparatively recent years which
can in reality be called a systematic treatise on Public
Finance. This recent treatise was written by C. F. Bas-
table (Public Finance, 1903). It is still considered as an
authority on the subject and can be read with profit by
all who are interested in problems relating to revenues
and expenditures.

Studies in the United States. A systematic study of
fiscal problems was not made in the United States during
the earlier years of its development. The functions which
the government performed were few, and entailed little
expense. The citizens were prosperous, and the fiscal
burdens were not seriously felt. As more public activities
were undertaken, and as the burden of revenues became
more pressing, inquiries began to be made by individuals
and commissions as to possible changes and remedies. As
a result, many sporadic reports appeared, yet no system-
atic study of fiscal problems was made until Henry C.
Adams published The Science of Finance, in 1898. This
continues to be the most important American work in the
general field of Public Finance. Much work has been done
since then, the most extensive of which has been by D. A.
Wells and E. R. A. Seligman. Wells's book, The Theory
and Practice of Taxation, appeared in 1900, the nature of
which is indicated by the title. Seligman has written a
number of volumes, the most important of which are



INTRODUCTION 15

Progressive Taxation in Theory and Practice, published in
1908, Shifting and Incidence of Taxation, published in
1910, The Income Tax, published in 1914, and Essays in
Taxation, published in 1915. Brief treatises of the field of
Public Finance have been written by W. M. Daniels (The
Elements of Public Finance, 1899), and by C. C. Plehn
(Introduction to Public Finance, 1920). Mention should
also be made of the work done by the various tax commis-
sions and by the National Tax Association, the results of
which are available in numerous reports and proceedings.

9. Modern Fiscal Systems Have Well-defined Char-
acteristics. The rapid growth of democracies and con-
stitutionalism has been indicated in the preceding topic.
With this growth some well-defined characteristics of fiscal
policy have also developed. These have been outlined by
Prof. W. M. Daniels in a way which cannot be improved
upon, and they are repeated here to portray the close
relationship which exists between the fiscal activities of
governments and individuals. 1

The first characteristic of modern fiscal policy is that
there is a normal and calculable field of government
activity. During the Great War government expendi-
tures mounted to unprecedented and almost unbelievable
heights, which seems to disprove the characteristic just
mentioned. This, however, is the exception which helps
to prove the truth of the statement. In the modern era
wars, with their large and incalculable expenditures, have
represented an abnormal state of society. In the earlier
stages of its development, however, the peaceful pursuit
of industry was the abnormal course. Under normal mod-
ern conditions, then, the citizen can pursue his occupation
with the feeling that the state will require nothing unusual
of him. Modern fiscal science has become so exact, in
fact, that officials are able to predict the revenues and
expenditures for a coming year to within a fraction of one
per cent.

1 W. M. Daniels, Elements of Public Finance, p. 7.



16 OUTLINES OF PUBLIC FINANCE

A second characteristic is the periodic exaction of money
from citizens for the support of the state. Such a state-
ment appears axiomatic in the extreme to the citizens of
a modern political unit. In a following chapter the de-
velopment of taxation will be discussed, and it will be
found that the exaction of revenue from citizens is a com-
paratively recent phenomenon. Early revenues came
from other sources than from exactions from the citizens.
These were called upon only in case of extraordinary need.

The third characteristic, the necessity for which has
already been suggested, is the popular control over in-
come and expenditure. The growth of constitutionalism
has been more marked, perhaps, by the control of the
property owners over state expenditures than by any
other single feature. Many constitutional changes have
been inaugurated in order to secure this control, and when
once secured the principle has always been closely guarded.
Some modern proposals for tax reform, which will be dis-
cussed later, give little consideration to this principle, yet
it still stands at the top of the requirements for safe con-
stitutional government.

The fourth characteristic given by Professor Daniels is
the universality of public credit. This could reach a
growth of any appreciable size only with the development
of constitutional government. The probability of the
repudiation of public debts decreased in proportion to the
amount of control which the public gained over fiscal
policies. As long as rulers could repudiate the debts of
the state at will and this was frequently one of the first
acts of a new ruler public credit could have very little
stability. With a condition of popular government the
individual is lending where he has some control over
payment, and he will take every possible precaution to
prevent officials from refusing to meet the state's obli-
gations.

10. The Interest in Public Finance Is Increasing.
Another characteristic of the new era, as marked as those



INTRODUCTION 17

which have just been considered, is the present wide-
spread interest which fiscal considerations have succeeded
in arousing. This can be accounted for partially by the
rapid expansion in the number of activities which the
state has undertaken. The individual has kept demand-
ing that the state increase its sphere of activities, and the
supplying of these demands has caused expenditures and
revenues to mount higher and higher. There are few who
did not cringe at our first billion dollar Congress, while if
such a small amount would be spent by Congress in any
year in the future, the event would, no doubt, be looked
upon with astonishment. That a citizen does not agree
in the propriety of the activities of the government should
not detract from his interest in the fiscal aspect; rather,
this very situation should stimulate a greater interest, the
result of which would be to demand investigation, reform,
and, if necessary, a retrenchment in expenditures.

