WHEN1 WRITERS ON PUBLIC FINANCE and political economy reach the topic of “government expenditures,” they have traditionally abandoned analysis and turned to simple institutional description of various types of governmental expenditure.

We all hear a great deal about “public” ownership. Whenever the government owns property, in fact, or operates an enterprise, it is referred to as “publicly owned.” When natural resources are sold or given to private enterprise, we learn that the “public domain” has been “given away” to narrow private interests. The inference is that when the government owns anything, “we”—all members of the public—own equal shares of that property. Contrast to this broad sweep the narrow, petty interests of mere “private” ownership.

Democracy is a process of choosing government rulers or policies and is therefore distinct from what we have been considering: the nature and consequences of various policies that a government may choose. A democracy can choose relatively laissez-faire or relatively interventionist programs, and the same is true for a dictator. And yet the problem of forming a government cannot be absolutely separated from the policy that government pursues, and so we shall discuss some of these connections here.

National29 product statistics have been used widely in recent years as a reflection of the total product of society and even to indicate the state of “economic welfare.” These statistics cannot be used to frame or test economic theory, for one thing because they are an inchoate mixture of grossness and netness and because no objectively m

Socialism—or collectivism—occurs when the State owns all the means of production. It is the compulsory abolition and prohibition of private enterprise, and the monopolization of the entire productive sphere by the State. Socialism, therefore, extends the principle of compulsory governmental monopoly from a few isolated enterprises to the whole economic system. It is the violent abolition of the market.

There are two and only two ways of acquiring wealth: the economic means (voluntary production and exchange) and the political means (confiscation by coercion). On the free market only the economic means can be used, and consequently everyone earns only what other individuals in society are willing to pay for his services. As long as this continues, there is no separate process called “distribution”; there are only production and exchange of goods. Let government subsidies enter the scene, however, and the situation changes.

The bulk of government activities use resources, redirecting factors of production to government-chosen ends. These activities generally involve the real or supposed supply of services by government to some or all of the populace. Government functions here as an owner and enterpriser.

Even the simplest maxims must not be taken for granted. Two centuries ago, Adam Smith laid down four canons of justice in taxation that economists have parroted ever since.60 One of them deals with the distribution of the burden of taxation, and this will be treated in detail below.

Up to this point, we have been discussing taxation as it is levied on any given individual or firm. Now we must turn to another aspect: the distribution of the burden of taxes among the people in the economy. Most of the search for “justice” in taxation has involved the problem of the “just distribution” of this burden.

Various proposed canons of justice will be discussed in this section, followed by analysis of the economic effects of tax distribution.

A few writers, disturbed by the compulsion necessary to the existence of taxation, have advocated that governments be financed, not by taxation, but by some form of voluntary contribution. Such voluntary contribution systems could take various forms. One was the method relied on by the old city-state of Hamburg and other communities—voluntary gifts to the government. President William F. Warren of Boston University, in his essay, “Tax Exemption the Road to Tax Abolition,” described his experience in one of these communities: