Public Finance and other Sciences

Public Finance Is a Division of Economics

There has been some discussion as to whether the study of Public Finance properly belongs in
the field of Economics. Some writers treat fiscal problems in their works on general economics,
while others treat the problems under the caption, "Economics and Public Finance." Still other
writers on general economics give no discussion of public expenditures and revenues.
The great amount of attention which has been devoted to a discussion of private
consumption, production, and distribution has emphasized the importance of these
phenomena, yet the fact remains that public revenues and expenditures are of sufficient
economic consequence to command the attention of students of economics.
The principles which underlie the study of Public Finance are clearly the same as those which
underlie the study of the other fields of economics. Economics deals with laws which govern
the activities of individuals in the expenditure of energy to supply their wants. Public
Finance is also a study of the exertion of individual effort to supply wants. Governments
secure, through taxes or otherwise, some of the returns from individual effort as a
prerequisite to supplying materials and services.
The individual is concerned with comparing the utility furnished by the government with the
utility he could have secured had the government made no demands upon him. No
individual income can remain unaffected when a part of it is taken in the form of a tax.
Public funds are frequently used, either to aid private production or directly to carry on
productive enterprises. Those who are interested in efficient production must be concerned
about such uses of public funds, and those who have the direction of public funds for
productive enterprises should know the economic principles upon which efficient
production rests. The successful management of a government industry must be based upon just
as sound economic principles as is a successful industry conducted by individuals.
When the effect of securing revenues in different ways is considered from the standpoint of
justice, some definite theory of distribution must be in mind.

The suggestion to adopt a rigorous single tax, which would take the economic rent of land
in taxes, immediately arouses the interest of those who are concerned with rents and land
values. Any income, whether it is paid from a public purse or from a private purse, is of
economic concern. Fiscal officials are concerned with the relationship of cause and effect in
the collection and use of public revenues; here the thought is guided by the same economic
laws that govern in the problem of the distribution of wealth. The underlying principles of
Public Finance, then, are the same as those upon which all sound economic reasoning is based.
The subject matter of Public Finance is of such a nature that its study cannot be separated from
that of other sciences. Students of the subject must take frequent excursions into the related fields
of Political Science, History, Sociology, and Ethics. Likewise, those who are primarily interested
in these related subjects find that account must be taken of the workings of the principles of
Public Finance.
Relation to Political Science and History. - The principles which underlie a study of
expenditures and revenues have a dependence upon Political Science second only to that which
they have upon Economics. The form of government under which the citizens live and the
officials work is of the utmost importance. Differences in the method of conducting fiscal affairs
would necessarily be found in states of autocratic, democratic, socialistic, or individualistic
governmental tendencies. Many political restraints exist, also, either because of
constitutional or legislative provisions, which must always be taken into consideration by
the fiscal student or official. In the United States, for example, a tax would not be levied upon
exports because of constitutional restrictions to that effect. Political expediency, moreover, is
often so important in fiscal matters that it takes precedence over the soundness of economic
principles which might be applied. Revenues must be had quickly, at times, and that method is
used which will supply the needed funds, notwithstanding the economic objections which might
be raised.
The interest in Political Science cannot be separated from the principles of Public Finance.
Revenues must be secured to carry out the policies of executives and legislators. Many of
the compromises which have been written into constitutions and statutes have been
formulated by fiscal considerations. Officials must always be concerned about the exaction
and use of funds, for there is no surer and quicker method for gaining the disfavor of a
constituency than through the misuse of public revenues.
That would be a poor fiscal policy which took no consideration of the activities of the past, with
their resulting successes or failures. A study of history, consequently, is an invaluable asset in
helping to formulate modern fiscal policies. Countries have different characteristics, their
citizens have peculiar traits, and it is only by a study of history that these can be properly
interpreted. It is because of these inherent differences that a successful system for obtaining
revenues in one country would absolutely fail to give satisfaction in another. The student of
history, moreover, can be no less interested in what Public Finance has to offer. In tracing
revolutions and constitutional reforms, for example, he will frequently find that fiscal
considerations have had an important influence, if, indeed, not an overwhelming one.
Relation to Sociology and Ethics. - The problems of social reform and those of Public Finance
are, at present, inseparably related. No longer is the individual held entirely responsible for
bettering social conditions, but the various governmental units have adopted this activity as one
of their primary functions. So extensively have they entered this field that one of the largest
single items of expenditure is for the classes of delinquents, defectives, and dependents. The
enormous sums which are spent annually upon social institutions are of vital interest to the
students of expenditures and revenues. The student of sociology is no less interested. He must be
concerned with the results of government activities of this nature, and compare these results with
what has been accomplished through other avenues of endeavor.
Ethical considerations must not be omitted from the discussion and formulation of fiscal
principles. When the burden of a tax does not rest where it is placed, but is shifted on to some
one else, the question of justice immediately presents itself. The same question also arises when
proposals are made to tax some individuals or classes at a higher rate than others. The fiscal
system is frequently called upon to help solve the problem of evil through the regulation or
elimination of undesirable industrial or social institutions. Examples of this are the use of taxes
to eliminate the circulation of state bank notes, and to regulate the use of intoxicating liquors. It
is clearly demonstrated, then, that Public Finance is far from being an independent science, but
draws heavily from other fields as well as supplies much material to them.