Expenditures for social amelioration and for the development of the well-being of the mass of citizens fall in the third group. These in clude such items as education, recreation, the care of the dependent and defective classes, and the control and regulation of private industry for the purpose of eliminating unfair and un desirable practices. That these have grown rapidly in the past needs hardly to be stated, and there is every reason to believe that they will increase even more rapidly in the future. From one standpoint they may be regarded as an investment which the modern state makes in its citizens, from which it reaps large returns in the form of greater efficiency, knowledge, contentment, decrease of suffering and improve ment in the general standards of living.
The economic effects of public expenditures are far-reaching; if wisely directed they may greatly benefit a people while an unwise outlay may work positive harm. But there is probably no more widespread economic fallacy than that public expenditure, no matter to what purpose directed, is a desirable thing in itself, since it "puts money in circulation.° Adam Smith, however, as early as 1775, contended that whether it was beneficial or not depended upon the purpose for which it was spent, and this is the correct view, though sadly overlooked in our pork-barrel and similar wasteful govern ment expenditures in the United States. As to what is regarded as beneficial will again depend upon the particular point of view; war is con sidered so by some writers. In general it may be said in conclusion that no general rule can be laid down to govern public expenditures.
Much will depend upon the stage of polit ical and social development of a people. But that state may be considered to make the wisest expenditures which returns to its citi zens relatively the greatest amount of benefit therefor, irrespective of whether these ex penditures be large or small.
3. Public Revenues.— The revenues of the state have been variously classified by differ ent writers, but it is possible to subsume all important sources under two heads, namely, (1) contractual or commercial revenues and (2) taxes or compulsory revenues. According to this classification, fees, special assessments and fines should be included in the second group, while such minor or unusual sources of revenue as gifts or indemnities would be included in the first. For all practical purposes such a broad classification serves as well as the more detailed ones of some writers.
Contractual revenues are derived in general from two main sources, public domains and public industries. Of these the former has been the more important in the United States. There are in general three policies which govern ments have adopted respecting the public do main. One is for the government to cultivate
its own domain. This was the general practice in the medieval period when the revenues of the ruler were not sharply distinguished from those of the public treasury, and is still followed in many European countries which are influenced by feudal custom. Owing to the intensive nature of agriculture, which calls for close personal attention, this method has not yielded large revenues. In the case of forests, however, this policy may be heartily approved. A second possibility is for the government to retain the title but lease its domain for cultiva tion. Such a policy would involve serious polit ical dangers in the United States, owing to the pressure to make unduly favorable leases for partisan or personal reasons, and may be dis missed as unworkable. In some of the Euro pean countries, however, and notably in India, such a policy seems to work well and is highly endorsed by writers on public finance, especially in the case of mineral deposits. A third method, and this is the one which has been followed in the United States, is for the government to dis pose of its public domain by sale or gift. If it is settled by an industrious and intelligent agricultural population the government will probably be able to secure larger revenues from taxation of the increased wealth and land values than from the receipts from direct fanning by the state or from rentals from tenants. Solely from the standpoint of public finance, therefore, the policy of the United States government may be approved.
Public industries vary greatly from country to country, as they have varied in number and extent from time to time. At one extreme stands Prussia, Owning and operating its rail roads, telegraphs and telephones, and in large part managing its mines and forests, to say nothing of its porcelain factories and other government plants. At the other stands prob ably the United States, which until the war con fined itself practically to the administration of the post office. Municipalities differ among themselves no less in regard to their public in dustries, though here the movement for gov ernment enterpriies is much stronger than fn the case of the central governments. The in dustries selected for government management have usually been socially desirable but unre munerative, as education; of general interest to all the people, as the post office or waterworks; monopolistic in their nature, as telegraphs or street railways; and fairly simple in administra tion. The revenues from public industries will, of course, differ greatly from country to country according to the policy of adminis tration.