As concrete evidence of the interest which is being
shown in fiscal subjects, the numerous commissions which
are working in the field furnish examples. A majority of
our states have tax commissions, while the Federal gov-
ernment has directed many investigations into problems
of a fiscal nature. The numerous reports of these regular
and special investigating commissions provide some of the
most helpful literature in the field of Public Finance.
Another evidence of this rise in the general interest is the
large number of conferences which are continually being
held for the purpose of investigating and discussing fiscal
problems. Neither this recent literature nor the delib-
erations of the conferences are of a technical nature, but
are admirably adapted to furnish enlightenment for the
average citizen on the expenditures and revenues of the
various political units to the support of which he is
contributing.

ii. Public Finance May Be Studied Under Different
Heads. The subject of public revenues has always been
given a prominent place in fiscal discussions. Early Eng-



18 OUTLINES OF PUBLIC FINANCE

lish writers gave little attention to any other part of the
science. Germany is the only country which can be said
to have given early and consistent attention to the entire
subject matter of Public Finance. The lack of interest in
the other phases than revenue can be partially accounted
for by the laissez-faire doctrine which dominated England,
France, and the United States. Even yet there has been
comparatively little study of any field but revenues, while
this is largely limited to a study of taxation. In this vol-
ume, expenditures, public indebtedness, and the adminis-
tration of public funds will be given some attention. The
major part of the space, however, will be devoted to pub-
lic revenues.

Expenditures Important. A more extensive interest is
developing in regard to public expenditures, and it is
highly important that the public should be informed as
to the use which is being made of the funds which it has
contributed. Public fiscal officials occupy a peculiar posi-
tion in that they have the duty and opportunity of spend-
ing funds, the burden of which is not felt by themselves.
Too often they fail to consider that the amounts which
they demand and spend might have been used to better
advantage had they been left with the individuals from
whom they were taken. Public expenditures, moreover,
may frequently be made for objects which are in them-
selves admirable, but which, at the same time, impose
too heavy a burden upon the citizens. A temptation
always exists with the expenditure of funds which are not
one's own, and this temptation tends more often to unwise
and extravagant expenditure than to parsimony. The
surest means of control lies in the use of the ballot, and it
is only through a knowledge of how and where expendi-
tures are made that this can be intelligently and effec-
tively used.

In the work of this volume, the first consideration will
be given to public expenditures. Their growth and de-
velopment will be noted, as well as the change in the



INTRODUCTION 19

character of the objects for which public funds have been
used. Explanations of their enormous increase will be
attempted. A comparison between the nature of public
and private business will be made, as well as a comparison
of the wants which the individual supplies directly for
himself and those for which he makes indirect provision
through the agency of the state. The relative increase in
our Federal, state, and local expenditures will be noted,
and some explanations of the increases will be given.
Various classifications of expenditures will be considered,
while particular consideration will be given to a classifica-
tion according to the methods of conferring benefits.

Revenues and Indebtedness Considered. The considera-
tion of public revenues, which will follow that of expendi-
tures, needs no justification, since such consideration has
always been the topic of paramount importance in trea-
tises on fiscal subjects. The needs of the early state will
be taken up, and some attention will be given to the early
attempts to classify revenues. Notice will be made of
revenues from public domains and public industries, in-
cluding a brief discussion of the public land policy of the
United States. The development and justification of the
various forms of taxes used by the different governmental
units will command the most attention in the discussion
of revenues.

Less space will be devoted to the indebtedness of states
than to their revenues. The problem of indebtedness,
however, is one of primary importance in present-day
fiscal systems, because this method of securing funds is
being called into use more and more to meet ordinary
needs rather than the extraordinary ones, which were
considered in earlier times the only legitimate purposes
for borrowing. The enormous debts which were saddled
upon the important nations of the world by the Great
War make a study of this phase of the subject all the
more interesting and necessary. Reasons for the gradual
increase in public debts will be noted, together with some



20 OUTLINES OF PUBLIC FINANCE

of their more important economic effects. The methods
of securing loans and canceling indebtedness will be
studied, while some comparisons of the indebtedness of
the more important nations will be made.

The Administration of Funds. The importance of the
proper administration of public funds has but recently
received general recognition. There is no question, how-
ever, as to the vital significance which this phase of Pub-
lic Finance presents to all who contribute to the common
fund of the state. The temptations with which public
officials are surrounded have already been indicated, and
it is imperative that temptation be removed as far as
possible, while the consequences for yielding to tempta-
tions should be felt severely by those who are guilty.
These results can be accomplished only through strict
administrative measures. In the treatment of this phase
of the work some attention will be given to the develop-
ment of fiscal control, while particular attention will be
given to the budget its meaning, preparation, handling,
and use, both abroad and in the United States. The
handling of the public accounts will also receive con-
sideration.

Because of the present interest in emergency or war
financiering, and because of the administrative problems
involved, some discussion will be devoted to this phase of
fiscal problems. Some of the merits and defects of the
possible methods for financing a war will be presented,
together with the methods which were used by the impor-
tant belligerent countries. An attempt will also be made
to show what a tremendous cost war has been to the
nations of the world and to the United States in particu-
lar. Some of the more modern fiscal problems will receive
brief consideration.

12. Supplementary Reading Should Be Followed. It
is not intended to give, in the following pages, an exhaus-
tive treatment of all the subjects which will be brought
into review. It is hoped that the student may become so
interested as to desire to fill in, more in detail, the outlines
of the important fiscal problems which will be taken up.
Where works exist which deal concretely with the subject
matter of particular chapters, notation will be made of
them at the end of the chapter. Only two or three of the
better ones will be given in each case.